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At this point, it is customary to wheel out the following, now rather over-used, Paul Krugman quote: “productivity isn’t everything, but in the long run it is almost everything.” Despite its over-use, this quote does have one important virtue, something not to be taken lightly in this post-fact, post-truth world: it is empirically verifiable and appears to be factually accurate. Let me illustrate that with a simple example. Since 1850 UK living standards, as measured by GDP per head, have risen roughly 20-fold, a huge gain. How much of that gain can be attributed to higher productivity? Well, if productivity had flat-lined over the period, UK living standards would only have only doubled. Or, put differently, in the absence of productivity growth, UK living standards would be an order of magnitude lower today, stuck at late-Victorian levels. A more refined way of reaching the same conclusion is to decompose growth into the contribution from inputs into the production process – labour and capital – and the contribution from improvements in the efficiency with which these inputs are used – so-called Total Factor Productivity (TFP). Chart 1 does that for the UK since the Industrial Revolution. This suggests movements in TFP have accounted for the lion’s share th of both the growth and variation in living standards since at least the mid-18 century. Saying that productivity matters is not the same as saying we understand its determinants. The past few years have served to underscore just how partial economists’ understanding of productivity remains. | Niklaus Blattner: Global trends in financial market infrastructures and their significance for financial stability Introductory remarks by Mr Niklaus Blattner, Vice-Chairman of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 14 December 2006. * * * Developments at banks and financial markets are subject to extensive daily media analysis and commentary. By contrast, financial market infrastructures, i.e. stock exchanges, payment and securities settlement systems, only rarely make the headlines. I have decided to shift the focus today and concentrate on financial market infrastructures. In particular, I wish to highlight some interesting global trends and assess how these trends impact on the stability of the financial system. Internationalisation of financial market infrastructures Traditionally, most financial market infrastructures have a strong national focus. This made sense as long as the financial markets also had a strong domestic focus. However, the deregulation and liberalisation of financial markets and the associated increase in cross-border financial flows resulted in a widening gap between financial markets and financial market infrastructures, with the latter remaining constrained within national bounds. More internationalisation of financial market infrastructures became inevitable in order to avoid a loss of competitiveness due to inefficiencies. This process of opening up market infrastructures still continues today. We can differentiate between different types of internationalisation. First, direct access to infrastructures that used to be reserved exclusively to domestic participants is now being granted more frequently to foreign participants as well. | 0 |
The potent medicine has worked. Growth in all the major advanced economies has gained a firm footing. Unemployment in major economies is lower than before the financial crisis. Price and wage inflation is rising from low levels. The need for monetary accommodation is thus diminishing. Global interest rates have bottomed out. Policy rates in the US, UK and Canada were raised in the course of 2017, with more central banks likely to follow suit in 2018. The Federal Reserve has begun to unwind its bond holdings. Other central banks have tapered their asset purchases. The global interest rate rise will probably be gradual (Chart 11). After a long period of very low rates, the effect of higher interest rates on the economy is uncertain. It is also uncertain how quickly wage and price inflation will rise as activity gains momentum. 1) Chart 11 Policy rates. Percent 8 8 Current policy rate 2) Expected policy rate 2021 6 Historical average 1990 – 2007 6 4 4 2 2 0 0 –2 –2 US Euro area UK 1) In the chart, the policy rate for the US refers to the mid−point of the target range for the federal funds rate. For the euro area, historical policy rates are calculated using the interest rate on the ECB’s main refinancing operations from 1999 to 2007. Before 1999, the Bundesbank’s discount rate is used. | When China, India and Eastern Europe joined the global market economy, the labour force of countries participating in world trade doubled.9 Norges Bank Economic perspectives 15 february 2018 The result is that workers in advanced economies face competition from new groups, which pushes down wage growth and affects the income distribution between labour and capital. Lower unionisation levels have also weakened workers’ bargaining power. Since 1980, unionisation in the OECD area has fallen from around 35 percent to below 20 percent. Low wage growth feeds through to prices for goods and services. Many firms also face competition from firms that have relocated production to lower-cost countries. In addition, online shopping reduces the advantage of physical proximity to customers, narrowing the scope for passing on higher costs to prices. Globalisation thus restrains the general rise in prices. Cheap imports from low-cost countries have long been an important source of low inflation in advanced economies. In Norway, prices for clothing and footwear have fallen by almost half over the past 20 years. The price effects of globalisation have not been exhausted. A rising number of low-cost countries are competing on the global stage. So far, global competition has had less influence on services prices than on goods prices (Chart 8). However, global trade in services has increased recently. This may lead to renewed downward pressure on prices. Chart 8 Goods and services inflation. Average annual change 2000 – 2017. | 1 |
We did it because inflation is too high, but especially core inflation at 4,3%: there is for sure a significant energy and supply component in the euro area inflation; but it is also becoming broader and more domestic, and this is the field where we have to act. And second, we clearly show our determination to bring inflation back to 2% in the medium term: this is not only our target, it is our commitment towards European citizens; our will and our capacity to deliver on our mandate cannot be subject to any doubt whatsoever. That said, yesterday’s significant move sometimes raises two questions: - what about the next move? Let me be clear: we have our hands completely free. Nobody should speculate that this will be the magnitude of the next step – we did not create a new “jumbo habit” –; nor that we simply must emulate other Page 2 sur 3 important Central banks. We obviously go in the same direction as them, but not necessarily at the same speed or with the same final level: because the nature of inflation has its differences on both sides of the Atlantic, the monetary answer has its differences too. - and this brings a second frequent question: what about the destination of the journey? | Eurofi – Prague, 9 September 2022 Mobilization of the Eurosystem against inflation Speech by François Villeroy de Galhau, Governor of the Banque de France Page 1 sur 3 Ladies and Gentlemen, I am delighted to be talking to you today at this Eurofi edition, although I very much regret that I cannot be in Prague in person today. I extend my warmest thanks to David Wright and Didier Cahen for organising this event. Let me first express my heartfelt sympathy to our British friends: the Queen brought a sense of duty and a sense of stability which will hopefully remain a powerful lesson in this very volatile period. These are indeed times of extremely high uncertainty and difficulty. The European and French economies will face next year a significant slowdown, and we cannot exclude a limited recession. Let me quote, as I did some days ago in Jackson Hole,i two compatriots to give us some light: first, a philosopher – Voltaire – who said that “uncertainty is not a pleasant condition, but certainty is absurd”ii; second, an economist – Olivier Blanchard – with the following words “monetary policy must be closer to art when it is frequently confronted to new, poorly anticipated and poorly understood, contingencies”iii Well, between art and science, how did we deal yesterday with the present uncertainty? We decided to frontload on our monetary policy normalisation. | 1 |
It assigned to the Central Bank the main objective of pursuing price stability. The Bank was granted instrument independence to pursue that main objective, its financial independence was enhanced and the Act included clear provisions on transparency and accountability. The Act also stated that the Bank should promote an efficient and safe financial system, including payments systems domestically and with foreign countries. In addition to price stability, the Bank was, in other words, given a clear mandate to concern itself with financial stability. An inflation targeting framework was adopted at practically the same time with a joint declaration of the Government and the Central Bank which set a target for inflation of a 2½% twelve-month rise in the CPI. The framework imposes strong demands on the professional capacity of the Central Bank. The Bank regularly publishes a macroeconomic forecast and inflation forecast, with an associated inflation report. The inflation forecast provides the foundation for the inflation targeting policy. In its quarterly Monetary Bulletin, the Bank publishes a detailed analysis of current economic and monetary developments and prospects. It also presents the rationale behind the decisions by the Board of Governors to change or not to change interest rates, as well as signalling the monetary policy intentions for the period ahead. In these endeavours, the Bank seeks to be as transparent as possible. When the inflation target was adopted, the economy was quite unbalanced. It had boomed during the second half of the 1990s. | The most recent example was ordering the more detailed material for assessing monetary policy which the Riksbank published about a week ago. I shall return to this assessment later. But first I would like to say a few words about current monetary policy. Our most recent assessment Our most recent interest rate decision was not an easy one. There is considerable uncertainty, for instance, on which direction international economic activity will take. And, as you are aware, we also had slightly differing opinions within the Executive Board. However, we must nevertheless make a decision and the majority of us reached the assessment that the repo rate should be raised to 4.25 per cent. We are forecasting that the repo rate will remain around this level over the coming year. This type of interest rate development will contribute to inflation falling back and being around the 2 per cent target a couple of years ahead, at the same time as production and employment develop in a balanced manner. Different forces are pulling in different directions In our decision we weighed together many different factors. A lot has happened; both events that could push up inflation and events that could hold it back. On the one side were conditions implying a higher interest rate. Inflation rose rapidly in 2007 and we are expecting it to remain high over the coming year. Expected inflation has also risen and cost pressures are high. Economic activity in Sweden remains good and the labour market is strong. | 0 |
Zeti Akhtar Aziz: The transformation of the international financial system and the role of the Islamic financial system Keynote address by Mrs Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 6th World Islamic Economic Forum, “The Transformation of the International Financial System and the Role of the Islamic Financial System”, Kuala Lumpur, 20 May 2010. * * * This is a time of extraordinary global economic challenge and uncertainty. The recent unprecedented global financial and economic crisis has resulted in tremendous damage across the world. The meltdown in the global financial system resulted in several setbacks including bank failures, a credit crunch, a collapse of asset markets, massive wealth destruction, a sharp decline in trade and financial flows and widespread unemployment in many parts of the world. To contain the effects of the financial crisis on the economy, extraordinary and exceptional measures were taken by policymakers around the world. With the global economy now on the road to recovery, attention has turned towards securing a more permanent solution in shaping the global economy of tomorrow that would avoid such crisis of such proportions in the future. Significant steps are being taken by the international community to intensify efforts to reform and strengthen the international financial system. The aim is to build the foundations for a stronger and more inclusive global economy – built on the premise of sustainable growth and a greater shared prosperity. | Moreover, the profit-sharing and risk-sharing characteristics of Islamic financial transactions strengthen the incentives for Islamic financial institutions to undertake the appropriate due diligence on the Islamic financial transactions to ensure that the profits are commensurate with the risks assumed. The Shariah board of Islamic financial institutions additionally serve as a rigorous process of endorsement of the experts, thus representing a vital institutional safeguard to ensure that the inherent strengths of Islamic finance are fully realised. This ensures that the products are offered with the intention to achieve real benefits for the investors. It would therefore reduce the tendency for extreme behaviour in the financial system. More recently, the world’s attention had shifted from troubled banks to troubled countries with rising sovereign risks, leading to further rescue packages and increased anxieties over contagion to financial markets in other parts of the world. Whilst these challenges continue to be addressed by the developed economies, the emerging economies have emerged from this crisis with stronger growth performance. The Asian region in particular, has entered the crisis with solid economic fundamentals and more resilient financial systems and institutions. This has in turn substantially limited the consequences of the contagion. With the internationalisation of Islamic finance in this decade, it has further reinforced the trend of greater financial integration in emerging economies. This has reinforced the changing global pattern of financial and economic integration as financial and economic linkages strengthened between the emerging economies. | 1 |
The rationale of our regime, i.e., providing support to the currency, does indeed require us to mirror interest rates offered by other currencies – primarily the euro since we moved to a full peg last May – , but in addition we also need to offer a premium to holders of Maltese lira assets to compensate for the small size and vulnerability of our economy. Our judgement on the appropriate size of that premium at any point in time, complemented by considerations relating to financial market sentiment and economic conditions generally, determines our decisions on the Bank’s central intervention rate. The markets have so far judged the interest rate premium on the lira as being appropriate. 4 BIS Review 16/2006 7. It would be ironic if the government were to meet the fiscal criterion for euro adoption, but fail because of the inflation rate. What interest rate policy will the Bank adopt in this regard? I have already explained that the focus of monetary policy in a fixed peg regime is the exchange rate. Unlike most countries with a floating regime, we are not inflation targeters. The Bank’s ability to influence price levels directly through its power to change short-term interest rates in the money market is, therefore, rather limited. | To the one side, falling energy prices are weakening a key driver of underlying inflation pressures. Imported energy prices have played a central role in pushing up inflation for all economic sectors, given the huge energy shock we have faced. This is why measures of underlying inflation that capture the more persistent effects of energy costs are already showing a decline. [2] To the other side, increasing domestic price pressures could offset some of this disinflationary impulse. Measures of underlying inflation that capture items sensitive to the business cycle – such as Supercore[3] – or items with low import content are still strengthening. If this continues and aggregate demand picks up from its current compressed levels, we could see a handover from imported to domestic price pressures that keeps overall price pressures high. The key issue in determining which of these forces wins out will be developments in wages. The euro area has suffered a large terms-of-trade loss owing to rising energy prices, the cost of which must ultimately be shared between firms and workers. And it is important that there is fair burden sharing between them, with both accepting that they cannot fully recover the income that the euro area has paid to the rest of the world and the ensuing loss of output. So far, real wages have decreased substantially, while firms’ profit margins have expanded in many sectors. But the labour market is quite tight, labour shortages are increasing, and the terms-of-trade shock has largely reversed. | 0 |
But we need to do things in an accountable manner and use our statutory discretion credibly to protect the public trust in us. For that we need to maintain credible procedures for decision-making where the public and courts can scrutinize to judge whether we have made decisions in fair manner considering all available information. In that regard, the Central Bank has long way to go. My initial days of office are spent to put in place these procedures in line with the mandate and nature of public interest. I know it is not easy to change things that have been there for long time. A lot of sacrifices are necessary. Ladies and Gentlemen, I know what I have stated here are confusing you enough. However, I am sure you had some technical insight into the Central Bank. I have no doubt you now appreciate that the Central Bank is the heart of the economy as many state so. Thank you very much for listening to me. 8 BIS central bankers’ speeches | The Initiative includes studies on issues such as new securitised debt instruments, issuance of debt by international financial institutions, regional credit guarantees and enhancement facilities, and the establishment of local and regional credit-rating and credit-enhancement agencies. Another initiative, known as the Asian Bond Fund project, represents collective efforts of the Executives' Meeting of East Asia-Pacific Central Banks, or EMEAP, to broaden and deepen the bond markets in the region. The ABF project will bring about many benefits. First, it introduces and promotes new fixed-income products to the Asian markets. Secondly, it helps improve market infrastructure. Thirdly, the initiative has helped accelerate tax and regulatory reforms in both the regional and domestic markets. The Bank, with its mission as the region's development bank, is well positioned to assist emerging market economies in Asia to cope with the challenges of globalisation. In the past year, the Bank has contributed to the issuance of local currency-denominated bonds in India, Hong Kong, Malaysia and Singapore. The Bank is also providing valuable support to the Asian Bond Markets Initiative through the former Regional Economic Monitoring Unit, which is now known as the Office of Regional Economic Integration. Mr President, your decision to expand this Office and dedicate it to regional cooperation matters is most timely and welcome, as a well defined agenda for the Bank on regional cooperation will enhance financial stability by strengthening regional surveillance and cooperation. Despite these efforts, developments, and - dare we say it - successes, there are many challenges lying ahead of us. | 0 |
The liquidity of banks, as measured by the ratio of their most liquid assets (central bank reserves, gilts and Treasury bills) relative to total assets, was a fraction of what had been BIS Review 100/2010 3 normal twenty years earlier and a tiny fraction of what had been normal before the 1970’s (Chart 3). And banks had also become larger. Their assets, relative to the size of the economy, had grown very sharply. Relative to GDP, they had roughly doubled in the 10 years up to 2007 (Chart 4). The UK banking sector had low capital, illiquid assets and was very large when fears about the value of its assets increased. The combination of those things accounts for the scale of the damage that ensued. Chart 4 UK monetary and financial institutions, assets as % of nominal GDP 600 500 400 300 200 100 0 1987 1990 1993 1996 1999 2002 2005 2008 Note: Monetary and financial institutions do not include insurance companies, pension funds and other financial intermediaries. Source: Bank of England, Monetary and Financial Statistics. There are many different proposals to build a more robust banking sector. Some of these involve using conventional monetary policy, that is interest rates. But most proposals are about changes to the way banks do business. | I want to briefly describe some ways of trying to calibrate the costs and benefits of higher capital requirements – which do not assume the MM theorem holds. The method I use follows that outlined in the recent Bank of England FSR 7. The methodology followed in the FSR seems to me very sensible. The idea is to calculate the impact of a given change in equity capital – that is an equity for debt swap – on a typical bank’s cost of funding. I assume, as in the FSR, the higher cost of bank funding is passed on in the form of a higher cost of bank loans. To assess what effect that has on the wider economy we then make an educated guess at the effect of a rise in the cost of bank loans on the overall required return on investment. That in turn will affect the stock of capital and economic activity. This impact on economic activity is the cost of higher capital requirements. The illustrative estimates in the FSR indicate that conservative assumptions about effects of higher bank capital on the costs of bank funding and lending generate a marginal cost of about 4% of annual GDP, in present value terms, for a 1% of risk-weighted assets rise in capital. The FSR notes that by relaxing these assumptions the cost may be lower, so that the estimates are probably an upper bound 8. The starting point for my calculations is the case presented in the FSR. | 1 |
It is assumed that overall activity will decline somewhat when Snøhvit and Ormen Lange are completed, but that the high oil price will contribute to maintaining investment at a relatively high level throughout the projection period. The fiscal rule implies a gradual phasing-in of petroleum revenues into the economy, approximately in pace with the expected real return on the Government Pension Fund – Global, formerly known as the Petroleum Fund. The Government Pension Fund – Global is likely to expand sharply in the years ahead. On the basis of our assumptions for developments in oil prices ahead (oil futures prices), a mechanical application of the 4 per cent rule implies that the use of petroleum revenues will increase by more than NOK 31 billion from 2006 to 2009. This is somewhat higher than expected in the Government’s supplement to the budget for 2006. The difference can partly be explained by the fact that at end-2005 the Fund’s capital was higher than that estimated by the Government, and partly that the Government assumed that oil prices ahead would be lower than current oil futures. For 2007, we assume an approximately unchanged structural non-oil deficit. With continued solid growth in the Norwegian economy, it would be in line with the fiscal rule if the use of petroleum revenues is lower than the expected real return on the Government Pension Fund – Global over a few years. | There will be no additional criteria but neither will there be a relaxation of the criteria that proved effective in steering the process of convergence across the founding members of the euro area. Conclusion Let me underline four points which, I trust, are of the essence in the present situation : First, I would like to stress the remarkable credibility of the euro and of the Central Bank that issues this currency, the European Central Bank. Neither the ECB nor the Euro existed six and a half years ago! Today we have a currency which is as stable as were the best national currencies in Europe, and a Central Bank which is as credible as were the most credible Central Banks in Europe and in the world. Our duty is to fully preserve and enhance this exceptional level of credibility and I am, as President, fully committed to this task. Let me in this respect pay homage today to Finn Kydland and to Edward Prescott, who were awarded yesterday the Nobel Prize in Economics. Their seminal work - as regards central banking - on the importance of time consistency, commitment in advance, and full independence and credibility in the delivery of price stability over time has been very important for institutional developments around the world, including the ECB and the Eurosystem, and instrumental in our success. We owe them a particular debt of gratitude. Second, price stability is a necessary condition to obtain sustainable growth and job creation. It is not, alone, a sufficient condition. | 0 |
Mervyn King: Monetary policy developments Speech by Mr Mervyn King, Governor of the Bank of England, on the 2012 BBC Today Programme Lecture, London, 2 May 2012. * * * Fifty years of rising living standards came to an end with the financial crisis. As a nation, we are now significantly worse off than we were four years ago. The crisis has cast a long shadow. Of course, the immediate challenge is to get our economy growing again. But fifty years from now will our grandchildren ask why we lacked the courage to put in place reforms to stop a crisis happening again? I hope not – and that’s why I want to speak to you tonight about the changes we need to make. Believe it or not, it’s more than seventy years since the Governor of the Bank of England last gave a talk on radio in peacetime. In March 1939, Montagu Norman spoke to the BBC in the wake of the economic slump that we now call the Great Depression. Just listen for a moment to the 1930s version of Evan Davis introducing the broadcast: AUDIO INSERT: “The Rt Honourable Montagu Norman, Governor of the Bank of England, speaking in the Empire Series on the City of London.” More the presenter of “yesterday” than “today”! In those days, the Bank of England, known affectionately as the “Old Lady of Threadneedle Street”, was a private bank performing the role of a central bank only by custom and practice. | As banks enter new markets, create ever more complex products, and pursue customers near and far, the challenge for all of us is, first, to understand how our risk profiles are changing and, next, to find responsible ways to manage them. Whether they compete on a national, regional, or global level, banks have developed countless new tools and processes that promote their competitiveness, strengthen their returns, and control their exposures to credit, market, operational, and other risks. In turn, supervisors must review periodically the tools and processes at our disposal to ensure that our regulations and practices accommodate changes in market trends, the introduction of innovative products and services, and advances in the art of risk management. The current efforts to reform the international guidelines on capital adequacy represent a critical review of the cornerstone of bank supervision. The members of the Basel Committee have devoted substantial resources to this reform because we believe that, when banks are adequately capitalised and well managed, they become more stable and better able to withstand periods of financial distress. But more importantly, when all banks have the proper incentives to manage their risks appropriately and hold adequate levels of capital, we believe that the entire financial sector becomes more resilient, less sensitive to the ups and downs of the business cycles, and better able to serve as a source for the sustainable growth of the broader economy. That is our motivation for proposing the adoption of a New Basel Accord, which I will discuss this morning. | 0 |
Erdem Başçi: Recent economic and financial developments in Turkey Speech by Mr Erdem Başçi, Governor of the Central Bank of the Republic of Turkey, at the press conference for the presentation of the October 2014 Inflation Report, Ankara, 31 October 2014. * * * Original presentation is on the Central Bank of the Republic of Turkey’s website: http://www.tcmb.gov.tr/ wps/wcm/connect/47fed704-6c8d-48a4-9fce-458bc4bad30b/ER_Ekim_2014_Konu% C5%9Fma_%C4%B0ngilice.pdf?MOD=AJPERES&CACHEID=47fed704-6c8d-48a4-9fce-458bc4bad30b Distinguished Guests, Welcome to the briefing held to convey the main messages of the Inflation Report. I will now present an overview of the report, which will be published on our website soon. The report typically summarizes the economic outlook underlying monetary policy decisions, shares our evaluations on macroeconomic developments and presents our medium-term inflation forecasts, which were revised in view of the developments in the last quarter, along with our monetary policy stance. In addition to the main text, the report includes six boxes entailing interesting and up-to-date analyses on various topics. For example, the report presents boxes that analyze how the determinants of bond flows into emerging economies change over time and the sensitivity of inflation to output gap and loans. Moreover, there are studies elaborating on current account fluctuations and current account deficit corrections, non-core liabilities, the correlation between capital flows and loan growth across a wide range of economies and the role of macroprudential measures in the elasticity of loans to capital flows. Titles of the boxes are shown on the slide. All of these analyses shed light on noteworthy issues in the Turkish economy. | Other challenges are specific to the Eurosystem, like the completion of the single market with a single currency and a successful enlargement. The people of Germany as well as all 329 million fellow citizens in the euro area, can count on the ECB and on the Eurosystem. You can count on us to continue providing a solid and reliable anchor of stability and confidence. Particularly in the current environment both these elements are essential. I thank you for your attention. 8 BIS Review 16/2009 | 0 |
The way we handle this deterioration of their balance sheets will have major implications for the macro outlook both in the short and the medium run. Indeed more financial vulnerable firms tend to invest and hire less than firms with a robust financial position1. In extreme cases, the vulnerabilities of the corporate sector could lead to the closure of firms, a development which would adversely impact economic growth owing to the possible destruction of part of the productive system and the consequent job losses. At the same time, there are already signs that the pandemic may give rise to certain structural changes, although the full extent of these is, for the time being, difficult to know. It is crucial that these changes and this structural damage are identified promptly since economic policy cannot indefinitely sustain a sector that is set to undergo a structural reduction in its level of activity. Instead, it should aim to promote and support the adaptation of the productive system to the new realities and the efficient reassignment of resources among industries and firms. 1 See, for example, Myers, Stewart C. (1977): “Determinants of Corporate Borrowing,” Journal of Financial Economics, 5 (2), 147–175. Kalemli-Ozcan, Sebnem and Laeven, Luc A. and Moreno, David (2019): “Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis,” ECB Working Paper No. 2241, Philippon, T. (2010): "Debt Overhang and Recapitalization in Closed and Open Economies," IMF Economic Review, Palgrave Macmillan; International Monetary Fund, vol. 58(1), pages 157-178, August. | Even with forward-looking inflation targeting, the central bank may need not only tolerate significant deviations of current inflation from the medium-term target but also to exercise a lot of judgment in assessing when deviations in expected inflation originated in the ER justify a change in the policy stance. Tolerance to ER-induced deviations in inflation is easier the higher the credibility of monetary policy. If medium-term inflation expectations remain anchored at the policy target level, the central bank can count on economic agents to help convergence afterwards. Building a record of credibility and reputation has been a product of a coordinated, persistent, and long-term commitment by the Central Bank of Chile to the best practices on transparency and independence. A responsible and countercyclical fiscal stance is an absolute requirement for consistency of the overall macroeconomic framework. Besides from softening cyclical fluctuations, fiscal credibility is an important ingredient of MP credibility, as it alleviates potential concerns of fiscal dominance behind MP decisions. Finally, all of the above may need to rely on substantial financial buffers, like moderate levels of indebtedness by all major economic agents; safe financial assets (sovereign wealth funds); well capitalized banks, and so on. So, building a reliable floating ER regime able to cushion the domestic economy from financial and commodity shocks takes much more than courage and a statutory decision. It should be supported by a sophisticated financial and institutional architecture. This is not easy to capture in attributebased scoring systems. | 0 |
