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The new global landscape of growing cross-border financial flows between regions that have national and cultural differences also underscores the need for enhanced recognition and understanding of practices in the different jurisdictions. This imperative translates into high demands on the use of standardised documents and agreements among Shariah compliant financial market players. Standardised documents and agreements increase market efficiency, transparency and uniformity, as well as reduce the cost of transactions as we strive towards seamless global interlinkages. The fourth prerequisite is the catalytic role of Shariah scholars in expanding cross-border Islamic financial transactions. Given the prominence of Shariah in the industry’s advancement, greater internationalisation will require the capacity and capability of Shariah scholars in offering practical solutions to Shariah issues faced by various global participants. Equally important is the efficiency and agility of Shariah scholars in responding to these matters. This calls for continuous discussions and active dialogues involving scholars across the globe. Of importance is also the need for mutual respect and common understanding within the international Shariah fraternity to enable productive and effective deliberations that will facilitate cross-border businesses. Many can indeed benefit from learning and leveraging on these country reports. To better disseminate the information, an idea is for the IDB Regional Office here in Kuala Lumpur to act as a focal point for member countries seeking further information or clarification on the reports. As a measure to further develop Islamic finance, the Regional Office can also expand its scope to include capacity building programmes for member countries. | Investment plans for 1997 appear to be less ambitious on the whole compared with capital spending plans at the same period in 1996. Nevertheless, the business leaders polled in January were more confident about future activity than they were a few months earlier. This could mean that previously postponed investment plans may be implemented in the coming months. However, plans for increasing output capacity remained few and far between, owing to the spare capacity currently available, and depend on stronger growth in demand. Retail sales in January were up markedly over December 1996, and only slightly down on the exceptionally high level recorded a year earlier. Employment levels remained stable in nearly all industrial sectors. They showed only a slight change in the services and retail sectors, but there were further falls in the building industry. BIS Review 23/1997 | 0 |
I do not derive much comfort from these statements because in most cases operating systems and the software applications running on them count internally with a conventional date system that may not be Y2K-compliant. These systems typically also need to connect and interact with other systems that use conventional dates, so these interfaces must be tested for Y2K-compliance. More broadly, mere assertions that computer applications are unaffected cannot be seen as a substitute for the rigorous 1 See Testimony of Governor Edward W. Kelley, Jr. Before the Committee on Commerce, Science, and Transportation, U.S. Senate. April 28, 1998. BIS Review 56/1998 -2- assessment, remediation, and testing efforts that should be undertaken by financial market participants worldwide. The increasing extent of cross-border, financial-market activity has been much remarked on in recent years. Perhaps less well known is the fact that this activity is dependent on a large, geographically diverse, and highly computer-intensive global infrastructure for each of the key phases of this activity -- from trade execution through to payment and settlement. As an example, consider the daily financial market activities of a hypothetical US-based mutual fund holding stocks and bonds in a number of foreign jurisdictions. Such a mutual fund would likely execute trades via relationships with a set of securities dealers, who themselves might make use of other securities brokers and dealers, including some outside the United States. The operational integrity of the major securities dealers in each national securities market is critical to the smooth functioning of those markets. | Each of us will help in coordinating regional Y2K forums or conferences and will publicly promote the goals of the Joint Year 2000 Council in speeches and on conference programs. The Joint Year 2000 Council will also maintain extensive world-wide-web pages that can be accessed freely over the Internet.3 These pages are being maintained through the support the Council has received from the Bank for International Settlements, in particular from the General Manager, Andrew Crockett. These web pages will maintain current information on the activities of the Joint Year 2000 Council. The most extensive aspect of the Council’s web site will be a series of country pages, one for each country in the world. For each country, the page will contain contact information for government entities (including national coordinators), financial industry supervisors and regulators (including central banks, banking supervisors, insurance supervisors, and securities regulators), financial industry associations, payment, settlement and trading systems, chambers of commerce, and major utility associations or supervisors. For each of these organizations, a name, address, phone number, fax number, electronic mail and web site address will be provided. Other relevant information on an organization’s Y2K preparations may also be included, for example, whether it has a dedicated Y2K contact or has taken specific action with respect to the Y2K problem. The motivation for developing these country pages is to increase awareness of the work that is being done to address the Y2K problem and to enable market participants to easily find out more information about the state of preparations worldwide. | 1 |
There has also been a noticeable pickup in multi-family construction in both New York and New Jersey this year. However, the New York Fed’s measures of regional credit conditions suggest continued financial challenges for families here. Data that we just released for the third quarter of 2012 show that for those individuals with a credit report, average debt per person in New Jersey was about $ and about $ in the state of New York. Overall debt per person peaked in 2008. Although balances nationally have fallen by over 11 percent, consumers in New York and New Jersey have brought down their indebtedness more moderately, by 5 percent and 6 percent respectively. While the overall delinquency rates are decreasing nationally, delinquent balances in our region have remained stable or even increased a bit. In both New York and New Jersey, nearly 9 percent of balances are 90 or more days delinquent, higher than the 6.5 percent national rate. Although there are some recent signs that home prices are starting to firm, the housing crisis continues to take a toll on our homeowners. Delinquency rates on mortgages, at 9.4 percent and 9.7 percent in New York and New Jersey, respectively, remain considerably higher than the 5.9 percent national rate. Before discussing the national outlook let me talk briefly about the possible effects of “Superstorm Sandy” on the U.S. and regional economy. The damage and disruptions from the storm appear more extensive and longer-lasting than first anticipated. | François Villeroy de Galhau: Special address on the French National Strategy for Financial Education Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the 4th OECD/GFLEC global policy research symposium to advance financial literacy "Addressing the needs of youth", Paris, 24 May 2017. * * * Accompanying slides. Your Highness (Queen Máxima of the Netherlands), Mr. Secretary General, ladies and gentlemen, I am delighted to be here with you today for this symposium on financial literacy. Indeed, French citizens have high expectations about financial education: [slide 2] 78% believe that financial literacy should be taught at school and 65% believe that access to it would reduce overindebtedness and financial vulnerability.1 Academic research by Annamaria Lusardi and Olivia Mitchell2 confirms its importance, as does our own research in France3 [slide 3]. If we consider the three "standard" questions used to assess awareness of interest rates, inflation and risk diversification, only 30% of those surveyed answered all three questions correctly, which is lower than in other European countries. Furthermore, in France some of the worst results were obtained by the youngest age group, as well as the oldest. However, there is more at stake: this represents a challenge for democracy. Providing our fellow citizens with the keys to understanding complex economic debates is a matter of respect. | 0 |
And we expect subsidiaries to be capable of accreting a portion of their own capital, rather than being fully dependent on a drip-feed of capital from the parent, as this creates poor incentives and can become problematic if the parent gets into trouble. We expect high standards of governance (including clear accountability for the management of local entities via the new Senior Manager’s Regime) and risk management, consistent with these firms’ importance to the financial system. At this juncture we have chosen not to apply either domestic system wide stress tests or local capital buffers to reflect the systemic importance domestically of these institutions. We instead seek to develop close dialogue and greater information sharing with the home regulator on the stress exposures they see for the group as a whole, and to allow us to judge how these will affect the UK entity. All this is cooperation. But what about the risk that this coordination and insight might disappear, particularly in the event of stress? How do we create committed cooperation? In that event, the ability to set internal TLAC is key. By turning debt into equity in the event of stress, internal TLAC gives host supervisors the ability to upstream losses in bad states of the world and so creates a binding commitment to downstream capital from the group when it is needed. Together with supervisory cooperation internal TLAC ensures the home regulator is fully sighted on and committed to act to mitigate financial stability risks inside the host country. | BIS central bankers’ speeches will be moveable in a stress to where it is needed rather than needing to be prepositioned in case stress arises. Resolution is also supported by additional total loss absorbing capacity (TLAC) requirements on firms to absorb losses and recapitalise as needed in the event of a resolution. The balkanisation that was the initial response of regulators to the crisis supports locally-led, uncoordinated resolution. Strong local requirements are in place to ensure multiple local resolutions of failed entities. However, this is likely to be a suboptimal outcome for all concerned. Local entities and the critical functions they provide may not in reality be able to survive resolution separated from their parent. Furthermore, uncoordinated actions by authorities increase the risk of “asset grabs” and a general need for more resources across the group as a whole. Coordinated resolution, and for highly integrated groups an SPE strategy, can better support international banking and international capital flows. With coordinated resolution, the need for regulatory balkanisation can be reduced, with host supervisors reassured by an internal TLAC requirement that transforms debt into equity and so ensures capital resources can be downstreamed from the parent group in a stress when needed, rather than pre-positioned “just in case”. Let me return now to the key lesson we took as host supervisors from the crisis – that of our greater appreciation of the connectivity between the entities we supervise and their parent groups. This is present in franchises and business models, in financial exposures and in operational support. | 1 |
In this context, Islamic finance has become a new vehicle contributing to increasing the financial linkages within Asia thereby facilitating cross-border allocation of capital in the region. However, it not only has a potential role in strengthening integration and linkages within Asia, but also more importantly in forging linkages with other dynamic emerging regions such as the Middle East. Several economies within Asia are now beginning to participate in these trends thus strengthening further economic and financial linkages between these two dynamic growth regions. This enhanced inter regional linkages between Asian and the Middle East has created an environment of activity reminiscent of the Old Silk Road. This suggests that a New Silk Road has emerged in which financial services providers across continents now operate on this new route. While the New Silk Road reflects the linkages between Asia and the Middle East, the Silk Road has always been extended to the rest of the world. There is thus the potential for greater participation by global investors and the international financial community. BIS Review 121/2007 3 Islamic finance essentially presents value propositions for both investors and issuers in the respective markets, in particular, the sukuk market. For investors, Islamic financial products offer portfolio diversification and new investment opportunities in the form of new asset classes. For issuers, Islamic finance allows access to a new source of funds and liquidity besides providing, new risk management options and new mechanisms for price discovery. | But nowadays, London's role depends mainly on making markets and providing financial services in foreign currencies, like the dollar. That means that London continues to thrive only by remaining internationally competitive. And I should add that we in the Bank of England take a close interest in this. Maintaining the stability of the financial system and the effectiveness of the UK's financial services are key objectives for us. The City is a centre of innovation and excellence London is internationally competitive, because it acts as a centre of innovation and excellence, in a whole range of complementary ways. • London has a vast, critical mass of markets and financial services in commercial and investment banking, securities and derivatives, fund management, insurance and commodities. • London has a long track record of innovation, and a ready availability of financial skills and professional support services in law, accountancy, tax, property and communications. More than 300,000 • people work in financial services in London, and nearly a further 600,000 work in the supporting professions and services. • London is at the forefront of technology, with an effective financial infrastructure. • London has a reputation as a 'clean' market, and it has a commitment to openness in welcoming foreign firms. There is a genuinely level playing-field for foreign firms, with no overt or covert advantages given to domestic institutions. • And in London, we have a non-bureaucratic but rigorous approach to regulation. | 0 |
Hence, the offered exchange rate is generally unattractive, and visitors will almost always be better off converting their money at a bank or using their credit cards. Historically, parallel currencies have only prevailed in those countries that no longer had a sound currency of their own. As long as the SNB continues to pursue a policy that aims at maintaining price stability, the Swiss franc will remain a widely accepted and trustworthy currency. There is no reason to expect it to disappear. By contrast, the declining significance of the Swiss franc as a denomination of foreign bonds in recent years is not primarily due to the creation of the single currency. This trend had already been observable long before 1999. It can be seen as a return to a situation in which the importance of the Swiss franc is more in check with Switzerland's economic size, as compared with its former extremely over-proportional weighting as an investment currency. Certainly, the launch of the euro has not enhanced the attractiveness of Swiss franc bonds, mainly because the market liquidity of euro bonds has grown significantly since 1999. On the other hand, the Swiss franc has gained in stature simply because it is a member of the dwindling family of international currencies. For this reason, we expect it to maintain a role as an instrument of portfolio diversification. 3.2. | Against the backdrop of fear and uncertainty, banks have tightened their lending and consumers have become more cautious in their spending. This will act as a drag on the euroarea economy going forward. A key constraint for both the US and euro-area, as well as many other advanced economies, is the limited policy space available to authorities. In these countries, monetary policy and fiscal stimulus have been pushed to their limits. Limited capacity to respond to new shocks thus represents a real risk for these economies, and for the global economy, that we must be weary of. In this setting, and given the deep-seated nature of the problems being faced, meaningful remedies rest just as much on political factors as on economic ones. How governments respond and how their electorates receive these responses will be an important source of uncertainty. In contrast, the rising economies in Asia offer a more positive outlook. Despite the slowdown in exports of many Asian countries, reflecting the softer global economic backdrop, domestic demand remains robust. More fundamentally, the continued rise of China and the formation of the ASEAN Economic Community (AEC) will generate enormous economic opportunities for the region. As will be discussed later, the key challenge for Thailand will be how to optimally position ourselves to reap the full benefits of this trend. This brings me to the internal challenges. | 0 |
Let me go over some of the reasons why we chose this path. The euro area crisis, and in particular the more acute episodes of banking turmoil, revealed a number of basic weaknesses at the heart of the monetary union. i) First, the problems encountered by some of the big banks severely damaged the fiscal stance in certain countries, where the state had to step in to save these banks. This, in turn, undermined market confidence in the sustainability of the resulting fast growing public debts, which led to sharp rises in the rates at which those countries could borrow on the market, as, for example, in the case of Ireland. ii) Second, there was a perception that countries with impaired public finances would have difficulty bailing out their respective financial systems in the event of a problem. This resulted in a widespread loss of confidence and pushed up borrowing costs for banks and sovereigns, as in the case of Italy. iii) In response to these tensions, the European Central Bank took unprecedented steps to lower the cost of bank refinancing, cutting its key policy rates to historically low levels and providing unlimited 3-year liquidity. But even this proved insufficient to calm market tensions. In some countries at least, monetary policy measures were simply not being fully transmitted to the real economy. What was the reason behind these three phenomena, which were largely responsible for the escalation of the crisis in the euro area? | In other words, the goal is to ensure that credit conditions in the euro area will not depend on where you are but on who you are, which is what should be expected of an efficient financial market. To achieve this, we need to have three things in place: i) Federal bank supervision, to guarantee that all institutions are subject to the same rules and same methods of control. A supra-national supervisor is in fact better placed to assess the risks of cross-border activities and therefore to protect and encourage such activities; it is not subject to national biases that can lead to the temptation of economic introversion. It is therefore more credible and strengthens stability and confidence in the area; ii) A unified mechanism for the resolution of banking crises, so that individual countries no longer have to shoulder the burden of major upheavals on their own; iii) A unified deposit-guarantee mechanism to avoid banking panics. Over the past year, these ideas and words have translated into concrete actions, and Europe has demonstrated that it can carry out rapid, in-depth reforms, to ensure it emerges stronger from the crisis. I would just like to tell you where we stand currently in the move towards banking union. As you know, the area in which we have made the most progress is in supervision. | 1 |
This is reflected on the increase of Government securities yields of these countries, as well as on the enhanced sensitivity of investors against fiscal developments. The economic activity is assessed to have recorded a progressive slowdown of the growth pace, these last six months. The latest indicators of real economy, as sales’ indicators, the monetary and confidence indicators, signal further hampering of the economic growth during the fourth quarter of year 2009 and in the early months of 2010. The stoppage of investments from the major part of businesses, the low exploitation of capacities, the decrease of capital goods’ import, and the low increase of loans for investments, reveal a slower performance of private investments even in the early months of this year. On the other hand, the more moderated growth paces of employment and wages, the shrinking of consumer loans, the weak performance of retail sales, as well as the indices on the increase of consumers’ preferences for savings, show a hampering even of the current and expected consumer in the short-term period. External sector of economy has manifested positive signals during January, characterized by an exports’ growth of 30 % and a tightening of trade deficit by 13%. This welcomed development remains however insufficient to direct the Albanian economy on the path of the persistent economic growth. The high fiscal incentive transmitted over the first three quarters of 2009, has affected the increase of public debt at 59.5 percent of GDP. | The recent developments of inflation have reflected the statistical impact of the comparison to a relatively low prices base in 2009, the more full transmission of exchange rate depreciation on consumer prices and the administrative increase of energy, since January 2010. The later factor provided an effect of about 0.5 percentage points on inflation level, being the main reason of exceeding the level of 4%. On the other side, the increasing tendency of food goods inflation is owed to the global conjuncture of goods prices, which is revealing a gradual monthly increase since the half of 2009. Our analysis recommends that the increasing trend of inflation owes mainly to supplying factors, which are estimated to manifest an uneven nature and a short-term action in time. The Bank of Albania expected these developments, being factorised on our projections regarding inflation and communicated timely and in terms of transparency to the public. In medium term period, the growth under potential of the Albanian economy owing to the slowdown of the domestic and external demand, shall establish an environment of low inflationary pressures, which are expected to balance the pressures deriving from the supply direction. This assessment is also supported by the sustained developments and at low historic rates of the long-term component of non-tradable goods inflation, as the most directed transmission of inflationary pressures generated from the internal demand in economy. The rates of both key inflation and of the non-tradable goods in February pointed to 1.1 and 2.3%, respectively. | 1 |
One of the problems with joining a common currency area might be that real interest rates in this area will be lower than the natural rate of the new member. Recent research shows that this might be the case for Poland, where the natural rate has remained in the past above the euro area level (BrzozaBrzezina 2006). For Poland, entering the eurozone means lower nominal interest rates (the spread on long-term rates still exceeds 100 basis points) and higher inflation (due to appreciation of the real exchange rate related to the catching up process, with no longer available nominal exchange rate channel). Together this means a drop in real interest rates, which could induce people and enterprises to substantially increase borrowing, and spend the loans on consumption and investment goods. What could be the consequences of this? First, if borrowing accelerates massively, banks may start extending loans without properly checking their customers’ creditworthiness – this could result in bad debt problems. It is a well known phenomenon (e.g. Demirgüç-Kunt, Detragiache 1998, Gourinchas et al. 2001) that lending booms are often followed by banking sector crises. Fortunately, recent research on the potential for lending booms in Poland after euro area accession forecasts a rather moderate increase in lending (Schadler et al. 2005, Brzoza-Brzezina 2005), and shows that the expected credit growth is rather an equilibrium phenomenon – a structural adjustment that should not have negative consequences (Kiss at al. 2006). | And thus, Willem Buiter and Erik Nielsen in their recent paper (2007): “Mundell on His Head: Asymmetric shocks are good for you, thanks to Economic and Monetary Union in Europe”, argue that home bias has been receding in the Eurozone, so an increasing number of households and companies now hold a Euro-wide portfolio. In finance it is good when returns on particular assets are negatively correlated, because it helps you to diversify risk and achieve the better risk-return tradeoff. Therefore, if asymmetric shocks hit monetary union, it will result in negatively correlated returns on euro-zone assets portfolio, so such portfolio holders will be better off in comparison with a scenario of a symmetric negative shock. Of course this train of thought may seem too narrow, since it boils down merely to the capital income analysis and loses sight of other effects of asymmetric shocks, such as those on the labor market situation. Nevertheless, this example provides a clear evidence that our cost and benefit analysis may change every so often in tandem with new ideas that smart people come up with. However, before I proceed, I would like to make two important points. First, I would like to note that views presented here are my own and they do not represent the official position of the National Bank of Poland. Second, my economic background allows me to speak in terms of standard economic variables: output, consumption, prices etc. On the other hand, I do not feel competent to speak about highly immeasurable values like national pride. | 1 |
PRA Policy Statement 6/21 ‘Operational Resilience: Impact tolerances for important business services’, March 2021 6. PRA Consultation paper 5/22 ‘The Strong and Simple Framework: a definition of a Simpler-regime Firm’, April 2022 7. PRA PS7/19 ‘Credit risk: The definition of default’, March 2019 And PRA CP21/19 ‘Credit risk: Probability of Default and Loss Given Default estimation’, September 2019, 3 CP24/19 ‘Asset encumbrance’, September 2019 8. ‘New banks authorised since 2013’, February 2022 9. ‘The future of international insurance in the UK − speech by Alan Sheppard’, April 2022 10. HM Treasury ‘Review of Solvency II: Consultation’, April 2022 11. London scores highly in industry rankings of financial centres based on quantitative metrics. See for instance the Global Financial Centre Index. Research shows that human capital is a key determinant of financial centre success. See Karyal, I E and Karan, M B (2012), ‘The research on the distinguishing features of the international financial centres’, Journal of Applied Finance & Banking, 2(5), pages 217-238. Robust institutions and the rule of law are identified as important factors for maintaining competitiveness in Moosa, I, Li, L, and Jiang, R (2015), ‘Determinants of the Status of an International Financial Centre’, The World Economy, 39(12), pages 2074-2096. This conclusion is also reached in Eichengreen, B and Shah, N (2019), ‘The correlates of international financial-center status’, Review of International Economics, 28(1), pages 62-81. 12. Academic literature shows that large global financial centres with deep and specialised financial markets benefit from agglomeration effects and gain an ongoing advantage over smaller financial centres. | The stress test in the face of an adverse macroeconomic scenario also showed satisfactory results for the Spanish banking sector. On average, the adverse scenario would have involved a reduction of 144 pp in Spanish banks’ CET1 ratio, without the minimum established capital ratio having failed to be met in any case. In the case of European banks, this average impact would have amounted to 300 bp. These results confirm that the financial reform undertaken in Spain has managed to satisfactorily correct the shortcomings in our banking system, thus placing it in a favourable starting position as the SSM has commenced operating. The latest profitability figures confirm the ongoing normalisation of the sector. Following the losses posted in 2012, against the background of the strong increase in provisions for asset impairment, deposit institutions, which had restored positive results in 2013, recorded profits after tax of almost € billion in 2014. Profitability in terms of equity, ROE, stood at 6.6% at December 2014, having increased by almost 1.5 pp on the previous year (5.2%). That said, profits in the industry, which are still modest in historical terms, are largely based on lower provisioning as a result of the cyclical improvement in the economy and also on the gains and losses on financial assets and liabilities. | 0 |
The scenario of slower economic growth in the short term, together with recent price trends (likewise worse than expected), increase the risk of a de-anchoring of inflation expectations. 3 Against this backdrop, at our October meeting, the ECB Governing Council underscored its readiness to adjust all monetary policy instruments to contend with the pandemic’s impact on price stability. In my opinion, the recalibration of monetary policy instruments in response to the second wave of the pandemic should, at least, include further recourse to our pandemic emergency purchase programme (PEPP) and our targeted longer-term refinancing operations (TLTROs). The PEPP was launched in March to counter the adverse consequences of the first wave of the pandemic. Its flexibility is what sets it apart from the asset purchase programme (APP) in place before the COVID-19 outbreak. Thus, whereas the APP is relatively rigid in terms of how the asset purchases are distributed both over time and across jurisdictions, the PEPP has allowed us to concentrate purchases on those countries whose financing conditions, at any given time, have been subject to a greater degree of tightening. Thanks to this flexibility, together with its large initial envelope, the announcement of the creation of the PEPP on 18 March served to substantially reduce interest rates on sovereign debt, especially that of the countries hardest hit by the health crisis at that moment, such as Italy and Spain. | Charles Kindleberger used to say, “the international financial system doesn’t work unless somebody takes the responsibility for it” (as quoted by Fisher, 2008). Second, those participants are more diverse from the point of view of their economic structure, their demography, their level of development, and, more importantly, their social choices and preferences. For instance, different saving rates may be seen as resulting from divergent time preferences. Likewise, asymmetries in financial development may, to some extent, reflect different choices and tradeoffs between efficiency and stability in the organisation of capital markets and the architecture of financial systems. Finally, linkages between economies, whether through trade, capital or more intangible “confidence” channels are continuously getting stronger as witnessed by 1 See, for instance, the proposals aiming at separating the “surveillance” and “financing” functions and making the former more independent from the Executive Board. 2 BIS Review 76/2010 the speed and amplitude of contagion of economic and financial shocks during the last eighteen months, which took everybody by surprise. Pending some economic catastrophe, these characteristics will persist over time. A large number of different countries, with different preferences, will permanently be linked and interdependent through active, but imperfect capital markets. Any future international architecture must be compatible with those basic features of today’s world which, prima facie, create the potential for more complexity and, maybe, instability. International capital markets and the allocation of savings Let’s suppose, for an instant, that there is a unified, fully integrated, and complete world capital market. | 0 |
the Ministry of Finance) will not willingly accept that it has to pay for the costs of banking crisis resolution. Second, the management of the banks will try to change the banking problem resolution and not shoulder the costs of their actions. They have clear vested interests in the bank as it is (their high salaries, their influence through credit allocation, the wish to hide previous decisions, etc). Third, depositors (households and companies) will make every effort to minimize their losses and get someone else to bear the costs of the problem. Fourth, the owners of banks will try to put political pressure on the government to bail them out. Fifth, there is the personnel of the bank, because they know that either all or part of them will lose their jobs. Sixth, politicians will try to minimize the problem in the hope that it will not hurt their “image”. Every decision on the bank resolution problem is a redistribution problem. There are always welfare losses for some interest groups, so we should be aware that such decisions will create very strong lobbying, corruption, ruthless behaviour, a fight to preserve vested interests, etc. Needless to say, all such behavioral patterns mean using scarce resources to influence the outcome in a redistributive way, and not use them to produce new wealth. To overcome this problem policymakers must make sure that they have the “incentives right” and have a clear set of rules to diminish the scope of discretionary decision-making which always gives room for rent-seeking. | Therefore it seems reasonable to 3 BIS Review 43/2000 argue that transition economies should pay special attention to formal education, and other forms of training and research. As the empirical evidence suggests (Flanagan, 1998), return to schooling began to rise rapidly during the transition. Relatively soon, they approximated those in many market economies. Under central planning, the main distortions in human capital formation were the overvaluation of vocational training and the undervaluing of university education. However, the transition process has quickly started to correct this shortcoming of socialism. Formal schooling need not be the main factor in developing human capital. Let me just mention that according to Lucas (1993), the most central feature of human capital accumulation for growth is learning on the job (learning by doing). For this to happen, we need both managers and workers to be constantly exposed to new challenges, to move up on the “quality ladder”. In the globalized world of today it seems that one of the best ways to be exposed to new challenges is by exporting. An old Latin saying could be paraphrased into: “Exportare necesse est, vivere non necesse est”.2 By opening up the economy, we are promoting human capital, which in turn is essential to growth. A similar approach can be used to argue for more foreign direct investments (FDI) in transition economies. FDIs bring not only physical capital, but: new organization, know-how, etc which then increase “domestic” human capital. | 1 |
