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We must use regulatory power to guide innovations - the example of the General Regulation on Data Protection (GDPR) , have the courage to develop an industrial policy with public-private partnerships, as in the case of artificial intelligence and batteries, and make progress, for example, on Franco-German business law. Climate change and carbon tax Lastly, the ecological transition is clearly one of our common structural priorities and carbon tax is generally considered to be the most effective instrument to fight global warming. The European agreement of 21 July provides for the Commission proposing in the first half of 2021 a "carbon border adjustment mechanism", accompanied by a "revised emissions trading system, possibly extending it to the aviation and maritime sectors." The advantage of this solution is that it provides the European Union with a resource of its own and restores fair competition between European products and imported products that have a higher carbon footprint. The success of this instrument will depend on our negotiations at the WTO, and on its more extensive integration into European policies (transport, industrial policy, etc.). ** Earlier I mentioned the difference in terminology between French and German: the French use "couple", while the Germans speak of "engine". | A better allocation of European private savings, however, requires more effective cross-border financing channels. We therefore need to combine a more efficient Banking Union and an at last completed Capital Markets Union (CMU) to make a genuine “Financing Union for Investment and Innovation”. Jens Weidmann, the President of the Bundesbank, and I had made a strong case for it in a joint op-ed published in April 2019. Reviving the single market, our essential asset There is an essential asset that Europe does not talk about enough: it is its single market. Yet, 3/4 BIS central bankers' speeches this is its great economic success, together with the euro. But it is vital to remain vigilant as to the dangers of fragmentation with the Covid crisis. National governments acted appropriately during the critical phase, adopting emergency measures in particular to provide liquidity support to their businesses. But the single market means common rules for businesses: if this were not the case, the divergence between our economies could regrettably increase further. It is therefore necessary to quickly restore the Commission's control over state aid and fair competition Furthermore, we must revive the single market, above all because we can optimise its power by combining its various components much better: free movement of goods, naturally; but also the cross-border financing capacity with the financing Union; and last but not least, regulatory power. There are still too many implicit borders and too much fragmentation. | 1 |
Financial markets are very good at telescoping the future and reflecting it in today’s prices; hence the current volatility and the possibility of sharp adjustments should the telescope focus on a disappointing picture. Financial globalisation will readily transmit this to our markets. Monetary and financial developments on the mainland Let me turn to the SECOND issue with implications for monetary and financial stability in Hong Kong. This must of course be the monetary and financial developments on the Mainland. Here I also have ten observations to share with you. First is the increasing size of the current account surplus of the balance of payments. Not only has this become a pressing issue in international politics, it is presenting the Mainland with a most difficult task in effectively managing its monetary and financial affairs. Second is the appreciating exchange rate of the renminbi, under political as well as market pressure. The renminbi has appreciated against the US dollar by over 10% since the introduction of flexibility in the exchange rate in July 2005, but this has not produced any significant impact on the current account surplus. Third is the rapid accumulation of foreign reserves as the current account surplus and continuing net inflow in the capital account are absorbed by the authorities. With an appreciating domestic currency, this presents considerable challenges to the investment BIS Review 139/2007 3 management of foreign reserves. More importantly, it also presents difficult challenges to the management of the monetary system. | I should of course start by re-iterating the firm HKSARG policy of keeping our exchange rate to the US dollar within the range of 7.75 to 7.85 through the linked exchange rate system, characterised by currency board arrangements that require our monetary base, and any changes in it, to be 100% backed by US dollars. With the weakening US dollar and the strengthening renminbi; with the local inflation rate, excluding the temporary effects of tax relief, edging higher; with an “asset bubble” on the lips of many commentators; with the exchange rate hitting the strong side Convertibility Undertaking late last month, requiring our passive and un-sterilised foreign exchange intervention, injecting quite a lot of Hong Kong dollar liquidity into the inter-bank market; and with current US monetary policy possibly becoming inappropriate for Hong Kong; questions have understandably been raised on the appropriateness of the system. Let me provide answers to these questions. First, the appropriateness of the linked exchange rate system should be judged by its ability to deliver monetary and financial stability in Hong Kong through economic cycles, and should not be judged by the short-term cyclical conditions of the economy relative to that of the US economy. The linked exchange rate system has served Hong Kong extremely well since its establishment. | 1 |
Financing debt through the common budget would naturally lead to the creation of active mutualised insurance, helping to reduce the financing costs currently faced by individual Member States and to break the sovereign-bank doom loop in each country. This in turn would enhance monetary policy effectiveness, by making it easier to execute the Eurosystem's asset purchase programmes. 31 Further, if we are to increase the euro area's responsiveness to future shocks, the banking union must be completed through the creation of a common deposit insurance scheme. The lack of progress in this area and the incomplete harmonisation of national regulation go a long way to explaining the limited cross-border activity of European credit institutions and the low number of mergers between institutions of different member countries. Lastly, insufficient headway has been made in capital market integration in terms of harmonising market regulation and oversight, and insolvency proceedings. The degree of risk-sharing in these euro area markets is far less than that in other monetary unions, such as the United States. A single capital market would enable firms in the euro area to diversify and expand their sources of financing. In this respect, the progress in the capital markets union project in recent years can only be described as insufficient. That should spur the European political authorities to take more ambitious steps in this area without undue delay. | However, in the dogmatic pursuit of inter-country convergence, intra-country disparities have become increasingly apparent. As