Part of this borrowing is used to finance mortgages in Swedish krona and the foreign currency therefore needs to be converted into krona on the FX market. I do not intend to go into this in depth; merely to observe that this has further increased the complexity of the Swedish financial system in that the number of intermediaries has increased. At the same time, the banks have become dependent on the FX market functioning smoothly. Households’ high indebtedness could jeopardise the banks’ funding opportunities Swedish household debt has been rising in line with the increase in housing prices since the mid-1990s. The fact that households today are so heavily indebted means, for instance, that they are sensitive to changes in their personal finances and to disruptions in the housing market, for instance. If housing prices were to fall, this could affect the banks’ possibilities to fund Swedish mortgages. Let me try to explain why. Funding using covered bonds is closely linked to the housing market Around one half of the Swedish banks’ market funding comes from covered bonds. When the banks issue these bonds, they earmark collateral that is only for the market participants investing in bonds. The investors often require a particular extra buffer of collateral, and so the banks often earmark more collateral than is required by the regulations. It is primarily mortgages that are earmarked, and funding with covered bonds is therefore closely linked to developments on the Swedish housing market. | One cannot rule out the possibility that investors might reduce their holdings or perhaps no longer wish to own Swedish mortgages through covered bonds when housing prices are falling heavily. Although the risk of direct loan losses on the banks’ mortgages is initially small, investors who perceive the uncertainty to be great and who have poor knowledge of the credit risk might wish to sell their holdings. If a general expectation of increased sales pressure also builds up, a large number of more well-informed investors 4 BIS central bankers’ speeches might choose to sell their holdings of Swedish covered bonds to avoid large falls in value. This type of herd behaviour could create very negative price fluctuations on the bond market and perhaps even disrupt the functioning of the market. The stress tests carried out by both the Riksbank and other analysts indicate that the Swedish banks would be able to cope with a large fall in housing prices without the earmarked collateral declining significantly. But regardless of this, we can be sure that the uncertainty regarding the covered bonds would increase if housing prices were falling and it is always international confidence in the Swedish housing market that is important here. However, it is difficult to predict at what loan-to-value ratio the Swedish covered bonds would begin to be perceived as less safe by the market. Perceptions of what is acceptable may suddenly change. | 1 |
Against this backdrop, we continue to expect the economy to grow by around 1.5% in 2019. As is the case with the global economy, the risks for this scenario remain to the downside. In particular, an unexpectedly sharp slowdown internationally would quickly spread to Switzerland. Exchange rates, interest rates and inflation expectations Let me now move on to address monetary conditions – that is to say, exchange rates and interest rates – as well as inflation expectations. My comments here relate to the developments since our last news conference in December, and not just those during the past quarter. Monetary conditions are similar today to six months ago. The Swiss franc remains highly valued. The situation on the foreign exchange market is still fragile. When the trade dispute between the US and China escalated again in May, the Swiss franc and the Japanese yen appreciated. Both currencies are sought after as safe havens in periods of uncertainty. In light Page 4/5 Berne, 13 June 2019 Thomas Jordan News conference of the high valuation of the franc and the fragility of the situation, our willingness to intervene remains necessary, as does the negative interest rate. This brings me to the development of interest rates since December. At the beginning of the year, the US Federal Reserve signalled that it would be patient with regard to raising interest rates further. | The article was intended to serve as a basis for public debate; in our opinion it provided the best foundation that was then available for discussing the krona’s long-term value. The krona’s equilibrium value is naturally something that the Riksbank considers continuously and the analysis is constantly being developed. Accounts of various aspects of the exchange rate have been presented in the Inflation Report. The material that will be produced in the event of Sweden deciding to participate in ERM2/EMU will have to incorporate the additional information since 1996. It should also be noted that the levels and intervals that were presented in the article refer to the krona’s trade-weighted exchange rate and are therefore not directly applicable to the question of a reasonable central rate for the krona against the euro. Furthermore, the euro is a new currency. Arriving at just the right future exchange rate for the krona against the euro is therefore not exactly easy. Although the financial markets are naturally eager to know, at this stage it is too early to allow the discussion of the krona’s path to focus on specific intervals or levels. But the course is clear—in the event of a euro peg, the rate for the krona will be stronger than the current level. Current monetary policy In conclusion I should like to say something about the monetary policy situation in Sweden. International economic prospects gradually deteriorated during 1998. | 0 |
With the large levels of excess reserves in the system, certain institutional aspects of money markets in the United States – including bank-only access to IOR, credit limits imposed by lenders and other impediments to market competition, and the costs of balance sheet expansion – appear to create frictions that have made IOR act more like a magnet that pulls up short-term interest rates than a firm floor beneath them. Thus, in considering how to implement policy normalization, the Federal Reserve evaluated a variety of ways to increase competition for funds among borrowers and thereby improve the control provided by IOR.12 The Federal Reserve initially considered an approach to policy normalization that was based on a combination of term operations and asset sales or redemptions aimed at making reserves sufficiently scarce so that, once the FOMC decided to tighten monetary policy, this tightening could be implemented using IOR within a framework that was otherwise similar to that used before the crisis.13 As part of this approach, the Federal Reserve acquired a new set of reverse 2 BIS central bankers’ speeches repo counterparties, including money market funds and government-sponsored enterprises, in addition to the primary dealers with which it had traditionally transacted. These new counterparties were major investors of cash in overnight markets and had capacity to facilitate the “draining” of substantial reserve balances, if offered attractive term investments with the Federal Reserve. | Instead, use of the pool has increased because over time the constraints imposed on customers’ ability to BIS central bankers’ speeches 9 vary the size of their investments have been removed, the supply of balance sheet offered by the private sector to foreign central banks appears to have declined, and some central banks desire to maintain robust dollar liquidity buffers. Open questions Compared with the relative calm of the pre-crisis period, money markets have recently gone through a sustained period of substantial change. Some of these changes are the result of regulations to improve the safety and soundness of the financial system, others relate to business model enhancements, and, of course, some relate to Federal Reserve activity. The Federal Reserve continues to collect data on the structure of money markets to determine whether any changes are needed in its operating framework to ensure that its objectives continue to be met. We are continuing to watch developments as business models adapt to the numerous changes in bank regulation introduced over the past few years. We are interested in the extent to which these business model changes impact the structure of money markets and thereby affect the form of monetary policy implementation. For example, we are monitoring developments in bank behavior that could have implications for the transmission of monetary policy into market rates. Thus, we are paying close attention to the behavior of foreign banks on financial statement reporting dates. | 1 |
The question of which should be the role of central banks in 3/4 financial crisis prevention or mitigation is still far away from reaching any definite answer. Several papers in this conference will deal with this important issue. Third, we need to have a better understanding of how monetary policy and other macroeconomic policies are transmitted. By now, it is clear that the standard new Keynesian framework, which still shapes our general view of the basic elements of monetary policy, has some relevant shortcomings. For example, recent research has underlined how additional channels related to household and firm heterogeneity may provide a more realistic depiction of how monetary and fiscal policies affects the economy, modifying –or even overturning- some of the prescriptions derived from models with representative agents. This is a line of research linking both empirical and theoretical work that may have consequences for our work as central bankers. Your discussions over the next couple of days will help to improve our understanding of some of these complex issues, ranging from the emergence and consequences of bubbles in asset markets, to the role of individual heterogeneity in the transmission of macro policies and in the aggregate incidence of financial frictions. Conclusion To conclude, I would like to say that both policymakers and academics face new challenges in our understanding of how central banks should act in order to fulfill our mandates and maximize the welfare of the citizens we work for. | Meetings such as this Conference provide an excellent opportunity to strengthen the links between central bankers and academics. I wish you a very productive meeting and a pleasant stay in Madrid, expressing my gratitude for your attendance to this First Annual Research Conference of the Banco de España. Thank you very much for your attention. 4/4 | 1 |
The deficit in savings in the private sector amounted to approximately 7 per cent of GDP at the end of last year, with both households and companies contributing to this figure. BIS Review 39/2001 1 Despite the strong demand, inflationary pressure has been only moderate. The dollar exchange rate was strengthened by widespread inflows of capital from foreign investors who bought American shares and a strong growth in productivity has had the effect of subduing prices. What characterises periods with a build-up of financial imbalances? The development of the American economy bears some similarity to the development that has usually preceded the financial crises that have affected many countries in recent decades. Characteristic for the development of countries that have suffered financial crises has been than an optimism, which has later proved to be unwarranted, has been reflected in rising asset prices, over-investment, excessively high consumption and a strong expansion in credit. It has rarely or never been possible to determine in advance when a realistic optimism has passed into over-optimism and in its turn pushed up asset prices, investment, consumption and indebtedness. It has rarely been possible to judge, for instance, whether a large build-up in indebtedness has expressed an adaptation to realistically based expectations of future growth prospects or whether the build-up in debt is based on exaggerated expectations. | Hence, it is crucial that we continue to give generously, to local and foreign deserving causes. 24. Yet giving is also difficult to do well because it must not lead to waste and leakage or diminish the spirit of self-reliance. I am pleased that Singapore is playing host to this global forum which brings together leading philanthropists and thought leaders to discuss how to better accomplish giving, and to push the frontiers of philanthropy in Asia. 25. I commend Credit Suisse for playing an active role in developing philanthropy capabilities in Singapore, and I wish you a fruitful meeting. BIS central bankers’ speeches 3 | 0 |
1 Indeed, international difference in living standards has declined over the latter half of the 1 Parente and Prescott (1999) documents the evolution of international income and growth differences and gives a list of growth facts before and after the industrial revolution. BIS Review 99/2007 1 twentieth century as a result of emerging markets’ fast-pace and sustained growth. During the past 20 years, the world’s income gap has narrowed even faster. It cannot be by sheer coincidence that this period has also witnessed growing international trade and financial integration and the entrance of China, and subsequently India, into the comity of trading nations. Along these high growth trajectories, emerging markets’ aggregate real income and consumption are an order of magnitude more volatile than advanced economies (both in terms of levels and growth rates). Not only is consumption more volatile in emerging markets, but it is also more volatile in relation to income. In fact, over the business cycle, consumption is around 40 percent more volatile than income for emerging markets, while it is less volatile than income for advanced economies. The unique volatility outcomes can be attributed to a distinct set of macroeconomic shocks which are specific to emerging markets or their propagation mechanism, or both. 2 I think that the extraordinary volatility in real aggregate consumption and income can be partially attributed to episodes of financial instability that occur not infrequently in emerging markets. | Norges Bank became a member of the NGFS in December 2018. The primary objective of this network is to create an arena for central banks and financial supervisors to exchange experiences and share best practices in developing environment and climate risk management in the financial sector. We consider this network to be an important meeting place to arrive at a well-considered understanding of the role and activities of central banks in this field. 3/3 BIS central bankers' speeches | 0 |
d. Transparent balance sheets can make it easier to unwind troublesome financial institutions and divest their assets. e. Monetary policy channels in a world with CBDCs may be faster and more powerful. Today monetary policy works by affecting the balance sheets of banks and some financial intermediaries, which do not pass on all the rate changes to final users due to market power and other frictions. If central banks can reach out to more and more agents (businesses, households), then their role will become ever more central and effective. Page 7 of 11 Central Bank of Chile September 2019 Lastly, use of CBDCs could be explored as a more efficient alternative for remittances. In Chile, immigration has had a sharp increase in few years. As in other parts of the world, they face high costs for their remittances when using traditional methods based on a structure of correspondent entities. An alternative option that is being used, although because of its nature is not possible to have detailed information, are remittances based on cryptoassets. While these remittances may be faster and even cheaper, they are outside of the regulatory perimeter and thus their customers are exposed to several risks (counterparty, liquidity, operational). The cross-border use of CBDC would reap the benefits of crypto-based methods, without their risks. Certainly, this would require coordination between the central banks involved. | The creation of these indicators, their calculation and rating in the relevant markets would create the conditions for the real assessment of the competitive advantages that this district has to offer. The help that the local authorities can give in identifying the competitive advantages and the provision of local statistics are perhaps the best investment they can make for the regional and national development. Today, more than ever before, all the attention of global economy is oriented towards the markets, as the best estimators of the competitive advantages in the global economy. The developments in these markets are bringing about the reconfiguration of the economic powers at a global level. The new commercial and financial trends appear to be in favour of the utilization of natural resources and competitive advantages, through investments in emerging economies, to later import them in the form of final products, ready for consumption. These are advantages for the Albanian economy, which, with the major structural reforms taking place (privatizations, natural and human resources, creativity and the entrepreneurship spirit), enjoys all the opportunities and should play an active role in the regional market and beyond, in the global market. I am optimistic and I do believe in our economy and its potentials. Thanking you for your attention, I welcome any comments. BIS central bankers’ speeches 5 | 0 |
The slowdown in global growth has been more pronounced and spanned a longer period than we had expected. The Norwegian economy has also felt the effects of this. Norges Bank has therefore lowered the sight deposit rate from 7 to 5.5 per cent since 11 December, most recently on 5 March. The interest rate differential has narrowed. Since mid-January, the krone has depreciated, partly reflecting expectations of lower interest rates. Monetary policy has been relaxed. There is uncertainty associated with developments in many of the factors that will influence inflation ahead, among others the exchange rate. This implies a gradual approach to the conduct of monetary policy. Increased spending of petroleum revenues will have implications for Norway’s industry structure. High demand for goods and services that require domestic resources, necessitates higher employment in the sheltered sector. This labour has to be recruited from the exposed sector, or through the natural increase in the labour force finding its way to the sheltered sector. Even if employment and output in Norwegian manufacturing industry fall, developments for Norwegian enterprises may not necessarily be only negative. Some enterprises may be at the cutting edge of technology, and increase their efficiency in pace with the rise in costs in Norway. Others may relocate labour-intensive activities abroad. The scaling back of manufacturing still involves a risk. It makes the economy more vulnerable; the foundation for learning, innovation and development may be undermined when a smaller share of the business sector is exposed to intense international competition. | Here again, though, I should add that we are always on the way towards our goals and will never actually meet them. Even in the conditions we enjoy, it is not easy to reach the necessary consensus. This brings me to the “human factor”. The background conditions I have been talking about are aimed in no small measure at enabling individuals to develop their own interests as well as those of society. This symbiosis is essential to the prosperity of the economy as a whole. Where human resources are concerned, what is needed most of all is adequate training, motivation and the right mentality. Over the course of time, the development of the economy and the associated structural change have constantly thrown up new challenges for everyone involved. This can be seen, for example, in the phenomenon of structural unemployment, arising from an imbalance in supply and demand for specific skills. Although the need for continuous training and retraining is nothing new, it has now become an urgent concern. But qualifications alone are not sufficient. They only come into their own when the people in question are also motivated. If we were to restrict ourselves purely to economic activities, we could leave it at that. But after what I said about the correlations between the economy and society, there is clearly more to it. In a democratic community, we don’t just need “economic subjects” who contribute their skills in specific areas and with the right mentality. | 0 |
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. | The first concerns the state of the securitisation markets and that for covered bonds in particular. In Europe, the ECB routinely takes covered bonds and other private sector securities as collateral in all of its operations. And there is a perception of state support for the covered bond market, perhaps because covered bonds have often been issued by quasi-state banks. The Bank is occasionally lobbied by industry representatives to offer more support to the covered bond market. I want to make three points in response. First, that RMBS and covered bonds are already eligible collateral in both the Indexed LongTerm Repo operations and in the Discount Window Facility alongside a range of other private sector securities. 15 It is only short-term OMOs, which are conducted for monetary policy purposes, where such assets are not eligible. In order to help manage the risks arising from securitised assets, and to help improve market functioning by establishing higher standards, the Bank will be demanding detailed disclosures – to the Bank and publicly – on the underlying assets and structures. This transparency initiative has generally been welcomed by investors and we hope it will encourage the establishment of viable securitisation markets in future. 14 Further details are available on the Bank’s website at http://www.bankofengland.co.uk/markets/marketnotice100719.pdf. 15 A bank may not submit its own covered bonds in Long Term Repos, only those of other issuers. But it may submit either in the DWF. | 1 |
Although the first small signs of success are apparent, we must still remain vigilant about the accompanying risks. Above all there is the moral hazard that would emerge were some government to lose its appetite for reform. The falls in interest rates provoked by the massive purchases of bonds will lower interest rates temporarily on government borrowing and this must not be used as an argument for pushing vital but painful reforms to some point far off in the future. Interest rates are only favourable for a short time and will support governments while they are making BIS central bankers’ speeches 1 changes. If governments were to ignore the budget rules agreed in Europe and were to start to increase their debts further, the measures taken by central banks would be of very little help. The other main task occupying central banks alongside monetary policy last year was the launch of single banking supervision. Starting supervision and carrying out a thorough and comprehensive assessment of the assets of European banks needed a lot of work from central banks and financial supervision authorities. The successful conclusion of this work let us say with confidence that the biggest and most significant banks in a range of countries in Europe are now assessed and supervised on the same terms. In Estonia, Swedbank and SEB Pank have come under single supervision. | We would have done this earlier, but first it was necessary to complete the process of registering the manor house and the land it stands on. It is worth noting under cost efficiencies that Eesti Pank has added technical support for the Fiscal Council to its list of responsibilities together with the macroprudential supervision and increased requirements for compiling financial statistics. Despite this, the number of people employed at the bank is roughly the same as a year ago, and Eesti Pank remains the smallest central bank by staff size in the European Union. Eesti Pank’s operating expenses fell last year to 17 million euros from the 17.4 million of a year before. Although the central bank’s duty is to keep inflation low and not to chase every possible source of higher revenues, it is good to be able to note that we ended last year comfortably in profit. 4 BIS central bankers’ speeches Conclusion In conclusion I would like to emphasise again that it is important for stable development in Estonia and for improved public well-being that we remain ready to adapt to a changing economic climate, to react rationally to changes, and yet to maintain the conservative stance on monetary issues that has served us well so far. Thank you for your attention. BIS central bankers’ speeches 5 | 1 |
And, as discussed in the Monetary Policy Committee’s (MPC) May Inflation Report, it is likely to rise further in the near-term before beginning to fall back (Chart 1). Moreover, the rate of inflation may well stay above target for the remainder of 2011 and 2012. Chart 1 CPI inflation projection based on market interest rate expectations and £ billion asset purchases As I and many of my colleagues have already discussed in various speeches, MPC Minutes and the Inflation Report, the MPC attribute the rise in CPI inflation to three main shocks – the rise in VAT, increases in global commodity prices, and the impact of the fall in sterling since mid-2007. First, let me consider the increase in the standard rate of VAT to 20%. Mechanically this tax increase could account for around 1½ percentage points of the current inflation rate BIS central bankers’ speeches 1 although, allowing for the behaviour of retailers in absorbing some of the increase, the marginal impact is probably nearer 1 percentage point.1 Second, there have been large increases in a number of commodity prices over the past two years or so. Those increases reflected the combination of renewed strength of the world economy, especially in emerging market economies, and the limited ability of the world’s commodity producers to increase supply – at least at the same pace as demand. Commodity prices are traded as an asset – they are inherently forward looking. | In-house training courses tailored to each business unit, commitment by senior management of banks, understanding of benefits of implementing Basel II by all stakeholders and hiring of right skills would help in mitigating skills shortage related risks. Regulators and supervisors have to be at it to assess progress within a reasonable time frame. 2 BIS Review 88/2005 11. Without data, there are no models and without models, the risk management capability is reduced. This does not mean that commonsense approach in handling matters should be discarded altogether. Given the heavy competition and highly leveraged nature of businesses, banks, at minimum, should record historical data for computing the probability of default loss, and operational risk losses. This is a difficult task. The challenge for banks is to build up databases for operational losses, both historical and potential future losses. The challenge for regulators is to ensure that banks start collecting this type of data in a systematic manner. Banks often see regulators as a pain in the neck due to constant nagging. Perhaps, moral suasion and organizing peer pressure might encourage banks. 12. Unbundling risk related capital charges in the new Basel II Capital Accord requires an explicit capital charge for operational risk. Calculating such a capital charge has proved extremely difficult because of a lack of an accepted methodology and credible industry data. | 0 |
But they could also exacerbate inflation if the domestic exchange rate weakens. Adding to the complexity is that monetary policy operates with long lags. If policy is tightened at a pace that does not take into account the effects of previous hikes, we risk a deeper economic downturn or financial stresses. But if policy tightening ends prematurely, we risk destabilising price expectations, entrenching inflationary pressures, and eroding central bank credibility. Of course, the question of how fast core inflation can return to central banks’ target bands is contingent not just on monetary policy. The speed of disinflation is subject to three near-term uncertainties: labour market dynamics, China’s re-opening, and a surge in food and energy prices. The first uncertainty is labour markets: continued labour market tightness could lead to persistent services inflation, especially in the advanced economies. COVID-19 presented the ultimate supply shock for labour markets across the world, as workers exited the labour force in large numbers. Even with the return of most workers post-pandemic, sectoral labour shortages remain severe in many countries, especially in contact-intensive industries such as retail trade, food, hospitality, and manufacturing. With labour markets persistently tight in most advanced economies, nominal wage growth has been robust. There are three possibly structural factors driving tight labour markets and wage pressures. First, workers have been moving away from low-wage services jobs and moving up the occupational ladder, generating worker shortages in these services jobs. | [2] Second, there has been a significant fall in the number of immigrant or foreign-born workers in the advanced economies, particularly among lower-wage occupations. [3] Third, preferences for work relative to non-work activities may have shifted during the pandemic. Recent US data show a persistent decline in desired hours worked especially among better-educated workers. [4] It remains to be seen whether these labour supply shifts are irreversible. Ultimately, so long as labour shortages continue, prices will edge higher compounding the pressure on central banks to hike further later this year. The second uncertainty is posed by China’s re-opening: a stronger-than-expected infrastructure-led rebound in China could pose an upward risk to global inflation. While we can anticipate an uptick in demand from China’s reopening, the extent to which this imparts a renewed impulse to global inflation is unclear. For now, China’s near-term developments appear unlikely to decisively reverse the global disinflation trend in 2023. The recovery of China’s consumer demand is expected to be led by domestically oriented consumer services rather than tradable goods. Unlike in advanced economies, China has a substantial supply of deployable labour suggesting that significant labour market tightening is unlikely. Producer prices in China are continuing to decline. The easing of pandemic-related supply chain disruptions will help moderate producer price pressures, imparting a mildly disinflationary impact on the global economy. However, a sharp rebound in economic activity in China on the back of robust infrastructure spending and an accelerated recovery of the property market could lead to higher global commodity prices. | 1 |
In advancing the Islamic financial inclusion agenda, crucial criteria such as injection of innovation and enhancement of products and services as well as distribution channels to reach targeted groups especially the rural areas are essential: 4 BIS central bankers’ speeches One of such example in Malaysia is the introduction of profit and risk sharing investment accounts, where savings are matched with funding required by SMEs for financing specific projects. Greater outreach to microenterprises and SMEs can also be achieved through the wider application of equity-based structures in financing for Islamic microfinance and SMEs. This contributes towards the overall objective of generating inclusive growth that enhances job creation. Other financial products such as microtakaful and waqf can also provide a financial solution for lower income groups and small businesses. Through Islamic finance, we can also further explore the concept of agent banking or branchless banking to leverage on the role of traditional community centres such as mosques. This would harness more efficient means of outreach amongst Muslims, which is of particular relevance in many OIC Members. Another important sphere that has not been explored exhaustively, Islamic financial institutions may also leverage on its large distribution network to facilitate the collection and mobilisation of zakat and waqf. Fifth, proportionate regulation can achieve objectives of inclusion, stability and integrity Proportionate regulation ensures that the costs of regulation do not outweigh the benefits of regulation and that regulation is commensurate to risks. | The cost of building brick-and-mortar branches to outreach to rural users is high. Hence, the Bank developed the agent banking initiative to leverage on technology and deliver financial services to the rural groups in a low cost and scalable manner. It saves cost and the impact is enormous. Under the agent banking initiative, licensed financial institutions provide financial services to customers through third-party agents, such as retail outlets and post offices. Agents perform banking transactions such as deposit and withdrawal of funds in a safe manner using real time terminal technology i.e. Point-of-Sale (POS). Putting in place a mechanism to monitor performance is crucial to determine whether policy initiatives are effective. Just to give a flavour of what we have done, we actively track the coordinates of agent banks to ensure that access is provided to sub-districts in need of financial access points. Since its implementation in 2012, 95% of sub-districts now have at least one financial access point, a significant increase from 2011. As at August 2013, there were 5,661 agents and the total number of transactions has exceeded 25 million, with a total value of RM2.8 billion. Fourth, Islamic finance can play a huge role in financial inclusion given the strong parallels between the two The concept of financial inclusion – to develop a prosperous, egalitarian economy that contributes towards social development and social justice – is very much in line with the core principles of the Islamic economy, which place great emphasis on social justice, inclusive growth and equitable distribution of resources. | 1 |