Indeed, this is the prevailing course of action at present, routed through, for example, the ECB Banking Supervisory Committee or the recently created Committee of European Banking Supervisors, a “level 3 committee” set up in application of the Lamfalussy approach to the banking sector. The functions of the Committee of European Banking Supervisors include promoting convergence of the supervisory practices of the EU Member States and increasing and improving co-operation between supervisors. Growing supervisory co-operation will become unavoidable as further headway is made in the necessary process of integration of the single financial market. In this respect, we cannot ignore that the pace of integration is far from homogeneous. Thus, the integration of the interbank market can be classed as full, particularly in the euro area, and very high in the wholesale, the securities issuance and the large company and bank financing markets. By contrast, the retail market remains markedly local in nature and it will only become integrated insofar as its cultural and idiosyncratic barriers are progressively lifted. The same is so of cross-border activity. Mergers and acquisitions of credit institutions have raised to forty the number of institutions with operations in various EU countries. If profitability is adequate, this trend will foreseeably continue and European institutions will keep exploring the opportunities for profitability and lower costs offered by operations of this type. Despite this, the more than 8,000 deposit institutions in the EU continue to exhibit a markedly local nature. | Fiscal stability and fiscal discipline are basic assets of Spanish economic policy which, however, are not always easy to manage, as shown by the vagaries of the European fiscal framework. It is thus very important that the review of the Fiscal Stability Law and of the Autonomous (Regional) Government Financing system should not lead to a weakening of fiscal discipline. In a situation in which it is necessary to make headway simultaneously in job creation and in productivity gains, the role of supply-side policies geared to improving the workings of the economy and expanding its potential growth is crucial. One of the main messages in the Annual Report presented today is precisely that it will become increasingly difficult for the Spanish economy to keep raising its levels of well-being if it does not make progress on both these fronts. Maintaining high levels of job creation is, and will continue to be, a powerful means of expanding the economy’s growth potential, but it will be impossible to sustain economic momentum in the long term if the economy does not improve its competitive position in the increasingly dynamic international setting. And to do this, it is essential to significantly improve the poor performance of productivity. Under this approach, labour market reform heads the list of transformations that are needed. | 1 |
In a market economy, it is the task of the price system to communicate information about household preferences and, for instance, to provide signals as to where productivity is to be best developed. Besides the task of safeguarding price stability, the Riksbank is also responsible for the country’s payment system. It is a prerequisite for the functioning of a modern economy that payments can be carried out in a safe, efficient way. In order for payment systems to function, it is important that financial stability is maintained, which, for instance, means that bank crises shall be avoided. There are close connections between the responsibility of the central bank for price stability and its responsibility for financial stability. In order for the instrumental rate to have the desired effect on interest rate formation, it is, for instance, important that the payment system functions efficiently and securely, since monetary policy instruments operate via the payment systems. Price stability can further be threatened by financial imbalances and by financial instability. At the same time a monetary policy focused on price stability per se probably reduces the risk for financial instability. It is not meaningful to draw a sharp boundary between what is regarded as the central bank’s monetary policy tasks and what is included in the responsibility for a secure, efficient payment system. I confine myself here to stressing that price stability and financial stability are both required to create good growth conditions in an economy. And the central bank plays an important role in achieving both these goals. | In the most recently published inflation assessments, it was assumed that the price stability target was not threatened during the forecast period despite the growth of demand being so strong that use of capacity was under strain at the end of the period. The majority view of the Executive Board was therefore that there was no reason to increase the repo rate. This assessment was based on free resources in the initial situation, good productivity growth, low price increases on certain recently deregulated areas, low import prices and finally low inflation expectations. It is not per se strange that GDP can increase as much as 3-4% for a couple of years without inflation sharply accelerating, if the use of resources is low initially. If the pattern from previous cyclical upswings was to be repeated, price pressure should now increase. However, it has proven difficult to identify any exact and very stable correlation. As I mentioned earlier great changes have taken place in the Swedish economy. While there are still considerable deficiencies in competition in many areas, it is nevertheless not probable that inflation will accelerate strongly in the next few years. An important reason for this is that the price stability target has now BIS Review 48/2000 4 obtained such strong support that inflation expectations are not increasing despite a cyclical upswing that is stronger than for a very long time. | 1 |
Equally important are the risks associated with the circulation of banknotes and coins and the lesser value means of payment that are part of the day to day lives of every Chilean. The autonomy of the Central Bank also means that the quality of its institutional management is a special responsibility. Although it is not part of the State’s administration, it is equally owned by every Chilean, who rightfully demand an efficient use of their resources. To undertake all these tasks, it is important to recognize that trust in a central bank also rests on its prudence. An institution responsible for price stability and financial stability cannot afford to improvise or experiment. In this regard, it is important to acknowledge the potential, but also the limits of monetary policy. In particular, we must reaffirm that it does not have the capacity to affect the mediumterm trends of the economy and not even completely eliminate the cyclical variations that affect it. Our main contribution to the country’s development is, in line with the mandate of our Organic Law, to keep inflation low and stable, reducing economic volatility and financial risks, with the expectation that by reducing uncertainty we will facilitate investment, employment and consumption decisions that shorten the cycle. The right mix of prudence and determination is not easy to calibrate. Prudence is necessary to correctly assess the implications of changes in the economic environment, resisting the temptation to look for the easy way out, which can prove very costly in the medium term. | All considered, the Board estimates that the balance risk is unbiased for both activity and inflation. Summing up, we now face a scenario where inflation has dropped faster than expected— but will stand at 3% at the end of the projection horizon—and where activity continues to grow slowly. Both domestic and external risks have increased. Let me now turn to the issues we explored in our Financial Stability Report. 5 / 19 BIS central bankers' speeches The Financial Stability Report Our Financial Stability Report, which we publish in June and December of each year, presents recent macroeconomic and financial developments that might influence the financial stability of the Chilean economy. On the external front, the risks presented in the FS Report are the same of the Monetary Policy Report I just described. Worth mentioning is the uncertainty surrounding how the worsened external financial conditions and the Chinese situation will affect us. In China, private credit is still on the rise, as is the banks’ exposure to the real estate sector, where house prices continue to grow at two-digit rates in the high demand cities. The quality of banks’ portfolios has deteriorated further, in line with the poor behavior of the corporate sector. This situation could worsen further with a rise in financial costs, again if international trade policies move towards protectionism, given the still high dependence of the Chinese economy on its exports. | 1 |
Monetary policy must then be adapted in order to counter inflationary pressures. A higher interest rate compared with other countries may result in a nominal appreciation. This leads to deteriorating competitiveness and contributes to reducing employment in the exposed sector. How quickly this takes place will depend on the monetary policy tightness required to counter price and wage pressures. Conclusion We live in an uncertain world. The economy will constantly be exposed to shocks of different types. We must be prepared for changes in the functioning of the economy over time. No one knows precisely how different shocks will affect the economy or what effects fiscal and monetary policy instruments will have. A stable operating environment in the form of a predictable monetary and fiscal policy contributes to reducing some of this uncertainty. This is a benefit for economic agents. Monetary policy decisions are also made under uncertainty. This is the most important challenge we face in the formulation of monetary policy. Given the phasing in of petroleum revenues now being planned, fiscal policy will be expansionary for many years ahead. This will contribute to stimulating domestic demand and thus influence monetary policy’s scope for manoeuvre in the medium term. Monetary policy must be tighter than it otherwise would have been. The consequences of using a growing portion of petroleum revenues will be a challenge to many, including the labour market, the business sector and political, decision-making bodies. | Petroleum revenues are gradually phased into the economy, approximately in pace with the expected real return on the Government Petroleum Fund.” The first sentence can be seen as a justification for a gradual phasing in of petroleum revenues. A phasing in of revenues based on using the expected real return on the Petroleum Fund must be said to be reasonably controlled and gradual. Another aspect is that the plans do not call for using the actual wealth. However, the expansionary impetus to the economy in any one year will depend on the time profile for the accumulation of capital in the Petroleum Fund. 8 BIS Review 7/2002 There was broad support in the Storting for the guidelines. Both the previous and current Government have placed considerable emphasis on adhering to these guidelines in the government budget for 2002. The use of petroleum revenues is calculated on the basis of the structural, non-oil deficit. This means that, in general, changes in activity levels in the economy do not influence the use of petroleum revenues. This also implies that fiscal policy will contribute to curbing fluctuations through automatic stabilisers. In years with a high level of activity, the actual budget deficit will be smaller than the structural deficit. In years with a low level of activity, the actual deficit will be higher. It is the level, and not changes in economic activity, that influences the structural deficit. | 1 |
The fact that we have revised down the international growth forecast also means that we expect a slightly less strained resource utilisation in the global economy. The slightly slower recovery for the global economy will also have repercussions for developments in Sweden. Growth this year is now expected to be lower than last year and almost one half of a percentage point lower than we had reason to assume in December - 1.7 per cent instead of 2.1 per cent. Consequently, we are also anticipating there will be slightly more unutilised resources in the Swedish economy in the coming years than we had previously assumed. Our forecast of resource utilisation in Sweden has also been affected by the revisions Statistics Sweden recently made to the National Accounts. These indicate that productivity growth in the economy was higher than estimated during the greater part of the 1990s. This in turn indicates that the economy's long-term potential growth rate may be slightly higher. To summarise, I can conclude that the pictures of economic activity in Sweden and in the rest of the world are similar to the extent that there appear to be some unutilised resources and that growth will not exceed its long-term potential over the coming years. Developments are currently being restrained by the unease over Iraq. There is also still great uncertainty regarding the size of the adaptations that remain after the earlier rises in share prices and other asset prices. | Today I intend to begin by describing the current monetary policy situation and then looking back at developments in recent years. The latter discussion shows, not surprisingly, that it is not always so easy in practice to determine what is appropriate monetary policy, despite a clear target with apparently simple principles behind it. Current monetary policy Higher energy prices behind rising inflation Inflation is at present above the target level. Over the past twelve months UND1X inflation has risen by 3.3 per cent. Does this mean that monetary policy has been too expansionary, or that the interest rate should be raised now? No, it does not. At least we do not believe so. The fact that inflation has risen recently is due to large price rises on a few components of UND1X, primarily electricity and oil. Excluding energy prices, UND1X inflation has risen by 1.9 per cent over the past year, i.e. very close to the inflation target. It is well known and accepted that monetary policy does not have any great immediate effect on inflation, which is one reason why the interest rate is set in relation to changes in the forecast inflation rate rather than the actual rate. Attempts to constantly keep inflation close to the target level could BIS Review 15/2003 1 lead to large fluctuations in interest rates, with negative consequences for the economy as a whole. This applies in particular when the economy suffers supply shocks, which at the same time lead to higher prices and lower production. | 1 |
The main basis for these examinations is the appendix to the Inflation Report that I mentioned earlier. One might think that it would be even better if more, and independent, agents took an active part in serious assessment. From time to time, assessments or assessment reports are commissioned. For instance, the National Institute of Economic Research 1 was given the task of producing background and facts prior to the Committee on Finance’s assessment in 2002. Last year the Committee on Finance decided to commission an independent, in-depth assessment of Swedish monetary policy during the period 19952005, that is, the ten-year period during which the inflation target has acted as official anchor for Swedish monetary policy. This assessment is being made by two international experts in this field, and it will, for instance, illustrate whether the inflation target is correctly designed to ensure price stability, to what degree the monetary policy conducted has led to attaining the inflation target during this period and the background and forms for the monetary policy decisions. This is something that I and my colleagues in the Executive Board welcome and I look forward to the analyses and debates this assessment will lead to. Of course, one can regard the general debate as an examination of our activities and as an indicator of how well we explain our monetary policy. However, it is rare that particularly thorough comparisons of, for instance, the forecasts published by the Riksbank and others are made in the debate. The debate thus cannot replace systematic assessments. | The yield curve of federal government bonds, which is used by banks as a benchmark for the interest rates they set for their clients, has significantly increased for maturities of up to three years, while staying almost unchanged in the long end. The rise in short-term yields reflects both our recent decisions and market expectations regarding the future key rate path. Shifts in long-term yields are minor. Among other things, this is an evidence of market participants’ confidence that monetary policy will finally bring inflation back to the target. I would like to reiterate that these are long-term interest rates, rather than our key rate as such (as is often stated), that determine the affordability of credit for companies’ investment purposes and of mortgage loans. As compared to yields on federal government bonds, interest rates on loans and deposits have responded more slowly and rose less significantly. Our today’s decision is aimed at accelerating this process. An increase in interest rates will help restore households’ propensity to save. Growth in retail and corporate lending is close to its highest rates recorded in recent years. Many borrowers seek to take out loans as soon as possible at lower interest rates. We have raised our lending growth forecast for this year. Mortgage lending will continue to expand fast, while slightly decelerating after the amendments to the subsidised mortgage lending programme become effective. Speaking of unsecured consumer lending, we can already observe the first signs of overheating. This lending segment has been growing faster than we forecast in April. | 0 |
Erdem Başçi: The importance of commodity price movements Opening remarks by Mr Erdem Başçi, Governor of the Central Bank of the Republic of Turkey, at the Conference on “Policy responses to commodity price movements”, Istanbul, 6 April 2012. * * * Distinguished guests, Welcome to the conference on the “Policy Responses to Commodity Price Movements” jointly organized by the International Monetary Fund, the IMF Economic Review and the Central Bank of the Republic of Turkey. As I will deliver another speech in the panel session on the second day of the conference, I will attempt to keep this inaugural speech as brief as possible. As you will recall, we hosted a conference on commodity price volatility in Istanbul last September within the context of G-20 program. These two conferences on similar topics in such a short time are clear indicators of how important the commodity price movements are for the global economy. Why are commodity prices so important? When we think of what is covered by “commodities” more closely, we also come up with how we should approach this issue. Usually, the term “commodity prices” represent energy prices (mainly the crude oil), food prices and the prices of some main industrial inputs. Energy prices are very closely monitored by economic units and policy makers, for it denotes the cost of one of the most significant inputs for the entire economy. Energy is one of the primary cost factors for firms. It is also a considerable item for households’ heating and transportation expenditures. | Another important issue to be discussed is how the effects of commodity prices on inflation, economic activity and exchange rates differ with respect to different monetary policy regimes. Another important issue is the interaction among different economic policies vis-a-vis the commodity price fluctuations. Distinguished guests, Studies included in the program will substantially contribute to the understanding of the commodity price dynamics and the policy responses against the macroeconomic effects of these dynamics. In this context, I would like to thank the organization committee for their efforts for this conference program which gathers very interesting and enlightening studies. I also believe that the conference will provide a platform which will be highly beneficial for the exchange of views among participants. Thank you very much in advance to all participants for their contribution. Now, I would like to give the floor to Pierre-Olivier Gourinchas, professor of economics at California University-Berkeley and the chief editor of the IMF Economic Review journal to open the first session. 2 BIS central bankers’ speeches | 1 |
It was introduced during a period of crisis to back up external debt repayments. Am I right in thinking that the Central Bank will abrogate this instrument in 2018 or will you keep it in some other form with different conditions? And another question, if I may. Does the Central Bank intend to introduce special instruments to provide liquidity to banks which experience difficulties after information attacks? There have already been cases when regional banks faced challenges, due not to financial difficulties but to information attacks. ELVIRA NABIULLINA: As for the FX refinancing instrument, I think it would be appropriate to evaluate it when it expires. We believe that it has proven to be an effective instrument which has allowed our enterprises and banks to adjust more easily to the surge in external debt repayments. We set the limit at $ billion, with a maximum allocation of $ billion. For now debt only slightly exceeds $ billion. As we initially planned and stated, we will curtail its use by the end of 2017. We will progressively reduce the limits and we do not foresee any problems arising for the banking sector in repaying these funds by the end of the year. We are not going to completely abrogate it and remove it from our toolkit. It will be a suspended 12 / 14 BIS central bankers' speeches instrument. We do not see any need to apply it again in the near future, but we will keep it in our toolkit. | Yes, we met on the sidelines of the G20 meeting for finance ministers and central bankers. In our talks we discussed, among other things, prospects for yuan-denominated OFZ to be issued on the Russian market. We not support for this idea in principle, with details to be discussed subsequently. Lenta.ru’s QUESTION: There are concerns in business circles and in the expert community that the ruble is too volatile. What is the Bank of Russia’s view on this matter? What could lead to the Central Bank giving up the floating exchange rate? ELVIRA NABIULLINA: In the foreseeable future, I do not anticipate any factors which would force us to abandon a floating exchange rate regime. I am convinced that the negative repercussions cited by enterprises in the real sector of the economy, namely, volatility, are outweighed by the benefits of this policy. Thus we are saved from any drastic corrections in the exchange rate, which would then hurt the economy overall, including social expenditures, etc. Allow me to stress this point again. We are confident that the arrival of the floating rate regime has in many ways helped the economy adjust to external shocks more quickly than it did in 2008–2009. This is also suggested by the depth of recession. It was the floating regime arrangement that enabled the real sector of the economy, together with the financial sector, to adjust to a drastically different environment. This really is an inbuilt stabiliser, and we see that it does work. | 1 |
Initiatives to raise youth knowledge and financial education in Spain, and the evaluation thereof Since 2012, various international OECD and G-20 initiatives have given expression to the importance of implementing national financial education strategies. Hence, since the end of the last decade, various initiatives have been launched in Spain in this area in the public and private sectors alike. Since 2008, the Banco de España and the CNMV have, in collaboration with other public and private agencies and institutions, committed themselves to contributing to improving citizens’ financial literacy through the National Financial Education Plan. The Plan has three basic features: i) generality, so as not to exclude any segment of the population and to cover all financial products and services; ii) cooperation, within both the public and private spheres; and iii) continuity over time, given the very nature of the objectives. As earlier stated, one of the population groups showing the lowest levels of financial literacy is that of young adults. A key element of the FEP is, then, the promotion of financial literacy in schools. In the case of schoolgoers, the notion of “financial education” refers to the teaching of knowledge, skills, behaviour, values and aptitudes that help students take 6/8 informed and sensible financial decisions in their everyday life, preparing them to better face the basic financial challenges they will encounter throughout their adult life. Starting in the 2012-2013 academic year, and following the pertinent evaluation of a pilot scheme8, a programme aimed at secondary education students has been developed. | In any event, the low level of the Spanish population’s financial literacy evidenced by the Survey is not something exclusive to Spain; rather, it is seen worldwide.2 However, in the particular case of knowledge on diversification, and unlike the other questions, the percentage of correct replies in the population as a whole is significantly lower than that in other developed countries (49% in Spain, compared with 62% in the OECD or EU countries). 1 The Survey microdata are freely accessible for scientific research purposes and are available on the Banco de España website at: https://app.bde.es/gnt_seg/controlAccesoEmail.jsp?pas=ecf&lang=en. 2 OECD (2017), G20/OECD INFE report on adult financial literacy in G20 countries, http://www.oecd.org/dat/fin/financialeducation/G20-OECD-INFE-report-adult-financial-literacy-in-G20_countries.pdf. 4/8 The results reveal some sex and age-based heterogeneity in the degree of familiarity with these basic financial notions. This heterogeneity in financial knowledge has been related in some international studies to actual financial decision-making in households3, such that the level of financial literacy would be higher in the individuals that actually take these decisions. That might suggest either some specialisation in this area within the household, or that financial literacy is acquired through practice. The results of the Survey also show that the level of financial literacy in Spain increases in step with the level of educational attainment4, as occurs in other developed countries. The age profile observed is also relatively common. In Spain, the percentage of correct replies increases with age up to 54 years. Above that age, the percentage of correct replies falls and the percentage of interviewees replying “Don’t know” increases. | 1 |
There is a final twist in this story of the dark side of integration and information. Fat tails and short minds can combine in uncomfortable ways. Myopia generates under-insurance against future risks, especially tail risks which seem remote. Yet, courtesy of integration, these tail risks may be on the rise. In other words, systemic risks may be rising at precisely the time societal insurance against these risks is most needed. Why institutions matter If so, then policymakers face a dilemma – catastrophe risk rising, but catastrophe cover falling. In these circumstances, the public good of system stability, locally and globally, socially and economically, may be at risk. How should policymakers respond? One response would be to turn the tide, reversing the paths of integration and information. Since the crisis, there have been some signs of just that. Chart 2 shows one measure of global capital market integration over the past century – the correlation between national saving and investment rates in a set of countries. A value of one signals financial autarky – countries fully reliant on domestic saving to finance investment. A value of zero signals perfect financial integration – countries financing local investment globally. For much of the 20th century, global financial integration, so measured, was very low. In the early 1980s, after decades of post-war financial liberalisation, this was seen as a “puzzle” (Feldstein and Horioka (1980)). Yet at precisely that point, the puzzle began to unravel. Correlations between national saving and investment began falling. | In particular, I wish to argue that the twin forces of integration and information may have increased the severity of the tail risks facing global systems, as recently evidenced by the global financial crisis. Insuring against those rising tail risks may call for a fresh policy response – for example, a strengthening of public policy institutions. Integration and systemic risk Consider first the relationship between integration and systemic risk. It is well-known that deeper integration of a network does not have a straightforward impact on its stability. Integration can be a double-edged sword – and the greater the degree of integration, the sharper this sword. This is sometimes known as the “robust-yet-fragile” property of connected webs (Watts (2002)). The intuition is beguilingly simple. Within limits, connectivity acts as a shock-absorber, a riskspreader. Links in the system act as a mutual insurance device as risk is distributed and diversified away. That results in connected networks appearing “robust” to shocks. But when shocks are sufficiently large, the same connectivity serves as a shock-transmitter. Risksharing becomes risk-spreading. Links in the system act as a mutual incendiary device as risk is amplified across the wider web. Connected networks become “fragile”. In short, connected networks tend simultaneously to be stable and unstable, calm and turbulent, robust-yet-fragile. They sit atop a cliff-edge, on one side of which are the sunny uplands of stability, on the other the stormy lowlands of fragility. The more connected and integrated the system, the more precipitate this cliff-edge (Acemoglu et al. | 1 |
Chart: Change in market value since January 1998 So far, our nation has earned a solid return on its financial assets. The cumulative return on the GPFG since its inception amounts to over NOK 2 600 billion, equivalent to about a third of total GPFG capital at the end of 2014. BIS central bankers’ speeches 3 Chart: Lower yields Over a third of the GPFG is invested in bonds. Real yields on high-grade government bonds provide a basis for the rate of return that can be expected ahead. In recent years, those yields have been close to zero. Low bond yields reflect global economic conditions: Governments, businesses and households are seeking to save more, while demand for safe investments has increased. Central banks’ substantial asset purchases are pushing in the same direction. However, low yields may also reflect modest expectations of economic growth further ahead. There is no return without risk. The GPFG features a very long investment horizon and a sizeable capacity to bear short-term risk. This is why the chosen allocation to equities is relatively high. It is also the reason why the GPFG has moved into real estate. The authorities have asked Norges Bank to assess whether the allocation to real assets should be increased. Any increase in the allocation to real assets will probably be at the expense of bonds. Chart: Spending of petroleum revenues almost level with revenues Petroleum revenue spending over the fiscal budget has increased since the turn of the millennium. | A growing number of these jobs are related to exports of oil extraction equipment. The oil and gas industry has played a decisive role in the strong growth of the Norwegian economy over the past 40 years. The past 15 years stand out in particular. But this dependence on oil has also made the Norwegian economy vulnerable to changes in oil prices or a decline in petroleum revenues. Chart: High wage growth (not incl. the krone depreciation over the past two years) High domestic labour costs have also increased the Norwegian economy’s vulnerability. The cost level in the Norwegian business sector has increased sharply in comparison with our trading partners. A rise is followed by a fall, and oil prices have fallen by more than half since last summer. As activity and earnings from the petroleum sector decline, oil service companies must seek entry into other markets. With a high domestic cost level, that task may prove demanding. Chart: Fall in petroleum investment A decline in activity on the Norwegian continental shelf has long been anticipated. The fall in oil prices has accelerated and amplified an announced decline in activity. Norwegian exports to other oil-producing nations are also in decline. This does not mean that the oil age is now nearing an end. Nearly half of known oil and gas reserves on the Norwegian continental shelf have not yet been extracted2. Large new discoveries have been made over the past few years and the Norwegian oil service industry is still receiving new orders. | 1 |
That’s why the FPC has acted to limit the share of high loan-to-income mortgages UK banks can originate, the PRA has tightened standards on consumer credit and the Bank is monitoring closely the growth in leveraged lending. 13 All speeches are available online at www.bankofengland.co.uk/speeches 13 The second reason for caution is the possibility of a more material slowdown in China. China is the one major economy in which all major financial imbalances have materially worsened. It may be the exception that proves the rule that financial imbalances cause recessions. While China’s economic miracle over the past three decades has been extraordinary, its post-crisis performance has relied increasingly on one of the largest and longest running credit booms ever, with an associated explosion of shadow banking. Total Social Financing has increased from 120% to 223% of GDP since 2008. In parallel, the non-bank financial sector has increased from around 20% of GDP to over 70% today, with developments echoing those in the pre-crisis US including off-balance sheet vehicles with large maturity mismatches, sharp increases in repo financing, and large contingent liabilities of both borrowers and banks. Chinese authorities have begun taking measures to manage these risks. Growth in Total Social Financing is now in line with that of nominal GDP (Chart 10). The shadow banking sector is being restructured. But there is a tension between reducing the risks from high debt and supporting the economy. | 60% of leveraged loans are now covenant-light and most deals have substantial “add backs” of EBITDA.20 These are developments analogous to the “No Doc / No Income” heyday of US subprime. To add to the sense of déjà vu, growth in leveraged loans has been increasingly driven by securitisation. Chart 8: New leveraged loans to US companies have become riskier Average Median Riskiest 25% Total debt to EBITDA 7 6 5 4 Post-crisis avg 2017 2018 Source: LCD, an offering of S&P Global Market Intelligence. Notes: The chart includes leveraged loans issued to US corporate borrowers. Total debt to EBITDA is measured postissuance and is not adjusted for EBITDA add-backs, which have increased in size and prevalence in recent years. There are some important differences between leveraged lending today and subprime a decade ago. Nonbanks are playing much smaller roles in origination, and ‘skin-in-the-game’ rules had, until recently, aligned 19 In the US, gross corporate debt as a share of annual earnings was 266% in Q3 2018, compared to 262% at the end of 2007. On the same measure UK corporate debt to earnings was 312% in Q3 2018 compared to 336% at the end of the 2007, but excluding the leverage of UK companies in the CRE sector it is above pre-crisis levels (301% in Q3 2018 vs 278% at end-2007). See the Bank of England’s November 2018 Financial Stability Report for more details. | 1 |