It is also important that the central bank, even if it does not have direct supervisory responsibilities, closely monitors general financial market developments, including in the major institutions, to detect potential crisis situations that may call for ELA. The traditional view that ELA should never be given to insolvent banks can also be discussed from another perspective. A prerequisite for all kinds of support, including ELA, should be that there is considerable risk for a systemic crisis. Given that, it can be discussed whether it is worse to provide ELA to an insolvent institution, or to refrain from an action that could avoid a systemic crisis. If there is a risk of systemic crisis, it is normally determined that public support even to insolvent institutions may be warranted, but this is normally given by the government through the fiscal budget, not by the central bank. The moral hazard aspects, which are common arguments for not providing ELA to insolvent institutions, will be no different if the central bank provides support or if the government does. The central bank may have a better capability than other authorities to provide financial support if the need arises very quickly. The main reason for this is that the central bank has the instruments for lending available and it has resources in its balance sheet or the credibility to get resources if they are needed (for example in foreign currency). | Caleb M Fundanga: Improved economic and financial developments in Zambia Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Bank of Zambia/Deutsche Bank workshop on Capital Markets, Lusaka, 15 April 2010. * * * The Deputy Governor – Operations at Bank of Zambia Officials from Deutsche Bank Officials from the Ministry of Finance and National Planning Distinguished Resource Persons Colleagues from the Bank of Zambia Ladies and Gentlemen I am delighted to officiate at this important workshop on Sovereign Bond Issuance. Let me from the onset express my gratitude to our colleagues from Deutsche Bank who have demonstrated a desire and commitment to share with us their experiences in the area of international capital markets, particularly with respect to sovereign debt issues and ratings. I am particularly delighted that this workshop is a follow up to an earlier meeting with officials from Deustche Bank in December 2009. The willingness of the Deutsche Bank officials to come back four months later to further discuss the issues with a wider audience is truly heartening to us and commendable indeed. Ladies and Gentlemen, Zambia like many other countries in Sub-Saharan Africa is one of the countries that have for a long time relied on concessional funding and multilateral financial support in implementing her development agenda. Whereas other parts of the world have enjoyed respectable growth rates supported by private capital flows, our region has lagged behind. | 0 |
Similarly, those extending loans will find it more difficult to assess the real value of collateral security and the borrower’s wealth. This situation must be corrected sooner or later, and when bubbles burst the risk of debt crises and financial instability is high. We have seen examples of this in Norway and in other countries. If we allow imbalances to develop in the domestic economy, this may trigger major capital movements with wide fluctuations in the exchange rate and long-term rates. Distributional effects of monetary policy The distributional effects of changes in nominal interest rates figured prominently in discussions concerning interest rate policy in the 1970s. There is probably a basis for saying that the consideration of distributional effects was an important reason behind the low interest rate policy. However, as developments were to prove, this was not the right approach. The low interest rate policy contributed to increased disparity. People are affected in different ways by a change in interest rates. Households with considerable debt will, ceteris paribus, be adversely affected by an increase in interest rates because they must use a higher proportion of their income to service the debt. However, the increase in interest expenditure in BIS Review 92/2000 8 relation to household income is about the same for all income groups. This is because households with high income generally have a higher level of debt. | If fiscal policy lacks a long-term anchor, the interplay in economic policy will not function and the result will be a more unstable krone exchange rate and wider cyclical fluctuations. This will also result in poorer use of our resources, partly because strong fluctuations in domestic activity and long-term interest rates and the exchange rate will prompt investment decisions that are made on a very uncertain basis. BIS Review 92/2000 10 Concluding remarks Allow me to conclude where I began. I would like to highlight two points. First, the main function of monetary policy is to contribute to nominal stability. This is the best contribution monetary policy can make to a sound distribution policy, to employment, to economic growth and to welfare. Second, history has shown that monetary policy can be effective. If we set interest rates at a level that is too low, we may trigger strong forces in the credit market, as witnessed in other countries and as we experienced in Norway in the mid-1980s. If we allow imbalances to develop in the domestic economy, this could also lead to sizeable capital movements, accompanied by wide fluctuations in the exchange rate and long-term rates. These are strong latent forces that are far too easily forgotten. References Akram, Q F (2000): “PPP despite real shocks: An empirical analysis of the Norwegian real exchange rate”. Working Paper 2000/7, Norges Bank, Oslo. Bernhardsen, Tom and Øistein Roisland (2000): “Which factors influence the krone exchange rate?”, Economic Bulletin 2000/4 (to be published). | 1 |
Other labour market indicators have also been strong, with a 200,000 increase in HMRC payroll numbers in May and an increase in job vacancies to above pre-pandemic levels. Most strikingly, private sector regular pay rose by 5.6% in the April data – though it is important to note that this is boosted by compositional effects, and by a base effect from spring last year. Aiming off for these transitory factors ‘underlying’ pay growth appears close to pre-pandemic levels. As Andrew Bailey set out in his recent speech, the compositional and base effect in the data meant that even if the level of average earnings was flat for the rest of the year, the growth rate would peak at nearly 8%. Putting all that together I expect to see another high reading in the May earnings numbers when they are published tomorrow. The latest REC survey for June reported labour demand growth at record highs, staff availability declining at a record rate, and pay growth rising fast. Against that backdrop it is not surprising that the labour market is a recurring theme of the intelligence on economic conditions that we receive from our agents and from our (virtual) regional visits. Finally there has also been significant news in inflation. UK CPI inflation rose to 2.1% in May, and then to 2.5% in this morning’s June data release. That represented material upside news to our May short-term projections, and as a result also represents a faster move to above-target inflation than we had been expecting. | Credit spreads can widen, also at the short end. 10 Another typical effect is the flight-to-quality phenomenon: as in previous episodes of high uncertainty, during the turmoil savers have shunned equity and credit risk products in favour of government bonds and commodities as well as cash and bank deposits. As a result, bank deposits increased significantly. The term asymmetric information, on the other hand, applies to an adverse selection problem, notably in the interbank market, where market players can no longer distinguish solvent from insolvent borrowers. Such a “lemon’s problem” induces banks to demand high risk premia of their creditors and lead to a general increase in interbank market rates. Moreover, it can lead to the rationing of credit provision. Indeed, during the turmoil, a general tightening of credit standards has occurred and has been intense and wide-spread. Counterparty credit risk and uncertainty about the development of entire segments of the financial market – notably of more complex instruments such as collateralised debt obligations and other related products – were important elements in the development of the turmoil. Central banks have to deal with this increase in uncertainty on several accounts. First, monetary policy needs to take into account the heightened uncertainty: central banks need to refine their monetary and financial analysis, and monitor extremely closely the developments in the financial system and their impact on the pass-through of policy rates to the economy. Second, and to turn to the beginning of my remarks, liquidity management has become more active. | 0 |
In other words, a risk began to gradually build up that the role of the inflation target as benchmark for price-setting and wage formation would begin to weaken – that the nominal anchor that has been an important part of the favourable developments in Sweden since the 1990s crisis would begin to slip. Some say that the Riksbank should not attach any weight to this, but instead hold the repo rate at a higher level. However, I find it difficult to see how the Riksbank could deliberately ignore the risk that confidence in the inflation target, the linchpin of the inflation-targeting policy, begins to be undermined – something the Riksbank alone has the explicit task of preventing – to instead continue to try to counteract financial imbalances building up; a task for which others share the responsibility and have more tools to manage. Should central banks raise their inflation targets? Most of the post-financial crisis debate on the level of the central banks’ inflation targets has been based on rather different trains of thought, as I mentioned earlier. Here the starting points has instead been that problems can arise if inflation and inflation expectations fasten at a too low level for too long. Many economists and debaters have therefore begun to ask whether the central banks’ current inflation targets should therefore be raised. 15 The idea behind the proposal can be described as follows. | 2 Financial stability has great significance for monetary policy There is no doubt that financial stability has considerable significance for monetary policy. Monetary policy largely acts via the financial markets and if these function poorly, monetary policy will have less effect on the economy and on inflation. Problems in the banks can also lead to problems in granting credit in general in the economy and thus to lower demand and lower inflationary pressure. But the effects on unemployment, growth and other aspects of the economy can be substantial, even if this does not extend to a full-scale financial crisis. If imbalances linked to credit-granting and asset prices build up that are unsustainable in the long run, there is a risk that the economic downswings will be deeper and more prolonged. 3 Given the links between the areas, there are arguments in favour of monetary policy taking into account risks linked to financial imbalances. This is actually nothing new. Such arguments were put forward even before the financial crisis, although the debate then concerned “bubbles” on the stock market or property market. Some said that monetary policy should react to such sharp rises in asset prices, over and above the impact the upturns have on the prospects for inflation and economic activity. | 1 |
This pattern is suggestive of a structural trend in the underlying global trend real interest rate, in other words Global R*. This concept can be estimated, using a variety of statistical methods, all of which extract an underlying slow-moving trend from the more volatile data. Some of these estimates, from a range of different academic papers, are shown in Chart 3. The teal line shows a new estimate by Bank staff, based on data for 31 high-income countries. Though there are relatively wide error bands around this central estimate, and alternative estimates from the literature exhibit different patterns, the direction of travel has been clear. In other words, a decline in Global R* over recent decades is common across estimates. Page 6 Chart 3: Empirical measures of Global R* have fallen in recent decades Source: Consumer prices indices, short-term interest rates and government bond yields for the calculation of Cesa-Bianchi et al. (2022)’s global measure of R* from the Jordà et al. (2017) Macrohistory Database and Eikon Refinitiv. Other estimates from Del Negro et al. (2019), Hamilton et al. (2016), Holston et al. (2017). While these statistical estimates help us to understand the dynamics of the trend real rate, they do not tell us why it has been falling. The dynamics of the trend real rate are determined by slowmoving structural factors that affect the balance between the demand for capital for production and the stock of wealth available to finance it. | In the current uncertain environment, it is a challenging time to make predictions about the future. Nonetheless, to conclude let me say a few words on what these results might imply for the policy landscape going forward. As I discussed earlier, the new analysis presented in this speech suggests that the effects of the key drivers of Global R*, particularly increasing longevity, are expected to persist. Absent a significant reversal in the key trends that have driven down Global R*, we may expect it to remain low. So it is not unreasonable to expect that Global R*, the long-run anchor for UK equilibrium interest rates, will remain low. Therefore, cyclical adjustments in short-term nominal interest rates – like those we are currently witnessing in the United Kingdom and abroad – will for the foreseeable future continue to be played out against the backdrop of low global equilibrium real interest rates. While we have considered several important drivers of Global R* in the past, other factors may Page 16 come into play over time. You may wonder, for example, whether the pandemic could have impacted some of the key drivers of Global R*, such as productivity growth. The simple answer, of course, is that we do not yet know. It is too soon to tell what the long-run impact of the pandemic will be for the economy. | 1 |
More banks made such issuances in 2021, giving rise to greater cost dispersion.18 There was also a significant increase in unsecured debt issuances, in this case at a slightly higher cost than in 2020. Meanwhile, deposits at Spanish banks continued to grow in 2021, albeit at slower rates than in the previous year.19 17 The risk-free interest rate benchmark. 18 The rising cost of Tier 2 debt owes, at least in part, to smaller banks issuing these instruments to comply with MREL resolution requirements. This factor may have had an important impact, given that MREL requirements are binding from 1 January 2022 and banks must reach the required levels. 19 The balance of bank deposits held by the resident private sector in Spain rose by 4.1% in 2021, compared with growth of 8.9% in 2020. 10 Overall, the average cost of liabilities20 has fallen in the last two years, down to 0.5% at end-2021, below its pre-pandemic level (slightly over 1%). After falling in 2020, the cost of capital rose in the first ten months of 2021,21 but then fell back again, to 8.1% at December 2021. | Accessibility means it is easy to get hold of cash when you need it, that it is not too expensive or complicated to acquire a card or online banking services or that the mobile network has good cover if I want to use mobile payment or banking services. The same reasoning also applies, of course, to the recipient of a payment. Willingness to accept various types of payment may be undermined by factors such as technical problems, high costs and difficulty in depositing daily takings. Accessibility is also closely linked to uniform payments standards. The methods of payment should be predictable and this is the case if 1 By hijacking a card, we mean skimming and similar activities where the card data is secretly scanned and then used for fraudulent purposes. BIS central bankers’ speeches 1 we all agree on how payments will be made. The more of us that are in agreement the better, as we can then make use of the network effects and economies of scale that are inherent in the mediation of payments. For instance, this type of unanimity means we can be fairly certain that it is possible to pay by card or in cash at the nearest shop. The reason for a positive attitude towards innovation and development is that they enable us to have safe, efficient and accessible payment services. | 0 |
There are also signs that the strong growth in productivity that has been evident in other countries – for example in the US – is moderating somewhat. And we may see a similar trend in Norway. Second, even without a reversal, profits may fall and unemployment rise. The implications of this will depend on how far businesses, in their search for qualified labour, will go in bidding up wages. It will also depend on how wage-earners react and on their ability to adapt to change. Furthermore, it must be expected that the strong krone will shave profits in some enterprises and industries at the moment, even though many have used currency hedging to safeguard their income. Even though demand for labour is strong, there is a risk that outflows from the labour market to various social security schemes will remain high. Sickness absence is high, and the share of the working-age population on rehabilitation schemes or receiving disability pensions is rising. Many workers choose to take early retirement under the AFP scheme (contractual early retirement) when they reach 62 years of age, and – because this age group is expanding sharply – this number will probably increase in the years ahead. In Norway, close to 600 000 persons of working age receive social security benefits or pensions. This is equivalent to 25 per cent of the labour force. This is the Norwegian economy’s Achilles’ heel. A particularly disturbing aspect is that disability is increasing among young people 1 . | There are many self-regulating mechanisms in the economy, but inflation does not regulate itself. The inflation target of 2.5 per cent also provides a framework for the social partners. Over time, nominal wage growth above 2.5 per cent will entail higher real wages and higher purchasing power. Real wage growth that exceeds productivity growth may lead to higher inflation and higher interest rates. In government-financed enterprises, which are often labour-intensive, budgets are adapted to expected wage growth. This is usually in line with assumptions about cost inflation in the economy as a whole and with the inflation target. If wages rise more than this, efficiency must be increased in order to minimise the adverse impact on service production and customers. 2 Calmfors and Driffill (1988): “Bargaining structure, corporatism and macroeconomic performance”, in Economic Policy, April, 14-61 and Driffill (2006): “The Centralization of Wage Bargaining Revisited. What have we learned?” in Journal of Common Market Studies, Vol. 44, no. 4, November, 731-756. BIS Review 122/2007 3 All economic agents can plan ahead on the assumption that inflation will be about 2.5 per cent over time. This is the most valuable contribution Norges Bank can provide the social partners and other economic agents. Thank you for your attention. 4 BIS Review 122/2007 BIS Review 122/2007 5 6 BIS Review 122/2007 BIS Review 122/2007 7 8 BIS Review 122/2007 | 1 |
capable of both encouraging innovation, protecting adequately customers and maintaining the stability of our financial system. The upheavals experienced by the crypto ecosystem and the confidence crisis that has developed from the fallout clearly show from our financial stability authority stand point that the implementation of such confidence prone regulatory framework is urgently needed. Europe has led the way in this field, defining a new regulatory framework, known as MICA (Markets in Crypto Assets regulation). It is important that its implementation takes place as swiftly as possible, within a broader, international effort, building on the high-level recommendations developed by the FSB. 2/ Beyond supporting the development and adoption of a confidence prone regulatory framework we can also, as a central bank, play a positive operational role in revisiting the central bank money services we provide with the objective of adapting them to the digital age and the possible associated development of tokenised finance. This is the reason why in 2020, the Banque de France launched a large-scale experimentation program on wholesale CBDC with a number of market participants. This program has allowed us to understand better how DLTs work and the benefits that are likely to emerge for financial markets. Our main motivation is to extend the existing trust in our settlement infrastructure and assets to transactions carried out on DLTs. Their settlement in central bank money appears essential to guarantee the players in these markets against the counterparty risks inherent with other, private tokenised settlement assets. | If you read just a few of the comment letters on our website, you will see that many of the latest suggestions from the industry would tend to increase the complexity of the New Accord even further. Still, we know that it is easier to enforce a simpler rule than a complicated one. As we complete the text of the new rules, we will continue to simplify and streamline the framework. Conservatism and the balance between soundness and conservatism A second issue that respondents to the proposals have raised is the sense that the New Accord may be highly conservative in its assumptions about how much risk exists in certain exposures. Questions about conservatism matter to us because we are trying to align capital more closely to risk and in a way that is conceptually sound. A good example would be the treatment of retail exposures, including the small and medium enterprises that fall into this category, where the Committee found persuasive economic evidence to support a significantly lower requirement compared to earlier drafts of the new rules. Another example we are evaluating currently concerns the treatment of credit losses for banks adopting one of the more sophisticated approaches to credit risk, the “internal ratings-based” or “IRB” approach. Our current rules for the IRB approach derived capital charges on mathematical estimates of a bank’s credit losses - both those that could be anticipated versus those that could not. | 0 |
This means that a credit expansion process is likely to lead to some credit quality problems in roughly that time horizon. The average duration of the economic cycle (from boom to bust) is similar. This implies that if banks only look at contemporary bad loans to determine their credit risk policies, they will restrain credit and increase risk premia in the downturn. The higher cost of funding for bank-dependent borrowers will feed back to activity, reinforcing recessionary forces. I turn now to provisions. In Spain, until year 2000, loan loss provisions were strongly pro-cyclical (as in many other countries), because they were largely linked to the volume of contemporaneous problem assets. This static provisions are backward-looking, they are based on past events. Only are accounted for loan by loan when borrowers fail to repay or in some cases when the situation of the borrower deteriorates significantly. As a consequence, the ratio of provisions to total loans fell therefore during periods of economic growth and tended to rise considerably during downturns (see lower part of Graph 3). As a result of this, the latent risk of loan portfolios was not properly recognised in the profit and loss account under the old system. In periods of economic expansion the fall in doubtful loans went hand in hand with the decrease in provisions, which in turn allowed bank managers to improve bottom-line profits. | The preference for seeking out private solutions was naturally governed by the aim to minimise the impact for taxpayers; but another determinant here was the objective to undertake the necessary reform of savings banks, which were by then subject to well-known problems of governance, it being considered that a strategy of widespread public aid could set back or make this reform more difficult. The question hanging in the air is whether the alternative of strong public aid to credit institutions in the initial phases of the crisis would ultimately have entailed a lower fiscal cost than the gradual approach opted for. But this question is, as economists would say, counterfactual, i.e. attempting to imagine the consequences – desired and undesired alike – of something that did not happen. Whatever interest this question may have, naturally the Report does not go into it, and I do not believe it is for the Banco de España to respond to it. 10/14 A second question is why some of the savings bank IPSs did not withstand the double-dip recession and had to undertake further restructuring measures as from 2012. With hindsight, the IPSs were in most cases clearly but a prior step to necessary and actual mergers, and several of these groups were evidently insufficient when faced with the second recession. Yet it should be recalled that the IPSs were an instrument that provided for the integration of savings banks and of credit cooperatives, which had less flexibility to undertake true mergers. | 0 |
Some have suggested as a result that Bank Rate be directed not only at meeting the inflation target but also at preventing excessive increases in debt and asset prices. Leaving to one side the feasibility of targeting the latter, the obvious question is how one can meet two objectives with one instrument. The answer of course is by accepting a trade-off between the two objectives. But why should we accept unemployment or high inflation in order to reduce 2 BIS Review 8/2009 financial imbalances? It would be more sensible to use Bank Rate for its traditional task of targeting inflation to maintain a balance between demand and supply in the economy, and to create a new instrument to limit the build up of debt. What is required is an additional policy instrument to stabilise the growth of the financial sector balance sheet. There is an active international debate as to the optimal design of such an instrument, but one way or another it must provide incentives for banks to reduce the volatility of their balance sheet. It is also clear that at the heart of the crisis was the problem identified but not solved at Bretton Woods – the need to impose symmetric obligations on countries that run persistent current account surpluses and not just on countries that run deficits. From that failure stemmed a chain of events, no one of which alone appeared to threaten stability, but which taken together led to the worst financial crisis any of us can recall. | In the public sector, there are no absolute requirements as to profitability and efficiency. Public enterprises do not go bankrupt, and in many cases the authorities cannot allow a public enterprise to discontinue operations. This is a demanding starting point for a shift to more locally determined wages. The possibility of granting local pay increases might, however, increase efficiency if there are binding nominal budget limits for these entities and clear production requirements. When a higher share of wages is determined at the local level and coordination is reduced, it will be even more important to promote flexibility in the labour market and the labour supply. Otherwise, an increasing number of workers may be excluded from working life and unemployment may rise on a permanent basis, while the foundation for production is weakened. Effective labour market programmes, supported by a sound system for education and infrastructure, can facilitate these adjustments. It is also important to assess working environment and labour market legislation with a view to fostering greater flexibility. Hiring costs may be reduced and flexibility enhanced through greater scope for temporary employment and labour contracting. The throughput in universities and colleges can be improved. The financial incentives and entitlement thresholds in our social security system are also of substantial importance to employment. Pensions In Norway, the employment rate is among the highest in the OECD area. This reflects both high labour force participation and low unemployment. | 0 |
Banks were essentially incentivised to focus on aggressively originating loans which were of compromised quality due to lowered underwriting standards. Investors of such bundled risks had then become far removed from their origins. Information was no longer transparent and risks could no longer be fully understood. Economic agents seeking larger returns were in turn encouraged to achieve them through greater leverage, thereby amplifying the vulnerabilities of the financial system and wider economy. 2 BIS central bankers’ speeches Much attention has also focused on the misaligned incentives of financial services professionals as reflected by the compensation structures that rewarded short-term performance and inadequate reprimand for overzealous risk-taking. This, I believe, was also symptomatic of the growing disembodiment of finance from its consumers and the wider economy. When social bonds are reduced to just profit measures, it provides a weak foundation for sustainable finance. Outcomes for finance need to be measured based on end services to the real economy, reflected for example, by an entrepreneur’s successes or the financial well-being of retail clients. The detachment of finance from its function in serving the economy, results in clients being viewed as opportunities for extracting value and transactions as bets on financial outcomes. The prevalence of mis-selling of complex financial products exemplifies this shift in trend. Future finance: re-anchoring finance to the real economy Allow me now turn to some of the imperatives for re-anchoring finance to the real economy. | The AQR itself resulted in a gross impact on asset values in need of adjustment by € billion, € billion of which did not generate a capital shortfall. So if you add up the € billion with the € billion shortfall, you get the overall impact on the banks of € billion coming from the comprehensive assessment. This you can compare with the expectations in the market. I just quote two examples of publications by investment houses of September, the more recent ones, of two big investment banks. One made calculations for a sample of 37 banks and found that, considering the measures already taken by the banks, the shortfall would be zero, and three banks would fail. The other one considered a sample of 34 banks and concluded that, taking BIS central bankers’ speeches 1 into account the capital measures taken by the banks in 2014, zero banks would fail and the capital shortfall would be zero. This compares with our result that out of the 25, 12 banks have already taken measures in 2014 that are enough to cover their shortfall. But there are then 13 banks that still have either to exactly apply their restructuring downsizing as it is foreseen in their plans with the European Commission, or they will have to come up with ways to increase their capital. So this is an important explanation of the meaning of the results that we have. | 0 |
Less positively, a more difficult economic environment contributes to friction between banks and their customers, for example in the greater incidence of default on debt on the one hand and in the greater tendency among banks, in times of tighter margins, to go after that debt. Whether in good times or bad, a certain volume of complaints is a healthy phenomenon because it encourages improvements in service where complaints are upheld, and improvements in transparency where misunderstandings occur. On a subject so important as the way in which banks handle people's money, there will always be complaints, and we need to continue to develop our machinery for dealing with them. Let me deal quickly with the options identified by the HKMA in its survey last year which, if I read it correctly, the debate within the industry and the community is ruling out. The first option of these is the establishment of a separate banking ombudsman along the lines of the practice in some other jurisdictions. This is, in some senses, a Rolls Royce solution in that it would provide a separate agency, to process and resolve complaints, with powers to arbitrate in complaints and award compensation. It would, however, be a costly solution, and it would take a considerable time to implement. Under such a system, the process of handling complaints would probably also be quite resource-intensive, and it is by no means clear that it would be able to address the full range of complaints being made. | First of all, in a Monetary Union which covers an area stretching from Lapland in the north of Finland to Andalusia in the south of Spain, we cannot expect complete homogeneity of the economic cycle or of economic conditions in a more general sense. Therefore, it makes sense for the euro area Member States to maintain control over the remaining tools of economic policy so as to be able, if necessary, to respond to developments which are particular to their own economies. On the other hand, when formulating their economic policies, euro area Member States must give sufficient consideration to the impact that these policies will have on the rest of the euro area economy. This is particularly important in EMU since euro area countries are no longer exposed to the discipline of financial markets to the same extent as used to be the case when they conducted their own autonomous monetary policies. Prior to the introduction of the euro, unsustainable economic policies were penalised by the markets in the form of higher interest rates, substantial risk premia and exchange rate pressure. In EMU, however, where financial markets take an increasingly euro area-wide focus and where the exchange rate risk associated with national currencies no longer exists, the effects of inappropriate policy choices in any one country tend to be largely spread across the entire euro area. Only relatively small risk premia remain. | 0 |
Similarly, the advances in financial engineering and improved expertise have allowed the introduction of new hedging instruments to facilitate risk management. Significant enhancements have been achieved in the measurement of market risk where the use of internal value-at-risk models is fast becoming the industry standard. The advances in the quantitative approach to the management of market risks have also expanded to the areas of credit as well as operational risks. Despite the significant data constraints, new research has strengthened the theoretical foundation for internal credit and operational risk modeling. The development of new hedging instruments such as credit derivatives has also increased the use of credit risk transfer mechanisms within the financial system, thus promoting more active credit portfolio risk management. Key developments have also taken place in the area of operational risk. The BIS Review 21/2004 1 experience of large corporate failures due to fraud and lapses in internal controls has focused greater attention on improving operational risk management in banking institutions. This has prompted the need for banking institutions to provide capital for operational risk and to put in place a more integrated risk management framework on an enterprise-wide basis. The essence of the new accord Ladies and Gentlemen, The efforts of the BIS to introduce an enhanced framework for capital adequacy regulation through Basel II is in the context of these developments. The accord seeks to bring into greater alignment the more advanced concept of capital management into the regulatory equation. | This intermediation process needs to be performed in an environment of financial stability. Therein lies the importance of confidence and soundness of the financial system. Banking business inherently involves risks and these risks need to be rigorously managed. In an environment of heightened uncertainty and increased volatility, this needs to be reinforced with the development of a more robust and resilient banking system. Hence the importance of prudential regulations to ensure the soundness and stability of the financial system. An important component of prudential regulation is having a sound capital framework that measures risks accurately and allocates adequate capital to the risks. The current capital accord issued in 1988 has served as the international benchmark for capital adequacy assessment for banking institutions. While it has achieved the desired results in terms of developing more well-capitalized banking institutions globally, the rapid developments in the financial markets over the years, including the growth of off-balance sheet financing such as asset securitisation have rendered the broad-brush measurement of the existing accord to be less effective. Risk and risk management - the need for new accord New institutional structures and evolving market practices have reduced the effectiveness of the existing accord. While the basic categorization of risks have not changed significantly, the ways in which risks present themselves have changed quite substantially. With the introduction of new products and more complex financial transactions enabled by technological innovations, risks can be disaggregated and rebundled in new ways. | 1 |
To facilitate such heterogeneity, many FICC markets have historically been built around a “market-making” trading model, in which participants trade bilaterally with an intermediary, rather than directly with other investors. For example, in corporate bond markets a market maker will build up an inventory of different corporate bonds when there are net sales from end investors, and run it down when there are net purchases. An important advantage of the market-making system is that, when it works effectively, it provides investors with continuous two way markets. Government and corporate borrowers can generally be confident that they will be able to borrow at a time, in a currency, and for a duration that suits them. Similarly, investors can feel confident that they will be able to trade smoothly in and out of sometimes large positions without unduly affecting the market price. 1 http://www.fca.org.uk/your-fca/documents/final-notices/2014/lloyds-bank-plc-bank-of-scotland-plc.pdf 2 http://www.fsa.gov.uk/static/pubs/final/barclays-jun12.pdf 3 I am particularly grateful to Nicholas C. Barberis for this exposition. 4 Daniel Kahneman (2011), Thinking Fast and Slow, Macmillan. BIS central bankers’ speeches 3 The downside of the heterogeneity of many FICC assets is that the market in specific instruments can sometimes be thin, and hence it may be difficult to gauge what a fair price is. Publicly available quotes can be based on a limited number of small transactions, making them more vulnerable to manipulation. Another characteristic of FICC markets is that they tend to be dominated by large professional counterparties. | With fiscal consolidation beginning next year when the economy firmly recovers, the scheme sets a limit of fiscal burden at approximately 60% of the GPD which is still quite a manageable limit. The environment is therefore becoming more optimistic, the business prospects are becoming bright, and one should now plan for growth. What then, ladies and gentlemen, are the issues that we should pay attention to when we plan for growth? Preparing for rapid growth For emerging markets like ours, I think we have to address issues both at macro and micro levels. At the macro level, the authority has to ensure that there is adequate infrastructure to handle high volume of transactions safely and efficiently. The need here covers not only that of the point of sale hardware and communication technology. The problem is that these things become obsolete quickly and one has to ensure that the domestic system in use is compatible with the international system, as well as the level of security required. But far more important is the financial and legal infrastructure. I will highlight a few, starting with First, the need to clearly define the rights and obligations of card issuers, card users and other parties involved in the transactions particularly in case of frauds. In Thailand, we have now drafted the Credit Card Act to set this framework but its enactment is still pending. Secondly, the need to set up a good credit information system to help card issuers in their risk management. | 0 |
UND1X, UNDINHX and import prices UND1X, UNDINHX and import price for goods: outcome and scenario Percentage 12-month change 5 5 4 4 UNDINHX 3 3 2 2 1 1 UND1X 0 0 -1 -1 Import prices -2 1998 -2 1999 2000 2001 2002 Sources: Statistics Sweden and the Riksbank Diagram 8. Wage costs and inflation Development of labour costs in the business sector and of the CPI Per cent 25 25 Inflation Labour costs 20 20 15 15 10 10 5 5 0 0 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 Sources: National Institute of Economic Research and Statistics Sweden At this stage of economic recovery, the labour market has functioned better in some respects than the Riksbank, and many other observers too, expected. Nominal wage increases have, as I said before, been moderate and vacancies have been filled without this leading to any substantial shortages. At the same time, it would be premature to breathe a sigh of relief. The labour market and the wage formation system have not yet been tested to the full. | The sector has been restrained by several factors including the large shadow inventory making its way through the foreclosure pipeline, tight underwriting standards for new mortgage origination, and the sharp slowdown in household formation. Although the corporate sector as a whole is now relatively healthy, there still is a significant constraint on the availability of credit to small business. Business investment continues to expand, but at a restrained pace. I presume that this partially reflects uncertainty over the economic outlook, including the risks around the evolution of U.S. fiscal policy and the crisis in Europe. Fiscal policy has already become restrictive as state and local governments have cut expenditures in response to revenue shortfalls. Moreover, we face the so-called “fiscal cliff” at the start of next year. At the beginning of 2013, federal fiscal policy is scheduled under current law to become sharply contractionary, with abrupt increases in taxes and cuts in spending. Businesspeople tell me that the uncertainty about how Congress and the Administration will deal with the fiscal cliff – and our fiscal challenges more broadly – is already inhibiting hiring and investment. The fiscal cliff represents a threat to the recovery that is wholly avoidable. But we will only avoid it if our politicians act responsibly. We need a credible strategy for bringing down the federal budget deficit over time in a manner supportive of ongoing economic recovery. Any plan should start slowly, but build steadily over time. | 0 |
The weakening of the krone came to a halt in winter 2004. Again we started seeing signs of a stronger krone. At the same time, inflation remained low. We therefore placed emphasis on interest rate developments in other countries, and in May 2004 Norges Bank thus stated: “The inflation outlook in Norway implies that Norway should not be the frontrunner when other countries increase interest rates.”3 At the monetary policy meetings between September 2004 and February 2005, after key rates had been raised in several other counties, the formulation was changed to the following:”that we should lag behind other countries in adjusting interest rates to a more normal level.”4 3 See Norges Bank press release of 26 May 2004. 4 See press releases following the monetary policy meetings in the period between 22 September and 2 February 2005. BIS Review 38/2005 3 In February, we no longer used this formulation. The background for this is that central banks in other countries such as the US, Canada, UK, Australia, New Zealand and Switzerland had raised their key rates. Our closest neighbouring countries – Sweden and the euro-area countries – and Japan have left their key rates unchanged. On average, the key rates among our trading partners have increased by 0.3 percentage point during this business cycle. | Inflation is low, but the indices are also influenced by temporary and erratic disturbances. Mainland fixed investment has also shown a gradual increase. In its monetary policy assessments in the previous Inflation Report, the Executive Board indicated that growth in the Norwegian economy has become more self-driven. Capacity utilisation is close to normal and rising. Moreover, the Executive Board has also highlighted several sources of uncertainty such as the considerable trade and balance-of payments imbalances in the world economy. BIS Review 38/2005 5 | 1 |
However, the usefulness of such disclosure depends very much on the level of breakdown in the risk disclosure. Furthermore, the US President’s Working Group on Financial Markets recommends (a) a reporting framework for large hedge funds to disclose more meaningful and frequent market risk information to the public, and (b) a requirement on public companies to disclose information about their material financial exposures to HLIs. A challenge here is for other authorities to take similar steps to require such standards of disclosure, as this would help to avoid the possibility of regulatory arbitrage. At the market level, a working group set up by the G10, and led by Jean-Pierre Patat of the Banque de France, studied the feasibility of collecting and disseminating aggregate positions data in the foreign exchange market. I believe the initiative, if implemented, could have helped smaller and open markets in better understanding their currency markets and the accumulation of highly concentrated positions. However, in November 1999, the G10 Governors decided not to proceed further with work in this area. In making this determination, the G10 found that there were a number of practical limitations to the proposal, including the difficulty in obtaining compliance, the unfeasibility of producing the data in a timely manner, and the substantial costs involved. The demise of this initiative left a vacuum in the area of transparency on market concentration. This is unfortunate and the international community should explore other alternatives to bridge the information gap. | Zeti Akhtar Aziz: Malaysia - encouraging savings in a dynamic economy Opening remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the launching of the Merdeka Savings Bond, Kuala Lumpur, 2 January 2004. * * * Ladies and Gentlemen, It is my honour and pleasure to welcome you to the launch ceremony for the Merdeka Savings Bond. The launching of this bond marks another step forward in our efforts to enhance the diversity of financial products for Malaysian consumers. In this more dynamic environment, the Malaysian economy has continued to expand with per capita income rising to exceed levels prior to the Asian financial crisis. This growth has been supported by comprehensive pro-growth policies and the development of a much stronger banking sector that is able to better manage new risks and challenges. As a trade-oriented economy, external developments will continue to be important in affecting our growth prospects. In order to reduce our vulnerability to adverse external developments, increased attention has been given to promoting domestic demand. Policy strategies have therefore been directed at promoting domestic consumption and investment. Low interest rates, together with policies to increase disposable incomes, have led to higher consumption and a recovery in private investment. These trends have been important in sustaining growth. As a high savings country, Malaysia has the potential to promote a higher level of consumption without undermining the prospect for financing of private investment from domestic sources. | 0 |
This comprised foreign investment gains of $ billion, and a small positive currency translation effect of $ billion. After factoring in expenses of $ billion from domestic and other operations, MAS made an operating profit of $ billion. From that, MAS recorded a net profit of $ billion, after contributing $ billion to the Government’s Consolidated Fund. The investment return of $ billion in FY2018/19 is relatively high and reflects mainly the effects of an increasingly larger OFR base. First, the income from investing a larger stock of assets would be higher. Second, realised gains would also be higher, as a larger OFR base means a higher turnover of securities for rebalancing and other portfolio transactions. We do not expect investment returns to be sustained at these high levels as the OFR 8 / 11 BIS central bankers' speeches base will now be smaller after the transfer of $ billion to the Government. Income from a smaller portfolio will be less, and portfolio transactions are also likely be fewer. MAS returned to Government the full net profit of $ billion and another $ billion from its general reserve fund, making a total of $ billion. MAS decided to return this amount to Government as a smaller OFR base would mean that we need less capital and general reserves as buffer. This does not mean that the Government is getting $ billion and another $ billion. The return to Government increased its deposits with MAS by $ billion. | As explained earlier, the transfer of $ billion of OFR to the Government will reduce its deposits with MAS by $ billion. FINANCIAL SECTOR Let me conclude with a quick update on the financial sector. MAS’ various regulatory and developmental initiatives are detailed in the annual report, so I will provide just a high level overview of the sector’s performance. In 2018, the financial services sector did very well, growing at 6.1%.1 This brings the three-year average growth rate of financial services to 4.1%, which is within striking distance of the Industry Transformation Map (ITM) target of 4.3% per annum over 2016–20. In 2019, financial services is expected to grow slower but should continue to outpace the overall economy. Prospects for financial intermediation are mixed, with credit demand weighed down by a slowing Chinese economy, though loans to Southeast Asia are showing a bit more resilience. The picture for insurance is more promising, on the back of growing demand for insurance products catering to high net worth and mass affluent customers in the Asia-Pacific. Growth in asset management will be lacklustre, weighed down by falling market valuations and fee compression. The payments services space should continue to thrive in line with continued expansion of e-commerce activities, both locally and in the region. FinTech-related activities should also continue to grow handsomely, boosted by ongoing digital transformation across the financial sector. Even more heartening than the growth numbers are the jobs numbers for financial services. | 1 |
Complexity has meant that avoidance and arbitrage can flourish behind a curtain of opacity. And self-regulation has meant that even as one wormhole is closed, others can be created in their place. Taken together, this evidence does not paint an especially encouraging picture. Many of the intended aims and purported advantages of a complex, risk-based regulatory approach may not have materialised in practice. Worse, some of the assets of the risk-based approach may even have become liabilities. 6 BIS central bankers’ speeches Unintended consequences So much for the intended consequences of the shift to self-regulatory standards. What of the unintended consequences? Three are worth noting. (a) Cost and compliance First, regulatory complexity comes at a cost – the cost of compliance. These costs are borne, in the first instance, by the regulator and regulated firms. The costs of moving to Basel II, and the emergence of internal models, are difficult to calculate. But external estimates put it at tens of billions of dollars. For European banks, the costs of implementing Basel III are estimated at over 70,000 jobs per year (Harle et al (2010)). For US banks, the costs of Dodd-Frank are also estimated to be tens of thousands of jobs. The costs of Solvency II, the new capital standard for European insurance companies, have been put at tens of billions of euros – and it is unclear even whether this standard will be implemented. | Fraziali Ismail: COVID-19 and climate responsibility, commitment, and collaboration change, collective Closing remarks by Mr Fraziali Ismail, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at Malaysia Showcase during Climate Week NYC 2020, New York City, 17 September 2020. * * * From time to time, we chance upon heart-warming stories of how seemingly small and random acts of kindness, result in something miraculous. I am talking about stories like Jadav Payeng, an environmental activist and forest worker from India, who planted a tree almost every single day for 40 years. Jadav was only 16 when he started working with the district’s social forestry division in a tree plantation drive. Upon completion of the 5-year project, Jadav chose to stay and continued on his quest to save his island. This led him to single-handedly create a real man-made forest, the Molai Forest, which houses several species of animals and thousands of trees that is now almost as big as New York’s Central Park. We also marvel at Afroz Shaz, who began picking up trash on Versova Beach in Mumbai, and inspired thousands of volunteers to join the cause. Versova’s dramatic transformation from filthy to fabulous went viral in India, with praises to Afroz and the volunteers for helping to restore the beach that was previously polluted by 15 years of piled up rubbish. | 0 |
In my description of operational issues within the context of the single monetary policy, I have made numerous and concrete allusions to this reliance of the ECB on the national central banks, in the areas of monetary policy, payment systems and foreign exchange operations. This organisation scheme of the ESCB is in line with the principle of subsidiarity laid down in the Maastricht Treaty. According to this principle, the ESCB shall have recourse to the national central banks to carry out its operations, to the extent deemed possible and appropriate. Consistently with this principle of decentralisation in the execution of the ESCB’s operations, the counterparties (credit institutions) will keep their accounts with the NCBs. Operational decentralisation within the ESCB will be in the very interest of the System. In this regard, let me quote the President of the EMI, Mr. Duisenberg: “Reliance on the infrastructure and operational experience built up by the national central banks will prove a valuable asset. Given that the ESCB needs to be cognisant of differences between financial market participants and structures in the EU, operating through the national central banks will ensure that it has the best possible knowledge of market conditions throughout the euro area”.8 The credibility of the ECB as the decision-making centre will by no means be undermined by this decentralised scheme. It will not depend on the technicalities in the execution of operations. | It will also publish the results of its tender operations. It could equally wish to release daily aggregate data on the reserve holdings, if averaged reserve requirements are in place, and on the use of the two standing facilities, as measured in both cases at the end of the previous day. 2.2. Intraday operations: the spillover from intraday credit into overnight credit as a borderline case To ensure the smooth functioning of the TARGET system, the national central banks will provide intraday liquidity to participants in the real-time gross settlement systems. This will be done in the form of fully collateralised intraday credit operations, in the sense that a credit extended during the day falls due before the end of the day. From a monetary policy point of view, such operations create the risk of a spillover of intraday credit into overnight credit that would undermine the control of the ESCB over the euro monetary base. In other words, the spillover of intraday credit into overnight credit in the books of the central bank can be viewed as a borderline case between payment systems and monetary policy issues. Within the euro area, this risk will be limited as end-of-day debit positions will be automatically considered to be a request for recourse to the marginal lending facility, i.e. an ESCB monetary policy instrument that bears a penalty interest rate. | 1 |
It is important for the banking community to work together to collectively tackle the issue and limit the harm inflicted by the “bad apples” on the system. 23. Earlier last year, the HKMA consulted the industry on a proposed mechanism for doing “conduct-related reference checking” between banks. We have received many useful comments during the consultation exercise, including those from ASIFMA, and we have issued the consultation conclusions in May this year to set out the operational framework for what we call “Mandatory Reference Check” – in short the “MRC”, Scheme. 24. The MRC Scheme will adopt a proportionate approach, where conduct-related reference checks would be required for certain categories of bank staff whose conduct and integrity are especially important. 25. Misconduct behaviours to be captured for reference will include breaches of legal and regulatory requirements; misconduct incidents and incidents relating to honesty, integrity or matters of similar nature; as well as internal or external disciplinary actions relating to conduct matters. 26. Our plan is to implement the MRC Scheme as an industry-led initiative with endorsement from the HKMA, instead of imposing it as a supervisory requirement. We trust that banks will be committed to effectively implementing the Scheme, given the benefits that it will bring to the industry as a whole. 27. The Scheme will be implemented in two phases. Phase 1 will cover directors and senior management positions. And Phase 2 will be extended to roles carrying out regulated activities. | This year, we are advancing to a deep dive into the incentive systems of front offices in retail banks. 16. Based on what we have learned from the self-assessment exercise, we noted that banks’ culture effort in the area of incentive systems is still very much an area of “work-inprogress”. And having appropriate incentive system is such an important piece for inducing desirable behaviour that we have decided to intensify our efforts on this theme. 17. Up till now, we have not seen any guidance published on stylised approach to incentive systems, I guess because the design and implementation of such systems are very much dependent upon the characteristics of individual banks. But we have decided to take up this challenge by looking into the incentive systems of front offices in 20 retail banks, and aim to provide some useful guidance, or at least reference points, to the industry. 18. As you can imagine, the Focused Review on this subject is a very large-scale exercise. We are examining the front-office incentive systems, as well as analysing the perception and behaviour of front-line staff, in 20 retail banks in Hong Kong. So far, as a key component of this review, we have completed an industry-wide employee survey to gauge frontline employees’ views on their banks’ incentive systems and culture. We are encouraged to see the active participation of surveyed bank staff, with an overall response rate of around 70%. | 1 |
The robust recovery momentum on the global scale has resulted in a strong expansion of Thai exports across product categories and export destinations. In addition, the Thai tourism sector has grown consistently with steady increases in the number and quality of tourists. Therefore, it is not surprising to see businesses associated with exports of goods and services enjoying the benefits from the improved external demand. Domestic demand growth, however, is still proceeding at a gradual pace. Despite a continuous recovery, private consumption growth remains well below that of GDP, registering within the 3 percent range. And until recently, private investment growth had concentrated mainly in the export sector. Overall, the large current account surplus of 10.5 percent to GDP last year summarizes the pattern of economic recovery and reflects the imbalance between the external and domestic demand. Second, the rural economy has been exposed to more adverse shocks than its urban counterpart. Specifically, several populist measures including the controversial rice pledging scheme were withdrawn, together with adverse weather conditions such as severe droughts in 2016 and floods in 2017 as well as declines in global prices of key export crops especially rubber and rice, all constituted negative income shocks to farmers. In addition, rural entrepreneurs, which are mostly SMEs, tend to be less 2/10 productive and might not be able to compete with larger firms who are better equipped with capital and technologies. | Nevertheless, the vast expansion of the financial sector would not have been possible without both supportive macroeconomic conditions and inadequate prudential regulation. Global current account imbalances have generated large financial flows, as large developed countries sucked in massive capital flows from oil exporting and emerging economies. BIS Review 59/2010 1 Seemingly bright macroeconomic prospects combined with deregulation and global conditions of over-extended credit. The crisis has shown that deregulation does not always pave the way for greater efficiency and greater prosperity. Rather we have rediscovered the value of properly functioning regulatory and supervisory institutions. And we have also rediscovered the value of mediumterm orientation, sustainability and stability. Consequences of the financial crisis The consequences to be drawn to minimise the risk of a comparable crisis in the future are numerous and wide-ranging. First, comprehensive regulatory reforms of the financial system have to be implemented with top priority. While some progress has been already made, major challenges lie ahead. Most importantly, the pro-cyclicality of the financial system must be mitigated. It is essential to change regulatory and accounting rules that tend to amplify the natural cyclical swings of our economies. Second, we have to enhance the transparency of financial structures. That concerns rules of disclosure as well as market infrastructure. In particular, derivative market instruments need to be subject to greater transparency. But, beyond changes in financial governance, there needs to be a deeper economic assessment of the benefits of these structures to society. Third, incentives should be aligned. | 0 |
BIS Review 36/2005 9 Chart 3: Inflation and Unemployment by Decade RPIX inflation (%) 1950-1959 RPIX inflation (%) 1960-1969 30 30 25 25 20 20 15 15 10 10 5 5 0 0 -5 0 2 4 6 Une mployme nt (%) 1970-1979 8 10 12 -5 0 RPIX inflation (%) 2 4 6 Une mployme nt (%) 8 10 12 RPIX inflation (%) 1980-1992 30 30 25 25 20 20 15 15 10 10 5 5 0 0 -5 0 2 4 6 Une mployme nt (%) 8 10 12 -5 0 2 4 6 Une mployme nt (%) 8 10 12 RPIX inflation (%) 1993-2005 30 25 20 15 10 5 0 -5 0 2 4 6 Une mployme nt (%) 8 10 12 Note: The unemployment rate used here is the Claimant Count measure, published by the ONS from 1971. Unemployment data before 1971 is from Haldane and Quah (1998). The published RPIX series starts in 1976. For observations before 1976, the allitems RPI was used. The RPI series before 1976 did not include mortgage interest payments. | Our knowledge is neither complete nor constant. At the other end of the spectrum, rational optimising behaviour can, in principle, generate a policy reaction function which takes into account uncertainty about the economy and the process of learning about economic relationships. Such a reaction function would describe how a central bank would respond to any conceivable shock in the future, and explain how estimates of parameter values and the weights attached to particular models would be updated. But even in very simple examples the cleverest economists find the solution of those decision problems almost impossibly complicated. Fully rational optimising behaviour is unreasonably demanding. In the words of Gerd Gigerenzer (2001), optimisation is for “Laplacean demons” not human beings – a reference to an imaginary being that “…could condense into a single formula the movement of the greatest bodies of the universe and that of the lightest atom…”10 Both approaches, for very different reasons, end up with a monetary policy rule. The simple rule is not credible because we do know some things and we can learn from the past. The complicated rule is not feasible because it places unrealistic demands on our ability to process information. Given the lack of further guidance from economists as to how to make decisions, central banks have often retreated to the position that setting interest rates requires the exercise of unfettered discretion. But this has problems of its own. | 1 |
The Bank of England has taken a leading role in discussion with other governments and central banks, and with the private sector market participants, to find a more orderly approach to crisis situations and to avoid the kind of damaging scramble to withdraw funds from emerging market economies that marked the Asian Crisis. BIS Review 102/2000 4 The second area of Bank involvement is market infrastructure, the payments and settlements systems that underpin financial markets. Given the size of payment flows, domestic and cross border, the importance of robust and reliable systems is paramount. Any failure in payment systems would result in gridlock and widespread disruption. The Bank has an operational interest, closer to home, in that payment systems, especially in the wholesale market, often rely on the transfer of payments across central bank accounts. Because of this, under the MOU the Bank is explicitly given responsibility for the systemic oversight of payment systems. In carrying out this responsibility, we take a close interest in the interaction of these systems with other parts of the infrastructure - settlement systems and clearing houses. This interest extends to exchanges and the dizzying process of alliances, mergers and failed bids that has marked the attempt to consolidate global equities markets, especially in Europe where, despite EMU, trading is still widely split between markets. The third area of Bank involvement is regulatory policy. | These three most important elements are dependent on developments abroad, international financial markets, and global demand for commodities. The Swiss franc exchange rate, by comparison, does not play a decisive role. There is thus no contradiction between having a strong Swiss franc and a large current account surplus. Nor is the surplus a suitable measure for assessing Switzerland's share in global imbalances. It is much more the case that Switzerland and its extensive level of direct investment abroad contributes significantly to balanced global economic growth. SNB monetary policy is focused on ensuring price stability. In so doing, it takes due account of economic developments. To fulfil this mandate, the SNB must secure appropriate monetary conditions. The current account surplus does not play a role in monetary policy. In an open economy like Switzerland, however, sizeable exchange rate fluctuations have a strong impact on production and prices. In the current environment, and with interest rates close to zero, the minimum exchange rate is therefore the correct monetary policy instrument. The SNB will continue to enforce it with the utmost determination. BIS central bankers’ speeches 1 | 0 |
14 Figure 5 Lending interest rates (1) Credit growth (3) (index, 2002-2017=100) (real annual change, percent) 180 210 25 25 150 180 20 20 150 15 15 120 10 10 90 5 5 60 0 0 30 -5 120 90 60 30 02 05 08 11 14 17 Consumer -5 02 Commercial 05 08 11 14 17 Housing (2) (1) Weighted averaged rates of all operations performed in each month. (2) Loans denominated in UFs. (3) Dotted horizontal lines show average of the last 10 years of each series. Source: Central Bank of Chile using SBIF data. Figure 6 Consumer expectations : IPEC (*) (original series) 80 80 Country's economic situation in 12 mo. 70 Household's perceived situation one year ahead 70 60 60 50 50 40 40 Current personal economic situation 30 20 07 08 09 10 11 12 13 Current economic situation of the country 14 15 16 30 20 17 (*) Value above (below) 50 indicates optimism (pessimism). Source: Adimark. | News conference Zurich, 17 December 2020 Fritz Zurbrügg Introductory remarks by Fritz Zurbrügg In my remarks today, I will begin with the developments in the Swiss banking sector environment. I will then provide an assessment of the current situation at the two globally active big banks, Credit Suisse and UBS, as well as at the domestically focused banks. Finally, I will talk about the impact the coronavirus pandemic is having on the use of cash. Banking sector environment Economic conditions for the Swiss banking sector continue to be difficult. As already mentioned by my colleague Thomas Jordan, while global GDP has recovered somewhat since the downturn in the second quarter, in most countries economic activity remains well below its year-back level. As a result, credit risks in particular have increased worldwide, with ratings of corporate bonds deteriorating significantly over the course of the year. In comparison with the real economy, the situation on the global financial markets has eased considerably more since the spring. Risk premia on corporate bonds rose markedly after the outbreak of the pandemic, but have since largely declined again. Stock prices have also recovered from their downturn in February and March. The steep recession has thus far had very little impact on the Swiss credit and real estate markets. Lending volume in the mortgage market and prices in the residential real estate market continued to rise in the second and third quarters of 2020. Furthermore, the number of bankruptcies and value adjustments on existing loans has remained low. | 0 |