Our assessment is that unemployment will reach approximately 6.5 per cent at the end of the forecast period (see Figure 19). A lasting BIS central bankers’ speeches 5 reduction in the level of unemployment also demands that wage formation is effective so that costs in the business sector do not increase too rapidly. …and inflation can approach the target A new round of collective bargaining has now begun and the wage demands presented so far are higher than those presented in 2010. The Riksbank’s assessment is that wages will rise by almost 3.5 per cent per year in the years ahead. This is compatible with the inflation target. The assumption behind our forecast is that wage formation will work as well as it has over the last 15 years. Responsibility for this lies with the social partners. The krona is an important factor for inflation in Sweden as it determines how prices abroad are “translated” into import prices in Sweden. Historically the krona has weakened in periods of financial unease as investors often move their money from small currencies like the krona to the dollar and the euro. However, the krona has weakened only moderately this time, despite the financial unease (see Figure 20). We expect the krona to gradually strengthen as the financial unease subsides. The combination of falling commodity prices internationally and a stronger krona means that inflationary pressures from abroad will be rather low in the period ahead. | Different inflation measures 4 4 CPI UND1X xe UND1X 3 3 2 2 1 1 0 0 -1 -1 -2 -2 Jan 95 jan-95 Jan 96 jan-96 Jan 97 jan-97 Jan 98 jan-98 Jan 99 jan-00 Jan 00 jan-01 Jan 01 jan-02 Jan 02 jan-03 Jan 03jan-04 Jan 04 Jan 05 jan-99 jan-05 Note. 12-month changes in per cent. Inflation measures computed according to Statistics Sweden’s new method. Sources: Statistics Sweden and the Riksbank 6 BIS Review 25/2005 1b. Different inflation measures 4 4 3 3 2 2 1 1 0 0 KPI CPI -1 -1 UND1X UND1X UND1X exkl. energi UND1X excluding energy -2 95 96 97 98 99 00 01 02 03 -2 04 Note. 12-month changes in per cent. Inflation measures computed according to Statistics Sweden’s old method. Sources: Statistics Sweden and the Riksbank BIS Review 25/2005 7 2. Inflation: goods and services 5 (excl. | 0 |
The HKMA, in partnership with HKAB, will be monitoring developments, and I note that the Legislative Council Panel will also be revisiting this issue in six months time. Let me conclude with one point, which I hope has become clear through the discussion of this issue. The outcome of this discussion may come as a disappointment to those who say that the HKMA has an evil plan for taking over the world by grabbing powers and responsibilities whenever it can. The fact is that, although we are not technically a "statutory" body, what we can and cannot do in pursuit of our policies is strictly controlled by legislation, which is a matter ultimately for the Legislative Council to decide. I have, I hope, shown that this legislation, as it now stands, does not permit us to do many of the things that many complainants would expect or wish us to do. In setting out the various alternative approaches to complaint handling as objectively as we can, we have, I hope, made it clear that the HKMA does not seek, or even welcome, an expansion of its powers to satisfy these expectations. On the contrary, at a time of continuing challenge and shrinking resources, we think it sensible to concentrate our energies on our core responsibilities. We therefore welcome the present consensus on this issue and, together with HKAB and other parties, shall do our best to ensure that it works. BIS Review 39/2002 5 | 95 5 1292 4 57 3 )*++,- #77 477 277 1 54 77 44 2 77 4#4 87737 5#4 6 54 4#4 #77 4#4 2 4#4 < 74 4#4 ;@ < 4A5 5 57 75 847 54 8 7 4 354% 54' ' 8 54 ' ( 735 447 4 ' 736 ( 7 &7 54')0+ $ 54%')00+ ( 2 $ ( 54 736 44 46 4')0H+ 6 641 641 56 8 7 641 4 1 816 74641 6 7641 6 6 4 77 6 76841 81 56 8 74 7 6 56 47 6 456 76841 56 1641 56 8 6 164 166 56 56 7 71 54 451 41 + 56 841 64 841 5 74641 1 841 16 1641 1 6 6 856 47 1 46 6 4 <=>? @ABC=> 95 10 10 /5%!85 $ | 0 |
Looking back, looking forwards: achievements and future direction of Economic and Monetary Union The conventional and unconventional measures the ECB has taken over the past decade have been successful in addressing the deflationary risks, restoring the functioning of the monetary policy transmission mechanism and providing vital support to the euro area economy. But the ECB does not operate in a vacuum and other economic policies matter too. Allow me to recall my first appearance before this Committee in 2011. At that time, half of my introductory remarks were about the functioning of Economic and Monetary Union (EMU) and the need for other European policymakers to act. So I will conclude my final statement to you by highlighting some lessons that have emerged from these eight years, which I hope can help in addressing the challenges ahead. When comparing the crisis response of the euro area with that of other advanced economies, it is evident that the latter were able to achieve a better macroeconomic policy mix at the time, thanks to more decisive actions in both the fiscal and financial domains. The Governing Council has reiterated that we are determined to ensure that inflation moves towards our aim in a sustained manner, and that we continue to stand ready to adjust all of our instruments. At the same time, a better policy mix, including fiscal policy, structural reforms and prudential measures, can help achieve this objective faster and with fewer side effects. | The elimination of Central Bank credit to the public sector will go far to create the confidence needed to launch the crucial struggle with inflation. Central banks are responsible for keeping prices stable as well as for ensuring that the financial system runs smoothly. A stabilized financial system and stable prices are essential conditions for steady economic growth in the medium term because only a stable financial system can provide the necessary link between savings and investments. Price stability is needed to reduce uncertainties for investors and encourage investments. In the long run, stabilizing prices is likely to increase both living standards and productivity. For this reason, the price stability that is the main goal of central banks is valid and urgent not only in the short run, but also in the long run. And once countries like ours have achieved price stability after long effort, they must continue the effort to maintain it. For central banks, price stability is a permanent goal. Inflation inflicts several burdens on a society: · Overall, it introduces uncertainty into economic decisions and profit seeking. · It reduces the discipline of price and market systems. · It has negative effects on the cost of capital. · It directs resources to unproductive activities. In periods of high inflation, investments in real estate and financial investments become more desirable. · Growth declines as inflation rises. In countries with high inflation, it has been observed that most resources are directed to the financial system. | 0 |
Since then, the process of European integration has continued to develop. Throughout this process national policymakers, economic actors and the general public have each had to undergo a learning process whereby the previous, narrowly defined, national perspectives have been replaced by an increasingly European vision. This was and is not always easy. Today, the European Union stands for a highly integrated single market with about 380 million people, which combines the economies of 15 European countries and accounts, like the United States, for around 20% of world GDP. Moreover, it stands for a Monetary Union with a common currency, the euro, which, at present, has been introduced by 11 countries. Finally, the European Union, even though it lacks international personality, is characterised by a substantial and growing degree of political cooperation and coordination. This applies to justice and home affairs as well as to foreign and security policies. 1 BIS Review 4/2000 *** The dynamics of the integration process and, with it, the increasingly European outlook of both politicians and citizens was essential for creating an environment in which Europe’s leaders could take the bold decision to adopt a single European currency. But there were also a number of more specific factors that facilitated this decision, some of which I should briefly mention. The first of these was the signing of the Single European Act, in 1986, which committed the then European Community of 12 to adopt the measures necessary to complete the “single market project” by the end of 1992. | From the position of the BNB and in view of the goals for controlling inflation, it is very important that the country does not assume significant additional permanent expenditures, which are not backed by permanent revenues. There are two groups of risks associated with such an approach: (i) the risk of an inflationary spiral and (ii) the need for painful fiscal adjustments in the near future, whether in terms of revenue, i.e. by increasing taxes, or by cutting costs. Along with external factors, this would lead to a significantly more complicated macroeconomic environment for the Bulgarian banks. In terms of the external factors and their further complication and deterioration because of the war in Ukraine, most important will be the decisions of the big leading central banks, primarily the ECB in our case. There are already clear statements about three things that will happen during the third quarter of this year: (i) the ECB will effectively end net asset purchases from the beginning of July; (ii) subsequently the ECB intends to raise its key interest rates; and (iii) will do it again in September so that by the end of the quarter we will move away from negative interest rates. Obviously, in the following months and at least a year ahead we will be facing the challenge to find the very difficult balance between the measures to control inflation and the measures to prevent recession. How is our banking sector meeting the new challenges? Our starting position remains very good. | 0 |
Stefan Ingves: Financial crises and financial regulation – thoughts after five turbulent years Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, to the Swedish Economics Association, Stockholm, 13 June 2012. * * * Palmstruch and the Bank of the Estates of the Realm In 1656, Johan Palmstruch founded Sweden’s first bank, Stockholms Banco. In 1661, to facilitate the handling of money, Palmstruch launched the first banknotes. They were initially successful. But it all ended in a bank failure after Palmstruch became tempted to issue too many banknotes in relation to the underlying value that was deposited in the bank. In response to this failure, the Riksdag resolved to form the Bank of the Estates of the Realm in 1668. This bank was later renamed the Riksbank and is today the world’s oldest central bank. Palmstruch’s story illustrates the importance of price stability – and also the risks of financial instability. Today, I would like to discuss financial crises and financial regulation from the perspective of the national economy. I want to explain the value of orderly and well-reasoned financial regulations for the prevention of financial crises. Banks are not normal companies. For one thing, banks in crisis can result in very large costs for the entire economy. The public sector thus has an obligation towards the citizens to attempt to prevent and manage financial crises to the best of its ability. | Meanwhile, the ecosystem continues to develop and we will probably need a MiCA 2. First, to deal with concerns over "crypto conglomerates", involving Page 3 of 6 multiple subsidiaries with diverse activities and geographical locations: the FTX collapse has demonstrated that it is not enough to regulate a single sub-entity in a single jurisdiction. In my view, these conglomerates could be subject to transparency obligations – particularly the preparation of consolidated financial statements – while the sharing of information between jurisdictions will be essential to understanding their overall organisation as well as interdependencies between entities. The second deficiency concerns the ecosystem of what is often erroneously referred to as "decentralised" finance (DeFi) – what we prefer to call "disintermediated” finance. The ACPR is pioneering thinking in this area with the publication in April of a document that outlines possible regulatory frameworks for DeFi. The very successful public consultation process ended at the beginning of June. It was widely reported upon and generated almost 40 responses of high technical quality from both French and international players, including "established" players and new entrants. We will be publishing a summary of these responses in the autumn. Overall, these contributions confirm our understanding of this topic and the regulatory avenues taking shape on each of the three DeFi 'floors': (1) ensuring the resilience of the blockchain infrastructure – albeit a public one – through security standards (2) certifying smart contracts, even if this raises a number of operational issues, and (3) regulating DeFi entry points to protect users. | 0 |
High inflation is often variable, making economic planning difficult. The real economic costs of bringing high and rising inflation under control have also proved to be substantial. But inflation should not be too low either. Some degree of inflation can oil the wheels of the economy and at the same time increase the monetary policy room for manoeuvre. The lower inflation is, the shorter the distance is between the nominal interest rate and its effective lower bound in a normal situation. If inflation moves into negative territory, the costs can be considerable. Deflation – a persistent fall in prices – can amplify a downturn. In the early years of inflation targeting, policymakers had high ambitions of micromanaging inflation to meet the target and of achieving this goal within a clearly defined time horizon. But with experience, useful lessons were learned and these ambitions were gradually toned down. In the face of various kinds of shocks, small open economies in particular found that bringing inflation rapidly back to target could have undesirable consequences for the real economy. It was essential to practise flexibility in inflation targeting to address these shocks. The horizon for achieving the target was lengthened. This has also been the case in Norway. In Norway, inflation has over time been close to, albeit somewhat below, the target. Inflation has at times deviated from 2.5 percent, undershooting or overshooting the target. | In most central bank legislation, the central bank’s primary purpose is limited to the responsibility for maintaining price stability and for performing tasks relating to financial stability, in some cases supplemented by a more general objective, such as underpinning the government’s economic policy. In some central bank acts, however, high employment is included as one of the central bank’s primary objectives, as is the case in the US. A so-called dual mandate was established for the Federal Reserve, where the objectives of full employment and price stability are put on an equal footing. In practice, monetary policy conducted by a central bank with a dual mandate will not necessarily differ from that of a central bank operating a flexible inflation-targeting regime. A central bank with a flexible inflation-targeting regime will also be concerned with the level of employment. In the draft of the new central bank act, maintaining monetary stability is the primary objective. The proposal does not provide for a dual mandate for monetary policy. This is a wise choice. Even though the difference between inflation targeting and a dual mandate is probably small in practice, there are good arguments for keeping price stability as the primary objective of monetary policy. This will clearly define the main role of monetary policy. In the practical conduct of monetary policy, the central bank will always be faced with a trade-off between different considerations. | 1 |
The Norwegian State Finance Fund and the Norwegian State Bond Fund were established to bolster the supply of bank equity capital and loans to enterprises. In addition, the Storting allocated funds to central and local government authorities for maintenance and investment in order to support activity. 4 BIS Review 69/2010 Economic growth in Norway came to a halt in autumn 2008, and output fell in both the fourth quarter and the first quarter of 2009. Growth resumed from the second quarter. The substantial decrease in the key policy rate, combined with increased public spending and high oil investment has contributed to supporting activity. Capacity utilisation is nonetheless still lower than normal, although the downturn appears to have been mild so far. Without low key rates, inflation would have fallen too far. Unemployment rose less than we projected last year. Firms retained employees despite the fall in activity and many young people exited the labour force in favour of education. The mild downturn in Norway is also reflected in the wage settlements, which have provided for appreciably higher pay increases than among our trading partners. BIS Review 69/2010 5 In late spring last year, liquidity premiums in money and bond markets started to fall in Norway. As these markets began to normalise, the extraordinary measures could be phased out. Long-term loans were no longer provided after February 2009. After May, foreign exchange swap agreements were no longer provided. Spring 2009 saw the first signs that the covered bond market was beginning to function. | In general, innovations in monetary frameworks and instruments go hand in hand with innovations in statistics. The non-standard measures underline a need to devise a specific dataset, produced on a regular basis, for monitoring the effectiveness of the measures undertaken. The financial crisis has underpinned the importance of the financial stability, which forced many central banks to place much higher priority to the financial stability concerns. The focus has shifted from the stability and risks pertaining to individual financial institution to the systemic risk concept. In other words, what matters evenly is the potential instability of the financial system as a whole, and the risk of adverse loops with the real sector. More importantly, the crisis has stressed the time dimension of the systemic risk that is the procyclicality of the financial behavior and the structural dimension, which arises from the interconnectedness among the financial institutions and the possible contagion effects. Hence, the macro prudential analysis and measures are gaining more and more weight, and so are the new datasets requirements for pursuing the macro prudential role. I think that even prior to global crisis, central banks were well equipped with a wide range of macroeconomic, monetary and financial data. What was probably missing was a wellestablished platform for pursuing strong macro-financial analysis, higher frequency of some of the indicators, and uniformity in the way indicators were calculated. | 0 |
An important feature of a comprehensive and welldeveloped financial infrastructure is the diversity of the players and institutions in the system that have been developed based on their distinctive capabilities and competitive advantage thus raising their performance level, valued added and contribution to overall growth and development. In addition, as part of the strategy to enhance our integration with the international financial system and to strengthen our inter-linkages with other economies, the liberalization of the Islamic banking industry has been brought forward to take place in 2004. The issuance of new Islamic banking licences to qualified foreign financial institutions will allow for the presence of foreign Islamic banking players to act as a bridge between Malaysia and other global Islamic financial markets and increase the potential to tap new markets and growth opportunities. It will also contribute to spur financial innovation as well as facilitate international trade and investment flows between Malaysia and the rest of the world. An important dimension of the financial infrastructure is a comprehensive and effective legal infrastructure for legal redress arising from Islamic financial transactions. The legal infrastructure needs to comprise both effective regulatory and substantive laws as well as appropriate adjudicative fora for parties to resolve disputes relating to Islamic financial transactions. This will instill confidence and promote the sound expansion of the Islamic financial industry. | This will assist the Islamic banking institutions in mitigating part of the risks emanating from asset and liability mismatches. The Islamic capital market, in particular, the Islamic debt market, has also experienced rapid growth since its emergence in the 1990s. The issuance of Islamic bonds has expanded steadily at an average growth rate of 33.7% since 1995. In 2003, the total funds raised via the issuance of Islamic bonds amounted to RM8.1 billion, constituting 19% of the total funds raised in the bond market. New innovative Islamic financial instruments such as Islamic asset-backed securities have also emerged and the financial structures underlying Islamic securities have become more diversified. The number of Shariah-based unit trust funds has also grown consistently over the years to reach 55 in 2003 with a net asset value of RM4.75 billion, constituting a market share of 6.8%. The rapid growth of Islamic unit trusts comprising a variety of bond funds, equity funds and balanced funds increases the efficiency and potential of the Islamic financial system as an intermediation channel by providing investors access to professional asset management that is based on their distinct risk tolerance levels. The development of a vibrant, efficient and effective Islamic capital market requires the creation of a broad spectrum of innovative Islamic financial instruments and the infrastructure to promote active trading so as to enhance the breadth and depth of the market. | 1 |
32000 4800 1255 3892 2220 3262 1648 1485 25465 6188 9445 16494 15220 52805 333 100 34,630 1,270 18,340 19,510 13,440 18,000 22,010 25,880 2,410 19,300 25,580 23,420 2,650 Log data Staff/pop staff 38 38 55 67 76 83 93 96 98 161 165 202 263 357 8.48 7.13 8.27 7.71 8.09 7.41 7.30 10.15 8.73 9.15 9.71 9.63 10.87 popln staff/pop 18.64 16.94 17.88 17.19 17.48 16.69 16.55 19.38 17.47 17.86 18.22 17.87 18.81 -10.17 -9.80 -9.62 -9.48 -9.39 -9.29 -9.25 -9.23 -8.74 -8.71 -8.51 -8.24 -7.94 gdp #NUM! #NUM! 1.31 1.11 #NUM! 1.65 1.69 1.07 #NUM! 2.93 2.29 2.58 #NUM! | In contrast, Hungary and Poland have tried to prevent the inevitable real appreciation of their currencies by continually depreciating their nominal exchange rates in reflection of their higher rates of inflation. Polish policy became less accommodating last year, and Hungary may be set to follow. Of course, an exchange rate peg is far more credible if a country has sizeable foreign exchange reserves. The Baltic states were fortunate in this respect as they regained access to the gold held by their central banks in London and Paris before the War; and Estonia and Lithuania have gone as far as to fix their exchange rates rigidly in a currency board system which removes discretion from monetary policy. (Note that these countries too are experiencing real appreciation: annual inflation is nearly 15% despite their fixed exchange rates.) The IMF is now encouraging Bulgaria to follow suit and adopt a currency board as the central bank there has not been able to impose a sufficiently tight monetary policy in the face of lack of progress on other aspects of reform. But the currency board can only succeed as part of a comprehensive package of fiscal and structural measures. The strict monetary policy rules of a currency board can work well if fiscal policy is highly responsible - or will become so as a result of the currency board; if not, it may put severe strains on the banking system, as has been the case in the Baltic states. | 1 |
However, that rate is now heading upwards, rising from around 1.5% in mid-2022 to 3.6%12 in February this year. At some point, however, the fall in energy prices, the improvement in supply chains and the moderating demand, owing to tighter financial conditions should begin to gradually produce reverse effects on inflation. Thus, at the current juncture, we could well be nearing some sort of crossroads, where the lagged effects of the past increases in commodity prices and exchange rate depreciation are still present, but diminishing, while the first effects of the most recent decreases and appreciation may be emerging and on the rise. However, when this crossroads is reached, and how strongly it will support a decline in inflation, will depend on the extent of the symmetry between the impact of higher and lower costs on prices. In this regard, the impact of cost decreases on inflation may not be fully symmetrical to the impact of cost 10 These items were more directly affected by the increase in the cost of energy, food prices or supply bottlenecks, together with the strong demand for specific goods during the pandemic (especially in the case of durable goods) and the reopening phase (notably in the case of services). 11 A breakdown of core inflation by destination of expenditure shows that the components related to transport recorded an annual price increase at 7,1% in February, 7,3% in December. Prices in the housing equipment and maintenance sub-index increased 9% February, down from 9,3% in December. | 30 All speeches are available online at www.bankofengland.co.uk/speeches 30 Table 1: Wage growth models (1) (2) (3) (4) (5) (6) Variables AWE AWE AWE AWE AWE AWE Inflation expectations (lagged one quarter) 0.718** 0.361 0.680** 0.323* 0.464** (0.270) (0.237) (0.255) (0.143) (0.161) Inflation 0.417** (0.023) Unemployment gap -0.847** -0.709* -0.857** -0.038 (0.198) (0.289) (0.313) (0.055) Involuntary part-time employment share Trend productivity growth -0.602* -0.237 (0.297) (0.364) 0.834** 0.763* 0.708* 0.888** 0.735** (0.166) (0.340) (0.275) (0.199) (0.160) 2.646** 0.896 (0.739) (0.843) Voluntary job-to-job transition rate Unionisation rate 0.027** (0.010) Constant 0.299 2.876* 1.239 -1.249 0.432 -0.125 (0.794) (1.347) (1.459) (0.676) (0.800) (0.288) Observations 105 105 105 94 94 122 Adjusted R-squared 0.603 0.566 0.604 0.617 0.644 0.856 Newey-West robust standard errors in parentheses ** p<0.01, * p<0.05 Sources: ONS, Barclays and Bank calculations. Notes: Estimation period is 1992Q2-2018Q2 for specifications 1, 2 & 3. For specifications 4 & 5 the sample begins in 1995Q1 due to data limitations. | 0 |
The Rt Hon Sir Edward George GBE: Towards a safer banking system Speech by The Rt Hon Sir Edward George GBE, Governor of the Bank of England, to the Association of Professional Bankers Sri Lanka 12th Anniversary Convention, on 27 August 2000. * * * Mr Governor, Ladies and Gentlemen, It is an immense pleasure, and a very great honour, to have been invited to address this Annual Convention. The theme of the convention is “Towards a safer banking system”. It is a theme which gladdens my heart. The safety of the banking system is fundamental to financial stability in a broader sense. It is vitally important, of course, to you - as professional commercial bankers. But it is vitally important, too, to us, central bankers, because you simply cannot have monetary or broader economic stability, which is a key part of our responsibilities, without stability of the financial system - they go together like love and marriage! And monetary and financial stability are vitally important, too, to our societies at large and to the individuals that make up our societies - they are absolutely necessary, if not in themselves sufficient, conditions for the economic prosperity to which we all aspire. The question is what can we do - working together - to improve the safety of our banking systems. | While it may be possible for the authorities in many instances to bring about stabilisation by catalysing action within the private sector - and the way in which the Federal Reserve handled the problems in Long Term Capital Management a couple of years ago is an outstanding example of that - the monetary authorities’ ultimate instrument is their capacity, typically exercised by the central bank, to intervene directly - within limits agreed by government since public money is involved - themselves. As in the case of IMF lending to member countries in difficulties, this “safety net” or Lender of Last Resort (LOLR) capacity needs to be used with great discretion if it is not to give rise to a similar kind of moral hazard - encouraging banks and their creditors to take excessive risks. It is only to be used where there is a genuine risk of systemic financial disturbance - where other banks are liable to be affected by contagion either as a result of their direct exposure to a failing institution or because they are likely to be seen themselves to be exposed to the same sort of pressures that affected the failing 3 BIS Review 66/2000 institution, and therefore likely to be similarly vulnerable and subject to loss of confidence. It is only in those circumstances - which I agree are difficult to recognise with total confidence - that official intervention can be justified. | 1 |
Takaful operators have started publishing and 3/6 BIS central bankers' speeches implementing new customer service charters. The industry must now walk the talk. In the next few months, a Customer Satisfaction Index Survey will be carried out to measure actual service levels against what operators promise. The results will be made public. Customers can shop around and make better informed choices when deciding who to trust to protect them. In this digital age, technology has changed the way we live, the way we save, and the way we bank. But it seems that little has changed in the takaful and insurance space. This perplexes me. This is quite telling from the industry’s attitude towards efficiency and innovation more generally. Mobile and internet penetration in Malaysia stand at about 132% and 81% respectively. There is potential to increase the offering of supplementary services online, such as vehicle anti-theft services and health advice, as a recent study by Bain & Company on insurance customers in 19 countries confirms. The industry can invest in its own capacity to deploy new technological solutions itself, or it can partner with others. The point is that it has to respond proactively, or risk being disrupted by others. Just a few weeks ago, Amazon, Berkshire Hathaway and JPMorgan announced a new venture to disrupt health insurance in the U.S. This is the reality that the industry has to face. Another issue that the industry is lagging behind is in terms of migration to e-payments. The use of cheques is still prevalent. | Takaful must shed its image as being an imitator, a follower or impersonator of conventional insurance. Takaful operators, including the financial groups to which they belong, must see beyond takaful as yet another line of insurance products. In this, we need the right leadership, shareholders included, to set the right tone from the senior leadership that takaful must offer distinctive benefits highly valued by all. Its impact must be lasting and profound. This is especially so in our system, where takaful is competing side by side with the insurance industry. 1/6 BIS central bankers' speeches All this considered, allow me to suggest three priorities for the industry to embark on to realise the full potential of takaful: First, fulfill the promise of takaful in helping protect people and businesses. Takaful is derived from the Arabic word “kafal”, which means ‘to help’. To my mind, this calls for the industry to reach out beyond its comfort zone of focusing on mandatory products, such as motor and fire, or those that are easy to sell, namely mortgage related products. It must make serious inroads in other areas where protection gaps exist, such as in agricultural risk, annuity and trade credit. Something that is consistent with the needs of our economy. Ultimately, the industry must be ahead of the curve to innovate and deliver solutions that are truly needed and highly valued by customers, both individuals and businesses. In family takaful, the industry must position itself as a trusted and valued solution provider for all Malaysians. | 1 |
• Third, enhance supervisory colleges, which were designed to improve the exchange of information among supervisors with the goal of ensuring safe and sound banking practices, reducing the possibility of governmental assistance, and building confidence in the financial system. We need to make supervisory colleges more effective by going beyond basic information sharing. In addition to improving our information sharing, this should also include making sure that core colleges are appropriately constructed and reflect the key jurisdictions necessary to get a full picture of the risks of the firm; ensuring that the dialogue between supervisors and firms in college settings is robust and that the engagement among all parties is sufficiently high; and providing clear and direct feedback following supervisory colleges, both between supervisors and to the firm. Home supervisors should be providing host supervisors with feedback and, where necessary, direction on key risks and other issues requiring follow up in their jurisdictions. Host supervisors should be providing home supervisors with feedback on what they are seeing in their jurisdiction and how risks are evolving in their markets. And, finally, to ensure consistency of supervisory messages on group-wide issues, home and host supervisors should agree on key message to firms. Finally, supervisory colleges are a good way to promote more consistent supervision of globally active firms, and supervisors should leverage the college construct to reinforce more consistent application of global standards and risk management expectations across all firms. | And, for our part, we need to: • improve our communications with firms, including being more timely and clearer in our feedback; • improve collaboration with home and other host supervisors; and, • make supervisory colleges more effective, by promoting more robust discussions and more direct feedback to firms. Thank you for your attention today. I look forward to continuing to work with you on these issues as we seek to enhance our supervisory programs. BIS central bankers’ speeches 5 | 1 |
After all, the levels of dealer BIS central bankers’ speeches 7 activity and of market liquidity in the run-up to the crisis were ephemeral. They did not serve the real economy. It is important that other parts of the financial system, such as asset managers, adapt to the new environment and manage liquidity positions prudently. But these developments should, and they are, prompting us to assess whether targeted amendments to the design of regulations could benefit the real economy, without exposing it to more risk. The design of new requirements was macroprudential. So must be their implementation. The system has come a long way on the march to more capital and greater resilience. The benefits of that are being seen today. Lending to real economies is growing again. Resilience is more insulated from questions about returns. With resolution regimes well advanced and game-changing bail-in principles established, the upward march to higher capital levels can soon reach the new baseline. A baseline that, on what we know today, protects the real economy without unnecessary risk of holding it back. And with the flexibility to adapt and continually align resilience with threats, we have a compelling answer to the question of how to marry prudence with macroeconomic sense. So that you can protect and serve the real economy in good times and bad. Thank you. | We estimate the full, net present value, economic costs of typical past financial crises to have been catastrophic – around 75% of GDP and in some cases much more. So nobody should deny the economic case for well capitalised banks. And it was obvious in the aftermath of the crisis where bank capital needed to go. Up. A lot. 2 Available at http://www.bankofengland.co.uk/publications/Documents/fsr/2015/fsrsupp.pdf. 3 Major UK banks are required to hold, on average, additional tier 1 capital of 2.5% of risk weighted assets under “pillar 2a” requirements. These compensate for existing shortcomings in risk measures and lift average capital requirements from 11% to 13.5%. Should the shortcomings in risk measures be corrected, measures of risk weighted assets would increase.But at the same time, our expectation for capital as a share of risk weighted assets would fall back. The two effects can be expected to offset so that no extra capital would be required. Ongoing work in the Basel Committee addressing excessive variability in risk weights should not materially affect overall capital requirements. 2 BIS central bankers’ speeches In fact, with market confidence so low at the time, more capital not only boosted resilience, it was also needed for lending to resume. Capital was good for resilience and good for growth. That’s why countries that recapitalised their banking systems quickly secured earlier and stronger recoveries, with the US leading the way. However, after a point, another unit of capital buys a much smaller fall in the probability of bank failure. | 1 |
Next to the broadening and deepening of the statistical framework the Bank of Albania will improve upon its communication with the public. We discussed during this Round Table the transparency of the Bank of Albania. We concluded that significant progress has been achieved. But next to transparency, the Bank of Albania wants to improve upon the information that it provides to the public. The Bank of Albania aims at making monetary policy understandable to everybody. We know already that money matters. The more money we possess, the more we can buy, and the more our economy will grow. The more our economy grows, the more people can share. Poverty will be reduced. But what about monetary policy? We all know that higher wages or lower prices are beneficial for our personal pockets. The higher the wages, or the lower the prices, the more we can buy. But for the Albanian economy as a whole, there is a flipside. This flipside is inflation. More spending will lead to higher prices in the medium to long term. And these higher prices, I can also say “higher inflation”, is damaging for the Albanian economic growth. For this reason the Bank of Albania safeguards price stability. Our main task is to keep prices stable. In order to do so, we set the main interest rate. The Bank of Albania wants to communicate better on all these monetary policy issues. It wants to explain the monetary and financial benefits at the micro and at the macro level. | They also depend upon other key players like the Ministry of Finance and they depend upon the efficient working of the financial markets. Other preconditions for Inflation Targeting can partly be met by the Bank of Albania. The full implementation of Inflation Targeting can therefore take place ONLY conditionally. One can compare this situation with the tailoring of a suit for a special occasion. Let me make this comparison. One can find a good tailor and ask him to make a suit for a special occasion. All measures can be taken, such as the length of the arms and the length of the legs. The suitable materials can be found. One needs the appropriate fabric, in the appropriate color. Upon all these preconditions of (1) the good tailor (2) the precise measures (3) suitable materials, the tailor can start the tailoring of the suit. But, there is still no guarantee that the suit will fit you perfect. Or, it may happen that you look appealing in the tailor-shop, but not at the day of the special occasion. For instance, the temperature may have fallen so that you need an additional coat, or even a different fabric. Or, the environment of the special occasion may make you look overdressed. You tried to make it perfect, but the environment is lagging behind. Factors that you could not influence yourself can make you look different from how you had wished to look with the new suit. | 1 |
Erik Thedéen: My view of monetary policy Speech by Mr Erik Thedéen, Governor of the Sveriges Riksbank, at Nordea, Stockholm, 23 March 2023. *** Accompanying slides of the speech Good afternoon! Thank you for inviting me. I have now been Governor of the Riksbank for almost three months. It has been an intense period in which the most burning issue has of course been the far too high inflation that has not yet shown any clear sign of falling back. The past two weeks have also been marked by unease on the financial markets, which has made economic prospects more uncertain. The background to the concern is that a couple of US niche banks had problems with their liquidity and collapsed. This was followed by problems in the Swiss bank Credit Suisse – a different type of bank, but one that has wrestled with poor profitability and whose credibility has been eroded. These problems led to the bank being quickly taken over by its competitor UBS. The authorities in the United States and Switzerland have been working actively to resolve the problems. This weekend, the major central banks also launched a joint effort to make it easier for banks to obtain financing in dollars in general. Although the situation has become a little calmer, there is underlying concern that the problems will spread to other banks and further into the financial system. I think it is necessary to have a sensible but also sensitive attitude towards that risk. | The Riksbank may buy and sell such securities if there are exceptional reasons, as stated in the act. In principle, this means that we must make the assessment that other measures would not have the desired effect on the economy. The new act now also gives the Riksbank an explicit mandate to trade in securities within the framework of our task of contributing to the stability and efficiency of the financial system. For instance, the Riksbank may buy and sell securities to temporarily support financial markets for the purpose of counteracting a serious disturbance in the financial system, if there are exceptional reasons. The Riksbank's mandate remains strong 3/10 BIS - Central bankers' speeches I will not go through all the details of the new act that have a bearing on monetary policy. The overall picture is that some things have changed. But the important thing is that we can do what we need to do to fulfil our tasks, in normal times and in times of crisis. The Riksbank has a strong and clear mandate to conduct flexible inflation targeting, where the overriding objective is for inflation to be lastingly low and stable. This is important now that the inflation target is being seriousl put to the test in a situation where inflation significantly overshoots the target for the first time since its introduction in 1995. | 1 |
But to set the context on what I am going to say, given that financial markets cannot be discussed separately from the real economies, I want to begin with a few observations on the current macro and finance trends in the region. In the context of key macro and finance trends in the region, I think at least four developments stand out as the current defining themes. First is the region’s much improved economic resilience and fundamentals. These qualities now offer the region a prospect of continued strong long-term growth and potentials. At the same time, the region’s financial prowess – in terms of high saving rates, current account surpluses, and strong international reserves – has continued to improve, and thereby enhances the region’s financial influence in the global economy. Next is the increased interdependency. With the growth in economic activities, we are also seeing more economic interdependency within the region, especially in trade, and especially in trade between China and the rest of the region. Intra-regional trade is now the largest component of total trade for most East Asian economies. And its momentum has been an important driver of the region’s trade and economic growth. And third is the growth of finance, flows, and market transactions, propelled by the increase in trade and investment between the region and the rest of the world and also by trade within the region. | Some market participants have become more inclined to engage in "short-termism", that is, they might be too preoccupied with their short-term results. This trend might result, in particular, from growing pressure to yield immediate financial results that are not necessarily sustainable. Marking-to-market all assets and liabilities has also contributed to this widespread focus on immediate financial performances. This focus on short-term performance can translate into additional volatility in the price discovery process: the shorter the investment horizon of market participants, the bigger the impact of any new information on prices. Mimetic behaviour is by no means a new phenomenon on financial markets. However, technological developments on markets may have gradually reinforced this type of behaviour. The spread of benchmarking, which allows fund managers and clients to measure performance against that of other funds, together with the growing competition within the sector, appears to have increased such mimetic behaviour. Some operators have come to the conclusion that it is better to be wrong along with everybody else, rather than take the risk of being right, or wrong, alone. A striking example of rational mimetic behaviour is the influence that hedge funds enjoyed, a few years ago, as "opinion leaders" and trend makers. By its nature, trend following amplifies the imbalance that may at some point affect a market, potentially leading to vicious circles of price adjustments and liquidation of positions. | 0 |
Over the past few quarters, the pace of economic growth has picked up and the broad consensus is that the U.S. economy will grow at about a 2 ½–3 percent annual rate over the next year.1 Will these forecasts once again turn out to be too optimistic? Subject to a few caveats that I discuss later, my view is that the likelihood of another disappointment has lessened. The consensus forecast seems like a reasonable expectation, in part, because several of the “headwinds” restraining U.S. economic activity in recent years have subsided. First, the housing sector is currently in much better balance. The overhang of housing associated with the housing boom has largely been absorbed, and a recovery in housing prices has significantly shrunk the proportion of borrowers that are underwater on their mortgages – that is, those households that have outstanding mortgage balances higher than the value of their homes. Also, measures of distress such as mortgage delinquencies and homes entering the foreclosure process have fallen. Second, consumers are in better financial shape. Households are carrying less debt, with total household liabilities roughly $ billion below their cyclical peak in 2008. Moreover, lower interest rates have facilitated significant mortgage debt refinancing, which has lowered the household debt service burdens. Depending on the particular measure used, household debt service burdens relative to income have fallen back to levels last seen in the 1980s and 1990s. | Ladies and gentlemen, The growing evolution and demand for online financial services will lead to greater digitisation of banking services. While the use of cash and cheques will continue to be important, more consumers are realising the convenience and flexibility of electronic banking in meeting their daily payment needs. The change in consumer behaviour is reflected in the increasing use of electronic payment systems in the country. The volume of cheques processed through the cheque clearing centres has shown a declining trend in terms of both volume and value. This has been reinforced by the introduction of the interbank Giro and Internet banking three years ago. The number of interbank Giro payments has more than quadrupled in 2002, while electronic funds transfer and bill payments conducted through Internet banking has been on an increasing trend. More customers are likely to be drawn to Internet banking, which is gaining acceptance in Malaysia with now over 1 million subscribers. Increases have also been recorded in the number and value of ATM transactions and card payments. Ladies and gentlemen, While the pace of the transition from paper-based payment instruments and systems to electronic instruments is increasing, the adoption of electronic payment solutions needs to be accelerated. Consumers and businesses have to become familiar with using the new payment methods and their advantages. The SMEs, in particular, should take advantage of electronic delivery systems to improve their access to banking services and finance. This would be an initial step toward venturing into e-commerce as a means to penetrate new markets. | 0 |
I know that the decisions concerning the repayment of bondholders in the former Anglo Irish Bank have been a source of controversy. Decisions taken by the Irish authorities such as these are not taken lightly. And the consequences of subsequent actions are weighed carefully. It is true that the ECB viewed it as the least damaging course to fully honour the outstanding senior debts of Anglo. However unpopular that may now seem, this assessment was made at a time of extraordinary stresses in financial markets and great uncertainty. Protecting the hard-won gains and credibility from the early successes in 2011 was also a key consideration, to ensure no negative effects spilled-over to other Irish banks. Determined action and a willingness to take tough, even controversial decisions, has placed Ireland’s financial system on a steadier footing. A necessary step for Ireland to emerge from this crisis will be to ensure the long-term viability of the banking system as a pillar of the Irish economy. Doing so will further enhance confidence in the system and limit the burden that the banking system places on the taxpayer. Any proposal to reorganize and strengthen the Irish banking sector, and in this context to replace promissory notes with support from the EFSF must meet important criteria, including that it should improve the chances of both the State and the banks returning to market-based funding, and of the banks reducing their extraordinary reliance on the Eurosystem. The ECB is ready to work with the Irish authorities on such proposals. | The ECB is obliged and can be trusted to always fulfil its role and deliver on its Treaty mandate, and this is above all to secure price stability in the euro area as a whole, which consists of 17 countries. And there are clear limits to what the central bank is entitled or even able to do. It is impossible for the ECB to provide guarantees or assurances concerning future funding amounts or interest rates over the medium term. Certain tasks should and can in Europe only be dealt with by the Member States, and not by the ECB or the Central Bank of Ireland. Our common objective therefore must be to reduce over time the reliance of Irish banks on central bank funding and in particular on the emergency liquidity assistance. The Irish government has the capacity to further consolidate and implement the necessary reforms, so that there will be no lingering doubts about the sustainability of government debt. I am thus confident that Ireland will continue to fully implement the necessary adjustment and reforms, and that on this basis, Member States will continue to show solidarity towards Ireland. I understand that Minister Noonan has said that champagne corks will be popped on the night the Troika leaves Dublin. As long as Ireland continues to implement fully its programme and preserves its credibility as a State that honours all its obligations, I think that day will come in the not too long future, at the end of this programme in 2013. | 1 |
In a longer-term horizon, under diminishing external impulses to the aggregate demand and a more contained fiscal behaviour, growth rates acceleration will be conditioned by the resurgence of the private sector. In this regard, the Bank of Albania deems that the economic climate provides the conditions and space for even higher consumption and private investment growth. Despite positive growth rates, the Albanian economy is expected to remain and operate below its potential, with the demand conditioning the continuation of the negative output gap and contained inflationary pressures. On the other hand, inflation performance will continue to be under foreign prices pressure for the upcoming period as well. In the absence of unexpected developments, the effect of shock from foreign prices is expected to fade away while the effect of administered prices increase is expected to be neutralised during the third quarter of the year. Therefore, inflation is foreseen to return within the Bank of Albania target band by the year-end. Although risks about this base scenario are added as a consequence of uncertainties of the global economy, they remain balanced. *** Drawing on the information above, the Supervisory Council of the Bank of Albania deemed that inflationary pressures are, in the short term, high, but with a downward trajectory; in the medium term they remain controlled. In the absence of unexpected shocks, inflation is expected to be within the target band of the Bank of Albania along the time horizon of monetary policy action. | Inflation’s performance over the recent months was consequent to the balance of two main factors’ opposite actions. On the upward trend, high primary commodity and raw materials prices in world markets were transmitted to the domestic inflation in the form of higher imported inflation. In the short run, this phenomenon also contributed to core inflation, which was up compared with last year. High net inflation rate of non-tradable goods showed that a part of higher commodity prices materialised in second round effects in inflation. Latest developments in inflation affected also the economic agents’ inflation expectation, which, however, remain within the target band of the Bank of Albania. On the downward trend, domestic economy developments continued to provide an environment with contained inflationary pressures. Our assessments on economic activity suggest positive growth rates for the first quarter, although below the potential. Under these circumstances, the Albanian economy continued to be characterised by spare productivity capacities – labour and capital – and negative output gap, continuing to exercise downward pressures on inflation. Similarly, the monetary development analysis confirmed the presence of contained monetary pressures on the domestic economy. Following, I would like to address the economic factors that determined inflation developments and their expected performance. Albania’s economic activity, during the first months of the year, took place in the context of a growing global economy, amid increasing inflation pressures and added uncertainty in financial markets. Global economic activity continued to grow during the first half of 2011, led by rapid expansion of demand in emerging economies. | 1 |
It’s an argument which seems to say, we can’t value the firm, we can’t supervise it, and we can’t resolve it, so therefore let’s ensure it has a very large amount of equity financing, what I call the “Big Equity” argument. Honestly, it’s a nonsense. Large amounts of equity financing will not be available for such firms, so the best we can say is that this is a route to a radically different financial system, but in that world the risk goes somewhere else, and we shall still be worried. But this is not an argument against having non-risk based tools like the leverage ratio in the supervisors’ toolbox. They are very important, because to understand risks well, we need more than one view of the firm. And the leverage ratio is an important other view. But I want to emphasise that understanding risk is at the heart of supervision. BIS central bankers’ speeches 1 But this, of course, begs a very important question. Why did supervision go wrong in the period before the financial crisis, and what do we learn from that bad experience? Let me offer a number of thoughts on that. First, supervision was never given sufficient prominence and attention. It’s a very real skill. In my experience it demands not just high levels of technical skill but also interpersonal skills – to get very strong egos to change their thinking and actions – do things that they had not intended – to recognise the public interest. | In the financial system, this involves putting in place more comprehensive regulatory frameworks, complemented by enhanced surveillance arrangements and relatively more intrusive supervisory oversight. It also involves having wide-ranging policy tools, including macro-prudential policies, to mitigate and manage the risks emanating from excesses in the financial system. As the experience in the advanced economies has shown, the source of imbalances can arise in a number in segments of the economy, including from the household, the financial and the public sectors. This underscores the importance of prudence; to ensure that growth is underpinned by sustainability and not excesses. A further lesson is to build buffers during the good times to better position us to withstand future shocks. Equally important for policy in the emerging economies is to put in place the necessary foundations for long-term growth. This involves few areas of significance. The first is to create a competitive environment that allows for greater economic flexibility. This includes reforms for a sequenced and gradual removal of distortions prevailing in the economy, lowering the costs of doing business, and to streamline the involvement of the public sector in businesses. The second is to accord importance to investments in modern infrastructure, and to enhance technological readiness that will enable the economy to prepare for the changing economic and financial landscape. Another area of significance is to ensure balanced and inclusive development. | 0 |
Interest payments, defaults and the proportion of households spending a very significant (>40%) proportion of income on servicing debts are all at historical lows. Interest rates would have to rise a lot – certainly by a lot more than financial markets expect – for this to change significantly. 3 All speeches are available online at www.bankofengland.co.uk/news/speeches 3 But underneath any aggregate, there are always more concerning stories. According to the Bank/NMG survey 7% of households say they are “very concerned” about their debts, even if they are able to service them. And we know from extensive research that financial worries can be an important contributor to poor mental health. High levels of debt are, for example, associated with anxiety and depression, and studies using changes in local house prices and foreclosures have found that changes in households’ financial situation can affect health.1 One thing we also know is that people are generally prone to over-concentrate on present, urgent needs, and neglect things that are more important for us over the longer term. Economists are naturally interested in how people trade off the future against the present. In standard models that seek to describe these choices, it is assumed that people discount the future at a constant rate: the extent to which we care more about things one rather than two months from now (say) is the same as between today and a month away. | I don’t think we have the evidence to say that better financial education is enough to escape such a trap. But it surely can’t hurt. A recent study using data from the OECD Programme for the International Assessment of Adult Competencies, or PIAAC, found that rates of financial literacy – defined as the ability to answer relatively straightforward financial questions4 – were lower here than in other advanced economies. According to a recent, UK-specific survey by a private-sector firm, less than half of adults and barely a third of teenagers actually know what an interest rate is. And we also know that the less financially literate tend to face higher debt costs than others and more often face financial distress.5 If financial education can make any difference at all to these problems we have a duty to try and improve it. Conclusion The Bank of England has a direct interest in improving and broadening the teaching of economics. There’s an appetite for it. According to a recent poll, three quarters of the public believe economics should be taught in schools.6 Yet only around a third of schools offer children the option to study economics from the age of 14.7 We hope our online teaching materials will help fill some of the gap. However, we also hope that our “EconoME” package can help with financial literacy. I think economics is fascinating and very valuable. But you don’t need to be an economist to understand the basics of personal finance and their importance for people’s lives. | 1 |
While this share was around 8 percent in the early 1980s, it is expected to increase to 30 percent in the middle of this decade. Although the above evidence has indicated that Asia is on the rise, whether or not this rise will be sustained will depend on a number of factors. To do so, Asia needs to become a global innovation hub, and rely significantly more on our own domestic and regional demand. Moreover, we also need to assess whether prosperity will spread to all of the regional economies. BIS central bankers’ speeches 1 Ladies and Gentlemen, Against this hopeful background, we need to reflect on the positioning of Thailand. As longterm business partners in Thailand, I am certain that Japanese businesses have carefully assessed the prospects of Thai economy in comparison with our peers in the region. And, I think we share a common view that Thailand needs to climb up the value chain in order to benefit from the expansion of the regional production network. This is a very important challenge as competitiveness from low labor costs will evaporate, and there is a risk of being marginalized in the increasingly competitive environment. Recognizing that Thailand needs to come up with concrete plans and strategies to foster capacities and productivity, the Bank of Thailand has emphasized on various occasions that our economy needs to have a clear development strategy. In fact, several Asian countries have already announced goals ranging from becoming world leaders in science, technology or human resource development. | 2 BIS central bankers’ speeches This leads me to my final point, which is, how the Bank of Thailand plans to deal with these potential risks on both the external and internal fronts. For external risks, recognizing that sizeable capital inflows could be out of line with real developments, and that spillovers can persist in the near future, we need to closely monitor the external environment to capture these risks. It is also important to improve Thailand’s capacity to cope with international capital flows by developing a systematic capital flows master plan, and promoting the use of financial hedging instruments and the foreign exchange risk management capability of the private sector. The Bank of Thailand also stands ready to implement emergency measures of varying degrees to deal with volatile capital movements as appropriate. In addition, to prevent these inflows from causing economic and financial instability, the Bank of Thailand has prepared a toolkit of macro prudential measures to ensure the soundness of the macro economy and the financial sector. Measures to prevent overheating in particular segments of the property market are one example. Ladies and Gentlemen, It would be uncommon for a central banker not to mention inflation and monetary policy in any speech. I would therefore like to emphasize that the Bank of Thailand’s monetary policy aims to achieve domestic price stability and tighten to more normal levels consistent with Thailand’s macroeconomic fundamentals. Price stability helps foster a stable and predictable macroeconomic environment conducive to investment and growth. | 1 |
All told, this means that in the face of foreign shocks, EMEs are forced to compromise their monetary sovereignty, temporarily diverting monetary policy away from targeting domestic output and inflation and instead using it to try to stabilise capital flows. While this strategy is the best EMEs can do given the current structure of the international monetary financial system, outcomes for them are a distant second best when compared to those advanced economies that are less exposed to international financial spillovers. See ‘Pull, Push. Pipes’, speech by Mark Carney, Institute of International Finance Spring Membership Meeting, Tokyo, 6 June 2019. Within the Bank’s Capital Flows-at-Risk framework, these actions are estimated to have Capital Flows-at-Risk (that is, capital outflows as a percent of GDP in the fifth percentile of the distribution) by 3% of GDP. 21 Within this, investment funds are growing, accounting for the bulk of the growth in asset management over the last decade. In parallel, investment fund flows to EMEs now account for around one third of total portfolio flows, compared to around one tenth precrisis. 19 20 8 All speeches are available online at www.bankofengland.co.uk/news/speeches 8 ------------------------------The deficiencies of the IMFS affect EMEs more directly than advanced economies, but their consequences influence everyone because they reduce the global equilibrium interest rate. Against the current backdrop of an inadequate and fragmented global financial safety net, EMEs have chosen to self-insure against capital flow volatility by accumulating reserves of safe assets, contributing to Ben Bernanke’s “global savings glut”. | Turning to reserve releases, our obvious concern is that these should reflect genuine reserve redundancy with the decisions taken by risk managers and actuaries using their best professional judgement and not in any way influenced by a desire to sustain reported profits. For long tail lines, such as casualty, a key assumption in setting reserves is the expectation of future claims inflation. In most cases this assumption is derived implicitly using the recent actual data and trending this forward. Given that the recent past has seen falling inflation in many sectors the obvious question is – is it reasonable to assume that these trends will continue? It does seem plausible that claims inflation has often been lower than expected against the background of the current low inflation environment. But our calculations suggest reserve releases have in some cases got to a point where implied future claims inflation looks very low. In an extreme case, we estimated past claims inflation for the class of business to be 5% per annum, whereas to obtain the particular insurer’s booked reserves would imply a future claims inflation assumption of –2%. If the future trend is in fact in line with past inflation, booked reserves would need to be 25% higher than currently assumed. Insurers that have sought to diversify and grow their business into longer-tail liability insurance classes have critical questions to answer about the future direction of claims inflation. | 0 |
Letter from Sam Woods to Andrew Griffith MP, Economic Secretary to the Treasury Appendix Victoria Saporta Executive Director, Prudential Policy ©2023 Bank of England , 01 December 2022. | On the basis of these analyses, a strong real krone exchange rate and weak competitiveness will apply to a period from the beginning of the 1970s in which the petroleum industry is expanding and we are reaping the largest economic benefits. Main features of the economic situation Inflation is low. The rise in prices is being curbed by the appreciation of the krone in 2002, the fall in prices for imported consumer goods in foreign currency and strong competition in many industries in Norway. Monetary policy in Norway is oriented towards returning inflation to target. The sight deposit rate has been lowered to 1.75 per cent. Low interest rates and the global upturn are stimulating activity in the Norwegian economy. The output level will be somewhat lower than implied by the trend level. This means that the output gap is projected to approach zero, but will continue to be marginally negative in 2004. Growth in the Norwegian economy is projected to pick up markedly this year and remain relatively high next year. The most important contribution comes from private consumption, fuelled by low interest rates and high real wage growth. The global upturn will probably have a positive effect on the internationally exposed sector. Petroleum investment will continue to expand in the next couple of years. Mainland business investment is also expected to pick up gradually. In recent years, many enterprises have rationalised operations. | 0 |