Also, it would be useful if the Fund could develop its own in-house view of a benchmark risk scenario which then can be used, or shared with members, in stress-testing the vulnerabilities of their economies and financial sectors. I probably have used up my allocated time. I hope my remarks have been useful. Again, I would like to thank the Independent Evaluation Office for the invitation. Thank you. 2 BIS Review 95/2006 | Long before I became Governor I said that my ambition was for monetary policy to be boring. You may feel that the latest decision was far from boring. But while it is true that the precise timing was unexpected by analysts, the direction in which interest rates were heading was predictable in terms of the underlying economic data, and indeed was quite clearly predicted – financial markets were anticipating a 25 basis point rise at the February meeting. Looking behind the stunned surprise in the headlines, much of the reaction to our latest decision was that it was only too clear why rates needed to be raised. As one paper wrote last week, “while the timing of last week’s rate rise caught many commentators on the hop, the reasoning behind the move is not at all a surprise”. So I have certainly not abandoned my ambition to be boring. The basis for our prosperity is business. And the excitement in the economy will, I hope, continue to come from your businesses, your new products and ventures. After all, the MPC is there to make inflation, and hence the economy as a whole, more stable. It’s up to you to steal the limelight and the headlines from us. BIS Review 9/2007 3 | 0 |
And improving our supply-side capacity is the major challenge confronting us all - at the national level but also here on the ground in the West Midlands. That's not something which monetary policy - which operates - as I say - on the demand side of the economy can do much about - at least directly. Government in all its forms - at the European, national, regional and local levels - has a vital role to play in this, by helping to improve the transport infrastructure, for example, and I know that you will be discussing that subject later this morning; or by raising the standards of education and training, which are critically important in terms of the available skills of the workforce; and by providing the right business incentives and encouraging investment. But the private sector, too, has a vitally important part to play - including at the regional level. Private sector businesses clearly have a strong commercial interest in the prosperity of the communities in which they operate. | You've already come a long way in the West Midlands. You have weathered the international storm in your more traditional industries far better than might have been expected, and you have been relatively successful in diversifying into higher value-added and more knowledge-based industries. I wish I could claim that life will get easier looking forward to 2020 - but I can't promise that and you wouldn't believe me anyway! But what I do say is that working together, with your “can-do” attitude, you are as well placed as anywhere to overcome the challenges ahead - and I wish you all possible success. 4 BIS Review 53/2002 | 1 |
This means that across a broad range of scenarios, our large-scale asset purchase program is likely to result in a lower federal debt-to-GDP ratio. To sum up, the better choice is for the Fed to pursue the policy that best achieves its mandated objectives and puts the U.S. government in a better fiscal position. This dominates a policy of fewer purchases simply so we can avoid potentially having to explain why our remittances may have fallen to zero for a short period. Issues associated with the normalization of monetary policy Finally, I’d like to talk about some of the other issues associated with the normalization of monetary policy. In general, I think it is premature to spend much time focusing on exit when we have not yet secured a sustainable economic recovery. That’s putting the cart before the horse in my opinion. That said, we nevertheless do need to understand the issues surrounding exit so that we can design the best monetary policy regime to achieve our objectives. On this topic, let me ease three concerns I hear frequently expressed. The first is that the large amount of excess reserves in the banking system will be “dry tinder” and fuel a rise in inflation. As I have mentioned repeatedly, the ability of the Federal Reserve to pay interest on excess reserves ensures that we can control the credit creation process and prevent an upsurge in inflation. | First, consistent with the September statement, the FOMC began a new purchase program of $ billion long-dated Treasuries per month. Second, the FOMC shifted to economic thresholds from calendar-based rate guidance. The FOMC committed to keep the federal funds rate at its current level of zero to 25 basis points at least as long as unemployment remains above 6.5 percent, projected inflation on a one to two year horizon is below 2.5 percent and inflation expectations stay well anchored. Both elements of the policy stance were reaffirmed at last week’s FOMC meeting. So why did we make these changes? The additional asset purchases provide further monetary stimulus. This is appropriate given that we were falling short of our objectives.6 Moving to an outcome-based purchase program also has other advantages. In particular, expectations of the ultimate amount of purchases should change as the economic outlook evolves. This acts as an automatic stabilizing mechanism. In particular, the FOMC’s statement that purchases will continue until the labor market outlook improves substantially provides additional support for the recovery by reducing downside tail risk. The shift to rate guidance based on economic thresholds was not intended to provide additional accommodation at the time it was implemented.7 But, the adoption of thresholds does support the recovery by changing the risk profile in a different way. The thresholds 4 In addition to reinvestment of maturing MBS. | 1 |
The crisis is also expected to have lasting effects on our economy, as both the level and the growth rate of potential output are most likely reduced for a longer time. Turning to price developments in the euro area, according to Eurostat’s flash estimate, annual inflation increased to 1.5% in March, from 0.9% in February. This was higher than expected. While this does not change our assessment, it is important to understand whether the surge in inflation in March is temporary or more lasting in nature. This is difficult to assess without a breakdown of developments in the overall HICP, which will only become available tomorrow (16 April). However, it seems reasonable to consider energy and food prices as the main drivers behind the higher than expected inflation outcome in March. Looking ahead, we expect inflation in the euro area to remain moderate over the policyrelevant horizon. The outcome of our monetary analysis confirms the assessment of low inflationary pressures over the medium term, with money and credit growth remaining weak. At the same time, we need to monitor price developments in the more dynamic regions of the world very closely, as well as the evolution of commodity prices and their potential impact on global inflation. Notably, a multi-speed recovery of the world economy, with some regions growing fast, while the recovery in others remains rather slow, has the potential to exert upward pressure on prices. | We may already have entered into the next phase of the crisis: a sovereign debt crisis following on the financial and economic crisis. Fiscal policy challenges Most governments in the advanced countries will exit from the recession with the highest deficit and debt-to-GDP ratios recorded in times of peace. 2 BIS Review 51/2010 As can bee seen in the chart, the general government deficit in the euro area is expected, according to the latest projections by the European Commission, to exceed 6.0% of GDP in 2009, 2010 and 2011. In Japan, the government deficit-to-GDP ratio is foreseen to reach around 9.0% of GDP in these years, whereas the UK and US government deficits are expected to be in excess of 10.0% of GDP in the period 2009–11. These high government deficits are reflected in mounting government debt, which will reach 88% of GDP in 2011 in both the euro area and the United Kingdom, 100% of GDP in the United States and 200% of GDP in Japan. These developments are the consequence of sizeable fiscal stimulus measures and of interventions in support of financial institutions in many advanced countries, but also of the sharp contraction in economic activity. In the euro area, adverse fiscal developments are a cause of particular concern in several countries, generally those that did not exploit more buoyant economic times to firmly consolidate their public finances. In the United States, too, some States (e.g. | 1 |
Making good decisions in the face of these changes requires a higher level of financial and economic literacy than our schools typically equip people with. Third, in a world where the returns to quality education have gone up substantially (and the penalty for inadequate skills also) we have not done as well as we could in ensuring that Americans have the opportunity to take advantage of the best education this country offers, opportunity that is based on talent, not on the economic fortune of one’s parents. And finally, the prospect for building a political base for confronting our fiscal challenges requires that Americans expect more from their politicians, and raising the overall quality of education is probably an important part of getting better policy results in a democracy. Let me end by noting that by many measures the immediate economic landscape looks reasonably favorable. The U.S. expansion has proven quite resilient. We enter the new year with what appears to be a pretty solid underlying pace of growth. Core inflation is moderate, and various measures of inflation expectations suggest confidence in the outlook for price stability. Estimates of structural productivity growth remains high, although there has been some moderation recently. The pace of global growth has moderated a bit, but most forecasts anticipate a quite strong and broad-based expansion. The IMF’s projection is just over four percent for real global GDP growth. | In the financial markets, this broadly positive outlook has been accompanied by a dramatic reduction in risk premia, leaving the price of insurance unusually low against a less favorable or more volatile environment. Whether this confidence is justified and whether the U.S. economy does as well in the future as it did over the past decade or so, will depend critically on how successful we are in meeting these challenges in the areas of fiscal sustainability, and over the longer terms in trade policy and education. BIS Review 4/2005 3 | 1 |
It is, however, my firm opinion that confidence is being significantly undermined by at least two sources of uncertainty. One is domestic. It arises from the fiscal and regulatory authorities. Congress and the president must put together a program that will encourage growth in final demand as soon as possible by incentivizing private businesses to do what they do best to make growth in final demand possible: Expand investment, hire workers and go about the business of lifting the income and net worth of the American people. Yet, they must do so without running afoul of the need to reverse the downward spiral of the nation’s finances. To this end, I am encouraged that the president and the Congress are going at it hammer and tong, searching to find the right balance between goosing up the economy short term and reining in the longterm fiscal imbalances that are imperiling our nation’s future. The second source of uncertainty has largely emanated from the European debt crisis, which intensified in the spring of 2010. At that time, risk spreads jumped, and both securities prices and confidence retreated. This helped derail the momentum that the economy had built up in late 2009 and early 2010. The sovereign debt crisis has reintensified, as you are all aware, and risk premiums in bond and stock markets are rising once again. Another global factor that undermined the pace of recovery this year, of course, was the disruptive earthquake in Japan and the economic aftershock from this tragedy. | The point is that while I feel the most important role for a central banker is to maintain price stability – and I am always on watch, hawk-like, on the inflationary front – I share with equal intensity the concern of my FOMC colleagues about the employment picture and the overall fragility of our economy. I am keen on finding ways to close the income and output gaps depicted in these two slides and restore economic momentum. I find the last employment report and the recent Federal Reserve Bank surveys of activity, including the Dallas Fed’s, to be discouraging in this regard. When people are frightened, they understandably look for a “fix.” Yet, my colleagues and I are professionally beholden to beware of short-term fixes that might contradict, or place in jeopardy, the long-term duty and credibility of the central bank. I am wary of adopting any policy that might have the unintended consequence of becoming a veterinary fix rather than a more salutary repairing of the ability to propagate jobs. It is no secret that I thought the second round of quantitative easing (QE2) ran that risk. I could not support it when it was proposed because I saw no analytically sound justification that its purported benefits would outweigh its likely costs. | 1 |
In that case, the country is poorly poised to cope with an end to easy money. The economic literature includes many studies that look at the relationship between income from natural resources and economic growth. An article by Jeffrey Sachs and Andrew Warren entitled “The curse of natural resources”2 sets the basic tone: Countries with large income from natural resources 1 Hermod Skånland, ”Norge og oljen – gamle eller nye utfordringer”. (Norwegian only). Lecture, 2 November 1988. 2 Jeffrey D. Sachs and Andrew M. Warner, The Curse of Natural Resources. European Economic Review 45 (2001), pages 827-838. 1/8 have generally recorded weaker economic growth than comparable countries. Professor Thorvaldur Gylfason illustrates this relationship for a large selection of countries in an article published last year.3 Both Gylfason and other authors4 in this field point to Norway as an exception to this general rule. Norway’s management of its petroleum revenues is often referred to as an example of successful organisation. 5 The construction of the Petroleum Fund In 1990, Norway established a transparent system for managing government petroleum revenues. All the revenues are transferred directly into a foreign currency fund, the Petroleum Fund. The Storting (Norwegian parliament) must adopt a resolution on any use of the capital in the Fund. Spending will be prioritised in the same way as for other government spending. There is no hidden use of revenues, or any use for special purposes. The Fund is strictly and effectively “out of bounds” to special interests. | I quote: “A transfer of production and employment between firms and industries may occur through higher domestic cost pressures” … and further … “How strong the pressures will be depends in particular on how strongly Norwegian business and industry is involved in petroleum activities and the scale of revenues that are used domestically”. The report underlines the responsibility that economic policy would have for developments. Fourteen years later, in 1988, former central bank governor Hermod Skånland summarised the experience gained up to that point in time.1 He was pessimistic. We had spent a large share of the cash flow from the petroleum sector on costly counter-cyclical policies and a rapid expansion of welfare schemes. Internationally exposed industries were scaled back, and it seemed that the economy was unstable. Inflation had taken root. Skånland concluded the lecture as follows: “We will be facing greater challenges with regard to demand management than countries with a broader industry base. It still remains to be seen whether we are more capable of addressing these challenges.” Experience of other countries The experience of other countries that had received large, unexpected income from natural resources was not encouraging. The classic example is Spain’s substantial revenues from the colonisation of America in the 1600s. The historian David Landes summarised the Spanish experience as follows: Landes stated that easy money is bad for a country. It is very tempting to live comfortably on this income and be less concerned about safeguarding other revenue sources. | 1 |
7 NORGES BANK Chart 7 Activity picked up faster than expected Number of employed excluding furloughed. In thousands 2950 2950 2900 2900 2850 2850 2800 2800 2750 2750 2700 2700 2650 2650 2600 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Projections May 2020 Projections December 2021 ECONOMIC PERSPECTIVES 17 FEBRUARY 2022 2600 Sources: Statistics Norway and Norges Bank INFLATION IS RISING Two years after the outbreak of the pandemic, we can see that activity in the Norwegian economy has recovered firmly. The same can be said for many of our trading partner countries. But something might be changing. Following many years of low inflation, we are again seeing high inflation figures both in Norway and among our trading partners (Chart 8). A key driver of domestic inflation has been unusually high electricity prices through winter, which have resulted in high electricity bills for both households and firms. Much of the increase is likely to be temporary, and electricity prices are expected to come down in spring. But the winter’s electricity prices may serve as an early warning. The green transition probably means that we will be seeing higher and more volatile energy prices than we have been used to. Chart 8 High inflation in many countries Consumer prices. Twelve-month change. | At roughly the same time, starting in 2011, we’ve seen a substantial loosening in nonmortgage lending standards by banks, an important sign of normalization in credit markets, as Chart 12 (Standards have loosened since 2011 on non-mortgage products) suggests. Perhaps not surprisingly, mortgage standards have only in recent quarters begun very slowly to reverse the significant tightening that followed the housing bust; see Chart 13 (Banks and Lenders Imposed Tighter Mortgage Lending Standards, 2nd half). Broad increases in wealth, continued recovery in the overall economy with higher levels of employment and income, a relaxation of credit standards, and historically low interest rates have led to improvements in delinquency rates and increases in both demand and supply for borrowing by U.S. households. In 2013, we see the consequent increase in household debt. In the last quarter of 2013, aggregate consumer debt increased by $ billion, the largest quarter-to-quarter increase since 2007. More importantly, as shown in Chart 14 (Total Debt Balance and Its Composition, in 2013 total household debt rose $ billion, marking the first four-quarter increase in outstanding debt since 2008. This is at most the beginning of a turnaround, of course: for example, once we adjust for inflation, debt per capita has just barely stopped falling, as Chart 15 (Real Household Liabilities Per Capita) suggests. BIS central bankers’ speeches 5 Further analysis based on our Consumer Credit Panel shows that the growth rates in auto and student loan borrowing have been positive for some time now. | 0 |
A large part of the collateral the banks pledge for these loans will probably be comprised of covered mortgage bonds. The measures should therefore also have a positive effect on the functioning of the mortgage market. Together with the measures taken by other central banks, this should lead to better liquidity in the financial markets globally. A further measure is that the Riksbank as recently as today decided to establish a loan facility in Swedish krona to increase access to loans of longer duration. There have thus been disruptions in the financial markets, but the Riksbank, other government agencies and central banks have taken action to improve the functioning of the markets. We will of course continue to follow developments very closely. We are constantly updating our analyses and we are prepared to take action if necessary. In addition, as I have already mentioned, we have close contacts with the banks, market participants, other government agencies and our central bank colleagues in other countries. Monetary policy When the Executive Board met for our most recent monetary policy meeting on 3 September, the decision was to raise the repo rate by 0.25 percentage points to 4.75 per cent. However, the forecast for how the repo rate would develop in future was lowered in relation to the interest rate path that had been presented in July. The July forecasts contained a fairly high probability for a further two raises during the autumn. | The financial crisis has followed a familiar pattern Our actions during a financial crisis are very important, but the main task in our work on financial stability must be to prevent crises. History has shown that financial crises arise when financial imbalances have built up over a long period. Our most important task is therefore to contain the build-up of imbalances and secure a robust financial system. No two financial crises are alike. However, similar features can often be identified in the runup to the crises. This slide illustrates three features. These elements were also prominent in the unfolding of the most recent global financial crisis. The first feature is often a sharp and persistent rise in property and other asset prices. The second, strong debt growth, is closely linked to the first. Rising debt and increasing property prices is a mutually reinforcing dynamic. Higher property prices lead to higher collateral values for loans. With easier access to credit, purchasing power increases. Debt growth exceeds growth in bank deposits and banks must increasingly resort to market-based funding to finance the rise in lending. They become ever more reliant on market funding, which is often short term. When this cycle is allowed to continue for a period, the financial system becomes vulnerable. Banks accumulate large loans secured on inflated collateral values. Borrowers’ debt-servicing capacity becomes vulnerable to income loss. | 0 |
33 It is also worth remembering that monetary policy works in part through channels that are unaffected by low rates, including its effect on the exchange rate, which provide further support by boosting labour income. 34 Bank staff estimate that such behaviour has reduced GDP by only 0.1% in total since 2007. A far more important determinant of the sustainability of defined benefit pensions is future productivity growth. 32 23 All speeches are available online at www.bankofengland.co.uk/news/speeches 23 That said, there are arguments for the “risk management” approach advocated by Charles Evans among others to minimise the risks of hitting the effective lower bound (ELB). 35 This approach calls for easing policy more aggressively than would be prescribed by the central outlook for activity and inflation when policy rates are close to their lower bound. The additional easing provided by such a strategy removes some of the downward bias to inflation outcomes introduced by the ELB. If it is understood by a sufficient proportion of agents, and affects their expectations, it becomes even more powerful. As well as considering monetary policy tactics within the current framework, an open question is whether the framework itself should be adjusted to embed a commitment to hold rates lower for longer to provide additional stimulus at the lower bound. | It is difficult to put a starting date on the financial revolution which I am attempting to describe - I mean the era of sophisticated asset and liability management techniques, of ever more exotic derivative and hedging products, and so on. But I guess it got going during the 1970s. Why not before? It seems that for most of the preceding postwar years banking and finance enjoyed a rather cosy and protected existence around the world. Capital controls and domestic regulation tended to constrain the scope for competition or diversification; many domestic banking sectors were cartelised to a significant degree, or in some cases state controlled; cross-border migration was, for one reason or another, rather rare. All in all, the incentive and scope to innovate were weak by today’s standards. The environment changed quite quickly when national administrations began to deregulate their financial sectors at the micro level and to free up movements of capital at the macro level. Just as importantly, the electronic data processing revolution began to open up avenues for financial engineering that could never have been dreamt of before. In the dealing rooms of London - then as now the world’s leading international financial centre - professional mathematicians moved in alongside, or even displaced, the “barrow boys”. Perhaps I should explain that the barrow boy stereotype was a Cockney young man from the east end of London with probably no very accomplished formal education but with strong mental arithmetic and trading skills, acquired from working on market stalls. | 0 |
You should have first set up a political federation, with a federal government and a federal budget. Then you could have introduced a single currency.” Two main arguments were put forward. First, without a federal budget of some significance the policy mix would have been very erratic, depending on the random behaviour of the different national fiscal policies of the member countries of the Monetary Union. And second, without such a federal budget it would be impossible to weather, with the help of the fiscal channel, asymmetric shocks hitting one particular member economy of the Monetary Union. These two economic arguments are perfectly valid and would have been sufficient to discourage the creation of the Euro had we not set up a profoundly original concept of national fiscal policy surveillance. It is this concept, the Stability and Growth Pact which guarantees the coherence and the consistency of the European Economic and Monetary Union (EMU), namely a single currency area without a political federation. On top of these fundamental economic underpinnings a number of other considerations are worth mentioning. In particular, a fiscal policy that is set according to rules, and is lived up to, adds to macroeconomic stability by providing economic agents with expectations of a predictable economic environment. This reduces uncertainty and promotes longer-term decision-making, notably investment decisions, and economic growth. In addition, sound fiscal policies can contribute to lower risk premia on long-term interest rates and thus support more favourable financing conditions for the entire economy. | Both new and current Member States alike will be able to enjoy the mutual benefits of a wider Union, in particular from the expanded internal market, as the cases of past enlargements showed. Trade integration has already reached a high level in the acceding countries, where 67% of the total exports and 60% of total import stems from the EU. Both the current and new Member States have prepared intensively for enlargement. Let me first focus on the situation in the new Member States and then in the present Union members. I will concentrate on the ultimate objective of enlargement from the monetary standpoint, namely the future adoption of the euro by the new EU Member States. The acceding countries have made remarkable progress in recent years. They significantly advanced macroeconomic stabilisation and structural reforms. Moreover, the former centrally planned economies have been able to establish functioning market economies. Overall, the progress they have made so far is encouraging. There remain, however, great challenges. The key ones are to advance real convergence while safeguarding and, where necessary, enhancing macroeconomic and financial stability. Locking in inflation at low levels, preserving the soundness of the financial sector, correcting of unsustainable external imbalances in a few cases and renewing efforts towards fiscal consolidation are all of the utmost importance. Moreover, the gap in per capita income between the BIS Review 23/2004 1 current and most of the new Member States remains large. | 1 |
Another topic which is concerning the ECB and national lawmakers is virtual currencies. Luxembourg and other countries in the EU are granting more and more importance to virtual currencies, but you seem to be really cautious. What do you see as the biggest potential threats emanating from cryptocurrencies? One should consider various aspects. One is financial stability, the second is consumer protection, the third is investor protection, the fourth is market integrity and the fifth is anti-money laundering. Concerns regarding these aspects are especially high in relation to what you call cryptocurrencies. I call them virtual tokens, by the way. They are like the tokens you buy when you go to a casino. Studies have shown that 50% of transactions made using these virtual tokens and 25% of users are linked to illicit activities. There are four main risks. The first risk is market liquidity. The market is excessively concentrated, with about 96% of transactions being carried out by 2% of account holders. Second is liquidity risk. These currencies still always need transferring to the real economy because your bakery will not accept them. There were conferences on bitcoins where they said you could pay with bitcoin. But when you tried to pay the entrance fee with bitcoin, it took so long that the conference was over by the time the payment was received. It is not an efficient system. The third risk is that people use cryptocurrencies to create leverage because they don’t get leverage any more in the real economy. | I have noticed that although real growth is evident in the region, it is accompanied by some important risks and vulnerabilities. One of the challenges attached is related to the sustainability of this growth. The National Bank of Romania shares your 1/2 BIS central bankers' speeches view. We should not forget the saying “easy come, easy go”. Loose economic policies, unbalanced budgets and wage-price spirals could cost us much when the economic downturn check is due. This problem hit us severely in the recent past, but we have hardly learned the lesson. Because I have mentioned the economic laws, I will turn now to the legal environment: the report covers extensively the rule of law, the role of institutions and the judiciary. In the report, Central and Eastern Europe is presented as an example of effective measures and progress in this respect, which is of no small importance. Romania finds itself in an upright moment when economic performance is associated with strong achievements in the reform of institutions. We should not waste this moment. In the long run, the economy’s, the institutions’ and the society’s progress goes hand-in-hand, and, conversely, so does their regress. Therefore, we have to be careful not to reverse the current trend. Banks in Europe seem to ride better on the economic tide, also thanks to wide-ranging reforms brought by the Banking and Capital markets Union. Credit is still below its potential and the needs of the economy. | 0 |
First, requiring that we see inflation reaching two per cent not only “well ahead of the end of our projection horizon” but also “durably for the rest of the projection horizon” ensures that interest rate policy will not react to inflation shocks that are expected to fade away before the end of our projection horizon. Second, the condition that “realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term” serves an important purpose in our analysis of the incoming data: it sharply differentiates between the volatile components of headline inflation and the dynamics of underlying inflation, which is the persistent component that is the best guide to medium-term inflation dynamics. The inclusion of a condition that is based on realisations of underlying inflation takes into account the intrinsic uncertainty of economic forecasts, especially during periods of structural change that generate “disparate confounding dynamics”.1 Since the services sector constitutes a large share of the overall price level and since wages (adjusting for productivity) are the principal component in the price of services, the persistent component in wage dynamics plays a central role in the determination of underlying inflation. Accordingly, tracking wage outcomes and differentiating between transitory and persistent shifts in the growth rate of wages will play an important role in assessing progress in the realised path of underlying inflation. | A second basic conclusion is that, if the economy is close to the effective lower bound, it is vitally important to adopt especially forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched. In turn, this may also imply a transitory period in which inflation is moderately above target. In particular, the review identified forward guidance, asset purchases and longer-term refinancing operations as instruments in the monetary policy toolbox that can help to address the constraint of the effective lower bound on policy rates. At its 21 July monetary policy meeting, the Governing Council revised its forward guidance on policy rates in line with this new strategic orientation. In particular, the new forward guidance specified three conditions that need to be met before we would start raising our policy rates. The first condition is that the Governing Council “sees inflation reaching two per cent well ahead of the end of its projection horizon.” The second condition is that the two per cent target is reached 1/2 BIS central bankers' speeches “durably for the rest of the projection horizon.” The third condition is that the Governing Council “judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.” Let me highlight today two key features of this rate forward guidance. | 1 |
With the coming into force of the Payment Card Reform Framework on 1 July 2015, the cost of accepting debit cards has been made more affordable through a fivefold reduction in the interchange fees from about 1.00% to 0.21%. Concurrently, the industry has also committed to invest about RM1.1 billion to enhance the payment card infrastructure over the next five years. This would comprise efforts to expand the number of payment card terminals, adopt PIN-based verification for enhanced security and roll out contactless debit cards for greater transaction efficiency. The industry should capitalise on the lower interchange fees and the Market Development Fund created under the Payment Card Reform Framework to expand the number of payment card terminals among lower tier merchants. Additionally, the industry should leverage on the roll-out of contactless debit cards to promote the use of debit cards to displace cash. In this regard, an industry-wide promotional campaign should be launched in a coordinated manner focusing on educating and incentivising cardholders to use their ATM cards as debit cards to make purchases instead of making ATM cash withdrawals. Financial institutions should also review the effectiveness of the promotional campaigns from time to time and make the necessary adjustments to ensure the intended outcomes are attained. 3. Fostering synergistic collaboration between MyClear and financial institutions Synergistic collaboration between MyClear and financial institutions is critical as investments in technology are expensive. | I am confident that we will continue, with the same intensity, our joint efforts to integrate this very important factor into the Albanian economy at the fastest and broadest extent possible. 2/3 BIS central bankers' speeches Thank you! 3/3 BIS central bankers' speeches | 0 |