Such risks may be particularly relevant in the context of close ownership links between banks and funds. For example, banks in certain circumstances may feel a need to step in to protect their brand. To tackle this issue, the Basel Committee on Banking Supervision (BCBS) has published guidelines on step-in risk that would require banks to self-assess and report their material step-in risk exposures to supervisors, who should have the possibility for supervisory action if deemed necessary.8 We also need to work on the different layers of interconnectedness between ETFs and their counterparties. In our view, the rapid growth of ETFs, coupled with their potential to transmit and amplify risks to financial stability, warrants further evaluation of regulatory action. 9 This may include enhanced rules to limit counterparty risk exposure of ETF investors, and measures that provide more transparency around ETF liquidity provision. The enhanced microprudential framework for the European fund sector is a key element in boosting the resilience of the financial system overall. But the sector’s rising role in shaping the financial cycle, and the potentially systemic nature of its risks, require a more ambitious approach. We should aim at extending the macroprudential framework beyond banks to encompass the asset management sector.10 In particular, we need to equip macroprudential authorities with the necessary tools to address systemic risks both ex ante and ex post. The recent ESRB recommendation to address systemic risks related to liquidity mismatches and leverage in investment funds11 is a crucial step towards this goal. | With backing from the U.S. Treasury, the Federal Reserve established the commercial paper funding facility as a funding vehicle that can purchase new issuance of commercial paper from highly rated businesses and municipalities, and certain issuers that were downgraded after the virus shock. By providing assurances to issuers and investors that retiring commercial paper can be replaced with new issuance, the facility will promote confidence in the market and support the flow of credit to businesses and municipalities. Corporate Credit Facilities (CCFs) At the same time that short-term commercial paper markets were nearly frozen, so too were markets for longer-term corporate borrowing – at precisely the moment when companies most needed a financing buffer. Borrowing rates for investment-grade corporate issuers relative to Treasury securities increased by about 2.5 percentage points in the first half of March, while issuance for companies rated below investment grade came to a halt. In this context, the primary market corporate credit facility (PMCCF) was designed to provide funding for highly rated companies that need access to financing in order to maintain business operations during this period of dislocation. Again with backing from the U.S. Treasury, the Federal Reserve will create a funding vehicle to backstop eligible corporate borrowers for up to four years, at an interest rate that is better aligned with corporates’ underlying credit risk than was available through market-based financing during March. | 0 |
In March 2001, the fiscal rule and new guidelines for monetary policy were introduced. The fiscal rule implies that the central government budget deficit shall be equivalent over time to the expected real return on the Fund, quantified as 4 per cent. The operational target of monetary policy as defined by the Government is inflation of close to 2.5 per cent over time. This establishes a clear distribution of responsibilities among the different components of economic policy. Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. The inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. Fiscal policy – growth in public expenditure – influences the krone and the size of the internationally exposed business sector in the medium term. Government expenditure and revenues must be in balance in the long term. Wage formation, the structure of the economy and incentives determine how well and how efficiently we utilise our labour resources and other economic resources. BIS Review 80/2006 1 The transition to inflation targeting in 2001 may have appeared at that time, and in Norway, to be a transition to a new and unfamiliar monetary policy system. But today’s monetary policy system springs from an historical recognition of what monetary policy can in fact achieve. In collaboration with the Norwegian School of Economics and Business Administration, Norges Bank has compiled price data from the mid-1600s onwards. | We assume that fiscal policy will provide some stimulus to aggregate demand and output in 2008 and 2009. A gradual increase in the interest rate will curb demand growth after a period. Household debt and house prices have increased markedly over many years to historically high levels. House prices may now seem somewhat high in relation to developments in income, interest rates, unemployment and housing construction. The prospects of a gradual normalisation of interest rates may restrain credit growth and the rise in house prices. The interest burden is low, but will increase as interest rates rise. Intensified competition in the financial sector has contributed to lower interest margins on lending, which has curbed the rise in interest expenses to some extent. BIS Review 80/2006 5 Monetary policy assessments and strategy The Executive Board’s assessment in Inflation Report 2/06 was that the interest rate may gradually – in small, not too frequent steps – be brought back to a more normal level, and that the sight deposit rate should be in the interval 2¾ - 3¾ per cent in the period to the publication of the next Inflation Report on 1 November, conditional on economic developments that are broadly in line with the projections. In the first half of 2006, the interest rate was increased in two increments of 0.25 percentage point, and the Inflation Report announced that there were prospects that the interest rate would rise further at approximately the same pace. | 1 |
Today, I can proudly say that an ever-growing number of financial institutions operate in the North and that these provide diverse financial services, whilst of course we would be the first to admit that a lot more needs to be done. My dear friends, the development and maintenance of essential public infrastructure is an important ingredient for sustained economic growth and poverty reduction. In particular, health, education, electricity, housing and efficient water and sanitation services help lay the groundwork for a productive and healthy population, capable of contributing to sustained economic growth. We all know that as a result of the long and bloody conflict, the infrastructure facilities in the North could not be developed as done in the other Provinces. It is due to that fact that, with a view to fast tracking the development in the North, the Government has now launched a well-planned, integrated, accelerated development program titled “Vadakkin Vasantham.” Under this program, the Government expects to invest approximately Rs. 295 billion $ 2.7 billion) during the next 3 years, towards rehabilitation and development activities. This program is expected to cover the rehabilitation of roads and other transportation infrastructure, the upgrading of electricity for domestic housing and industry, water supply, agriculture and irrigation infrastructure and the improvement of the manufacturing framework. The Government also intends to implement a special poverty reduction program and establish the required social safety net, quickly. | However, vendors often place strong limitations on the sharing of such data with anyone, including among federal agencies, and on the manner in which such data may be used. They also create systems with private identifiers for securities and firms or proprietary formats that do not make it easy to link with other systems. Surely it is important that voluntary contributors of data be able to protect their interests, and that the investments and intellectual property of firms be protected. But the net effect has been a noncompatible web of data that is much less useful, and much more expensive, to both the private and the public sector, than it might otherwise be. Protecting privacy and private-sector property rights clearly are important policy objectives; they are important considerations in the Federal Reserve’s current data collection and safeguarding. Protecting the economy from systemic risk and promoting the safety and 18 BIS Review 16/2010 soundness of financial institutions also are important public objectives. The key issue is whether the current set of rules appropriately balances these interests. In light of the importance of the various interests involved, the Congress should consider initiating a process through which the parties of interest may exchange views and develop potential policy options for the Congress’s consideration. Organization structure for data collection and developing analytical tools In addition to balancing the costs and benefits of enhanced data and analytical tools, the Congress must determine the appropriate organizational form for data collection and development of analytical tools. | 1 |
While such ambitions are quite legitimate, most of them would find achieving this goal very challenging. Why? Because an IFC, by definition, serves not only domestic customers on its own turf, it also captures financial businesses and money-flows either from a large hinterland or the neighbouring areas or both. This is a big challenge because it entails serving customers from the other jurisdictions or cross border transactions. It also entails the need to deliver consistent and efficient financial services in order to be competitive in international financial business. The truth of the matter is that only a small number of cities can successfully become international financial centres because IFCs need a critical mass and market depth. It should be noted that international financial transactions and money tend to migrate towards those centres that provide the most efficient and competitive services to customers. In other words, domestic financial centres will need to go through very fierce competition before a few of them can emerge as successful IFCs. Given Hong Kong’s accomplishment as one of the region’s premier IFCs, there are many study groups from abroad coming here to learn the tricks that have helped achieve what we have today. | By way of introduction, I would just like to go back over the three collective hypotheses at the heart of today’s debate, before nonetheless going on to examine a few factors that are indeed specific to France. * * * 1. Does the problem lie in the measurement of growth? The first theory is that there is in fact no slowdown, as we are not measuring growth properly due to the rise of the digital economy. On 16 January this year, the Banque de France held a conference1 that notably discussed this issue in relation to the US economy. The main sources of measurement errors were: first, the estimation of quality-adjusted prices for new technology, as falls in prices tend to be underestimated in US national accounts; and second, product entry and exit, which makes it difficult to estimate changes in prices over time. This could lead to a significant upward revision to US productivity since 1983: by 1.1 percentage points per year at the top end of estimates, according to Philippe Aghion and his co-authors. Nevertheless, even allowing for these corrections, there has still been a slowdown since the mid-2000s. Indeed, the measurement errors were just as significant before this period. That said, this work does provide some grounds for optimism. First, growth in hi-tech sectors, and therefore technological progress, is stronger than we previously thought. Second, some of the gains in well-being linked to new technologies fall outside the scope of the market economy and, as a result, are not recognised in national accounts. | 0 |
The main driver of the improvement in ordinary profit was the reduction in impairment losses, which fell by 43.5% compared with 2020 to € billion, a somewhat lower level than in the two years prior to the pandemic. The recovery in profit in 2021 was widespread across the main countries where Spanish banks pursue significant international business. Profitability also improved at the European level, following the notable decline in the previous year, returning to close to prepandemic levels. As in Spain, the main driver of this improvement was the significant fall in impairment provisioning. The breakdown shows that gross income rose by close to 3% in 2021, driven by the timid recovery in net interest income9 and, above all, by a 10.4% increase in net fees and commissions, which more than offset the drop in gains on financial assets and liabilities. In any event, net interest income remained lower than in 2019.10 Fee and commission income has increased in recent years,11 mainly on account of payment services, although it is still low compared with Spanish banks’ main European peers. Profitability remained positive in 2022 Q1. Thus, ordinary profit at the six listed banks rose by more than 30%12 year-on-year, with increases of 9%-10% both in net interest income and fee and commission income. Meanwhile, impairment losses fell by 9% compared with March 2021. It must be noted, however, that the full economic impact of the war in Ukraine did not materialise in the first quarter of the year. | As much as public bodies are willing to step in as coordinators before and during times of crisis and eventually as lenders of last resort, they also want to see private sector entities being involved and actively participating in shaping resilience and resolving crises. The responsibility for financial stability is a shared responsibility. I am fully aware that none of us can precisely estimate today the economic consequences of what we all yet have to do in order to increase the resilience of financial systems. Since this resilience is bound to be tested again harshly sooner or later, there is no alternative to rapid, serious, adequate and if necessary costly preparations by all of us. Let me end by expressing my gratitude. I enjoyed contributing to the exchange of information, evaluations and views. This is the essence of the SIBOS conference. I am particularly grateful since I know that all of us in this room as well as those financial sector professionals who were unable to attend this conference, those of the private sector as well as those from the public sector, willingly share the noble responsibility for the efficiency and stability of today’s and tomorrow’s financial systems. Thank you very much for your attention. BIS Review 55/2002 5 | 0 |
They must have a healthy dose of skepticism, and never place their commercial interests above the need to ensure that a company is suitable for a public listing. MAS will not hesitate to take advisers to task for poor due diligence work. If the regulators, issuers, and advisers each do their jobs well, we can reduce the likelihood of poor quality companies gaining access to our markets. Investors – safeguarding their interests This brings me to the second component of the capital market ecosystem – investors. Well-informed and empowered investors are at the core of a well functioning capital market. Investors will lose confidence in a market where disclosure is misleading and where selling practices are irresponsible. Safeguarding the interests of investors, particularly retail investors, is therefore a key focus of MAS regulation. But this objective has to be balanced against the need for investors to take ownership of their investment decisions. A regulatory approach that requires issuers or intermediaries to bear all the risks and losses will not work. If investors expect their losses to be always made good, there will be moral hazard and it will encourage reckless investing. | Zeti Akhtar Aziz: Nurturing young talent in Malaysia Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Kijang Emas Scholarship Award Ceremony for High Achievers, Kuala Lumpur, 6 May 2014. * * * While the global economy continues to face uncertainties and significant challenges, the Malaysian economy has every potential to remain on a steady growth trajectory and move up the value chain. This is however only achievable if we can nurture the required talents. Talent development strategies and implementation is therefore one of the key priorities of the nation. We need to invest in our talent pipeline The Kijang Emas Scholarship Award is an eminent scholarship award reflecting the Bank’s commitment in creating a sustainable talent pool for the nation. The Kijang Emas scholarship is distinct from the Kijang scholarship whereby the recipients are given the freedom to pursue any field of study at top-notch universities in any country of their choice. The Bank also does not impose any bond on the recipient except that they return, contribute and take part in the progress and development of our beloved nation. To date, 42 high potential talent have been awarded the Kijang Emas scholarship. The recipients are currently pursuing their studies in diverse field of studies including Medicine, Dentistry, Genetics, Biochemistry, Dietetics, Physics, Engineering, Law, Psychology and Architecture in top universities around the world such as M.I.T., University of Pennsylvania and the University of Cambridge. | 0 |
This is unfortunate, as the situation in Sweden, as I noted earlier, is actually slightly more sensitive than that in many other countries, where housing prices have already fallen and households have begun to amortise their debts to a more significant extent. Well in line with the international discussion One thing I think it is important to emphasise – and which is not always clear in the Swedish debate – is that the Riksbank's aim to give consideration to the risks arising from household debt and the housing market is well in line with the international view that has emerged in the wake of the financial crisis. The Riksbank's way of reasoning, and the policy we have conducted, are thus not unusual or strange, but are characteristic for the present time. 21 The Swedish National Debt Office (2013) writes, for instance, in its consultation response that with the solution they advocate, "it would not be possible to justify any macroprudential policy measures if the conclusion was that the risks inherent in current household debt were primarily a demand-related problem (rather than a problem for the banking system)." (p. 2). BIS central bankers’ speeches 9 There is even reason to claim that the Riksbank was one of the first central banks to highlight this type of risk. | Last year alone, oil revenues in the Gulf Cooperation Council countries were estimated to be about $ billion.3 Mainland China has been one of their favourite investment destinations given its strong economic growth and emerging market opportunities. 9. On the other side, Mainland China is facing huge funding needs for infrastructure development projects. As China’s global financial centre, Hong Kong is an important conduit for Mainland companies to access the international markets and the preferred offshore capital raising centre for Mainland issuers over the past decade. This is apparent from the fact that over half of our stock market capitalisation is Mainland-related and from the high participation of Mainland entities in our dim sum bond market. 10. Against this backdrop, we believe Hong Kong is well-placed to meet the strong investment demand from the Middle East and other parts of the world for Mainland-related Islamic financial products. At the same time, Hong Kong can also provide an ideal platform for issuers from the Mainland and other parts of Asia to issue Islamic financial instruments for satisfying their funding needs. Bringing Islamic capital markets to the mainstream 11. Addressing one of the key issues to be discussed today, Hong Kong’s involvement in Islamic finance will also help to bring Islamic capital markets to the mainstream in two ways: provide a level playing field and encourage market participation in Islamic finance. 12. To bring Islamic financial products to the mainstream, a key task would be to level the playing field with their conventional counterparts. | 0 |
3 Figure 2 shows that the flexprice gap occasionally differs somewhat from the GDP gap. The fluctuations in the flexprice gap have in general been slightly less, which is partly because the flexprice gap only captures the fluctuations in GDP that can be explained by sticky prices and wages. However, the flexprice gap and the GDP gap do provide a uniform picture of the recent development towards an excessively low level of resource utilisation in the economy. The fact that the flexprice gap is now negative is currently interpreted to mean that output is now lower than it would have been if prices and wages had adjusted to the changes that have recently affected the economy. Labour market gaps Another type of measure focuses on utilisation of labour. These are based on Statistics Sweden’s labour force surveys and on the National Accounts. Figure 3 shows two such measures: unemployment and the employment rate, that is, what percentage of the population of working age is employed. The curves provide a consistent picture of changes in resource utilisation over time. At the same time, they show that the crisis of the 1990s permanently raised unemployment and reduced the employment rate. This makes it difficult to determine what is a long-term sustainable level for resource utilisation in the labour market. From the perspective of general politics, it is normally regarded as an advantage if employment is high and unemployment is low. | Similarly, the development of the domestic financial system particularly the domestic financial markets, the strengthening of the surveillance system and the legal, regulatory and supervisory frameworks, have increased the capacity and capability to manage consequences on access to cross border financing, and from quantitative easing, deleveraging activities, and financial sector resolution in the major economies. In addition, 2 BIS central bankers’ speeches this has been reinforced by the building of buffers during the good times. Financial intermediaries remain well capitalised with strong buffers, while the international reserves remain sufficient to deal with surges and reversals in capital flows. A more recent development in this decade is greater regional collaboration and cooperation. Asia is well ahead in the areas of surveillance arrangements, financial safety nets, and crisis management. These frameworks and arrangements have been built up during the good times. Information sharing and the establishment of regional arrangements and platforms, including the building of regional financial infrastructures and markets, are not only to facilitate the efficient intermediation of financial resources, but also to safeguard financial stability in the region. This trend paves the way for coordinated policy actions to manage and mitigate the risks and vulnerabilities to the region. Conclusion The global economic and financial environment remains highly dynamic and uncertain. While emerging Asia is unmistakably contributing to reshaping the configuration of the global economy and the international financial system, the fundamental underlying factors driving this global transformation needs to be continually reinforced. It will require our own continuous economic and financial transformation. | 0 |
Market rates and probability forecasts It is well understood in theory why the market-implied path of the policy rate usually differs from survey measures of policy expectations.50 Even if the marginal investor’s probability distribution for future outcomes coincided with that of the average survey respondent, she would want additional compensation for bearing risk in states of the world that are unfavorable to her. It is conceivable in the current environment that outcomes in which the federal funds rate would return to the zero lower bound, or more generally remain low, are not good news for the overall portfolio of the marginal investor. Thus, in assessing the price at which she would be willing to trade interest rate derivatives like federal funds futures, she would weight those “negative” states of the world, such as states involving a return to the zero lower bound, more than her subjective probability distribution would imply – and the opposite would hold true for “positive” states of the world. In other words, in this environment the risk premium compensation she requires would pull the market-implied path downward, away from survey expectations. While risk premia, especially at this juncture, are likely very important, looking only at pointforecasts may overemphasize their role when these point forecasts coincide with modal forecasts. In particular, when the implied policy rate from federal funds or Eurodollar futures changes, while the point forecasts from surveys do not, it is customary to attribute all the change in the market rates to risk premia. | This could be achieved by having the private operators of this infrastructure issue a ‘settlement token’ on the DLT system, with the securities then being settled against these tokens. An initiative launched by a consortium with Swiss participation is working on such an approach under the project name ‘Utility Settlement Coin’. This example shows how a market solution could ensure cash-side settlement of securities on the distributed Page 5/8 ledger. This scenario is outlined on the slide 7. Such a privately issued settlement token would be equivalent to commercial bank money, and fully secured by central bank money. However, it would also be possible in principle for central bank money to be tokenised for the settlement of interbank transactions. Central banks in some countries – Singapore among them – are conducting experiments to gain a better understanding of the associated risks. As you can see on the slide 8, this is similar in concept to the previous option. However, there are a number of questions still to be answered in this respect as well. As you can see, there would be various forms that this coexistence could take. What is crucial is that the safety and reliability of the FMI be maintained. The central bank has an important part to play in the reliable foundation, that is to say with regard to payments in the RTGS system. Around this solid foundation, however, it is the market that has the main role. | 0 |
Prudential bank regulation: present and future Speech given by Vicky Saporta, Executive Director for Prudential Policy, Bank of England Westminster Business Forum Keynote Seminar: Building a resilient UK financial sector – next steps for prudential regulation, structural reform and mitigating risks 4 July 2018 I would like to thank Matthew Willison for working with me on this speech. Thanks are also due to Thom Adcock, Omar Ahmed, Dana Andreicut, Tamiko Bayliss, Stuart Dossett, Orlando Fernandez Ruiz, Mariana Gimpelewicz, Marc Hinterschweiger, Alex Holmes, Antoine Lallour, Jack Leslie, Damien Lynch, Sinead O’Leary-Barrett, Sam Miller, David Murphy, Santosh Pandit, Thomas Papavranoussis, Rajan Patel, Joshua Plank, Jakob Schedlbauer, Jon Sepanski, Dominic Shaw, Jonathan Smith, Ruth Smith, Anthony Veal, and Sam Woods for contributions and comments. 1 All speeches are available online at www.bankofengland.co.uk/speeches Introduction I am pleased to be here today to give this speech. The Westminster Business Forum has a fascinating agenda – from policy priorities for UK manufacturing, to the development of FinTech, even the future of the UK space industry! And your roots are in Parliament, which gives the Bank of England its objectives to maintain monetary and financial stability. Today is also a special day for me personally. Exactly two years ago, on 4 July 2016, I was appointed in my current role as Executive Director for Prudential Policy. | Trade among the expanding emerging economies now account for more than half of the world trade. This growing demand in emerging economies is also generating investment opportunities. In this environment, Islamic finance has an important potential to facilitate trade and investment flows that will be mutually reinforcing. In evolving Malaysia as BIS central bankers’ speeches 1 an Islamic financial hub, our aspiration is to be a hub that is linked to a network of other financial hubs. In so doing, it will enhance our economic linkages with other parts of the world. The increased internationalisation of Islamic finance would thus influence the patterns of global financial and economic integration, and in particular facilitate the revival of financial and economic integration between the countries along the old silk road from Asia to Turkey and the Middle East, and Africa and to the more established financial markets and developed economies. The start of this decade has already witnessed the shifting of trade activities to the emerging economies, which now account for 63 percent or $ trillion of world trade as at end-2011, an increase of 17 percent from a decade ago. While the Islamic banking sector has been important in intermediating cross border financial flows, the sukuk market has become an important segment of Islamic finance that offers a distinct platform upon which international inter-linkages are fostered. The sukuk market has demonstrated its ability to effectively intermediate funds across borders, contributing towards the efficient allocation of funds in the global financial system. | 0 |
That story, at least for smaller countries, is somewhat more unique than the first. However, it must be remembered that although these two stories differ, they interact in important ways. Thus the unsustainable boom that Iceland experienced during the years 2005–2007 was fuelled by a combination of favourable external conditions, macroeconomic mismanagement, and aggressive domestic bank lending. 3 An English version of the SIC report summary can be found on the Althingi website: http://sic.althingi.is/. For my views on the subject, I refer you to a speech I made in Bergen early this year: http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=7592 and my speech at the Annual General Meeting of the Central Bank of Iceland: http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=7699. BIS Review 63/2010 3 As so often occurs in great tragedies, the two stories converged in a grand finale in early October 2008, when nearly nine-tenths of Iceland’s banking system collapsed when its three large cross-border banks – Glitnir, Landsbanki, and Kaupthing – were taken into special resolution regimes on the basis of the emergency legislation that had just been passed by Parliament. This added significantly to the recessionary forces that were already at play in the Icelandic economy as the macroeconomic imbalances created in 2005–2007 subsided. However, the question of cause and effect is still open; i.e., what is the specific contribution of the banking collapse over and above an international recession and a domestic macroeconomic adjustment? | Már Guðmundsson: The Icelandic pension system and the financial crisis Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at the opening dinner of the European Pension Convention 2010, Reykjavík, 2 May 2010. * * * Chairman, ladies and gentlemen, It gives me great pleasure to address you here tonight, and I would like to thank the organisers for inviting me to do so. This is due not least to my past interest in and work on the Icelandic pension system and, more generally, my interest in the optimal design of pension systems. During my tenure as Chief Economist of the Central Bank of Iceland from 1994–2004, I was convinced that the pension system that had developed in Iceland, partly by historical accident, was one of the strengths of Iceland’s economy. This conviction had taken root earlier, when I was involved with pension reform and served for a while as the chairman of the board of a pension fund that has long been among the top ten in Iceland in terms of size. However, this view was reinforced around the turn of the century, when I made an in-depth study of the Icelandic pension system and tried to analyse its effects on the economy and the financial sector. 1 I subsequently tried to propagate the virtues of the system abroad. | 1 |
As mentioned before, a good number of banks were established, in the main with industrial interests, but on a fragile basis, and most of them became insolvent. Second, banks did not follow prudent and appropriate policies to set in place a comprehensive risk management process to identify and control all risks with proper valuation standards. At that time the assessment of capital adequacy, as in many other countries, was based on a badly designed leverage ratio (capital on deposits) which was totally inappropriate in terms of the risk profile of the banks. Third, the supervisory system was not equipped with appropriate human, technical and organisational tools to ensure a thorough understanding of the operations both of individual banks and banking groups and to monitor them. Additionally, the supervisor did not have corrective and remedial powers to apply timely and efficient surgical measures. Ensuing this episode, the Spanish authorities embarked on a thoroughgoing process of liberalisation, modernisation, de-regulation, re-regulation and promotion of competition. Although there was much ground to be covered, Spain comprehensively reformed the regulatory and supervisory framework in a relatively short period, during the 80s. Supervisory powers and the more detailed banking regulations were placed within the remit of the Banco de España. Among the wide array of measures taken I would like to highlight the following: • Interest rates and fees for banking operations were fully liberalised and the compulsory investment ratios were gradually lifted. | Most of them were industry-oriented with special tax advantages, but with a fragile financial base and a lack of managerial integrity and experience. Against that background, the system was highly inefficient and proved poorly effective because it was unable to develop its role of channelling saving to the most productive uses and, without any doubt, it held back economic growth. At the same time, the Spanish regulatory and supervisory framework was weak and outmoded, based mainly on a simple leverage ratio. In turn, supervision was geared towards formal compliance with administrative regulations. The need for a change in the supervisory framework to preserve the soundness of the banking system became apparent when the oil crisis of the early 70s prompted the Spanish economy into a profound recession, leading to the deepest crisis of recent Spanish banking history. Up to 50 banks went bankrupt, involving 20% of the deposits of the banking system. It is interesting to analyse the effect of the crisis and the limitations of the regulatory and supervisory framework at that time, in the light of the framework set by the Core Principles [for effective Banking Supervision] developed by the Basel Committee on Banking Supervision. Allow me to summarise the main group of principles that would have been breached. First, the principles related to licensing criteria would not have been accurately met. Indeed, the process of licensing did not consist of a proper assessment of the fitness and propriety of Board members and senior management, including their strategic and operating plan. | 1 |