Resolution would naturally go hand-inhand with a greater reliance on instruments such as contingent capital. And there would be enormous challenges in resolving global banks that span countries with different legal jurisdictions. Extending resolution procedures to large institutions is a necessary but not sufficient condition for stability of the banking system. 7. More radical reforms All of these potential reforms would be steps in the right direction. They would all help to put more of the costs of maturity mismatch on the shoulders of those who reap the benefits. But taxes, the Basel capital requirements, special arrangements for systemically important financial institutions and enhanced resolution procedures all have drawbacks and are unlikely to do the job perfectly. So, if we cannot rely solely on these types of measures, are there more fundamental directions in which we could move that would align costs and benefits more effectively? One simple solution, advocated by my colleague David Miles, would be to move to very much higher levels of capital requirements – several orders of magnitude higher. A related proposal is to ensure there are large amounts of contingent capital in a bank’s liability structure. Much more loss-absorbing capital – actual or contingent – can substantially reduce the size of costs that might be borne outside of a financial firm. But unless complete, capital requirements will never be able to guarantee that costs will not spill over elsewhere. | All this must be attained in a setting in which new developments and circumstances will be emerging – and they are in fact appearing already – to make our analytical and supervisory tasks more demanding. In any event, enjoying society’s trust and recognition will involve being able to respond successfully to this challenge. To be able to accomplish our mission and reach both objectives, the Banco de España is going to have to adapt. But such adaptation must also stand on sound pillars. The first of these pillars is our independence. Independence is a necessary condition for achieving the aforementioned objectives and it is independence alone that can offer us the best guarantees of success. Secondly, the exercise of independence should be underpinned by analysis and decisions based on the utmost intellectual rigour. This is also the best base from which to address the necessary accountability and transparency to society. Thirdly, we can only properly perform our dual role of members of the Eurosystem and public servants by the pursuit of excellence in our work and by promoting the excellence of our staff. Such excellence has been and is, no doubt, one of the hallmarks of this institution. It is my firm commitment to maintain and enhance the Bank’s human capital. To conclude, I shall adhere to the tradition launched by Governor Linde when he took office and end, as he did, with a quote. | 0 |
I don’t suggest for a moment that the right answer would be to abandon macro-economic discipline and revert to old-fashioned demand management policies. In anything other than the very short term that would be likely to make matters worse. I share the broad consensus view that Europe’s unemployment problems originate essentially in rigidities on the supply-side of the economy. The point is that unless we are all more successful in bringing down this structural unemployment, through micro-economic policies designed to improve structural, supply-side flexibility, then some countries could find it difficult to continue to live with a common macro-economic discipline without significant tensions. Some people on the Continent who basically share this concern are inclined to argue that if the government of a euro-participating country were to find itself in this situation - and given that it would have no macro-economic way out, for example, through exchange rate adjustment, or monetary relaxation, or fiscal stimulus beyond the limits of the Stability Pact - then it would have an overwhelming incentive to take the sort of supply-side measures which have proved so difficult to implement hitherto. And the people in those countries would similarly have the incentive to accept structural change. I am not wholly persuaded that you can necessarily rely upon that making life very much easier. | So BIS Review 29/1998 ˝ -2- that although we know that in principle at the macro-economic level free trade and competition are a powerful positive sum game - and although we have seen it clearly enough in practice - there are always likely to be visible - and vocal - losers. And that is bound to provoke outbursts of popular resistance. Against that background establishing and maintaining free trade to the extent that that has been achieved in the EU is in itself a remarkable achievement. But the EU has already in many areas gone well beyond just free trade, in establishing the single market. That involves more than the free movement of goods and services within Europe. It involves also the free movement of both labour and capital, as well as supporting European legislation to avoid market distortions from, for example, state aids, or government procurement, or restrictive practices within the private sector. This further pooling of sovereignty has essentially the same purpose - it is designed to reinforce the macro-economic benefits from free trade and competition and act as a stimulus to growth and employment by allocating resources still more effectively based on comparative advantage, enabling savings to flow to where they can be most productively invested and production to be located where it can be most effectively carried on to satisfy consumer demand. The advent of the euro represents a massive new step in the same direction. | 1 |
Against this background, key concerns of Asian central banks focus on the global economic slowdown, tightened global liquidity, and potential capital outflow. Indeed, slower export growth to major advanced economies, and adverse changes in equity market wealth on real consumption, investment, and income will certainly affect export-dependent Asian economies. BIS Review 135/2008 1 As for financial market volatility going forward, some of the growth projections that came out of various sources, including the degree of volatility in asset and currency markets, would quite easily exceed even the most conservative stress-test scenario that most banks would have carried out six months ago. However, if the experience of Asian crisis is anything to go by, one should remain alert to the possibility of a long period of correction and adjustment. Moreover, given the global contagion, economies and markets with less structural resiliency, and lacking width and depth and thus liquidity, may eventually encounter dislocations in their real sectors. What does this combination of global slowdown and heightened market volatility mean for banks and financial regulators? Ladies and Gentlemen, In this scenario, credit risk management would be the priority for banks and regulators, to ensure that going forward, asset quality remains sound, and banks have adequate capital and provision to absorb this risk. Indeed, the underlying cause of the present global financial crisis is the lapse in credit culture and credit risk management, which has allowed excessive leveraging and indebtedness. | Rates are considerably lower in Sweden (4.25), Denmark (3.50) and Finland (3.25). Wage developments over the last few years can contribute to explaining the differences. In Norway wage growth has been high over the last five years, reflecting a tight labour market. Looking at data for wage growth from the OECD, the ranking of interest rate levels in the Nordic region corresponds to the ranking of average wage growth since 1998. The Norwegian krone has appreciated by around 15 per cent since mid-2000. Seen over a longer period, the krone has been rather stable. The present level is only around 6 per cent stronger than in 1990. Over this longer period, other Nordic currencies have shown larger fluctuations. Over the last two years, the appreciation of the Norwegian krone has been driven by the wide and increased interest rate differential between Norway and other countries. The interest rate differential reflects high growth in wages and aggregate demand in Norway. There is thus a clear link between cost pressures in the Norwegian economy and the exchange rate. The link works through interest rate expectations driving the krone upwards. The appreciation of the krone has a dampening effect on inflation. At the same time, profitability in the internationally exposed sector is under pressure both due to higher wage costs and the appreciation of the krone. But the krone can move in both directions. It will not appreciate indefinitely. If the krone follows the path of the forward rate, it will depreciate in the years ahead. | 0 |
Can households pay for consumer goods with debit cards, cheques or credit cards, or do they have to carry significant amounts of cash with them? Can workers in urban areas transfer money to their rural families by simply sending an SMS, or do they have to carry it with them on a dangerous bus ride? Particularly in Africa, where distances are vast and security is often a concern, the availability of non-cash payment instruments can increase the returns to economic activity for businesses and households. Figure 3 shows that today, most economies in Africa are still strongly cash based. Both in sub-Saharan and northern Africa, more than one-third of funds available for immediate payments are in cash form. The notable exception is South Africa where the level of non-cash money is above 80%, and thus similar to that of Switzerland. Developments over the past 15 years show a promising picture for other countries on the continent as well. Since 1995, the share of non-cash money has increased from 50 to 60 percent in sub-Saharan Africa, and 55 to 65 percent in North Africa. This mirrors the increased availability of electronic payment instruments available to businesses, but also to households. | Philipp M Hildebrand: The role of central banks in fostering economic development Speech by Mr Philipp M Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Inaugural Meeting of the Africa Emerging Markets Forum, Gerzensee, 1 October 2007. The speaker gratefully acknowledges the valuable assistance provided by Raphael Auer, Martin Brown and Werner Hermann in preparing this speech. * 1. * * Introduction On behalf of my Governing Board colleagues, let me warmly welcome you to the SNB Study Center Gerzensee! It is an honour and a privilege for the Swiss National Bank to host the Inaugural Meeting of the Emerging Markets Forum for Africa. I trust you are well rested this morning. By now, you will have noted that the Study Center Gerzensee is not a five star hotel. Compared to other conference centres, the service provided here is modest. We like to think that we emphasise substance rather than style. We try to create an atmosphere conducive to learning. The Center serves multiple purposes. It is here, for example, that we organise advanced courses for selected central bank professionals from all over the world. According to the traditional policy of the Center, only one participant per country is allowed in each Central Bankers Course. In the 25 years since the creation of the Center, more than 300 participants from African central banks have attended these courses. | 1 |
In this case, flexibility means the possibility of third parties voluntarily 5 Garrido, I., P. Moreno and X. Serra (2012), “El FMI y los acuerdos regionales de financiación”, Boletín Económico, March, Banco de España, and (2016), “The new map of international financial institutions”, Economic Bulletin, January, Banco de España. 6 Johannes Linn (2018): “Recent threats to multilateralism”, Global Journal of Emerging Market Economies 9, 86–113. 7 https://www.bundesbank.de/en/press/speeches/policy-evaluation-assessing-the-effects-of-post-crisis-financialsector-reforms-799146 8 https://www.imf.org/en/Publications/Policy-Papers/Issues/2017/07/31/pp073117-collaboration-between-regionalfinancing-arrangements-and-the-imf 6/8 adhering to a plurilateral agreement in due course (making the agreement multilateral in essence), while maintaining peer pressure to avoid free riding.9 Furthermore, the new global governance system should recognise that both regionalism and multilateralism are compatible, as some problems are of a local nature and are better tackled locally. Regionalism and multilateralism are not mutually exclusive. On the contrary, both approaches can support and complement each other, generating synergies that strengthen the global financial safety net. Indeed, bilateral and regional agreements have in many cases brought about improvements in the multilateral trading system. E-commerce is a good example of this.10 In this regard, the European Union, for example, should maintain its proactive approach to preserve the rules-based global trade system. | To quote Anne Krueger, this episode is an excellent example of how "efforts to depart from 3/8 multilateralism have provided more vivid illustrations of the need for multilateral solutions to international economic policy issues”.1 Ever since the signing of the Bretton Woods agreements, international cooperation has focused on creating a system governed by generally accepted rules. These have been complemented by mechanisms and procedures to ensure compliance and to resolve potential conflicts on the basis of fairness and equity from the perspective of all member states. In this rules-based system, multilateral organisations play a key role, by promoting the transparency and predictability of the system and by seeking to limit free-riding. There is a broad consensus that this system has been key to the development of globalisation and the promotion of economic growth and prosperity for many countries over the past half century. Trade barriers were drastically reduced and trade flows soared. According to the WTO, between 1948 and 1993 the value of world merchandise exports increased from $ billion to more than $ billion; and they jumped to five times that figure after the creation of the WTO. More importantly, in 1948, 63 percent of those exports were traded by Western Europe and the US, by 1993, this percentage had decreased to 58 percent and in 2016 it reached 48 percent, with a major shift in flows towards Emerging Asian countries. | 1 |
Given these critical roles and the risks posed by periods of sharp volatility, understanding the manner in which the evolving market structure is affecting market liquidity, efficiency, and price dynamics is of the utmost importance, and something we plan to study further. Best practices in the treasury market The Treasury Market Practices Group (TMPG) recently released a consultative white paper that addresses the effects of ongoing changes in automated trading on the structure of the Treasury market. This study was well under way before October 15, but it includes some preliminary observations from the TMPG on that event as well. The TMPG is a group of market professionals, sponsored by the New York Fed, committed to supporting the integrity and efficiency of the Treasury, agency debt, and agency mortgage-backed securities markets. The group has released a wide range of best practices for these markets, including a fails charge that resulted in a dramatic decline in delivery fails in Treasury securities and agency MBS, and the recommendation to margin forward agency MBS trades, a practice that now covers most bi-lateral forward trades in that asset class. The TMPG white paper on automated trading in the Treasury market includes an updated set of best practice recommendations that provide additional guidance for firms and trading venues involved with electronic and automated trading. Some of the changes to the best 8 BIS central bankers’ speeches practices have to do with improving governance and back-office processes to keep pace with technological advancements. | BIS central bankers’ speeches 7 October 15 also raises questions about the nature of liquidity in the Treasury market today. As I mentioned earlier, market liquidity is a difficult concept to pin down, and if one asks how liquidity evolved on October 15, the answer will differ depending on the measure of market liquidity you have in mind. It is certainly the case that some frequently-cited metrics of liquidity, such as the quantity of orders available for execution in the CLOB at a given point in time, often referred to as “market depth,” showed significant signs of strain that morning. But volatility was also elevated, so a coincident reduction in market depth may be unsurprising. Indeed, an increase in volatility and reduction in depth can work in a self-reinforcing manner, in which reduced depth causes trades to have a greater price impact, while the resultant volatility causes market depth to shrink further. This dynamic has always existed in markets, but it is possible that automated trading serves to exacerbate it in certain situations. But even if a sharp reduction in market depth makes sense given an increase in volatility, a trade of reasonable size would have been more expensive for a customer to execute in the event window, and would have had a greater price impact, than in more normal conditions. In this sense, liquidity was challenged, and frequent periods of strained liquidity would be undesirable for the most liquid sovereign debt market in the world. | 1 |
Conclusion It is sometimes argued that the current expansionary monetary policy discourages governments from undertaking the necessary structural reforms in the euro area. But that begs the question: why weren’t these reforms carried out when interest rates were higher? We have to stop searching for reasons why structural reforms are not being addressed. To lift potential growth and strengthen the underpinnings of our Economic and Monetary Union, we need comprehensive, well-sequenced structural reforms in national Member States, as well as at European Union level. And we need them now. European citizens started losing trust in the European Union and its institutions when they started losing sight of their tangible benefits, that is, the impact of the integration process on their jobs and standards of living. Rapidly vanishing trust in turn prevents those steps towards European integration from being taken which are indispensable if we want to meet today's challenges. The burden of breaking this deadlock cannot be borne by the people of Europe: the burden must be borne by the EU and its institutions and by European governments. Indeed, the best way to respond is to identify a sequence of reforms for creating jobs and growth. If carefully designed, such a sequence can gradually recreate trust and lead us to where we want to be: to the point where a discussion on the future of Europe, and the degree of sovereignty which needs to be shared to secure it, is again possible. This is not low-hanging fruit. | $ q]Y& 4 8 8 3%8 -3% 7 8-#4 33734#3434%83 84 37 34 8 8! 847"834 4 % $ 8 8 3%8 -3% 7 8-3834 '743 8%3 74 %#%(8% %3"8# ##8"7 3%8 "8%4 +45,467. 7 373#%7 3 " --= *. 3 8 84 17434 738 %%848 7 3 8%7 774 9998 4 7 -83(8%-+,+)-,5-,?-9'%8 3 %' ( %83 3#8 7478#34 999#4 " -- 84 %3#34 8 #( 83 ). *,,.55.l78l | 0 |
In the early years of this century, many emerging economies expanded at a rapid pace. They benefited from increasing integration with the global economy and the tailwinds of buoyant financial markets. As these factors diminish, many countries have to adjust to a new reality. In several economies the slowdown has revealed and exacerbated structural problems which are increasingly restraining growth. A continuation of the rebalancing process is needed to secure sustainable growth over the medium term. This could imply some headwinds in the short term, which will require close monitoring of the related risks. One consequence of this adjustment is the divergence of economic cycles. While the recovery in advanced economies is gradually proceeding, the growth momentum in emerging market economies has weakened. Weaker global demand has also contributed to the recent fall in the price of oil and other commodities, which in turn may have aggravated fiscal and financial fragilities in some commodity-exporting economies. Countries that have suffered worsening terms of trade have seen a sharp decline in activity, while investment in their energy sectors has contracted. Recent financial developments Since early December, a general deterioration in market sentiment has taken root and has gathered pace over the last week. This initially appeared closely linked to concerns regarding weakening economic activity around the globe – notably in emerging markets – and to potential adverse signals from falling commodity prices. Over time however, market sentiment has become more volatile and susceptible to rapid change. | This limit ensures that banks still have to borrow from the Eurosystem at the monetary policy rate set by the Governing Council. Here is where the ANFA comes in. Its purpose is to limit the size of the NCBs’ non-monetary policy portfolios, net of the related liabilities, and thus to ensure that the Eurosystem can effectively implement the single monetary policy. Of course, when performing national tasks, the NCBs must comply with the Treaty including the prohibition of monetary financing. Moreover, if these tasks were to interfere with monetary policy in any other way, they can be prohibited, limited or have conditions placed on them by the Governing Council. The publication of the previously confidential ANFA text was a unanimous decision of the ECB and the NCBs in the Eurosystem to live up to our commitment to be transparent. This publication should resolve misunderstandings about ANFA. In particular, it clarifies that the sole purpose of ANFA is to set limits for non-monetary policy operations related to national tasks of the NCBs, which they are allowed to conduct according to the Treaty. Nothing more and nothing less. These limits ensure that the NCBs’ operations do not interfere with the objectives and tasks of the Eurosystem and, in particular, with the single monetary policy. BIS central bankers’ speeches 3 Finally, complementing the information on ANFA, the ECB also published data on the Eurosystem’s aggregate net financial assets. The NCBs will follow suit and disclose their respective net financial assets when publishing their annual financial accounts. | 1 |
Recognising shifts in the operating landscape, the Financial Sector Blueprint 2022-2026 focuses on fostering market dynamism to enable financial sector to be highly adaptive to wide ranging scenarios. Regulatory efforts will be directed toward targeted interventions to remove undue barriers to innovation as well as address market failures. The Bank is also reviewing how we regulate innovation to facilitate a more conducive environment for solutioning. This includes reviewing existing policies and enhancing the Regulatory Sandbox to better support innovation in value-based finance, including the novel application of Shariah contracts. We also strongly encourage innovation in impactdriven instruments such as Islamic social finance, blended finance, and green solutions. Potential recalibration of existing regulatory requirements will be explored to support the broader and more diversified application of Shariah contracts in advocating inclusivity and sustainability. Secondly, financial institutions must demonstrate immediacy, and act together to solve 'real world' issues. The need for a collective and coordinated response to deliver meaningful impact to stakeholders is urgent and paramount. The flood last year provided a harrowing glimpse of the consequences of fragmented actions. Delayed evacuation responses and inefficient donation allocation to relief centres resulted in lost lives and wastages. Applying lessons learnt to achieve desired outcomes for the financial sector – which is finance for all, finance for transformation and finance for sustainability – requires leaders to have foresight in identifying collaborative 1/3 BIS - Central bankers' speeches opportunities across industries and work together to develop impactful and scalable solutions. | To date, 109 approved projects have received financing worth RM1.5 billion by 22 banks, of which 17 projects are receiving financing worth RM300 million from six Islamic banks . For the first 9 months of 2013, 33 companies received approved financing facilities totaling RM416 million. The 2 BIS central bankers’ speeches approval rate for the financing has also improved from 54% in December 2012 to 59% in September 2013, reflective of the positive reception of financial institutions towards green technology financing. The recipients of the financing facilities operate in a broad range of green technology sub-sectors that covers energy, buildings, transportation and water and waste management. This financing initiative has also contributed to increasing employment, with the generation of nearly 1,400 jobs. The additional allocation of RM2.0 billion of the GTFS therefore presents an opportunity for financial institutions, including Islamic banks to further expand financing into this new and exciting area of growth. Strong potential for Islamic finance to support green technology This brings me to my next point – the role of Islamic finance in contributing towards a diverse and robust financing ecosystem for green ventures. In the Quran, verses 11 to 14 of Al-Fajr emphasise the need to care for the environment and the forms of life that Allah has created on this earth that includes proper usage of natural resources. | 0 |
The second was the economic programme developed by the Icelandic authorities in co-operation with the IMF. The programme had three key goals: stabilisation of the exchange rate, fiscal sustainability, and reconstruction of the financial sector. Comprehensive capital controls were an important element in the programme, but their rationale was to help to stabilise the exchange rate in a situation where the currency had fallen more than 50% in 2008, where foreign króna positions that were a legacy of carry trade and capital inflows amounted to around 40% of GDP, and where a large fiscal deficit that had to be financed in the domestic market had developed. The capital controls therefore gave monetary policy more scope to help stabilise and turn around the real economy once inflation came down. Subsequently, they shielded the eocnomy from the financial spillover effects of the crisis in the eurozone. 2 BIS central bankers’ speeches But the problem is that they are still in place, over five years after the climax of Iceland´s financial crisis. The reason is that Iceland is still facing a balance of payments crisis that is a legacy of former capital inflows and the unwinding of these big cross-border banks. | For me questions include: is there any evidence that the tight labour market is easing; what is the revised outlook for demand in view of the Government’s fiscal announcements; are domestically generated inflation pressures consistent with returning inflation to the 2 per cent target; and what do financial market developments tell us. The MPC was clear in its language in September that should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee would respond forcefully as necessary. In the context of the developments I’ve set out for you, today I think the central question for all nine of us on the MPC is how forceful do we need to be, to ensure inflation does return sustainably to the 2% target in the medium term. These are very challenging times for the UK economy and millions of households and businesses are experiencing real hardship as a result of the cost of living crisis. On the MPC we are acutely conscious that for many our monetary policy actions are adding to the difficulties caused by the current situation. We know from past periods in our history the damage to households and businesses that would result if high inflation persisted. Unlike earlier inflationary episodes, where we saw more persistence in inflation caused by ineffective policy and policy frameworks, this time we have a monetary policy framework which empowers us to take action. | 0 |
On the bond market, there are some corporate and bank bonds issued in euro. However, trade is modest, which is probably due to the fact that it has not been as cheap to borrow on the euro market as was expected. The fact that Swedish companies still choose to seek financing there may be due to the fact that it is the only way for some of them to borrow really large volumes. Nor has there been any major change in the spot trading in krona on the foreign exchange market, compared with the period prior to the introduction of the euro. The average daily turnover in SEK against DEM during the period 1995-1999 was SEK 19.2 billion. The corresponding figure for 1999 and 2000 was SEK 19.5 billion. BIS Review 26/2001 3 Developments on the Swedish stock market have been similarly modest. Since the introduction of the euro, it has been possible to list shares parallel or exclusively in euro on the OM Stockholm Exchange. During 1999, three companies made use of this possibility. They were Electrolux, Nordea and Stora Enso. Since then, no new companies have registered an interest in being listed in euro and trading in the three already listed companies has been very modest. The talk of the death of the krona has thus been greatly exaggerated. It is hardly surprising that there was no spontaneous changeover to the euro. This is in fact what we at the Riksbank said when the debate reached its peak a few years ago. | Today, low-inflation policies seem to enjoy high credibility in most countries, which is indicated in part by the fact that the rise in the oil price at least so far has had small effects on inflation expectations. The risk of an oil price rise spreading to wages and other prices in the economy is therefore also likely to be low. Furthermore, in the case of Sweden it should be added that inflation is rising from a low level and that agreements in the labour market have been settled for 2005 and 2006, further reducing the risk of contagion effects via the jobs market. To sum up: the fact that the increase in the oil price is partly a demand-driven phenomenon, that the dependency on oil has decreased and that inflation-targeting regimes enjoy high credibility suggests that the higher oil price should mainly be reflected in a temporary, limited rise in inflation and that the effects on the real economy should be fairly small. If this is correct, the general economic and inflationary developments are more significant for monetary policy than developments in the oil price. This brings me to a discussion of the broad outlook for the Swedish economy in the years ahead. Economic activity in Sweden Despite the Riksbank’s relatively optimistic outlook for the Swedish economy compared with other forecasters, we have gradually revised up our forecasts in the past year. | 0 |
Some of the issues in resolving large, internationally active financial firms have been recognized for some time – the multiplicity of jurisdictions, differences in insolvency regimes across countries, complexities in unwinding certain books and the largely untested nature of national, much less international, resolution processes for such very large financial firms. Over the last 20 years, the international legal and supervisory communities have undertaken several efforts to address these issues. In the wake of the financial crisis, the Basel Committee on Banking Supervision formed a Cross-Border Bank Resolution Group to identify what improvements could be made to the international resolution process and recommend actions to be taken. It published its recommendations in March 2010. The CBRG’s report is admirable in its clear description of the problems encountered in the fall of 2008 and the concrete nature of its recommendations. I will be referring to them throughout my remarks. As the CBRG was completing its draft report, the Financial Stability Board asked a working group, the Cross Border Crisis Management Group, to advance the development of recovery and resolution plans for cross-border institutions as recommended by the CBRG. I’d like to make three points today. The first is to highlight the importance of timely supervisory action in preserving the value in a financial firm. The second is to underscore the important innovation in supervisory practice represented by recovery planning. The third is to paint a picture, an admittedly optimistic picture, of the improvements in the international resolution process made possible by following the recommendations of the CBRG. | The transition to a netzero economy can only be achieved with a committed and concerted effort across the public and private sector. I wish all of you a fruitful discussion ahead. 3/3 BIS central bankers' speeches | 0 |
They mean that in thinking about ways to mitigate systemic risk it is not tenable to focus simply on bank-centered financial institutions, and it is not feasible to achieve change through national approaches applied only to the institutions of the home country. For these reasons, where we see a need to induce a broader change in market practice, a broader range of informal mechanisms of cooperation among supervisors, among market participants and involving supervisors and market participants would be useful. The second generation of the Counterparty Risk Management Policy Group, led by Jerry Corrigan, is one example of a market-led initiative to define a set of common challenges and recommendations for 4 BIS Review 14/2006 change. Supervisors in the major financial centers are following progress against those recommendations closely. The effort to improve the post trade processing infrastructure for over-the-counter derivatives is an example of regulatory cooperation to help address a collective action problem among market participants, with some encouraging initial results. In this effort, the 14 major dealers along with almost as many supervisors and market regulators from the United States and other major countries, met at the New York Fed in September 2005. We outlined our concerns and asked the dealers to give us a plan for how to fix the problem. They came up with a credible plan, with a set of outcomes-based targets, and agreed to report progress on a common set of metrics. | Timothy F Geithner: Risk management challenges in the US financial system Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Global Association of Risk Professionals (GARP) 7th Annual Risk Management Convention & Exhibition, New York City, 28 February 2006. * * * Thank you for giving me the opportunity to speak to you today. We have seen dramatic changes in the U.S. and global financial system over the past 25 years, and we are now in the midst of another wave of innovation in finance. The changes now underway are most dramatic in the rapid growth in instruments for risk transfer and risk management, the increased role played by nonbank financial institutions in capital markets around the world, and the much greater integration of national financial systems. These developments provide substantial benefits to the financial system. Financial institutions are able to measure and manage risk much more effectively. Risks are spread more widely, across a more diverse group of financial intermediaries, within and across countries. These changes have contributed to a substantial improvement in the financial strength of the core financial intermediaries and in the overall flexibility and resilience of the financial system in the United States. | 1 |
As you know, OMTs, while ex-ante unlimited in time and amount, are strictly conditional upon the country implementing a programme making it eligible to financing from the European Stability Mechanism. 2 BIS central bankers’ speeches 3. By definition, “non-conventional” policies are highly innovative and central banks have made great efforts and devoted large resources to explaining their rationale and modalities. Nevertheless, there remain some misperceptions and concerns which I will briefly try to dispel and address. First, there are fears that the whole process of balance sheet expansion is inflationary. Indeed, one important effect of non-conventional policies is to significantly increase the quantity of central bank money in the economy. Since, ultimately, inflation is always and everywhere a monetary phenomenon, it may seem natural to anticipate further inflationary pressures down the road. While I understand these preoccupations, I do not see, in the current situation, any reason for concern. True, there has been a strong increase in central bank money and the situation should be monitored accordingly. What matters, however, for inflation, is the changes in broad monetary aggregates, which determine private agents’ ability to purchase goods, hence the price level. These broad aggregates have either remained unchanged or grown very slowly. What has happened, in fact, is that broad money has been substituted by central bank money as economic agents have felt the need to hold more liquid and safer assets. This expansion in central bank money has not affected inflation expectations, which have remained well-anchored. | Interest rates have been on the increase recently in most parts of the world and capital is not as cheap as before, although it can still be procured at very low rates. Conditions in capital markets in general are therefore more likely to tighten in the coming years. Influential as economic developments on both sides of the Atlantic may be for the Icelandic economy, the way we handle our own affairs is still important. The crucial consideration is to achieve a rapid reduction in macroeconomic imbalances and restore stability. To do so, domestic demand must be reduced. Part of this process will occur automatically with the completion of ongoing investments in the aluminium and power sectors. Much has changed since the meeting a year ago, some things for the better, and others not. The current account deficit run up last year will not be forgotten for a long time – it even managed to trump the most pessimistic forecasts. Fortunately, clear signs of a gradual contraction are now visible, but this improvement is likely to be slower than we had previously expected, especially on account of foreign debt service. The Board of Governors of the Central Bank decided yesterday to leave the Bank’s policy rate unchanged at 14.25%, at the level where it has been since December. By contrast, the day before last year’s annual meeting, the Board of Governors raised the policy rate by 0.75 percentage points. | 0 |
On the crisis prevention side, it has now been agreed that there is a need to reinforce multilateral surveillance at the global level. To this end, the FSF and the IMF will intensify their cooperation with a view to enhancing the assessment of financial stability risks on a global scale as well as to coordinating possible policy responses. This endeavour should be mirrored at the national and the regional level by heightening the level of cooperation and exchange of information between central banks and supervisory authorities to establish an overall better monitoring and assessment of the risks to the financial system. On the crisis management side, the ECB focuses on central bank operations and on crossborder arrangements between financial authorities. With regard to central bank operations, I would underline that we need to ensure that central banks’ operational frameworks are flexible enough to deal with extraordinary situations. In this respect, the Eurosystem’s framework is very flexible. In terms of cross-border arrangements between financial authorities, I would stress the urgent need for enhancing cross-border arrangements between banking supervisors for dealing with weak banks. In fact, the global nature of financial markets and the increasing interlinkages between markets and institutions mean that the systemic impact of a financial crisis can only be properly assessed if supervisory authorities share information on the risk exposures of large institutions and on the impact of shocks in their jurisdiction. In addition, supervisory cooperation should be intensified on a cross-sector basis. | Yet in spite of being the oldest, Matero has not seen any growth in modern infrastructure, let alone banking facilities. For this reason therefore, as Governor of the Central bank, it gives me tremendous pleasure to see a reputable, privately owned commercial bank taking the bold step of bringing banking services, of international standards, to the doorsteps of a community like Matero. In this regard, the opening of the Stanbic Branch today has given me enormous optimism and re-assurance that banking facilities can, indeed, be extended to ‘financially excluded’ communities, like Matero. Ladies and Gentlemen Developments, like the one we are witnessing today, must not be taken for granted nor taken lightly. I am reliably informed that this has come about as a result of the policy reforms, undertaken by the Standard Bank Group, which have culminated in Stanbic Bank Zambia being conferred with the status of a ‘Universal Bank’. By assuming this status, Stanbic Bank Zambia has been given the authority to offer banking services to all the segments of the market. For obvious reasons, this move is not only uplifting to the technological advancement and capability of the Matero community through the provision of modern banking services like the AutoBank, but also goes a long way in assisting the Bank of Zambia, as a monetary authority, to have a firm control over the implementation of monetary policy. | 0 |
In the years 2002 - 2003 the largest job destruction was reported in the UK, as a result of transferring manufacturing and services to India, and to a lesser degree to China and other Asian countries (a total of 44% of all jobs shifted in the period 2002 - 2003). However, at the same time, in 1/3 of all instances, companies from the old EU countries generally mentioned the Eastern Europe as the destination of off-shoring. In the years 2002 - 2003 a total of over 33,000 workplaces were shifted from the old EU countries to other countries, i.e. 16,500 on average in each of those two years. Among the present new EU Member States, Hungary and the Czech Republic enjoyed the greatest popularity, whereas Poland was mentioned only occasionally. In 2005 the process of off-shoring in Europe accelerated in the period from January to November, with 32,000 jobs shifted, i.e. nearly twice the average in the period 2002 - 2003. The leader among the 13 Eng. Business Process Outsourcing. 14 Eng. Knowledge Process Outsourcing. 15 European Restructuring Monitor is the European Commission information service. All publicly announced instances of company restructuring in the EU, Bulgaria and Romania, are collected if these fulfil the following requirements: employment reduction by at least 100 people per annum, must concern companies with at least 250 employees and the reduction applies to at least 10% of employment, or at least 100 jobs are created as a result of restructuring, as the case may be. | The previous regulation from 2001 stated: “In general, the direct effects on consumer prices resulting from changes in interest rates, taxes, excise duties and extraordinary temporary disturbances shall not be taken into account.” The formulation “extraordinary temporary disturbances” must be interpreted in its historical context. In inflation targeting’s early phase, exception clauses were normally included in the mandates to clarify that monetary policy should not contribute to unnecessary fluctuations in the real economy. After the change in 2018, the mandate reads: “[i]nflation targeting shall be forward-looking and flexible”. The specification “forward-looking” means that in its conduct of monetary policy Norges Bank shall disregard temporary disturbances that do not affect inflation further out and that an exception clause for extraordinary temporary disturbances was, in the Government’s view, no longer necessary. [5] The question of whether monetary policy should disregard imported inflation is related to the choice of price index for inflation targeting. This topic is also discussed in the economics literature (see literature review in Section 3.1 of Husabø (2017)). However, the literature is not fully unanimous about which price index the central bank should aim to stabilise. [6] Table 3.2 in Husabø (2017) shows the degree of covariance with activity for alternative price indices. [7] One difference is that average domestic inflation has run somewhat higher than CPI inflation, which might suggest that a target for domestic inflation could be set somewhat higher than the target for CPI inflation. | 0 |
Moreover, there must be additional efforts to induce the entities in charge of clearing and settlement services to become more effective, as well as to popularize the use of electronic payment instruments, which will gradually reduce the use of paper instruments. The area of financial system regulation and organization will increasingly be focused on the following aspects: • improvement of prudential rules and practices, aiming at maintaining the soundness of the financial system as a whole; • improvement of the analysis of several authorization processes related to financial institutions and alike; • creation and improvement of financial instruments and activities, including those intended to broaden and cheapen credit; • adoption of international standards and practices. Additionally, it is a priority to improve the regulation of mechanisms that broaden the population's access to the financial system, as in the case of “banking correspondents,” credit cooperatives, and credit concessions to small and micro firms. I would also like to acknowledge the employees of the Central Bank for their competence, “esprit de corps” and qualification. I have a human resources goal of qualifying and offering even more opportunities for this outstanding group of public servants. I thank President Luis Inácio Lula da Silva and Minister Palocci for their confidence in myself. | At this juncture, the transparency of the process is fundamental through the detailed explanations of the actions and of the context in which the decisions were taken. Following the purposes of the inflation-targeting regime, the timely release of the Monetary Policy Committee minutes provides the public with the Committee’s view on the economy and its prospects, providing the rationale for the policy adopted by the Copom. (At the same time, contact with analysts from several segments of the public was enhanced by the creation, especially for this purpose, of an Institutional Communications Group, which allows a more efficient two-way communication through the use of surveys of expectations and other specific research.) The production of reports and the release of studies and research is also fundamental aiming at increasing the transparency of the Bank's activities to the public. In addition to the monthly bulletins and annual reports, other key reports are the Inflation Report, which deals with the inflation-targeting framework, the Financial Stability Report, which deals with the stability of the Brazilian Financial System, the Banking Economics and Credit Report, development of the Interest Rates and Banking Spread Project, the Working Papers Series and the Technical Notes Series of the Central Bank. Thus, the Central Bank will emphasize not only the improvement of statistics and models, but also its transparency and communication. For instance, the increase of information and data available to the public on the Central Bank website has been outstanding. More than eight thousand statistical series are already available, with increasingly easy access. | 1 |
The average annual inflation marked 2.2 percent, equal to the value of the previous year, revealing the full elimination of the first round effects of the previous year increases in terms of raw material and electric prices. Fiscal policy persisted to be also expansionary during July, notwithstanding at more moderated paces. Budget revenues stood at the same rates of projection fulfilment with the previous months – accounting for 94 percent – while expenditure were met by 98 percent of the projected target, maintaining the same level with the three previous months. This effect provided advantage to the expansion of budget deficit in this period. As we have underscored even previously, the increase of both budget deficit and public expenditure does support the economic activity in terms of a low demand of the economy, but it also is accompanied by the increasing tendency of the public debt interest rates. The increasing review of public expenditures and budget deficit rate is forecasted to preserve this effect BIS Review 122/2009 1 even during the remaining part of 2009, while a more balanced fiscal position for 2010 would reduce the pressures on monetary markets, by establishing more spaces for the rise of monetary stimulus. The external sector data regarding second quarter 2009 reveal a further reduction of the Albania trade exchanges with the rest of the world in annual terms. According to preliminary data, these development tendencies have persisted even during July 2009. Exports decreased by 17 percent relative to the same month of previous year. | In the same report, we assessed the capacity of the seven largest banking groups to absorb losses by measuring how large the losses would have to be over a three-year period before their capital base fell below the minimum requirement of 8 per cent. We based our assessment on the accounts for 2003 and assumed that banks do not raise new equity or supplementary capital, that the size and composition of the balance sheet does not change, and that the banks do not pay a dividend. In the first example, we assumed that banks have the same results as in 2003 in each of the three subsequent years. In the second example, we assumed a result before losses of zero for these three years. With the same result before losses as in 2003, the most solid of the seven largest bank conglomerates will have the capacity to absorb an average loss per year over a three-year period of 3.1 per cent of gross lending before the capital falls below the minimum requirement of 8 per cent. If the result before losses is zero in the three years, this group will have the capacity to absorb an average loss of 1.4 per cent of gross lending. The least solid of the seven banks will have the capacity to absorb average BIS Review 39/2005 5 losses per year over a three-year period of 1.7 per cent and 0.8 per cent of gross lending, respectively, given these two assumptions concerning results. | 0 |
Against this background, it should be stressed that notable headway has been made in recent years in correcting some of the imbalances that had built up in the Spanish economy during the expansion prior to the crisis. Contributing factors here, in addition to the more temporary factors I have just mentioned, were certain structural reforms introduced during the crisis. Of note, first, is the intense deleveraging, carried out by households and non-financial corporations. Specifically, the corporate debt/GDP ratio has fallen by 42 percentage points (pp) from mid-2010, when it peaked, to 2018 Q3, meaning that this indicator now stands some 2 pp below the related figure for the euro area. In the case of households, the process has been slower (partly on account of the greater average life of the debt incurred), but also very significant. Over the same period, households’ debt ratio fell by 25 pp and its level is but 3 pp above the related euro area figure. Accordingly, in both cases, the deleveraging 3/7 process is at a very advanced stage, although some heterogeneity is evident. In particular, in the two sectors, certain agents continue to face situations of high financial pressure as a result of debt incurred. In parallel, the banking sector has been subject to an intense process of clean-up, recapitalisation and restructuring. And in the past four and a half years its basic parameters – such as asset quality and profitability and solvency levels – have improved notably. | The reduction in the IIP to less vulnerable levels will require running current account surpluses for a prolonged period. The continuation and deepening of the gains in the economy’s competitiveness posted in recent years should, along with healthier public finances, contribute to entrenching a sustained path of external surpluses. Closely related to the foregoing point, the second factor of vulnerability of the Spanish economy is that arising from the imbalance in public finances. The sectoral breakdown of the net IIP shows how, since the onset of the crisis, the general government’s net liability position has increased notably, with the liabilities position of the monetary financial institutions and the rest of the resident sectors declining. Despite the considerable reduction in the budget deficit relative to GDP from its peak of 11% in 2009 to 23.1% in 2017, Spanish public finances continued to evidence a high level of structural deficit (estimated by the European Commission to be 3% of GDP, the highest in the euro area) and of public debt, which currently stands at around 98% of GDP. Against this backdrop, it is worth bearing in mind that maintaining a very high level of public debt over a prolonged period may not only hamper economic growth but also lessen the stabilising capacity of fiscal policy in the face of future recessions. Spain must therefore harness the current, favourable economic setting by launching a medium-term programme to reduce the vulnerabilities of its public finances and thus generate budgetary room for manoeuvre, enabling it to face future crises. | 1 |
Looking ahead, the transition to a greener economy will entail a sharp reduction in aggregate energy dependence, from around 60% today to 10% in 2050 in a zero-emissions scenario. However, this same policy, as well as the digitalisation of the economy, will increase the EU's need to import so-called “critical raw materials”. These materials (such as rare earths, palladium or cobalt) are considered critical by the European Commission due to their economic importance, the difficulty in replacing them with other materials, the high import concentration and other supply-related risks. 5 For example, China controls about half of global rare earths mining capacity and 85% of the refining capacity. Russia is the EU’s main supplier of these raw materials (accounting for 18% of the total value of such imports in 2019). According to the European Commission, the demand for some of these critical raw materials could increase more than fivefold by 2030, which will cause the EU's external dependencies in this field to increase dramatically in the near future. A second vulnerability concerns export concentration. This is a key aspect for the European economy, which has historically maintained a strong trade surplus, and whose exports have compensated some of the recent large terms of trade loss stemming from high energy prices. In this regard, EU exports of various pharmaceutical and chemical products and some high-tech manufacturing goods are highly concentrated in the US and the UK, and are also characterised by relatively low domestic demand. | These vulnerabilities increase the sensitivity of the economy and of financial and real estate markets to adverse shocks. I would now like to outline the position of the two globally active banks, Credit Suisse and UBS. I will then present our assessment of the situation at the domestically focused banks. Page 1/3 Berne, 16 June 2022 Fritz Zurbrügg News conference Globally active banks The two globally active banks developed differently in terms of profitability. UBS’s profitability increased and was high by historical comparison. At Credit Suisse, however, profitability was negative. This is on the one hand due to extraordinary items, such as large provisions for litigation, and on the other to relatively low operating performance during the period under review. The differing profitability is also reflected in market indicators such as CDS premia and stock prices. After the Archegos losses, the market drew a stronger distinction between the two banks and it continues to have a more positive assessment of UBS than Credit Suisse. With the outbreak of the war in Ukraine, the market’s assessment of the globally active Swiss banks and their international peers deteriorated overall. By contrast, the capital position of both banks has improved further since the publication of the last Financial Stability Report. In the case of UBS, this improvement is attributable to a capital build-up due to retained earnings; in the case of Credit Suisse, it is attributable to a reduction in exposure and a capital increase. | 0 |
Fiscal policy and the Government Petroleum Fund have proved to be effective in terms of sheltering the mainland economy from more normal variations in oil revenues. A permanent change in the krone exchange rate will occur only if there is an increase in the use of oil revenues through a shift in expenditure growth. In this context, instruments other than those available to Norges Bank must be used to return the krone to its initial range. BIS Review 14/2000 8 Interest rates influence the exchange rate through two channels. The interest rate differential against other currencies has some effect on the exchange rate. The exchange rate is further influenced via the impact of interest rates on domestic price and cost trends. The isolated effect of the interest rate differential on the exchange rate may be of little consequence compared with other factors. According to Norges Bank’s calculations, the current interest rate differential against the euro area impacts the krone exhange rate in the order of 20 øre against the euro in the short term. On the other hand, the effect of the interest rate on the exchange rate through the channel of domestic demand and price and wage inflation may in many situations be considerable. The Norwegian economy may be exposed to shocks or disturbances that both reduce domestic activity and weaken the Norwegian krone. In response, interest rates should not be increased. An increase in interest rates will result in higher unemployment and mounting instability in the domestic economy and the exchange rate. | This can also weigh on productivity as older workers may have a harder time adapting to new technologies. Another important demographic factor is increasing longevity which would also, for a given retirement age, increase savings. Lastly, inequalities – both on a global level and within countries – can also affect demand [slide 6]. Growing income inequality within countries – even if it remains significantly lower in 2/3 BIS central bankers' speeches continental Europe – implies reduced relative spending power for low-income households, which have a high propensity to consume. More inclusive societies with fewer unemployed and more even income distribution would most likely result in more dynamic demand. 3. Are we witnessing a permanent slowdown in the pace of technological progress? The debate between techno-pessimists and techno-optimists over the future pace of innovation is well-known. It resulted from the slowdown in productivity and in the contribution of ICT to growth in the mid-2000s, even before the Great Recession. For the United States, there was a downward break in the productivity trend as early as 2006. In fact, the diffusion of technology can suffer from two types of lag: a time-lag, but also a spacelag. Time-lags refer to the delay in incorporating innovations efficiently into the production process, as the required structural adaptation of the economy and learning processes can take decades. What stage of diffusion are we at for ICTs? Have structures in individual firms evolved sufficiently to allow them to reap the full benefits of ICTs? | 0 |
At such a time, it would be possible for established market access channels, via electronic trading platforms or phone links to the trading desks of the main currency trading firms, to be widely used – although there were some bottlenecks immediately after the announcement. By contrast, if we had announced the move at the weekend, for instance, this would have caused uncertainty about the trading conditions when the foreign exchange market opened on Sunday evening (Swiss time). Australia, which normally accounts for only around 1% of daily turnover in Swiss franc forex operations, would have been overwhelmed by the volume of trades during its business hours. You can easily imagine that the turbulence on the Australian market would have been far greater than that observed on the morning of 15 January, with contagion potentially spreading to the entire financial market. We wanted to avoid this. Monetary policy after the minimum exchange rate So what will the minimum exchange rate discontinuation mean for monetary policy in Switzerland? First, let me emphasise that the exit from the minimum exchange rate does not mean that we will simply be a passive observer of the foreign exchange market in future. The SNB will continue to take account of the exchange rate situation in formulating its monetary policy and will intervene in the foreign exchange market as necessary in order to influence monetary conditions. Nonetheless, the end of the minimum exchange rate does mean that interest rate steering will once again take on a more prominent role. | On the other hand, reabsorbing this huge volume of liquidity once monetary policy began to normalise would have been very difficult and extremely costly. Communication and timing of the discontinuation The discontinuation of the minimum exchange rate took the financial markets by surprise and the price reactions on the foreign exchange and equity markets were correspondingly strong. In an age when transparency and openness in monetary policy matters are riding high, the decision to exit the minimum exchange rate policy so abruptly bewildered many observers. However, transparency is not an end in itself; it is part of monetary policy. Traditionally, monetary policy has been steered via short-term interest rates. These then feed through to exchange rates and long-term interest rates, thereby influencing – albeit with a time lag – the demand for goods and services and, ultimately, wages and prices in the economy. By communicating its intentions transparently and credibly, the SNB can influence expectations (e.g. on the financial markets), thereby rendering its monetary policy more effective. Fundamentally, we are keen to avoid surprising the economy and triggering major price movements on the financial markets with our monetary policy measures. In the context of conventional interest rate policy, it is thus advantageous to keep the gap between financial market participants’ expectations and the SNB’s actual interest rate adjustments within reasonable limits. Normally, therefore, there is no contradiction between the notion of transparent communication and our monetary policy intentions. | 1 |
The reinvestment horizon is linked to the forward guidance on policy rates: we now say that we will “continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when we start raising the key ECB interest rates […]”. This means that any recalibration of the date-based leg of forward guidance by construction extends the period over which investors expect the ECB to continue reinvesting in full; this prolongs the favourable liquidity conditions and reinforces the downward effect of our rate forward guidance on long-term rates by suppressing term premia (see Chart 5). 7 / 19 BIS central bankers' speeches 8 / 19 BIS central bankers' speeches If warranted by our policy assessment, net purchases under the APP could be restarted in the future.8 In the event of any resumption of net purchases, associated revisions to the framework of forward guidance would have to be considered in order to make sure that the different instruments continue to be tightly linked and that their synergies are maximised. TLTROs The Governing Council recently decided to start a third series of TLTROs (TLTRO III) to help preserve favourable bank lending conditions and support the smooth transmission of monetary policy. The generous borrowing conditions offered to banks should not only provide a backstop to the banking system but also lower aggregate funding costs, which contributes to the overall accommodative monetary policy stance. | To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. 2/3 BIS central bankers' speeches In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. This is particularly important in view of the overall limited implementation of the 2018 country-specific recommendations, as recently communicated by the European Commission. Regarding fiscal policies, the mildly expansionary euro area fiscal stance and the operation of automatic stabilisers are providing support to economic activity. At the same time, countries where government debt is high need to continue rebuilding fiscal buffers. All countries should continue to increase efforts to achieve a more growth-friendly composition of public finances. Likewise, the transparent and consistent implementation of the European Union’s fiscal and economic governance framework over time and across countries remains essential to bolster the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. | 0 |
We have shared common destiny for centuries and now we should be ready for dialogue, cooperation and coordination. Above all, when we want to push through common interest in the future, we should work together in order to get a joint view of the events past and present. Thank you for your attention. 4 BIS Review 101/2010 | Conference at the Académie des sciences morales et politiques Paris, 19 June 2023 Governance of public expenditure and public services: is there any hope left? Speech by François Villeroy de Galhau, Governor of the Banque de France Page 1 of 19 Dear Chairman, Dear Permanent Secretary, Dear Academicians, Ladies and Gentlemen, It is an honour for me to speak before you today and I wish to warmly thank your Chairman and my esteemed predecessor, Jean-Claude Trichet. This year, your collective discussion focuses on the theme of "Good governance". Six years ago, at the invitation of Michel Pébereau, I had the opportunity to use the theme of "Reform" to reflect upon international financial regulations. Today, I will tackle a different aspect: good governance in the public sphere. I would like to thank a number of people who are committed to this cause and who have been kind enough to be here today. As the head of a public institution and a fervent supporter of the public service – and also as a citizen – I consider this to be an essential matter. France appears to be drifting towards a "strange defeat", or, at the very least, a gloomy resignation, reflected in constantly increasing government expenditure and public debt (I), together with diminishing intellectual investment in economic optimisation and public management strategies. (II) There is also a growing feeling that essential public services are continuing to deteriorate. In the face of this public crisis, is there any hope left? | 0 |
I believe that the development of transparent, comparable and simple securitisation structures, based on high quality standards of underlying assets, and with at least some market segments characterised by high liquidity, is a sine qua non condition for a return to self-sustaining securitisation markets. Indeed, investors need to be able to exercise the required due diligence and to assess the assets that are on offer, with the support of the credit rating agencies, which in turn should have the information and the analytical capacities required for this purpose. This, in turn, calls for a careful definition of the information that should be shared among market participants. The issue of liquidity is even more complex because of the cumulative nature of the conditions underpinning it. Enhanced secondary market liquidity will make the entrance of new investors more likely. A more liquid market may come as a result of better price disclosure, standardisation and less complex structures. However, without institutional investors, liquidity will not reappear. There is some circularity problem here since at the same time, it is more likely that institutional investors return to the market when market liquidity is proven to be there or strongly expected to be back. Finally, less sophisticated and specialised investors may also enter the market, but this would require an even more material increase in the simplicity, standardisation and transparency of securitisation markets. V. The Eurosystem’s contribution to restoring the ABS markets Let me dwell on the requirement of enhanced transparency of the underlying asset pools. | On the demand side, the investor base has been and remains severely eroded and many earlier active investors, such as SIVs and money market funds, are not expected to return to the market anytime soon. Europe in particular suffers from a lack of a significant real-money investor base that could step in. On the supply side, concomitantly, the profit generating potential of securitisation remains insufficient, since spreads for various ABS still exceed the break-even levels from the issuer’s perspective. At the current levels of spreads, securitisation does not make economic sense for originators in most cases. At the same time, it would appear that current yields, with some exceptions, are not attractive to compensate for the perceived risks in the view of many investors. Therefore, although there are some signs of improvement, the current situation in structured finance continues to impose market funding constraints on banks and to hamper banks in 1 See “The Euro Area Bank Lending Survey”, April 2010, ECB. BIS Review 84/2010 3 providing credit to the economy. In this sense, securitisation is still certainly unable to fulfil the objectives that I highlighted at the beginning of my speech. Going forward, the key question is therefore: how do we bring back investors to the securitisation markets? This is tantamount to asking: how can investor confidence in securitisation be restored? | 1 |