By making it safer and fairer we can put in place the conditions for it to thrive. But whether or not it thrives will rest on the efforts of individuals and organisations to re-establish the system’s reputation for integrity. While regulators will fix the mechanics of benchmarks in markets ranging from LIBOR to FX, only private individuals and institutions can reform the behaviour that has made such changes necessary. Changes to the structure of compensation will better align the incentives of bank staff and their shareholders, but not every risk can be anticipated. Even if such a package could be devised it would not internalise the impact of individual actions on systemic risks, including on trust in the banking system. For the system to operate with integrity, penalties for misconduct cannot be seen as a cost of doing business. Rather, banks must recognise that only exemplary behaviour can confer social licence to global financial capitalism. More fundamentally, integrity cannot be legislated, and it certainly cannot be bought. Only a perspective which takes into account the wider implications of actions can guide proper behaviour. And while regulators can promote competition, end the subsidy enjoyed by institutions that are too big to fail, and determine the appropriate split of remuneration between fixed and variable elements to limit risks to financial stability, only society, not regulators, can determine whether the absolute and relative levels of compensation are acceptable. 3. | 5 See ECB Opinion of 22 March 2012 on (i) a proposal for a directive on markets in financial instruments repealing Directive 2004/39/EC of the European Parliament and of the Council, (ii) a proposal for a regulation on markets in financial instruments and amending Regulation [EMIR] on OTC derivatives, central counterparties and trade repositories, (iii) a proposal for a directive on criminal sanctions for insider dealing and market manipulation and (iv) a proposal for a regulation on insider dealing and market manipulation (market abuse) (CON/2012/21). 6 See e.g. Madhavan, A., “Consolidation, fragmentation, and the disclosure of trading information”, The Review of Financial Studies, Vol. 8, No 3, pp. 579-603 and Bloomfield, R. and O’Hara, M., “Can transparent markets survive?”, Journal of Financial Economics, Vol. 55, No 3, pp. 425–459. BIS central bankers’ speeches 3 opacity enables the extraction of rents and can lead to increased price dispersion7, with negative consequences for market integrity and fairness. Furthermore, a low level of posttrade transparency can significantly distort the informational role of prices by preventing the diffusion of value-relevant information, which may hamper market liquidity because of adverse selection. In line with this rather positive view of post-trade transparency, a number of empirical studies8 have found that the introduction of mandatory trade reporting has significantly improved formerly opaque market segments, such as the market for US corporate bonds. At the same time, one must be aware of potentially negative side effects. | 0 |
13 All speeches are available online at www.bankofengland.co.uk/speeches 13 Box 1:The effect of the leverage ratio on over-the-counter derivatives As part of the evaluation of the effects of post-crisis reforms on incentives to centrally clear over-thecounter (OTC) derivatives, Bank staff have undertaken research on the impact of the leverage ratio on client cleared derivatives (Acosta-Smith, Ferrara, Rodriguez-Tous (2018)). 32 Following the Global Financial Crisis, the Basel Committee introduced a leverage ratio requirement: a bank’s Tier 1 capital to total exposures cannot be less than 3%. The UK introduced a minimum requirement in January 2016 for the largest seven deposit-takers in the UK. At the same time, with the aim to reduce systemic risk, regulators also supported a shift towards central clearing in derivative markets, where central clearing refers to the clearing and settlement of OTC derivative trades through a central counterparty (CCP). To support this shift, mandatory clearing for the most liquid forms of OTC derivatives was introduced. This meant an entity engaging in these trades and subject to the mandatory clearing requirement would need either to become a clearing member of a CCP or form a clearing relationship with a clearing member. In the latter case, the clearing member would then clear the derivative transaction through a CCP on behalf of its client – hence the term ‘client clearing’. The number of clients clearing OTC derivatives has increased significantly in recent years, as Chart A illustrates. The interaction between client clearing and the leverage ratio arises in two ways. | loan-to-income and – value limits, Systemic Risk Buffer) 1 July 2020 (estimate) Interest rate risk in the banking book (a) Remuneration rules G-SII score alternative methodology CRR II Fundamental Review of the Trading Book reporting requirement Leverage ratio 1 January 2021 (estimate) Net Stable Funding Ratio (b) Standardised approach for counterparty credit risk Risk weight supporting factors for SME and infrastructure loans Basel III Revised standardised approach for credit risk 1 January 2022 Revised internal ratings-based approach 1 January 2022 Revised credit valuation adjustment (CVA) framework 1 January 2022 Revised operational risk framework 1 January 2022 Leverage ratio Output floor Existing exposure definition 1 January 2018 Revised exposure definition 1 January 2022 G-SIB buffer 1 January 2022 50% 1 January 2022 55% 1 January 2023 60% 1 January 2024 65% 1 January 2025 70% 1 January 2026 72.5% 1 January 2027 Source: https://www.consilium.europa.eu/en/press/press-releases/2018/05/25/banking-council-agreement-on-measures-to-reduce-risk/, https://www.bis.org/bcbs/publ/d424_hlsummary.pdf. (a) The Council text for CRD V states that the directive begins to apply 18 months after the directive comes into force. To derive this estimate we have assumed the directive comes into force at end-2018. (b) The Council text for CRR II states that the regulation begins to apply 24 months after the regulation comes into force. To derive this estimate we have assumed the regulation comes into force at end-2018. | 1 |
Scenarios where these variables denote higher or lower inflationary persistence could lead the MPR reduction process to take longer or conclude sooner than projected. Another relevant factor will be the economy’s adjustment speed. The external scenario has been deteriorating steadily and the expectations of households and firms are in pessimistic territory. In this context, a faster adjustment of the economy leading to an earlier reduction of the MPR cannot be ruled out. In any case, the opposite scenario cannot be ruled out either, considering that just recently demand, particularly investment, has behaved more dynamically than we expected. The Board believes that the lower and upper bounds of the MPR corridor capture the alternative MPR trajectories associated to said events (figure 15). Turning to risks, the external scenario has morphed into an important source of concern and events that could significantly disrupt financial conditions and sharply damage the external impulse are very possible. In such case, the short-term inflationary effects could be substantial (due to the global appreciation of the dollar) although mitigated in the medium term by their impact on growth. Meanwhile, measures impeding the projected adjustment of spending and give a new push to inflation, would yield the way to MPR increases to ensure the convergence of inflation to the target. Let me conclude with some reflections. Final thoughts Dear senators, it is important to note that this is the first Report in several quarters in which our projection scenario presents no significant changes with respect to the previous Report. | Let me also say that we now comply fully with the recommendations set out in the Financial Stability Forum report commissioned by the G8 and published on the 19th May 2007. Getting back to the banking system, I believe that, in light of these developments, banks should adopt an appropriate scale of charges and, more importantly, stricter oversight procedures, in line with the rationale at the heart of Basel II approach. French banks are currently in the final straight as regards the implementation of the new regulation Basel II is playing a key role in moves to buttress risk management at credit institutions. The European Council and the Parliament adopted the Capital Requirements Directive on 14 June 2006, a crucial milestone in implementing the Basel II mechanism, established by the Basel Committee for Banking Supervision, within the European Union. The mechanism's three pillars – minimum capital requirements, supervisory review, and market discipline – form a prudential framework that is both more extensive and more sensitive to the risks actually incurred by credit institutions. Above all, Basel II should encourage institutions to improve their internal management and carefully calibrate their capital requirements. At present, we are concentrating on assessing the implementation of internal ratings-based approaches for credit risk and advanced measurement approaches for operational risk. The Commission Bancaire therefore undertook a series of on-site inspection missions in 2006 and 2007 to 2 BIS Review 75/2007 evaluate the systems and models developed by French institutions. | 0 |
Oversimplistic rules such as raising nominal interest rates until inflation returns to target would fall in this category. But this approach ignores the fact that monetary policy is subject to time lags - of up to two years to pass through fully to inflation - and that other factors can affect future inflation. It would put us at risk of overreacting. Making decisions on a meeting-by-meeting basis and the latest available data does not mean that we should be short-sighted, on the contrary forward-looking. At a bit of a stretch of my definition, another example of the “empiricist approach” would be to simply follow the US Federal Reserve, perhaps with a gap to reflect different long-term neutral rates. This is obviously what countries with exchange rates pegged to the dollar do. Of course central banks are aware of what their peers are doing and there are undoubtedly some spill-overs from the actions of the Fed, not least through the effect on the exchange rate, on which I will have more to say later. But it would not make sense for the ECB to blindly follow the Fed: although inflation has dramatically accelerated in both economies, the underlying causes are not the 4 Page 5 sur 14 same and hence the monetary policy stance should be different too. On the one hand, the energy supply shock is considerably more intense in the euro area which is a large energy net importer while the US is a net exporter. | One that can explain the motions of both heavenly bodies and subatomic particles. I am on a similar quest this evening. My topic is one of the hottest fields in economic policy— macroprudential policy. A field that has something in common with Newton, for part of the responsibilities of macroprudential policy is to protect the economy from the madness of people. Macroprudential policy is as core to the responsibilities of central banks as their much better known twin, monetary policy. Both are fundamental to the value of money. The relative simplicity of the monetary policy objective and the relatively focused arsenal of monetary policymakers improve the likelihood that agents in the economy can understand the MPC’s reaction function and anticipate its actions, making its job of achieving price stability somewhat easier. 1 This evening I would like to improve the understanding of the FPC’s reaction function by placing its objectives and policies in a more consistent theoretical framework. A common framework can better explain seemingly disparate macroprudential policies and can guide future policy actions. This will be important if, as has happened all too frequently in the past, either a prolonged period of growth or the emergence of new 1 See ‘Guidance, Contingencies and Brexit’, speech by Mark Carney given at the Society of Professional Economists, 24 May 2018. 2 All speeches are available online at www.bankofengland.co.uk/news/speeches 2 era thinking threaten to take financial stability for granted once again, thereby sowing the seeds of a future crisis. II. | 0 |
When the AIG began its work, it quickly became clear that there was no “one-size-fits-all” approach to implementing Basel II. Rather, implementation should be tailored to the specific circumstances of a bank and the jurisdictions it operates in. In this regard, one of the primary methods the AIG uses to promote convergence is to encourage home supervisors of the 50 or 60 largest internationally active banks in Basel Committee member countries to engage in practical outreach to host supervisors and the banks to open clear lines of communication and cooperation in based on banks’ own implementation plans. Each home supervisor coordinates the work in a way that is most practical in light of the particular bank circumstances and its own supervisory approach. It is clear that successful implementation rests on adequate flows of information, as well as trust among supervisors. As we go forward, we need to strike an appropriate balance between top-down and bottom-up consistency. That is, the top-down rules and the bottom-up convergence of supervisory practices should work together to reinforce a level playing field. This balance will naturally be dynamic. Early on, the scales were tipped toward developing a common set of rules. Now that these rules are in place, the scale is tipping the other way toward enhancing communication and convergence among 2 BIS Review 46/2006 supervisors in the implementation of these rules. | Lessons learned That brings me to my second broad topic, which is the lessons we have learned over the years as we have developed Basel II. I am not looking back simply for the sake of nostalgia. Rather, in looking to the past, I would like to share some thoughts on how the things we have learned and reflected in the process of developing Basel II will help to make Basel II successful in the future, to stand the test of time and to have the impact that we intended. Focus on risk management First, Basel II is fundamentally about establishing incentive-based approaches to risk and capital within the three-pillar framework. We should never lose sight of the fact that Basel II is built around both qualitative and quantitative risk management elements. Why is this so important? As a bank supervisor and central banker, what most concerns me is financial stability. When I review the various reports on this subject that cross my desk, one thing they almost always have in common is an emphasis on the link between sound risk management and financial stability. It is my hope—indeed, it is my belief—that the incentives for risk management in Basel II will therefore promote greater financial stability in the future. Improved and more formalised risk management, as fostered by Basel II, will bring more awareness of risks and better quantification of these risks. To the extent that risk assessment and control methods become more formalised and rigorous, this will lessen the likelihood of making bad decisions. | 1 |
There may also be a lag between technology adoption and TFP growth, as optimising the use of new technologies – in particular information and communication technology – tends to require parallel investment in intangible capital such as management systems and organisational processes.16 Hence, in the short- to medium-term, perhaps the most effective role that public policy can play in boosting TFP is to strengthen the conditions for reallocation to sectors that are already productive. This is particularly the case in the catching-up economies because, as we saw, weak TFP growth there was in part driven by misallocation of capital inflows. Recent firm-level analysis from the Eurosystem’s Competitiveness Network provides two insights that suggest this could be a promising strategy. The first is that the distribution between the most and least productive firms in individual euro area countries is very large and skewed. Far from being normally distributed – with many firms centred around the average performance level – there are a few highly productive firms and many which have low productivity. The second insight, which applies in particular to Spain, is that the ULC developments of firms at the bottom and the top of the productivity distribution are dissimilar. | Erroneous price signals lead to mistaken investment decisions, that is, to a less efficient use of resources, which reduces the economy’s productive capacity and, ultimately, its growth. There is abundant evidence of the harmful effects of inflation on long-term growth (Barro, 1995; De Gregorio, 1995). But, why does inflation tend to be higher when the central bank is not autonomous? To begin with, there is a need for public expenditure financing. There are various reasons why there is always pressure to increase public spending. Many of them are well-known and it is beyond the purpose of this presentation to discuss them. The truth that this tendency to raise public spending combined with the fact that the inflation tax is easy to collect, creates a natural pressure towards higher inflation. BIS Review 156/2009 1 Numerous episodes where fiscal objectives have dominated price stability goals have resulted in significant inflationary spirals, which are very costly for society. This fact is wellknown in Chile and in the rest of our region. A second element behind the inflationary bias has to do with the so-called dynamic inconsistency problem. In parallel with the tendency of the government to increase public spending comes the incentive to boost economic activity above sustainable levels. There are several reasons for this to occur. Potential market failures may result in a less than socially optimal output level, or political cycle motives can lead the central bank to try to boost economic activity beyond the level believed to be sustainable in the medium term. | 0 |
Chart 5 Chart 6 Changes in international equity indices since trough(a) European corporate bond spreads Interest rates Expected earnings Implied risk premium Total Per cent 100 Basis points (log scale) Illiquidity premium (a) 10,000 Compensation for credit risk (b) Great Depression (c) Current (d) 80 60 40 1,000 20+ 0 20 100 EuroStoxx S&P500 FTSE 100 40 Current March Current March Current March Current March Current BIS Review 10/2010 March Sources: Bloomberg, IBES, Thomson Datastream and Bank calculations. (a) Based on a three-stage dividend discount model. See Panigirtzoglou, N. and Scammell, R. (2002), 'Analysts' earnings forecasts and equity valuations', Bank of England Quarterly Bulletin (Spring), pages 59-66. (b) Taken as 9 March 2009. 10 Sources: Citigroup, Moody's Investors Service, UBS Delta and Bank calculations. (a) Spread of iBoxx € corporate bond index over iTraxx Europe credit default swap index. (b) iTraxx Europe five-year credit default swap index. (c) Credit risk premium for realised default rates on US corporate bonds issued in 1931. (d) Credit risk premium for Moody's current default probability forecast for European corporates. | Philipp Hildebrand: Globalisation and current developments in the financial markets Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Swiss Institute of International Studies, Zurich, 13 March 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Fundamentally, globalisation is not a new phenomenon, and yet the world has changed dramatically in the past twenty years. This is also evident in financial markets, where, since August 2007, a local event like the correction in the US residential property market has rapidly developed into a global event. We are now experiencing the first truly major crisis of financial globalisation. The longer the crisis lasts, the harder it will be – but also the more important – to keep in mind the advantages of financial globalisation and preserve them in the long run. There is a need for regulatory correction, and such a need will remain in the future. The existing system of regulation and supervision should be further improved. The regulation of liquidity and equity, in particular, needs to be fine-tuned, strengthened and adjusted to the latest developments in financial markets. However, it is possible that more will be needed than just the fine-tuning of regulations. The buffers in the financial system have to be strengthened. In simple terms, what is ultimately required is that international banks strengthen their capital backing. At the same time, bigger liquidity cushions are needed. | 0 |
It is important for the banking sector to utilise and support this valuable attribute of economic agents, both private and public, offering them a constant satisfaction of their needs for funding and other services. This action should rely not only on the insofar-successful experience, but also on an economic logic, while only a few countries in the region have retained their positive economic growth rates. Nevertheless, the economic environment will remain a challenging one and it should be assessed pragmatically. Various actions that may be taken should be oriented by the concept of prudence and in respect of regulatory and supervisory framework requirements. I would like to underline that a responsible bank management during this period will be recognised by its ability to control and administer operational risks in general and your swiftness to develop institution’s capacities to test the resilience and performance in various scenarios of potential future developments in particular. International standards require that the focus be not placed on planning highly probable events, but on the assessing the institutions’ resilience to relatively extreme and unfavourable developments. 2 BIS central bankers’ speeches Moreover, this process should be part of a broader and constant analysis that you need to conduct with a view to assess your needs for stable operational capitalisation and define safeguarding measures. These requirements are actually present in the regulatory and supervisory framework and the Bank of Albania stands ready to share with you its experience for effective development. | Dear bank executives, More than three years on from the crisis start, global economy’s perspective to leave this crisis behind remains unclear. Nonetheless, this is about a gradual and long process. Overall, financial institutions, in Europe and beyond, continue to face with the following: High uncertainties as regards exposure value in sovereign debt securities; Difficulties to ensure liquidity in wholesale markets; Reduction of crediting volume and tightening of its terms to fund the domestic economy; Higher capital requirements arising mainly from new regulatory rules by supervisory authorities. The need to reduce investment risk in sovereign debt is accompanied by huge efforts on fiscal consolidation in many countries, especially in Europe. Hence, EU economic growth expectations, including those for countries that had, insofar, posted above-average economic growth, were markedly down. It appears that the best solution for this situation will come only as a result of various countries’ ability to undertake, at this point, vital social and economic reforms as well as to provide financial support so that, on the one hand, financial stability is maintained and, on the other hand, private enterprises are provided with some relief, thus affecting their future economic development expectations. Albania’s economy maintained its positive growth rates during this period, to absorb external shocks. This flexibility is a precious characteristic that will continue to support the country’s economic development and buffer effects from various shocks, even in the future. | 1 |
At the same, we are seeing signs of a cooling housing market. House prices fell more than we had expected in September, and the number of unsold homes has increased. According to Statistics Norway's business sentiment survey, the prospects for manufacturing have weakened. The labour market is tight, and the employment ratio is high. The number of employed appears to be slightly higher than expected, while the number of unemployed has been a little lower. The number of job vacancies is high, but the number of new vacancies has decreased slightly. Chart 4: Inflation is high Inflation has continued to edge higher and is markedly above our target of 2 percent. In the year to September 2022, consumer prices rose by almost 7 percent. Energy prices were a main driver, but prices are also rising rapidly for a range of other goods and services, both for domestically produced and imported goods and services. In September inflation was higher than we had expected, with a surprisingly sharp rise in transport prices, which tend to vary widely. The Committee judges that a higher policy rate is needed to bring inflation down towards the target. Inflation has increased more than projected, and the labour market appears to be a little tighter than previously anticipated. These developments could suggest raising the policy rate by more than 0.25 percentage point at this meeting. On the other hand, there are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead. | And like many great scientists, he was always looking to solve new problems and to identify areas for improvement. His famous essay in the Mind journal where he sets out the Turing test concludes: “We can only see a short distance ahead, but we can see plenty there that needs to be done.” At the time he was talking about machines and artificial intelligence. Let’s each of us take that same lesson and use it to build a more inclusive work environment. Webster, J.R., Adams, G.A., Maranto, C.L., et al. (2018) “Workplace contextual supports for LGBT+ employees: a review, meta‐analysis, and agenda for future research”. Human Resource Management. Vol 57, No 1. pp193–210. 7 5 All speeches are available online at www.bankofengland.co.uk/news/speeches 5 6 All speeches are available online at www.bankofengland.co.uk/news/speeches 6 | 0 |
However, there is no natural limitation of the indebtedness of the private sector and this becomes a particularly important issue when the repo rate is low. This has led to major problems on two previous occasions. In the 1990s, there was an excessive expansion of credit and many loans were used to fund the purchase of commercial properties. More recently, we imported problems via the banks’ excessive lending in the Baltic countries. Today I am talking most about household indebtedness, but the issue is a general one. We need to focus more than previously on debts and the stock of debts in our analysis apparatus. More specifically-targeted tools are possibly more effective than the repo rate to deal with household indebtedness, for example amortisation requirements and higher risk weights for mortgages. Higher risk weights for mortgages mean that the banks must hold more capital for their mortgages. This is something that the Riksbank has pointed out earlier on a number of occasions and that we analyse in more detail in our latest Financial Stability Report. The issue has also been discussed by the council for cooperation on macroprudential policy set up jointly by Finansinspektionen and the Riksbank. Finansinspektionen recently proposed a floor of 15 per cent for risk weights for mortgages in Sweden. 4 However, of the conceivable concrete measures for preventing risks on the housing market in Sweden, the mortgage cap is practically the only one in place today. | While Asia is one of the most diverse regions in the global economy, it has been able to take advantage of the complementarities in the region to generate significant expansion in intra-regional trade, intra-regional investment activities and increased intra-regional financial flows. Vision of Asia This award speaks to the growing importance of Asia within the world economy. Allow me to touch on three major trends in Asia that are likely to influence Asia’s role in the world as we advance into the future. First, the role of the growing cumulative domestic demand in Asia for the regional and global output. Second, the role of Asia in the more efficient intermediation of funds mobilised in Asia arising from the more pronounced regional financial integration. BIS Review 91/2010 1 Third, is the policy strategies being adopted by the region to address challenges and the model for the management for international relations. The economic transformation of Asia in this decade has resulted in Asia becoming an important source of cumulative demand in the global economy. Rising incomes, low unemployment, a young demographic structure that has higher propensity to consume, relatively low level of household debt and policies to encourage consumption have spurred consumption demand. Other measures being initiated include putting in place social safety nets in the form of schemes and programmes for education, healthcare, retirement and unemployment benefits. This has not only resulted in significant expansion of the retail trade sector in the region but Asia is increasingly becoming an important consumer in the global economy. | 0 |
Since the 1970s, capital injections to the banking system have averaged around 8% of GDP at crisis time. 12 Taken together, this evidence paints a consistent picture: a progressive rise in banking risk and an accompanying widening and deepening of the state safety net. There is a ratchet. This ratchet is evidence of a policy time-consistency problem. 3. Time-consistency and the banking safety net What explains this time-inconsistency? A simple framework is developed to explain the existence of, and ratchet in, the safety net. It focuses on the incentive structures facing owners of banks and the risk strategies they pursue. The run-up to the present crisis provides several examples of those incentives and strategies at work. Take the payoff profile facing a bank shareholder. Assume that the sensitivity of the bank’s assets to aggregate risk – in the language of finance, its beta – equals 0.1. So for every 10% movement in the market as a whole, the bank’s assets move by 1%. Assume too that the beta of the bank’s deposits is zero and that the bank has an equity capital ratio of 10%. While arbitrary, these numbers are broadly plausible. Conveniently, under those assumptions the 10 Laeven and Valencia (2009). 11 Logan (2000). 12 Laeven and Valencia (op.cit.). 4 BIS Review 139/2009 beta of the bank’s equity equals one. Figure 1 shows the payoff profile facing owners of the bank. The return on a bank’s equity lies on a 45 degree line when market returns are positive. | In recent years, this tendency has been amplified by high immigration and hence strong population growth. BIS central bankers’ speeches 7 In spite of vigorous building activity, the number of completed dwellings is still low in relation to population growth. This housing gap has developed over several years and is pushing up house prices. A tight labour market and low interest rates are pushing in the same direction. The rise in house prices and the rate of debt accumulation are closely linked. Since the mid1990s household debt in Norway has risen appreciably faster than income. On average, household debt is now twice as high as disposable income. A rising share of households are facing a debt burden that makes them vulnerable when the interest rate again moves up to a normal level or if economic developments in Norway should take a turn for the worse. In such a situation, many households might find it challenging to service their debt and may reduce household spending. A pronounced fall in household demand will have a negative impact on corporate earnings and enterprises’ capacity to service loans from Norwegian banks. The key policy rate influences a number of variables, including the krone exchange rate, debt and house prices. In its interest rate setting, the Bank seeks to take into account all the key relationships in the economy, those that influence the real economy and inflation. But there is a limit to the tasks that can be given to monetary policy. | 0 |
Inflation Forecast June 2003 with Libor at 0,25% 2003 2004 2005 Annual average inflation in % 0.6 4 0.4 1.2 BIS Review 27/2003 | Although circumstances differ, our experience may also be of value to others. Forward guidance in general Up until the 1990s, the code of conduct among central bankers was one of secrecy. Today, however, central banks strive to be transparent. This development reflects a general trend towards greater transparency in modern societies. For some central banks, including Norges Bank, a change from fixed exchange rates to an inflation targeting regime also highlighted the importance of greater transparency. Transparency is necessary for accountability. With accountability the central bank can build credibility and trust, both by showing that the objectives are actually attained in the longer run, and by explaining deviations from targets. Forward guidance, understood as information about future policy intentions, may be viewed as a natural extension of this accountability framework. Economic agents are forward-looking, and hence the future stance of monetary policy matters to them. As Michael Woodford has stated, “For not only do expectations about policy matter, but, at least under current conditions, very little else matters.” 1 In macroeconomic theory, the importance of expectations has been appreciated since the rational expectations revolution of the 1970s. In the early 1990s, theorists started to model monetary policy as setting the interest rate. 2 Central bankers have since had a theoretical 1 Woodford, M. (2005): “Central Bank Communication and Policy Effectiveness,” NBER Working Paper 11898. 2 See Taylor, J. | 0 |
Stefan Ingves: Communication – what demands are made of an independent central bank? Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Swedish Economics Association, Stockholm, 24 April 2007. * * * Introduction I shall begin by thanking you for the invitation to the Swedish Economics Association. It has become a recurring and pleasant task for the Governor of the Riksbank to discuss the Riksbank’s activities with this knowledgeable assembly. Since I was last here, a year ago, quite a lot has happened in the monetary policy field. We at the Riksbank have, for instance, implemented a number of changes to make our communication clearer. We have replaced the earlier Inflation Report with a Monetary Policy Report. We intend that this change of name should signal that the report now contains a description of the considerations we have made when we have taken our interest rate decisions. Another new element is that we have now begun to present the forecast for the repo rate that we consider will provide well-balanced monetary policy ahead. There is nothing strange about our methods of working changing over time. We are constantly trying to improve and develop our methods. After all, monetary policy is also to a large extent a learning process. In part, this is a case of gradually discovering shortcomings in our methods of working and trying to remedy them. | The ongoing consolidation, the lifting of foreign shareholding restrictions, the separation of banking and non-banking activities and the process of generational change will result in a reduction in the relative shareholding of the major shareholders. Succession planning is critical. The transition from the present framework to the new landscape will need to be carefully managed. The banks have already started taking steps to enhance corporate governance and professional management. MAS has also implemented measures to ensure that the Boards and key committees of the banks have sufficient representation of independent directors, and to encourage the Boards to appoint qualified professionals to run the banks. MAS will continue, by moral suasion and prescription, to encourage the banks to strengthen and institutionalise their managements, especially those merged banks which emerge from the consolidation. Safety and soundness While bigger banks are likely to be stronger and more diversified, they pose a larger risk to systemic stability if they run into difficulties. MAS will intensify its supervision of the merged banks, placing stronger emphasis on evaluating the banks' internal risk management processes and control structures. In the US, the Federal Reserve Board installs examiners almost continuously in the large and complex institutions under their purview, in order to monitor and supervise the banks more closely. MAS does not expect to have to do the same, but more frequent inspections and closer supervision of the banks will be necessary. | 0 |