Although this process of financial market normalization is part of a necessary correction, it is neither easy nor prudent to express what this correction will finally be like. What can be said with some certainty, however, is that volatility will be here for a while and will be associated to lost or reduced access to financing from non-banking financial institutions or even particular banks. The longer and deeper this adjustment, the larger the effects on financial markets and the world economy overall. The most likely final effects will be increased risk premiums (an inevitable or even healthy correction), a deeper and more prolonged adjustment in the US housing market, and some less economic growth in the US and in the world. Evidently, a deepening of these problems could be more hurtful for global growth and the commodity prices. This adjustment comes on after a long period of very expansionary monetary policies in industrial economies that had begun a normalization process. But still, one should not overlook the fact that this correction finds the world economy close to completing the best five-year growth period since the early seventies, with large commercial banks in a very solid position, enterprises with good profits and the main industrial economies with flexible exchange rate regimes, controlled inflation and central banks that have gained great credibility for their commitment to price stability. | In the process, the private sector gets to mitigate the climate risks of its own assets while at the same time seeking reasonable returns. By doing well, we also aim to do good. As an international financial centre and a green finance hub, our vision is to play a big role in harnessing the power of finance to support the transition efforts in the region. The vision is underpinned by our strong commitment and concrete actions that help create a conducive ecosystem where climate financing can scale, and bring about desirable opportunities and outcomes for the financial sector. A vibrant and competitive climate finance ecosystem needs to be underpinned by a few other critical elements: standards, data and, above all, talent. The work requires leadership from the public sector and partnership with the private sector. In all these areas, the HKMA is joining hands with Government agencies, fellow regulators as well as stakeholders from the financial sector, academia and business community. Much of our joint effort is coordinated through the Cross-Agency Steering Group on Green and Sustainable Finance co-founded by the HKMA and the SFC. 1/4 BIS - Central bankers' speeches First, on standards. A common set of green standards, to the extent possible, is important to enhance the transparency, comparability and efficiency of climate finance. Hong Kong is a front runner in setting regulatory requirements for the financial sector. | 0 |
Overall wage growth may then be lower than projected and provide the basis for an easing of monetary policy. The global economy appears to be vulnerable to new disturbances. Since summer 2002, international financial market developments have been marked by increased optimism concerning the growth outlook. Equity prices and long-term interest rates have risen. The increase has been uneven, however, and there have been wide fluctuations between major currencies. This may be a reflection of the uncertainty about the strength of the global economic recovery. Developments in the krone exchange rate represent a source of considerable uncertainty. The relationship between the krone exchange rate and the interest rate differential against other countries 6 BIS Review 50/2003 is not necessarily stable over time. Themes in international financial markets shift. We may not yet have seen the full effects of the interest rate reductions on the krone exchange rate. Even though Norges Bank is forward-looking in its conduct of monetary policy, thorough knowledge of the current economic situation is extremely important. An up-to-date and correct picture of the current situation is necessary to make accurate projections for the period ahead. In autumn 2002, Norges Bank established a regional network as a tool to gauge the level of activity in the Norwegian economy. Official statistics and evaluations of developments in financial markets will continue to be the main basis for our assessments, but due to the time lag and revisions of such statistics, supplementary information is useful. | Now, interest rates are believed to have reached their lowest level and are expected to remain at 1 per cent until the end of 2003, with only a gradual rise thereafter. Interest rates were also expected to increase markedly in 2 BIS Review 50/2003 Europe in summer 2002. Instead, interest rates were also reduced here and expectations were revised downwards substantially. The lower projections for growth reflect the effect on the world economy of a number of negative shocks, such as the war in Iraq and the SARS outbreak. It may have taken longer than first expected to correct imbalances generated by overoptimism in sectors such as the IT industry. High oil prices may also have contributed to restraining growth. The combination of low international interest rates and weak cyclical developments contributed to high interest rate differentials against the krone and the strong exchange rate. Activity in the global economy has picked up from the low level prevailing last winter, primarily reflecting high growth in the US and some Asian economies, including Japan. Recent statistics show that the annual rate of GDP growth in the US was 7.2 per cent in the third quarter of 2003. Strong growth in private consumption and a rise in business investment are evidence of a gradual and broadbased upturn. Employment figures are also showing a positive trend and unemployment is falling. | 1 |
Singapore will fully align its regime to FATF’s new requirements; not only because we are a FATF member, but more importantly, we want to discourage tax evasion monies from attempting to enter our system. As other jurisdictions tighten their regimes and tax evasion monies seek cover, Singapore is sending a clear message that it neither wants nor will tolerate these illicit inflows. This being a significant policy move, we will conduct public consultations and welcome stakeholder inputs to shape a regime that is practical to implement and effective in outcome. Third, Singapore will step up its enforcement resources to deal with suspicious transactions reported by financial institutions. The Commercial Affairs Department will double the manpower of the Suspicious Transaction Reporting Office and enhance its analytical and reporting systems to detect criminal activity and illicit funds. Rigorous supervision Having a good AML/CFT framework is not enough. It is necessary to ensure compliance with the framework through supervision. Since MAS’ supervisory activities are not as visible, let me say more about this. MAS uses a risk-based approach, evaluating the money laundering and terrorism financing risks of each institution by taking into account its business activities; types of customers, products and services; its geographical areas of operation, as well as the quality of the institution’s internal risk management systems and processes in mitigating the risks. MAS conducts both off-site surveillance and on-site inspections to check institutions’ compliance with AML/CFT requirements. This ensures that policies and procedures set out in the institutions’ manuals are adhered to on the ground. | At a time when globalisation may leave many behind in advanced economies, Page 4 sur 8 when the debate about inequalities is coming back to the forefront – and these are real challenges behind the populist wave –, now is not the moment to give up on our social model. But this ambition must be clear-sighted: in some countries like France and Italy, the high cost of the model and its disappointing performance in terms of growth and employment calls for an acceleration in reforms in the right direction (slide 3). Several European countries, including Germany and Spain, are showing the way forward: they have succeeded in carrying out wide-reaching reforms that are compatible with our shared social model. Progress has been made in all four key areas: Enterprise, Employment, Education and Expenditure reduction. And these reforms are delivering results today: in recent years, GDP and employment have grown much faster in the “reforming” countries, than in France or Italy for instance. II. Beyond our existing assets, we in Europe must put our joint energies into mastering our common destiny. Europe needs all Member States to play their part in the common effort. It needs France, as well as Spain and its constant European commitment. For this to be a success, projects for strengthening Europe have to be carefully selected and prioritized; and we must not only talk about them, we must give ourselves the practical means to achieve concrete results. | 0 |
Before I do so, I would like to take a step back and focus on three key words, which I believe are imperative for formulating financial sector policy for Thailand and the region as a whole. These three key words are productivity, immunity, and inclusivity. First, an emphasis must be placed on productivity as uplifting productivity is a critical requirement for long term growth of an economy. For one, at current stage, many countries in our region are facing structural transformation of aging workforce. Shrinking workforce can dampen long term growth prospect. We must become more productive in order to increase output level and improve standard of living of our people. Productivity is also needed to boost competitiveness of businesses as expanding global trade network and emergence of large e-business platforms have introduced new competitors into our business landscape. Moreover, roles of banks could be challenged as sharing financial platforms gain prominence in the modern economy, and new fintech firms offer financial products unbundled from the long standing value chain of banking. Without meaningful adjustment—that is improving productivity, long term growth potential of an economy could deteriorate. Second, immunity becomes imperative in the current global economic landscape. We are living in the time of changes, where outcomes can be abrupt, unpredictable, and volatile. Amidst the fallout from the Global Financial Crisis of 2008, where unconventional monetary policies flushed global financial market with excess liquidity, we are now entering the cycle where major central banks have started normalizing their monetary policies. | In any financial market, misconduct is often driven by greed and greed is something no system could be tempered proof. Greed creates mistrust. And mistrust damages confidence. But greed can be mitigated. This can be achieved by establishing a system of consequence management. It is certainly possible to limit or mitigate cases of greed if as a collective, we would not tolerate any case of wrong doing within our community. As a group, we should expect individuals to behave according to the highest professional standards and held accountable for their actions. On this aspect, PPKM had instituted a mechanism to prevent staff with questionable conduct from moving freely between banks without full disclosure of his or her professional history. It is in the interest of the industry that PPKM continue the role as a gatekeeper in setting professional standard with a view to uphold the highest standard of professionalism and conduct among its members. And, this brings me to a third point, we need to enhance market participant’s professional qualification, knowledge and skill set. Financial market is dynamic and evolving, and players need to keep abreast of both domestic and global developments. There are ample financial market courses and programmes offered here in Kuala Lumpur, however majority of these program are still at entry level courses. | 0 |
At present, roughly a tenth of banks’ drawing capacity is collateralised by assets referencing sterling LIBOR. Those assets include: securities paying a LIBOR-linked coupon; securitisations with embedded LIBOR-linked swaps; and LIBOR-linked loans, in either raw or securitised form. The risk is that, absent appropriate planning, these assets could become increasingly difficult for the Bank to value, risk manage and service as LIBOR cessation approaches. These are activities the Bank must be able to perform in case we have to take that collateral onto our balance sheet in a firm default, in order to protect public funds. A precipitate response to such risks could create a sudden ‘cliff edge’ reduction in drawing capacity, impairing the availability of effective liquidity insurance at a possibly critical moment. In order to avoid this risk and ensure that firms’ borrowing capacity at the Bank is managed progressively through the LIBOR transition period, we are announcing a new policy for LIBOR-linked collateral to allow firms to plan ahead. There are two key elements, summarised in Figure 4: - First, from 2020 Q3, we will progressively increase the haircuts on LIBOR-linked collateral pre-positioned with us. Haircuts are scheduled to reach 100% (i.e. implying effective ineligibility) at the end of 2021. - Second, and in line with the Working Group’s 2020 Q3 target for no new term LIBOR loan issuance, any LIBOR linked collateral issued after October 2020 will be ineligible for use at the Bank. | Among other things, in our own bank lending survey, banks have been reporting an increase in loan demand for all loan categories for two successive quarters, as well as an easing in credit standards for loans to enterprises. However, we should not forget that credit standards overall remain rather tight from a historical perspective. As mentioned before, it was exactly against the backdrop of weak credit dynamics contributing to a subdued inflation outlook that we decided in early September to adopt a number of additional monetary policy measures, specifically designed to support the 2 BIS central bankers’ speeches extension of credit to the real economy. As they work through the economy, these measures will help inflation rates return to below, but close to, 2%. What else is needed: well, it is now in the hands of governments to act decisively on further structural reforms that will ensure higher sustainable growth and employment in the euro area. Also, on the fiscal policy side, governments should not unravel the progress made in fiscal consolidation, but use any leeway to make fiscal policies more growth-friendly. As regards monetary policy, we remain fully determined to counter risks to the medium-term outlook for inflation. As I said in the European Parliament last Monday, we stand ready to use additional unconventional instruments within our mandate, and alter the size or composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation. BIS central bankers’ speeches 3 | 0 |
Thus, a policy that maintains medium-term inflation expectations in line with our inflation objective is most consistent with our mandate.8 Second, at the zero bound, the ability to provide credible forward guidance – both in terms of the future path of the policy rate and the future path of the balance sheet – becomes the predominant vehicle by which a central bank’s actions affect financial market conditions. If this expectations channel did not work, then it would be very difficult to provide additional monetary accommodation because short-term rates cannot be reduced materially. In the U.S., in recent months we have communicated that short-term rates are likely to stay very low for a long time; our balance sheet is likely to increase further in size and then stay large for a long time; and that we will not be overly hasty in tightening monetary policy once the recovery gets well established. By doing this, we are influencing expectations about the likely future path of short-term rates and the interest rate term premium. By utilizing the expectations channel in this way, we have been able to make policy more accommodative and generate easier financial market conditions. Good communication is essential To manage expectations well, both credibility and good communication is essential. This means explaining clearly the policy framework, the relationship between the use of tools and the central bank’s mandated objectives at the zero bound, and how the use of these tools will evolve with changes in the outlook. In this regard, a central bank’s credibility is crucial. | We applied what we understood to be the lessons from Japan, though with hindsight, perhaps not in every respect as completely as we could have. In particular, Japan’s experience reinforced the lessons of the Great Depression here in the U.S. and made us sensitive to the disinflationary force of an asset price bust and financial 4 However, research suggests that the purchases did reinforce the forward commitment. See, for example, “Policy commitment and expectation formation: Japan’s experience under zero interest rates” Kunio Okina and Shigenori Shiratsuka North American Journal of Economics and Finance, Vol 15, No 1, pp 75–100. 5 See, for example, “Deleveraging and Monetary Policy: Japan Since the 1990s and the United States Since 2007”, Kazuo Ueda, Journal of Economic Perspectives, Vol 26, No 3, Summer 2012, pp 177–202. 6 Some commentators prefer the term “North Atlantic financial crisis” as the failure and near-failure of financial institutions was concentrated in the U.S. and Europe. However, the crisis was global in the sense that financial markets transmitted the shock throughout the world and this resulted in a severe global economic downturn. BIS central bankers’ speeches 3 crisis. We recognized that we had to be very aggressive to prevent deflation and deflation expectations from becoming well entrenched. The Federal Reserve reduced short-term interest rates to nearly zero by late 2008 – a little over a year and a half after the initial shock hit in August 2007. | 1 |
Ida Wolden Bache: The policy rate has been raised to bring down inflation Introductory statement by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the press conference following Norway's announcement of the policy rate, Oslo, 4 May 2023. *** Accompanying charts to the speech Chart 1: Policy rate raised by 0.25 percentage point Norges Bank's Monetary Policy and Financial Stability Committee decided to raise the policy rate by 0.25 percentage point to 3.25 percent. Norges Bank's task is to keep inflation low and stable. The operational target is inflation of close to 2 percent over time. We are also mandated to help keep employment as high as possible and to promote economic stability. Chart 2: Inflation is too high Inflation is now markedly above the target. In March, consumer prices were 6.5 percent higher than one year earlier. High energy prices are a key driver of inflation, but other goods and services prices have also risen rapidly. Price stability is crucial for maintaining a well-functioning economy. The policy rate is being set with the aim of bringing inflation back to the target of 2 percent. At the same time, we want to avoid a slowdown in economic growth beyond what is necessary to tackle inflation. We have not yet seen the full effects of our past rate hikes. Our March forecasts indicated a policy rate increase to around 3.5 percent this summer. | Wage growth last year was the highest since 2011, with a further rise expected this year. The outcome of this year's wage settlement so far suggests that annual wage growth will be slightly higher than we projected in March. Higher wage growth means higher business costs and could lead to higher prices for domestically produced goods. The krone depreciation will generate higher costs for imported goods ahead. Chart 6: Further rate rise likely in June The Committee assesses that a higher policy rate is needed to dampen inflation. Since the publication of our March projections, overall economic activity has been broadly as expected. Excluding energy prices, consumer price inflation has also moved as projected. Higher wage growth and the krone depreciation will contribute to keeping inflation elevated ahead. If the krone remains weaker than projected or pressures in the economy persist, a higher policy rate than envisaged earlier may be needed. The future policy rate path will depend on economic developments, but we will most likely raise the policy rate again in June, at which time we will also present updated forecasts for the Norwegian economy. 2/2 BIS - Central bankers' speeches | 1 |
European Women on Boards (2016), “Gender Diversity on European Boards: Realising Europe’s Potential: Progress and Challenges”, available at: http://european.ewobnetwork.eu/wp-content/uploads/2016/04/EWoB-quant-report-WEB-spreads.pdf Faulkner, J, Schaller, M, Park, J, & Duncan, L (2004), “Evolved disease-avoidance mechanisms and contemporary xenophobic attitudes”, Group Processes and Intergroup Behaviour, 7, 333–353. Feinstein (2003), “Inequality in the Early Cognitive Development of British Children in the 1970 Cohort”, Economica Vol 70 Issue 277 16 BIS central bankers’ speeches Ferrie, J and Hatton, T (2015), “Two Centuries of International Migration”, Handbook of the Economics of International Migration Florida, R (2002), “The rise of the creative class”, Washington Monthly, available at: http://www.washingtonmonthly.com/features/2001/0205.florida.html Florida, R (2003) “Cities and the creative class”, available at: http://creativeclass.com/rfcgdb/articles/4%20Cities%20and%20the%20Creative%20Class.pd f. Florida, R (2011), “How Diversity Leads to Economic Growth”, The Atlantic City Lab, available at: http://www.citylab.com/work/2011/12/diversity-leads-to-economic-growth/687/ Florida, R and Gates, G (2001), “Technology and Tolerance: The Importance of Diversity to High-Technology Growth”, The Brookings Institution Survey Series, available at: http://www.brookings.edu/~/media/research/files/reports/2001/6/technology-florida/techtol.pdf Goldin, I, Cameron, G and Balarajan, M (2011), “Exceptional People: How Migration Shaped our World and Will Define our Future”, Princeton University Press Goodall, J (1986), “The chimpanzees of Gombe: patterns of behaviour”, Harvard University Press, Cambridge (Massachusetts). 673 pages. ISBN 0-674-11649-6 Guillaume, Y, Dawson, J, Otaye-ebede, L, Woods, S, West, M (2015), “Harnessing demographic differences in organizations: What moderates the effects of workplace diversity?”, Journal of Organisational Behaviour Haldane (2009), “Rethinking the financial network”, Speech given at the Financial Student Association, available at: http://www.bankofengland.co.uk/archive/documents/historicpubs/speeches/2009/speech386. | This means that, we will be able to take care of systemically important financial firms outside current regulatory purview if the situation warrants. Ladies and Gentleman, Lastly, let me share with you what I see as major challenges for the maintenance of financial stability in Thailand. While we may have a head start over many countries, we are not in anyway complacent. In particular, three important challenges loom on the horizon. First, the global economy, while doing much better than a year ago, still have many vulnerabilities which could give rise to the next round of global financial instability. Most importantly, the public debt problems in certain European countries constitute a major risk factor. At the other end of the spectrum, the growth and interest rate disparity between Asia and advanced economies amidst the still abundant global liquidity from the unprecedented monetary policy stimulus around the world could attract de-stabilizing capital inflows that will put pressure on exchange rate, encourage a buildup of financial institutions’ short-term debt, and fuel bubbles in various sectors. Second, in light of the possible buildups of financial imbalances, there is a need to further enhance the ability to identify potential threats early on. For example, at least in its early phase, bubbles are almost always associated with favourable economic fundamentals. Effective monitoring of bubbles therefore calls for better data collection, market intelligence, and risk analysis. While timely bubble identification remains very difficult, the good news is that better identification techniques are being developed and will continue to improve. | 0 |
One example of the work done so far is the agreement in September on the Basel III framework, which in brief entails raising the requirements regarding the capital and liquidity that the banks are required to hold. I will return to the subject of regulations and supervision later. The crisis has raised questions regarding the functioning of the economy But crises also raise more fundamental questions regarding the way the economy functions in different respects. Are the economic relationships really as we believed them to be, or have our theories and models missed something? Could there be a reason to begin thinking differently? These types of question are often much more difficult to answer. It usually takes years of practical experience and theoretical and empirical research before one can draw conclusions with any reasonable certainty. But it is quite clear that the crisis has brought to the fore a number of interesting questions. I intend to take up three areas, which I believe will be discussed in the coming period, both in the central bank world and in academic research. What these all have in common is that, in one way or another, they affect the monetary policy transmission mechanism, that is, the way the central bank’s policy rate decisions affect the economy. | Although the central bank is acting in an apparently natural manner, in accordance with an inflation targeting policy, it may unintentionally contribute to a future crisis. The risk-taking channel can thus be said to form a link between monetary policy and financial stability. …that consists of different sub-channels The risk-taking channel actually consists of several sub-channels. One channel is that low interest rates can create incentives for investors to seek higher risk investments with a higher expected rate of return – what is known as a “search for yield”. This could involve, for instance, abandoning government bonds in favour of more risky, but higher-yield commercial paper during periods when the interest rate is particularly low. One reason may be the hope of attaining the same nominal yield as in earlier periods with higher interest rates. Another, more indirect channel is linked to low interest rates contributing to raising, for instance, the value of assets and collateral, as well as income and profits. This can in turn affect the banks’ assessments of, and tolerance to, risk. 4 Low interest rates could mean, for 1 Paul Krugman and Robin Wells, “The Slump Goes On: Why?” The New York Review of Books, September 2010. 2 See, for instance, John B. Taylor, “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong”, NBER Working Paper Series No. 14631, 2009. | 1 |
Interest rates are too blunt an instrument for that, and attempts to use interest rates for financial stability purposes would cause considerable collateral damage to inflation and the real economy. Instead, the best instruments to achieve financial stability are supervision and regulation, including appropriate bank resolution regimes. In many countries, the responsibility for these instruments rests on other authorities than the central bank. Generally, to the extent financial instability depends on specific distortions, good regulation should aim to attack these distortions as close to the source as possible. To counter the observed procyclicality of existing regulation, macro-prudential regulation that is contingent on the business cycle and financial indicators may need to be introduced to induce better financial stability. Possible macro-prudential regulation includes variable capital, margin, and equity/loan requirements. As expressed by Bean (2009), “the best approach is likely to involve a portfolio of instruments”. What are the specific conclusions for flexible inflation targeting? One old conclusion is that consideration of the impact of financial factors on the forecast of inflation and resource utilization may require longer forecast horizons. Several inflation-targeting central banks (including the Bank of England, Norges Bank and the Riksbank) have for other reasons already extended their forecast horizon from the previously common two years to three years. There is nothing that in principle prevents an inflation targeter from considering forecasts beyond a three-year horizon, but in practice there is usually little information about anything at longer horizons except the tendency to revert to the long-term average. | In the event of conflicting objectives, it achieves a reasonable compromise between the stability of inflation and the stability of resource BIS Review 112/2009 1 utilization. 1 Different central banks express this in slightly different words. The Riksbank has often used the term “well-balanced” monetary policy. 2 The forecasts of inflation and the real economy are then conditional on the central bank’s view of the transmission mechanism, an estimate of the current state of the economy and a forecast of important exogenous variables. The central bank uses all relevant information that has an impact on the forecast of inflation and the real economy. In this framework, the central bank takes financial conditions such as credit growth, asset prices, imbalances, potential bubbles and so on into account only to the extent that they have an impact on the forecast of inflation and resource utilization. Inflation and resource utilization are target variables here, that is, variables that are arguments of the central bank’s loss function. Hence, financial conditions are not target variables. Instead, they are only indicators, as they provide information about the state of the economy, the transmission mechanism and exogenous shocks to the central bank. Financial conditions then affect policy rates only to the extent that they have an impact on the forecast of inflation and resource utilization. 3 3. Financial stability as a rarely binding constraint – a pre-crisis view What is the role of financial stability in a pre-crisis view of flexible inflation targeting? | 1 |
In March of this year, Bank Negara Malaysia established a Reuters page for the RMB/MYR exchange rate for trade-related settlements, with 11 banking institutions offering the facility to Malaysian companies. A cost-effective arrangement is now being finalised to provide the option for exporters and importers to settle bilateral trade obligations in local currency by the middle of this year. This will complement the existing facilities that are already being provided by commercial banks in the settlement of trade in RMB. Bank Negara Malaysia has also signed a memorandum of understanding with the China Banking Regulatory Commission in 2009 to further strengthen the framework for cooperation and collaboration between both authorities, and to promote regional financial integration. This MOU provides the platform for both regulatory agencies to share information, to ensure the enforcement of prudential rules and regulations and to undertake pre-emptive actions BIS Review 58/2010 1 towards ensuring the sound development of financial institutions operating in both the respective jurisdictions. This MOU also provides an established mechanism to enhance cooperation in areas that will be mutually beneficial for the development of the financial sector in both countries. With respect to the performance of the Malaysian financial sector, it has demonstrated its resilience throughout the recent global financial crisis. Financial intermediation has remained intact with the banking institutions in a strong position to support the economy. This has been reinforced by fiscal and monetary measures to ensure adequate access to financing by all segments of the private sector. | In the area of infrastructure development in Asia, the overall investment requirements for the next ten years are estimated to be about USD8 trillion. To support these developments, the regional financial integration process in Asia needs to be accelerated and deepened. Significant progress has already been achieved in strengthening cooperation and collaboration efforts amongst regional policymakers within the Asian region to ensure that financial stability in the region is preserved. Efforts have also been taken to develop the financial markets in Asia. In addition, after a decade of financial reforms, the financial systems in Asia have emerged resilient. While the financial systems in several of the advanced economies continue to be confronted by unresolved challenges, financial systems in the region have continued to function and perform well to support private sector economic activity. Financial institutions in Asia, have in fact, continued to expand their reach within the region during this period to support and facilitate the regional financial and economic integration. As regional financial integration accelerates moving forward, this would contribute towards sustaining the future prospects of the region as it increasingly becomes an important growth centre in the world economy. With China now becoming Malaysia’s largest trading partner, Bank Negara Malaysia and the People’s Bank of China have entered into a bilateral currency swap arrangement in 2009. This swap arrangement serves as a key platform to promote trade and investment linkages between both countries. | 1 |
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