(October 2022). 17 Mertens and Williams (2021). 18 The equivalence of the uncertainty test about interest rates and inflation test breaks down if the natural rate of interest rate is subject to permanent shocks. By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. | Second, all investments abroad are subject to an exchange rate risk, whether they be government bonds, shares, real estate, commodities or investments in infrastructure, and irrespective of whether they appear on the SNB balance sheet or on that of a separate sovereign wealth fund. Consequently, outsourcing the foreign currency investments would not reduce Switzerland’s exchange rate risk. Third, outsourcing the foreign exchange to a sovereign wealth fund would call into question the independence of monetary policy and the SNB, as well as the freedom of action for monetary policy. The size and composition of the SNB’s balance sheet are a reflection of monetary policy. The SNB must also be in a position to dispose of the assets it has purchased and determine the composition of its balance sheet as required. Only in this way can it conduct an independent and target-oriented monetary policy. 4 BIS central bankers’ speeches | 0 |
Thomas Jordan: International money market disruptions, central bank reactions and lessons learnt Introductory remarks by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 13 December 2007. * * * As early as the first half of 2007, turbulence could be observed now and then on international financial markets. However, each event was isolated and short-lived. In the second half of 2007, there was a fundamental change in the situation. The sub-prime mortgage crisis in the US had a substantial impact on international financial markets, the extent of which had never been anticipated. I will cover three areas in my following remarks. First, I will discuss the upheaval on the international money markets. Then I will talk about the reaction of central banks, in particular that of the Swiss National Bank. Finally, I will outline some of the lessons learnt from this crisis to date. Serious disruptions on international money markets At the beginning of August, the US sub-prime mortgage crisis spread like a shock wave into the money markets of the most important currencies. In doing so, it hit the vital nerve of the international financial system. Well functioning money markets are essential in ensuring that financial market participants can adjust their liquidity positions. Ultimately, they are crucial for banks' solvency and long-term commercial viability. | With attention focused on money markets, the spotlight also fell upon central banks who implement their monetary policy in money markets by influencing the level of interest, via the supply of liquidity. Moreover, the central banks are the only market participants who are in a position to create the liquidity used in the interbank payment systems. The kind of upheaval observed in the international money markets over the past few months has never been witnessed in living history. Rumours and reports of substantial sub-prime positions at banks led to a sudden loss of confidence in international financial institutions. Moreover, these banks are, to some extent, uncertain about their own future liquidity situation. Consequently, banks subsequently began hoarding liquidity and became extremely cautious when granting credit to each another. The market for unsecured interbank loans over longer terms collapsed and at times the market for foreign exchange swaps dried up. Since then, banks have been unable to obtain unsecured funds for terms of more than a few days or weeks – or have been able to do so only by paying substantial interest premiums. There were three factors that exacerbated the money market disruptions. First, bank securities holdings that had supposedly been first class and liquid proved to be illiquid, thereby failing to serve as a source of supplementary liquidity. Second, other participants in the financial markets also faltered in their supply of liquidity to the banks. Their confidence in banks suffered because money market investments that had been considered safe suddenly turned out to be risky. | 1 |
In Romania, as in most other Central and Eastern European countries, monetary policy interest rates are still above the zero bound and, as such, there has been no need to venture into the uncharted waters of quantitative easing and negative nominal interest rates. Therefore, I will not approach these two already classical unconventional instruments, since Romania’s experience is not illustrative from this perspective. Besides, I am sure that they will be extensively dealt with by other panellists. In this case, you are probably wondering why I am now in front of you. The answer is that, 10 years ago, the National Bank of Romania faced an economic and financial context which could also be labelled as exceptional. It called for the use of unconventional instruments and hence the departure from the prevailing economic precepts of the time and particularly from the rules that defined the modus operandi of an inflation targeter. Some of these tools would later be referred to as “macroprudential instruments”, but back then we referred to them as unorthodox monetary policy measures, the NBR responsibilities including not only monetary policy, but also financial stability, the supervision of credit institutions and the issuance of secondary legislation in the field of banking regulation. Consequently, I have come in front of you today with the hope that at least some of the lessons we learned at the time might prove relevant for this panel’s discussions. BIS central bankers’ speeches 1 My intervention today is structured along 4 lines, namely: 1. | carry trade) and instead incentivize them to focus on their core activities. 4 BIS central bankers’ speeches | 1 |
Other scratches also need early and effective treatment to avoid becoming scars. For example, insofar as investment is being affected by post-crisis legacies, such as the debt overhang in parts of the private and public sector – the famous Fisher-Minsky-Koo channel of debt deflation – history suggests that effective deleveraging nearly always involves a combination of growing out of debt and writing down debt – which is to say, structural policies are also key.15 And action also at the EU level is crucial. Efforts to complete the Single Market, for example, would incentivise more firms to invest and grow as they have a larger market to serve and exploit economies of scale. Progress with the Capital Markets Union (CMU) would likewise help to raise productivity by facilitating capital reallocation. Conclusion So, to conclude, the evidence suggests that hysteresis as it is often understood – meaning rising structural unemployment – has not yet materialised meaningfully in our economy. We see more scratches than we see scars. And unlike “classical” hysteresis, these scratches are currently reducing price pressures, warranting our currently very accommodative monetary policy stance. We can be confident that this stance will have the desired effect. The ongoing broadening of the recovery, together with the gradual disappearance of downside risks, increases the chances that those who want to work more will be able to do so. This, in turn, will create the necessary price and wage pressures for a return of inflation towards levels closer to 2%. | In particular, the use of resolution tools like the bail-in when financial markets are in distress could exacerbate those turbulences and reduce the ability of other banks to obtain external financial resources. Or, in the case of the sale of the business, it could create a problem of fire sales that may additionally reduce the prices of the assets, generating losses for the rest of the institutions. In these circumstances, there should be a powerful, usable and credible backstop that could be activated even preemptively. The stability of the financial system and the potential for systemic risks to alter the functioning of that system have long been important topics for central banks, and I would like to encourage some additional consideration to this broader approach. Some episodes, including the Spanish experience during the Great Financial Crisis, suggest that the propagation of shocks is especially relevant for mid-sized entities and that the swift and orderly resolution of the problems is the vaccine against contagion. So, allow me to finish my presentation where I started: the current crisis management framework has been crucial in advancing the Banking Union and it has proven most useful in resolving very relevant events. However, the experience allows us to draw lessons that should be incorporated into the framework to contribute more effectively to maintaining financial stability and to ensuring the functioning of the Banking Union. | 0 |
Mr. McDonough examines recent developments and trends in the foreign exchange markets Remarks by the President of the Federal Reserve Bank of New York, Mr. William J. McDonough, before the 39th International Congress of the Association Cambiste International, The Financial Markets Association in Toronto on 30/5/97. I am delighted to be invited to address the 39th International Congress of the Association Cambiste Internationale (ACI) -- The Financial Markets Association. I must confess to a certain affinity for the foreign exchange community, stemming, no doubt, from my commercial banking experience and my time overseeing the foreign exchange desk at the Federal Reserve Bank of New York. I’ve long believed that, more so than in most other sectors of the finance industry, there is a real community among those engaged in foreign exchange -- a community that relies on close personal ties and contacts. It is this spirit of community that makes events such as these ACI meetings today and tomorrow so enjoyable and important, giving us the opportunity to renew old friendships and build new relationships that will enable us to do our respective jobs that much better. In my remarks to you this morning, I would like to highlight some recent developments in the foreign exchange market and share with you my view, as a central banker, of what has been driving some of the trends we’ve been observing. | Such access was formally adopted as a requirement for multilateral netting systems, and I am convinced that the G-10 central banks would apply a similar standard when evaluating the start-up of any major multi-currency settlement service. In sum, the evolution toward more transparent foreign exchange markets that we’ve observed in the past several years is largely a product of both technological progress in the private sector and conscious policy decisions in the public sector. None of the policy decisions, I should stress, were taken with any explicit or implicit intention of reducing market volatility. On the contrary, the policy community has viewed moves toward increased transparency as desirable ends in and of themselves for a number of reasons. For one, transparency promotes a more level playing field for all market participants. In other words, transparent markets tend not to be dominated by just a few players. Rather, they are open to new entrants, large and small. In such markets, no one group of institutions or type of institution can develop a monopoly on information or competitive pricing. As in most industries, competition in the area of financial services spurs innovation, better service for customers, and a more efficient allocation of resources. Second, transparency in these markets also promotes investment. If money and investment fund managers or corporate CFOs can better understand the risks entailed in various investment alternatives, they are more likely to make the investment decisions best suited to their needs. | 1 |
Ajith Nivard Cabraal: Inequality, poverty and development Inaugural address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at Annual Sessions of the Sri Lanka Economic Association (SLEA), Colombo, 10 August 2007. * * * Mr. Chairman, Distinguished Invitees, Ladies and Gentlemen, At the outset, I wish to congratulate the Sri Lanka Economic Association (SLEA) for their initiative at organizing this important and timely event, the Annual Session focusing on Inequality, Poverty and Development. This forum would give a wonderful opportunity to all the participants to share their valuable thoughts and eventually enable them to contribute to the prosperity of this country and the well-being of our people. I am also delighted to have been invited to deliver the inaugural address to this distinguished audience and I must say that I consider it a great honour and a privilege. The SLEA has been organizing events of this nature for many years and at most such events I have been an active participant. I have myself benefited immensely from these fora, and I know most of you academics, and professionals have also gained from these well balanced sessions and fruitful discussions. Further, the themes that have been selected by SLEA and the calibre of the resource persons they have invited during the past prove their willingness to make an important contribution to the development in this country. | As we are aware, the world’s focus and attention has been to usher in an economic order that ensures high economic growth and an advanced level of development. In this endeavour, the widely discussed topics include liberalization, globalization, IT revolution, poverty alleviation, trade co-operation, political inclusion, regionalization, and many other buzz topics. Amongst these topics, “inequality and poverty” has maintained an important position, and it has therefore been discussed for years. Let us then ask ourselves the question: What do we really mean by inequality and poverty? Inequality means the lack of or fair treatment in the sharing of wealth or opportunities between different groups in society; and Poverty is the condition of being extremely poor. What do those who are stricken by poverty and inequality feel? Simply, they suffer the lack of material well being and lack of opportunities to succeed. Such feelings are often the root causes of political, economic and social upheaval, tension and revolution. Mr. Chairman, poverty and inequality are very closely linked. There is also ample empirical evidence to suggest that inequality and poverty seriously affect development. Inequality often leads to poverty while poverty hinders development and prosperity. Addressing inequality issues would undoubtedly have a positive impact on poverty alleviation. We would also probably unanimously agree that alleviating poverty is vital, considering its many economic, social, cultural and even more importantly, the human costs. | 1 |
I will not attempt to describe this chart; it would take too long and, even if I had the time, I doubt I would have the ability. These were the self-same constraints – time, complexity – which faced investors in these products. Due diligence was the casualty. End-investors in these instruments were no more likely to know the name of the companies in their portfolios than the name of the cow or pig in their exotic hot dog. To illustrate, consider an investor conducting due diligence on a set of financial claims: RMBS, ABS CDOs and CDO2. How many pages of documentation would a diligent investor need to read to understand these products? Table 2 provides the answer. For simpler products, this is just about feasible – for example, around 200 pages, on average, for an RMBS investor. But an investor in a CDO2 would need to read in excess of 1 billion pages to understand fully the ingredients. With a PhD in mathematics under one arm and a Diploma in speed-reading under the other, this task would have tried the patience of even the most diligent investor. With no time to read the small-print, the instruments were instead devoured whole. Food poisoning and a lengthy loss of appetite have been the predictable consequences. Though it had aimed to dampen institutional risk, innovation in financial instruments served to amplify further network fragility. Diversity and stability A final dimension to network robustness concerns the effects of diversity. | The Fund did encourage longer term investment into unit trusts and kick started the ETF market on the HKEx and elsewhere in Asia, where we now have a variety of ETFs covering a wide range of asset classes. The result has been the provision of more choice to investors, both retail and institutional, at lower cost than traditional unit trusts. As we enjoy our 10th anniversary celebration, I cannot help but wonder if the exit strategies currently on drawing boards around the world will be as successful as we were? Only time will tell. I wish you all a very pleasant day and once again many thanks to State Street for organizing this celebration. 2 BIS Review 142/2009 | 0 |
10 All speeches are available online at www.bankofengland.co.uk/speeches 10 Chart 11: LTVs high in late 1980s, lower today Percentage points 10 Per cent 95 LTV on new mortgage loans 90 85 80 Chart 12: The rental/gilt yield spread has been a good predictor of house price inflation 8 6 4 0 4 2 75 0 1995 12 8 Average 70 1985 Per cent 16 2005 2015 Sources: UK Finance Regulated Mortgage Survey and Bank of England. -4 Rental yield spread over government bonds (LHS) Average house price growth over the following five years (RHS) -8 -12 -16 -2 1987 1992 1997 2002 2007 2012 2017 Sources: ONS, Zoopla/Whenfresh, Land Registry, Bank of England, and Bank calculations. Another upside risk is a re-acceleration of house prices. I’m not so daring as to offer you a precise forecast. Let me just point to a couple of pieces of evidence about the housing market and let you draw your own conclusions. One is that housing is currently “cheaper” than government debt, at least on a very crude comparison of their yields. The red line in Chart 12 is the difference between the estimated rental yield on housing and the yield on 10-year indexed government debt, an indicator of the “neutral” real rate of interest. | through the adjustment of domestic prices and costs relative to external ones, and by curbing government spending and revenue shortfalls, in real terms. This is what the Spanish economy has, with great effort, been achieving since 2012. In the truly difficult circumstances of 2012, Spain avoided a bail-out that would have been very painful in many ways, and certainly from an economic and social standpoint. Spain never lost its access to the capital markets. Admittedly at very high interest rates, and with very large risk premiums, our Treasury was always able to fund itself on the markets, because the markets, while mindful of the risks involved, very quickly appreciated (I am referring to the summer of 2012) the seriousness and decisiveness of the corrective action being taken. Spain reacted as a responsible and loyal European Union and Monetary Union member. It did not attempt to shift the blame onto anyone else, even though the euro crisis, which affected us very directly, obviously did not arise exclusively, or originally, in the Spanish economy. BIS central bankers’ speeches 3 To call the correction of unsustainable imbalances (like the balance of payments deficits of 2007 and 2008, of around 10% of GDP, and the budget deficits, which ranged from 9% to 11% between 2009 and 2012) austerity, is not really a very good description of reality. Changing direction when on a path towards impossible and unsustainable situations is not “austerity” but common sense and, in a very real sense, patriotism. | 0 |
They set loan-to-income (LTI), loan-to-value (LTV) and interest cover ratio policies, with the objective of safeguarding the stability of the financial system. These so-called macro-prudential policy measures are being used increasingly by policy authorities internationally (IMF-FSB-BIS (2016)). The various agents in the model, and their inter-linkages, are shown schematically in Figure 17. 28 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 28 Figure 17: Agents and interactions in the housing market model Source: Baptista et al (2016). This multi-agent model can be calibrated using micro datasets. This helps ensure agents in the model have characteristics, and exhibit behaviours, which match those of the population at large. For example, the distribution of loan-to-income or loan-to-value ratios on mortgages are calibrated to match the UK population using data on over a million UK mortgages. And the impact on the sale price of a house of it remaining unsold is calibrated to match historical housing transactions data. One of the key benefits of the ABM approach is in providing a framework for drawing together and using, in a consistent way, data from a range of sources to calibrate a model. For example, a variety of data sources were used to calibrate this model, including: Housing market data: FCA Product Sales Data, Council of Mortgage Lenders, Land Registry and WhenFresh/Zoopla. Household surveys: English Housing Survey, Living Cost and Food Survey, NMG Household Survey, Wealth and Asset Survey, Survey of Residential Landlords (ARLA) and Private Landlord Survey. | The integration processes called for a voluntary agreement between the parties. In the midst of the crisis, these agreements were not easy and they required, moreover, the approval of the related regional government authorities. But in 2011 nobody, or practically nobody foresaw the double-dip recession and less still how violently it would affect the Spanish economy. In April 2011 most agencies, including the IMF, the OECD, the European Commission and the Banco de España, were forecasting growth for our economy of around 0.8%, which at the end of the year turned out to be a decline in GDP of 1.0%, the biggest forecasting error on record in recent times for these institutions. The European Central Bank was acting in response to what it saw as a recovery scenario for the euro area, as testified by the fact that it raised its benchmark interest rate by 25 bp on two occasions, in April and in July 2011, only to reverse these rises from November, in light of the worsening sovereign debt crisis. The forecasting error was also most significant in 2012: in their 2012 spring projections, most institutions estimated a decline in GDP of around 1.6%, and ultimately it was 2.9%. Overview As is addressed in the final chapter of the Report, I should now like to take an overall view of the crisis. | 0 |
Øystein Olsen: The economic outlook Speech by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), to invited foreign embassy representatives, Norges Bank, Oslo, 4 April 2013. The speech is based on the annual address 2013, Monetary Policy Report 1/13 and previous speeches. Please note that the text below may differ slightly from the actual presentation. * * * Excellencies, Ladies and Gentlemen, First of all, I would like to welcome you to Norges Bank. Five years after the financial crisis started, growth is weak and unemployment high in many countries. The economic situation in Norway stands in contrast to developments abroad. Norway’s economy is still growing and unemployment remains low. There is a tendency to see ourselves as a country apart. Truly, Norway’s oil and gas resources provide an economic base that few other countries enjoy. Income levels are among the highest in the world. At the same time, our increasing dependence on oil and gas increases the vulnerability of the Norwegian economy. The theme of my presentation today is how to enhance the resilience of the Norwegian economy. When the financial crisis washed over the Norwegian banking sector in autumn 2008, we were reminded of how dependent we are on the world around us. Nonetheless, the Norwegian economy weathered the crisis well. After about a year, the downturn in Norway was over. | The latest (2004) estimate is that growth was actually 4% a long way above trend. As Robin Leigh-Pemberton, then Governor of the Bank of England, said “we put the brakes on when the speedometer indicated we were doing 60mph. Some time later it was revealed we were doing 55. When the tachograph was opened, however, it revealed that we had actually been doing 70, when the speedometer read 60… more brake pressure was therefore entirely appropriate.” This episode marked a low point for the UK’s GDP statistics in recent times. Since then, a number of methodological changes have been introduced, and data sources have been improved. Analysis both by the ONS and the Statistics Commission indicates a dramatic reduction in the average size of revisions over the past fifteen years. Even so, measuring the economy remains a complex task, and data uncertainty is a fact of life. So what does the MPC do to ensure its judgements are as firmly grounded in reality as possible? We have a four pronged approach: • We monitor a very wide range of data • We pay careful attention to data quality • We talk to business people around the country BIS Review 71/2004 3 • We are working closely with ONS to transform the quality of official statistics Monitoring a wide array of indicators First, we critically review an enormous quantity of data. | 0 |
This is because, due to the narrowness of the income base, the output of the rural sector cannot be absorbed by the rural sector itself. Hence, the sustainability of the rural poor will depend on active internal trading which they could do with those in the urban sector. Second, the current tendency of the rural population, especially the youth, has been to prefer more lucrative and convenient occupations in the urban sector and not the rural agricultural sector in which their fathers and fore-fathers had been engaged for generations 10 . It has also been found that when the rural poor move from low paying jobs in agriculture to high paying jobs in industry or services in the urban sector, they could conveniently escape poverty. When this internal migration to industry and services is supported by a high level of educational competencies acquired by the poor, the reduction in poverty levels too becomes noticeably greater 11 . As a result, investments made in the rural agriculture sector would go unused without the support from the segment of people for whom they were really meant. Third, rural agriculture suffers from both a growth limitation and a capacity limitation. Agriculture is not a high growth contributor and, over the last two centuries, world’s agricultural output has risen, on average, by less than two percent per annum 12 . Hence, agriculture, despite the heavy volume of investments made, cannot raise rural incomes to a level sufficient to push its population out of poverty. | For example, Chart 1 shows estimates of the 5- to 10-year forward inflation compensation constructed by Barclays, the research staff of the Federal Reserve Board, the New York Fed Markets Group and inflation swaps. The differences are produced by differing assumptions on the liquidity of various securities and the use of an estimated yield curve to produce the Board research staff estimates. No attempt is made to remove the compensation for inflation risk in these measures, thus these are estimates of compensation for expected and unexpected inflation. There are clearly different short-term fluctuations in the various estimates, but they all show a similar pattern – with the exception of the height of the financial crisis, they have been contained within a range of just below 2.5 percent to just above 3 percent. CPI inflation has averaged historically about 0.3 to 0.5 percentage points above the inflation rate for personal consumption expenditures (PCE), the price index for which the Federal Reserve Board members and Reserve Bank presidents provide forecasts four times per year. Estimates of the amount of compensation investors require for inflation uncertainty at this forward horizon vary from close to 0 percent to more than 1 percent. Yield curve model-based estimates can provide a decomposition of the whole forward structure of inflation expectations. As shown in Chart 2 for the Board research staff measure of inflation compensation, the effect of the recent surge in energy prices is centered on shortterm inflation compensation with slightly negative movement in forward inflation compensation from 2013 onward. | 0 |
But even if it is discovered that the risktaking channel is something worth taking into account, it is not so easy to see how this should be done in practice. I cannot see, for instance, that it is realistic to believe that a central bank would refrain from cutting its policy rate below a certain level on the grounds that this might lead to greater risk taking in the economy. Should developments in the economy as a whole warrant a low policy rate and there are no tangible signs of increased risk taking, it would be very difficult to justify such a policy. However, it is of course important for instance, Geanakoplos, J., “Solving the Present Crisis and Managing the Leverage Cycle”, FRBNY Economic Policy Review, August 2010. 5 See, for instance, Gambacorta, L., “Monetary Policy and the Risk-Taking Channel”, BIS Quarterly Review, December 2009, Ioannidou, V., S. Ongena and J.-L. Peydró, “Monetary Policy, Risk-Taking and Pricing: Evidence from a Quasi-Natural Experiment”, European Banking Center Discussion Paper No 2009-04S, 2009, Jiménez, G., S. Ongena, J.-L. Peydró and J. Saurina, “Hazardous Times for Monetary Policy: What do Twenty-Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk?” CEPR Discussion Paper No. 6514, 2009, Altunbas, Y., L. Gambacorta and D. Marques-Ibanez, “Does Monetary Policy Affect Bank Risk-Taking?” BIS Working Papers No 298, 2010, Delis, M. D. and G. Kouretas, “Interest Rates and Bank Risk-Taking”, Munich Personal RePEc Archive, MPRA Paper No. | There is as yet rather limited empirical research on the risk-taking channel, but some papers on the subject have now begun to appear. The studies are based on data from the eurozone and the United States, as well as other countries. They appear on the whole to support the theory that low policy rates lead to the banks taking greater risks. 5 Well worth more research… My personal view is that the risk-taking channel is definitely an interesting line, well worth further research. Our knowledge of the monetary policy transmission mechanisms is far from complete and the way that monetary policy affects the banks’ risk taking is something we need to learn more about. I also believe it would be useful to broaden the question and try to find out if low interest rates for a long period of time can lead to an increase in risk propensity in society as a whole – among households, companies and other participants in the economy – and not just among banks. So far, research in this field has been even scarcer. 6 As I see it, an increased risk propensity among households could be an equally strong driving force behind a rise in property prices as greater risk taking by the banks. …but not so easy to do in practice It is of course difficult to predict today what the conclusions eventually will be and what implications they may have for monetary policy. | 1 |
Sabine Lautenschläger: The banks and the market Speech by Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the European Central Bank, at a Lecture at the Florence School of Banking and Finance, Florence, 15 March 2018. * * * Almost ten years ago to the day, the world of finance was shaken by a strong tremor. On 16 March 2008, JP Morgan offered to buy the investment bank Bear Stearns. And it was time. Bear Stearns was in deep trouble: its share price had fallen by two-thirds since the beginning of that year; it was bleeding money; and it was basically shut out of the funding market. At the time, the failure of Bear Sterns was considered a major event. No one knew that the big quake was still to come. It happened half a year later, on 15 September 2008, when another investment bank failed: Lehman Brothers. It pushed the financial system close to the abyss. Trust evaporated, markets dried up, and around the globe, banks were sent reeling. All in all, it was the biggest financial crisis in decades. It dragged down the real economy, which fell into what we now call the Great Recession. In the euro area, economic output went down by almost 4.5% in 2009, while unemployment jumped by more than a quarter to 9.6%. Three years later, it reached 12%. | If each country were to go its own way, the market for the relevant financial instruments would become too fragmented. The ECB welcomes current proposals which foresee the introduction of non-preferred senior debt instruments and a general depositor preference rule. This would further facilitate bail-ins. The second question is: what happens if the Single Resolution Fund runs out of money? What if there’s a major crisis, and the € billion is not enough to cover the losses? Well, in such a situation we would need a common European backstop for the SRF. And we need it quickly, and in any case before 2023, which is when the SRF will reach its target volume. European leaders committed to this when setting up the SRF, and they should stick to their commitment. The backstop could take the form of a direct credit line from the European Stability Mechanism to the SRF. The important thing is that it can provide both solvency and liquidity support. And now to the third and final question: has public support for failing banks really become a thing of the past? “Almost” is the answer to this question. And the rules are now such that any public support for a bank in fact triggers a “failing or likely to fail” decision. There are a few exceptions, however. One of these is known as precautionary recapitalisation. It allows governments to recapitalise banks using public funds. But the scope for this kind of state aid is very narrow. | 1 |
I would like to name three priorities or key trends here. First, I would say what we have seen in the past year showed that our implementation of the Standards must constantly adapt to changing circumstances. 16. While we all had Business Continuity Plans (BCP), these were unavoidably limited in scope. For example, we never expected that banks and their customers, as well as banking 2/5 BIS central bankers' speeches supervisors, would all be in the same situation of working remotely. Certainly we cannot predict future events, but we can say that our collective responses to COVID in terms of BCP have so far stood up to the test. That said, in order to achieve the step-change we all aspire to, and deliver better outcomes, it will be essential for governments, regulators and the private sector to continue to be adaptable in how we approach AML/CFT work. 17. I have just now provided examples of how we fully used the built-in flexibility of the risk-based approach, together with the application of technology, to deliver an effective response to some of the challenges of COVID-19. We acted quickly, and with NO change required to the standards that all of our systems are based upon. 18. At the same time, we must not simply regard FATF standards, as well as Mutual Evaluations (ME), as simply compliance-orientated or, in the case of MEs, static assessments that take place once every eight or nine years. | When I was preparing for this event, I could not help but look back to three years ago – April 2018 – and the thoughts that I shared with you at that event. On that occasion, I highlighted three issues as having significant potential to change how effective we are in our AML work: The promise of technological innovation; The emerging focus on public-private information sharing; and Getting the risk-based approach right by thoroughly understanding risks. 5. Three years on, I think we can all agree that the potential of each of these has been clearly demonstrated. The path to achieving a step-change in the outcome of current responses to money laundering and terrorist financing – based on the tools and techniques at our disposal – is much clearer. Let’s quickly recap what we have seen and experienced so far. 6. First, the value of technology in allowing us to swiftly overcome some of the challenges caused by COVID-19 is well recognised. Digital and online innovation has helped to improve remote access to financial services. That has also allowed banks and other financial institutions to protect their workforces through work-from-home arrangements, and provided data analytics to raise red flags on networks of COVID-19 fraud accounts. At the HKMA, we are committed to supporting innovation that works for all types of customers and for both small and large institutions. We also recognise that our regulatory framework needs to keep pace – focusing on outcomes, and being forward-looking. | 1 |
This forecast is premised on a market yield curve in which interest rates rise gradually though to levels substantially below their pre-crisis average. The forecast recognises the risks to this picture from another unfortunate event in the form of a harder landing in emerging markets.6 Secular signals? But while one can still explain the current conjuncture this way, there must be less confidence in the healing story than when I first arrived on the MPC. We have already incorporated a weaker structural picture into our thinking. A few years ago we were expecting a period of above trend productivity growth to recover some of the productivity growth lost during the Great Recession. We no longer expect any catch-up of the lost productivity growth and indeed, productivity growth in our latest forecast only recovers to 1.8%, compared to 2.7% between 1950–2007 and 2.2% in the decade before the crisis. This downgrading of prospects is true more broadly – according to the IMF, potential output growth in advanced economies fell from 2.2% over the period 2001–07 to 1.5% over 2013–14. And the natural rate of interest probably remains around, or a touch below, zero. This is the unobservable underlying real interest rate that is consistent with inflation at target and economic activity at its potential. One cannot observe this “natural rate” directly; it has to be estimated and that is difficult to do with precision. | One reassuring point is that the major UK banks and building societies were tested against precisely this scenario by the Bank of England in 2015 and demonstrated they had the resilience to weather such a shock and carry on lending to the UK economy. Conclusion Looking back over the last two years, I think that the slow healing story can still explain where we are and provide a guide to our future prospects. But the story has to be adapted in the face of more UK and world weakness than I had expected and this weakness might be signalling that there are deeper structural factors at work. Nonetheless, my central projection remains that the UK economy will continue to grow solidly and that inflation will return to target over the next few years. But, as always, policymakers need to be alive to the possible meaning of disappointments, to be very sensitive to the possibility of changing temperatures around them, and to the risk of unfortunate events. We have a range of tools at our disposal and should be ready to use them whichever risk materialises. BIS central bankers’ speeches 7 | 1 |
One out of three of the unbanked come from just four countries in Asia – China, India, Pakistan, Indonesia. It is a shame that in this day and age, so many do not have access to a bank account, secure and efficient means of payment, or insurance protection. The root of this problem is two-fold. Banks face high costs in reaching out to customers in remote villages. And frankly, many of their mainstream financial services may not be suited to the needs of these customers. FinTech firms, on other hand, are able to create agile and mobile digital solutions to access and serve these underserved segments. But they lack the resources to scale and penetrate new markets. This is where AFIN comes in, to bring banks and FinTech firms together to develop solutions to penetrate these hard-to-reach markets. AFIN is spearheaded by MAS, the ASEAN Bankers Association, and the World Bank’s International Finance Corporation. This Wednesday, AFIN will launch API Exchange, or APIX. It is the world’s first cross-border, open architecture platform to enhance financial inclusion. APIX is both an online FinTech Marketplace and FinTech Sandbox. As a marketplace, it will enable FIs to discover and connect with FinTech firms through APIs on a globally curated platform. As a sandbox, it provides a platform for FIs and FinTech firms to collaborate and experiment on solutions in a contained environment. Please step forward to participate in this exciting enterprise to deepen financial inclusion in ASEAN and the Asia-Pacific region. | The banking union is a joint project, and it follows the motto of the EU: united in diversity, or forenet i mangfoldighed as you would say in Danish. Conclusion Ladies and gentlemen, I would like to end by coming back to the concept of hygge. According to the Cambridge dictionary, hygge describes a quality of cosiness. It’s about feeling warm, comfortable and safe. Isn’t Europe also a bit hyggelig, then? Isn’t it also about being together? Isn’t it also about feeling comfortable and safe? From my point of view, there is much that speaks for a closer European Union. And the banking union is all about helping Europe to grow closer together. It helps to make the single market more single; it contributes to safer and sounder banks by making them more resilient; and it helps to foster financial stability by enabling banks to fail in an orderly manner. It takes things such as banking supervision and resolution from the national to the European level. And in doing so, it offers many benefits that would not be available if we kept everything at the national level alone. Now, I am sure that each and every one of you is fully familiar with the complexities of today’s financial system. Each of you has a lot of insights and experience. But still, on occasions such as this, surrounded by leaders from the public and private sector, I feel I must stress the importance of cooperation. For all our insights and experience need to be shared. | 0 |
Pablo Hernández de Cos: Central bank independence and policy coordination in a globalised world Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the International Symposium on Central Bank Independence, panel on "Central bank independence and policy coordination in a globalised world", organised by Sveriges Riksbank, Stockholm, 10 January 2023. *** Let me start by thanking the Riksbank for organising this symposium and for inviting me to take part in this panel. In many ways, the theme of our panel – central bank independence and policy coordination in a globalised world – is a good description of the objectives to which Stefan Ingves' many, many, achievements have contributed during his long and varied career, including most notably as Chair of the Basel Committee and as Chair of the Advisory Technical Committee of the European Systemic Risk Board. It is therefore somewhat humbling for me to take part in this discussion as his successor as Chair of both these Committees. While I will focus my remarks on the financial stability aspects of independence, globalisation and coordination, allow me to start by recalling the main reason why the task of controlling inflation has been assigned to independent monetary authorities in a large number of economies. The argument is based on what the economic literature calls "time inconsistency", which highlights the role of expectations in agents' behaviour. Price stability unquestionably enhances economic growth and improves wellbeing in the long run. | To follow, I will discuss the role of policy in and ensuring that growth is sustainable and not prone to relapses, especially ways to mitigate potential economic and financial imbalances. And finally, I will explain how the Bank of Thailand intends to find the right balance for policy to foster businesses and investment during the rise of Asia. Ladies and Gentlemen, Since the ancient Greek and Indian times, a golden age refers to a period of peace and unity, stability, and rising wealth, with an abundance of hope and opportunities. Evidence has pointed out that Asia has increasingly embraced these characteristics. In terms of peace and unity, we have witnessed increasing international cooperation to boost economic welfare and safeguard against risks in the region. For ASEAN, this has been reflected by the increase in free trade and investment agreements both bilaterally and under the ASEAN Economic Community. In a broader group, the ASEAN+3 countries have been working closely to set up and improve a committed mechanism for regional crisis prevention and management. As for economic stability, I think that the robust recovery, low level of public debt, together with sufficient foreign reserves have demonstrated that Asian regional economies have the satisfactory capacity to cope with future shocks. In terms of increasing wealth, it is clear that the share of emerging Asia in world GDP has been increasing markedly with a status as a global production hub of manufactured goods. This is projected to rise even further. | 0 |
Research on central bank committee design shows that diverse decision‐making bodies benefit from: Having a clearly defined policy objective; Having relatively small policy committees, with external members; Publishing policy decisions, and; Allowing for external scrutiny. How the Bank of England is becoming more diverse Five years ago we made Diverse and Talented one of four pillars of our strategic plan. Our aim was not just to increase diversity; but also to choose inclusion. Inclusion unlocks the true value of an organisation’s diversity. Only through inclusion can people realise their full potential. That’s why the Bank is focussing on building a culture that values diverse ideas, encourages open debate, and empowers people at all levels to take initiative. Our strategy has three elements: Inclusive recruitment, Inclusive culture, and Inclusive communications. First, inclusive recruitment We are fishing from a larger pond. In recent years our graduates have come from 40 different universities, a six-fold increase in the past decade. Of our 2019 intake, due to join us in September, 46% of graduates are female and 39% are declared BAME students. This compares to a BAME share of 20% five years ago. To support diverse recruitment at all levels our managers are now required to undertake unconscious bias training. We use anonymous CVs for internal and external recruitment and strive for balanced shortlists and interview panels. | In Germany, for example, I have noticed that some of the larger banks have begun an advertising campaign on SEPA. I encourage other communities to follow these examples. Let me also be clear on one related point: Banks should not try “misusing” SEPA, and blaming SEPA for any unpleasant changes. In that case, we could end up with a similar debate on perceived price increases as we did after the introduction of the euro. This would help nobody – neither the industry nor the customers. Second, the industry should be clearer on the timetable for the “dual circulation” period of its instruments. The request for clarity on the end date also comes from end-user associations. Interesting in this respect is the ECB’s recent study in cooperation with the banking industry analysing the economic impact of SEPA. 2 The study confirms that two main forces will come to play. On the one hand, cross-border competition and new market participants could affect the revenue side of banks. On the other, automation and electronic processes will enable banks to achieve efficiency gains and cost reductions. The study concludes that the dual implementation phase of SEPA should be as short as possible. As initial investments and higher adaptation costs are necessary in the short run, it is for the banks to decide how they will adapt to the new environment in the medium to long term. Indeed, a shorter changeover to SEPA will allow banks to focus more on their offering of innovative products in the medium to long term. | 0 |
Mervyn King: Monetary policy developments Speech by Mr Mervyn King, Governor of the Bank of England, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, London, 17 June 2009. * * * My Lord Mayor, Mr Chancellor, My Lords, Ministers, Aldermen, Mr Recorder, Sheriffs, Ladies and Gentlemen, It has been quite a year. A year to remember, but not to repeat. Since we last met, a financial panic swept through markets in September, several major financial institutions failed, and a remarkable collapse of confidence around the world led to unprecedented declines in industrial production and national output. World trade fell by almost 15% in six months, a faster rate of decline than in the Great Depression. Faced with this crisis, the Bank of England took extraordinary actions. Bank Rate was cut virtually to zero, and the Monetary Policy Committee embarked on a programme of £ billion of asset purchases. And in your own businesses you too have had to deal with what some have called a once-in-a-century event. Since the panic last autumn, overall output has fallen by around 3% in the United States and the United Kingdom, 6% in Germany, and 7% in Japan. The collapse of spending in these economies is having painful consequences. In less than a year, over 5 million jobs have been lost in the United States, almost 2 million in the euro area, and almost half a million here in the United Kingdom. | Initially this appeared to be related to the impact of the global slowdown on some of the larger Eurozone economies, which seemed likely to cause them to run further below capacity than had earlier been expected. But the more recent signs are that the Eurozone economy is now picking up relatively strongly, and it is harder to understand the euro’s continuing weakness in the present context: it may just be a matter of time - for there is no doubt that the euro has considerable scope for appreciation. Taken together, Mr President, these various international developments since I was last here in Belfast have greatly complicated the task of monetary management here in the UK - in fact it has been just about the most difficult external environment that I can recall. At that time monetary policy was still aimed at moderating the pace of domestic demand growth to prevent the re-emergence of inflationary pressure - including wage pressures in the labour market. We actually raised rates by ¼% to 7½% shortly after my visit - but I promise you that was not a direct result of my visit here. But we reversed engines fairly aggressively when evidence of the effect of global slowdown on our own economy began to appear in the autumn - cutting interest rates from 7½% to 5% between October 1998 and last summer. | 0 |
Øystein Olsen: Economic perspectives Annual address by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), to the Supervisory Council of Norges Bank and invited guests, Oslo, 16 February 2017. * * * Accompanying slides. On 23 October 1921 the steamship Ulvsund was taken by surprise by one of the worst storms to hit Denmark in the last century. The ship sank and all 17 people aboard lost their lives. When the winds subsided, the Danish Meteorological Institute had to weather a storm of its own when it turned out the Institute had downgraded the storm warning the evening before. In his defence, Director Carl Ryder argued that it was impossible to predict that type of storm. But his defence was in vain as it transpired that the storm had been accurately forecast by Norwegian and Swedish meteorologists. A reluctant Ryder was ordered to the city of Bergen to learn the methods used by the Norwegian and Swedish meteorologists. The Norwegian physicist Vilhelm Bjerknes had since 1917 built up what came to be known as the “Bergen School” within the field of meteorology. His work had long focused on using the laws of physics to predict the weather. But the practical breakthroughs were first achieved when he, in his own words, “had washed ashore onto Europe’s stormiest and, from a meteorological standpoint, most eventful shores”.1 The shifting weather conditions on the west coast of Norway became a natural laboratory for Bjerknes and his fellow researchers. | Its members, individually and collectively, are publicly accountable for the way in which that responsibility is exercised. The supply-side agenda, under successive governments has inevitably been more diverse. It has included a strong commitment to free markets and competition as the motive forces for productive efficiency, and as the essential means of allocating financial and real resources. It includes an equally strong parallel commitment - both regionally within the European Union but also more broadly - to international free trade in goods and services and to the global free flow of capital. The supply-side agenda has included an extensive program of “privatisation”, bringing market disciplines to bear on commercial activities previously undertaken within the public sector, but often involving new forms of regulation in areas of activity that might otherwise be dominated by natural monopolies. It has included extensive deregulation - for example in relation to financial services, including banks and building societies, though this has been accompanied by improvements in the financial infrastructure and by enhanced prudential supervision. It has included measures of labour market deregulation and Trade Union reform. And it has included increased emphasis on education and training; measures to encourage business enterprise - especially among smaller businesses; and reforms to the welfare system to improve incentives to work. The list could go on. | 0 |
But with growth slowing, I anticipate the unemployment rate to increase from its current level of 3-1/2 percent to around 4-1/2 percent over the next year. Turning to inflation, I expect cooling global demand and supply improvements to result in declining inflation for goods. These factors should contribute to inflation slowing further from its current rate to around 3 percent this year. While services inflation is still a sticking point, I expect overall inflation to come back down to 2 percent in the next few years as further tightening of monetary policy realigns the balance between demand and supply. Conclusion I'll close by saying that the monetary policy gear is turning. But it will take time for supply and demand to come back into proper alignment and balance, so we must keep moving. While the route ahead is still uncertain, I am fully confident we will return to a sustained period of price stability. 1 John C. Williams, Peeling the Inflation Onion , remarks at the Economic Club of New York, delivered via videoconference (November 28, 2022); John C. Williams, A Bedrock Commitment to Price Stability , remarks at the 2022 U.S. Hispanic Chamber of Commerce National Conference, Phoenix, Arizona (October 3, 2022). 2 John C. Williams, A Steady Anchor in a Stormy Sea , remarks at SNB-FRB-BIS High- Level Conference on Global Risk, Uncertainty, and Volatility, Zurich, Switzerland (November 9, 2022). | Alan Blinder, former vice chairman of the Federal Reserve and now professor at Princeton University, argues that “a central bank that speaks with a cacophony of voices may, in effect, have no voice at all”. 29 There is also another argument in favour of unanimous decisions. Central banks are important social institutions, which should not be too closely linked to individuals but have a 27 See Alan S. Blinder (2007): “Monetary policy by committee: Why and how?”, in European Journal of Political Economy, 23, no. 1, pp. 106-127 and Alan S. Blinder (2008): “On the design of monetary policy committees”, Norges Bank Working Paper, 2008/6. 28 The Executive Board at Norges Bank consists of seven members, appointed by the King in Council. The Governor and Deputy Governor serve as chairman and deputy chairman, respectively, of the Executive Board. They are appointed to full-time positions for a term of six years. The other five members are appointed for four-year terms and are not employees of Norges Bank. 29 Alan S. Blinder (2007): “Monetary policy by committee: Why and how?”, in European Journal of Political Economy, 23, no. 1, p. 114. BIS Review 140/2009 7 public identity. The institution and its mandate should take precedence over the individuals who occupy positions for limited periods. 30 There is no formula for deciding which system is best. Each system has its strengths and weaknesses. Detailed meeting minutes ensure accountability among committee members. This may give rise to good incentives. | 0 |
Second, we are seeing a rapid change in the economic environment, with inflation switching from being very low to being extremely high. History suggests this can leave a scar on expectations. For example, research finds that differences in inflation expectations between people from the former East and West Germany can largely be explained by the lasting effect of the inflation shock after reunification. This contrasted strongly with the perceived norm of zero inflation in the German Democratic Republic and seems to have led former East Germans to over-adjust to an environment of rising prices. [16] This imperative to anchor inflation expectations helps explain why, over the last two policy meetings of the ECB’s Governing Council, we raised our key interest rates by 125 basis points in total. This is the fastest change in rates in our history and it has sent a strong signal of our determination to return inflation to our medium-term target in a timely manner. This major step also took into account the unusually low level of interest rates and the limited risk of overreacting at the start of the hiking cycle. Going forward, the appropriate pace of future rate increases will be decided on a meeting-by-meeting basis. Indeed, as we have repeatedly emphasised, we will remain data dependent in all scenarios. Where rates ultimately settle, and the size of the steps that we move in, will depend on how the inflation outlook evolves as we proceed. Conclusion Let me conclude. | Boehm, C.E., Flaaen, A. and Pandalai-Nayar, N. (2019), “Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tōhoku Earthquake”, The Review of Economics and Statistics, Vol. 101, No 1, MIT Press, March, pp. 60-75. 5. Lagarde, C. (2022), “A new global map: European resilience in a changing world”, keynote speech at the Peterson Institute for International Economics, Washington, D.C., 22 April. 6. Hamilton, J.D. (2011), “Historical Oil Shocks”, NBER Working Paper Series, No 16790, National Bureau of Economic Research, February. 7. Bachmann, R. et al. (2022), “How it can be done”, ECONtribute Policy Brief, No 34. 8. Kuik, F., Morris, R. and Sun, Y. (2022), “The impact of climate change on activity and prices – insights from a survey of leading firms”, Economic Bulletin, Issue 4, ECB. 9. McKinsey (2021), “How COVID-19 is reshaping supply chains”, 23 November. 10. During US recessions from the 1950s to the 1980s, inventory investment accounted for 1.4 percentage points of the average 2% peak-to-trough decline in real GDP. See Piger, J.M. (2005), “Is the Business Cycle Still an Inventory Cycle?”, Economic Synopses, No 2, Federal Reserve Bank of St. Louis. 11. Lagarde, C. (2022), “Monetary policy normalisation in the euro area”, The ECB Blog, 23 May. 12. The Governing Council has (i) decided to flexibly reinvest maturing securities under the pandemic emergency purchase programme, and (ii) launched a new transmission protection instrument. 13. These are the median figures across recessions. 14. | 1 |
We must take great care, because the decisions made today will determine reviewing our Privacy Statement. if the LIBOR transition is ultimately successful. The past decade has shown us that the problem with using LIBOR as a benchmark interest rate has been an extremely risky one to have—and to solve.3 It's important that we focus not only on making the transition, but also on getting the transition right. We've learned how challenging and costly it is to move away from a widely used unsound reference rate. It's essential that we move forward in a way that ensures that we do not have to go through such a transition again in our lifetimes. I know I wouldn't wish that on anyone. A Foundation for the Future This adage has many applications, but it's especially important to keep in mind when laying a foundation—because the foundation is everything. Back when I lived in California, we bought a Victorian house built in the 1890s. The attraction of the house was that it had lots of rooms and spaces for the family to live. But, the existing foundation was crumbling and not even attached to the house. In a major earthquake, the house would have quickly toppled over. We had a new foundation installed, and my mother asked to see before and after pictures. I responded that one picture would do since all the work was done underground and out of sight. | 10 Alternative Reference Rates Committee, Best Practices for Completing Transition from LIBOR, as of September 3, 2020. 11 Treasury Market Practice Group Financial Benchmarks, as of May 2021. By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. | 1 |
Countries that have attempted to shield their economies from the rest of the world have fallen back into stagnation. Nascent signs of increased protectionism are again giving cause for concern. If this tendency intensifies, international trade and prosperity will be undermined. With its open economy, Norway would be severely affected. It is in our own interest to make an active effort to counteract such a development. Monetary policy – a nominal anchor Against the background of an economic downturn and low interest rates among Norway’s trading partners, the conduct of monetary policy in Norway is challenging. A higher key policy rate might have curbed debt growth and demand pressures in the Norwegian economy. But in an environment of persistently low external interest rates, such a policy would likely have led to a sharp appreciation of the krone, resulting in too low levels of inflation and economic activity. Thus, the crisis in Europe and weak growth in the US are also contributing to keeping interest rates in Norway at a low level. BIS central bankers’ speeches 3 The main objective of monetary policy in Norway is low and stable inflation. This objective provides the economy with a nominal anchor. With firmly anchored inflation expectations, monetary policy can contribute to stable developments in the real economy. Chart 7: Rise in consumer prices The operational target of monetary policy is annual consumer price inflation of close to 2.5 percent over time. Over the past ten years, average inflation has been somewhat below, but close to, 2.5 percent. | Assessing its impact is difficult. Opinions may differ as to whether volatility in capital flows and exchange rates is excessive or, rather, a pure reflection of variations in fundamentals. By the same token, movements in asset or commodity prices can be seen to reflect the balance of supply and demand forces, or, alternatively, to be the product of speculative activity. Looking at the behaviour of most countries during the crisis, however, it is very apparent that they felt threatened by the instability of capital flows and, accordingly, sought to protect themselves from its consequences. The provision of international liquidity, in particular, has been severely disrupted during the crisis. Emerging (and some industrialised) countries have suffered from acute dollar liquidity shortages which had to be remedied, inter alia, through a network of currency swaps between central banks. The crisis is a powerful reminder that liquidity – both domestic and international ‐ can never be taken for granted. In today’s world, most international liquidity is privately provided and represented by claims on private institutions. Interbank markets play a crucial role in this process. The more capital markets become integrated at the short end, the more international liquidity is provided by the private sector. 2 BIS Review 127/2010 The importance of global private liquidity conditions was apparent in the period which followed Lehman’s failure. Output and trade fell across the world with astonishing simultaneity. It seemed natural to assume, at the time, that “traditional” forms of contagion – through goods or capital markets – were at work. | 0 |
GFC also led to a fundamental shift in our approach to banking regulation and supervision, essentially by exposing the fault lines in the inadequacy of earlier regulatory architecture. 1 Keynote speech delivered by His Excellency Dr. Mohammad Y. Al-Hashel, Governor, Central Bank of Kuwait in the 14th High Level Meeting for the Middle East & North Africa Region, jointly organized by the Basel Committee on Banking Supervision, the Financial Stability Institute and the Arab Monetary Fund, on December 11, 2019 in Abu Dhabi, UAE. Central Bank of Kuwait - Public عام- بنك الكويت المركزي -2- By now, those fault lines are well-understood. Banks held too little capital and of poor quality. Inadequacy of capital was further weakened by the absence of a backstop measure to contain excessive leverage. Banks that were too big to fail enjoyed the market power but were not required to internalize the cost of risks they brought to the overall system. Suitable measures of liquidity, in both funding and market sense, were lacking. And the efforts to contain systemic risk, both in its time and structural dimension, were hardly in sight. In a nutshell, the rule book was evidently deficient. And if that was not enough, banking supervision was micro prudential in nature. Supervisors believed that ensuring stability of individual institutions would make the system as a whole stable, thus largely ignoring the buildup of systemic risk. The GFC brought into sharp focus the gaps in our regulatory regime. | Central Bank of Kuwait - Public عام- بنك الكويت المركزي -5- International Energy Agency (IEA) estimates that achieving Paris Agreement target on climate change would require, by 2050, about 80% decrease in the CO2 intensity of the building sector, 95% of world energy supply to be of low carbon and 70% of new cars to be electric. This will cause significant, even if slower, shift in the structure of our economies with strong bearing on the financial sector. That is why the NGFS, the Central Banks and Supervisors Network for Greening the Financial System, has argued that ‘climate related risks are a source of financial risk and therefore fall squarely within the mandate of central banks and supervisors to ensure that financial system is resilient to these risks’. Regulators need to determine how best to incorporate and operationalize climate related risks in their prudential policy settings. It would require expanding the risk matrix to formally include climate related risks and enhancing the analytical tools to assess financial sector exposures to extreme weather events. Bank of England has announced that in 2021, it will start stress-testing banks on different climate pathways. Ultimately, the key is to retool the regulatory regime to factor in risks to climate change in a holistic fashion, instead of adding on an additional item in the risk matrix. Conclusion Let me conclude. While we have managed to fix the fault lines exposed by the GFC, our understanding and ability to respond to some of the emerging risks remain limited. | 1 |
An area that Islamic finance has a major potential role is in the reorientation towards achieving a more inclusive and sustainable growth – an important post-crisis development agenda. Serving the small and medium-size enterprises (SMEs) presents huge potential for Islamic financial institutions, particularly those with the capability to deploy innovative equity-based structures and alternative forms of financing, such as private equity and venture capital. Asia is also now becoming a primary force for the global Sukuk market, with 68% or USD120 billion of the total sukuk outstanding in 2011 originating from the region, thereby providing an important investor base for sukuk issuance from different parts of the world. Whilst Malaysia has evolved a vibrant sukuk market, more Asian countries have turned to the sukuk market for financing large-scale projects including for infrastructure development. Several countries in the region are currently reviewing their legislation and taxation to enable debut sukuk issuance. The Asian sukuk market has also been progressive in the innovation frontiers. There has also been a growing trend for multi-currency sukuk issuances. This provides greater prospects for tapping a wider pool of investors, including from the Middle East and Europe. In Malaysia and more recently, in Indonesia, Sukuk issuances have also aimed at retail investors. This is to take advantage of the high levels of surplus savings in Asia, whilst providing wider investment options to retail investors that have traditionally invested in bond funds and unit trusts. | One of the benefits from low inflation is that firms can concentrate on real relativities rather than decisions being dominated by the general rise in prices. Whatever the reason, the downwards pressure which normally arises from a fall in output, has not been sufficient to push inflation negative. The explanations for these changes in behaviour and their inflationary consequences are likely to be many and varied. And it may be some time before we can be sure which of many hypotheses are correct. But one factor we know is that interest rates have been at an all-time historic low during this recession (Chart 7). And Bank Rate started to fall well before the trough in output. The effect of this on, for example, firms’ cash flow, has been very significant and was reinforced by the effects of the asset purchase programme reducing corporate borrowing costs. It seems a reasonable starting assumption that behaviour during the recession should be broadly symmetric during the recovery. When demand growth strengthens, output could be flexibly ratcheted up, reversing the processes seen during the downturn. If so, then it is unlikely that substantial inflationary pressure would be generated as the result of a recovery in demand: there will be plenty of capacity within firms and a ready supply of labour, both of which should help to keep costs subdued. But this is clearly a major uncertainty and hence a risk in our projections of future inflation. | 0 |
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