nations across the globe were brought closer together, citizens within each nation were pulled further apart, separated by the rising inequality, the declining share of labour income versus capital, and the displacement of workers. The unfettered market openness by advanced economies had caused unintended consequences that have ignited the rise to populism, inward-looking tendencies and potentially protectionist policies. If left to run its course, this will be a setback to global prosperity. In ASEAN, we are no stranger to this perspective. Our own experience is highly relevant. We learnt from the Asian Financial Crisis, that pushing countries to adopt policies when readiness is suspect is a design for failure. Without the necessary preconditions of sound institutional frameworks, adequate safeguards and capacity and robust domestic financial markets, premature financial liberalisation will expose the economy to waves of destabilising short-term speculative flows. When these flows leave, a trail of destruction is left behind. We also learnt that proper sequencing and readiness of financial liberalisation is key. The criticism that ASEAN’s ‘steam engine’ may not be ‘full speed ahead’ does not capture the full picture. This view fails to consider and understand that quality, not the speed and quantum of integration, is what really matters. The focus of integration should not be on speed, but on building the collective capacity, readiness and resilience of member countries. | 0 |
: +49 69 1344 7455, E-mail: [email protected] Website: www.ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts Related topics Monetary policy Policies Risks Banking sector Disclaimer Please note that related topic tags are currently available for speeches and introductory statements to the press conferences (with Q&A) from 2018-19 only. Copyright 2019, European Central Bank | I will return to these questions a little later when I put forward what I believe to be the main fiscal challenges facing our economy in the medium term. The last question I wish to address in this section relates to the risks underlying the revenue projection. In particular, the Draft Budget assumes that revenue from taxes and social security contributions will rise by 9% in 2021 in budgetary terms. This figure reflects the entry into force of the measures described above and also the projected behaviour of tax bases, which will essentially depend on the macroeconomic environment. In this respect, there are three main factors that condition the feasibility of this forecast, and all three are subject to significant uncertainty. First, the revenue-raising capacity of the new taxes, for which there are very few historical or international benchmarks. Second, the sensitivity of tax revenue to tax bases, which is an elasticity that is very difficult to assess accurately in circumstances such as the present ones for which there are no comparable historical benchmarks. And third, the macroeconomic situation in Spain and worldwide 22 which, as I have said, is subject to major uncertainty and risks which, overall, could result in lower economic growth for 2021. In accordance with the Banco de España’s preliminary analyses, the most significant risks of deviation from the revenue projection in the Draft Budget are concentrated on the last of the three factors mentioned, that is, on the level of momentum of activity in 2021. | 0 |
And central banks do not regulate casino visits. As you can see, I could easily spend all of my time today talking about the problems of cryptocurrencies, and of bitcoin in particular. I could talk about how much energy it consumes – at some points last year, the bitcoin ecosystem consumed twice as much energy as Nigeria, an oil giant with 190 million people. By the way, the energy consumed on a single bitcoin transaction until 2017 could power a typical American household for more than three weeks. I could talk about how a seven-fold increase in the value of bitcoin some time ago was driven by the manipulation of a single trader. I could talk about the volatility of bitcoin, which surpasses that of any other commonly traded commodity and which renders bitcoin useless for the vast majority of people. I could talk about the funny thing that bitcoin as a quasi-currency was created to make payments cheap and fast, while in reality it is more often than not expensive and slow. 1/3 BIS central bankers' speeches But instead, I will stress – and this is my point today – the positive philosophical influence of bitcoin on the conservative world of central banking. | One cannot use cryptocurrencies to measure value in economic transactions, because prices are mostly not displayed in cryptocurrencies and transaction costs are high and hidden for most people who would like to pay this way. One cannot, at least so far, use cryptocurrencies as a medium of exchange, because not many counterparties accept them. Therefore, cryptocurrencies are not currencies. To me, rather, they resemble commodities – pieces of code with some value for enthusiastic collectors. Which is fine. Its founders wanted to create something that – through the process of mining and the costs associated with it – would resemble a physical commodity or something physical. I would call it a commodity of the new digital era. But compared to vintage wine, art, or postage stamps, the amount of digital commodities is never really fixed, as proved, for instance, by last year’s split (or “fork” – I very much like this particular word) between bitcoin and bitcoin cash or the recent split between litecoin and litecoin cash. A piece of code is, in effect, easier to duplicate and improve upon. The fact that cryptocurrencies are rather commodities also shapes our light-touch, liberal approach to regulation at the CNB. We do not want to ban them and we are not hindering their development, but we are also not actively helping or promoting them and we are not protecting them or the customers that use them. Like in a casino, everyone investing in a cryptocurrency must be prepared to lose the entire bet. | 1 |
I think at some point we will have to clarify, what happens after September 2016 and what happens with what comes to maturity. Quite a lot of securities come into maturity into the early years after September ‘16, this is something the Governing Council at some point will have to decide and communicate. Some people say the ECB is dominated by the financial sector. I strongly disagree with that, it’s more the opposite. Since we implemented our Forward Guidance we have been signalling more of our reaction function. When we talk about our ability and willingness to act under a number of conditions, of course markets incorporate that. What’s your view on the need for further monetary policy action now? There will be different views as usual in the Governing Council, there will be a very good dialogue on the economic assessment. You cannot prejudge at this time the decision on what combination of measures to take or not to take. The staff has also been tasked to look at the impact of all measures on financial conditions, on the economy and on inflation. The Governing Council will discuss whether there is a case for further action in the context of heightened uncertainty. This is a key issue. What would be the impact on the banking system of an even-more negative deposit rate? | BIS central bankers’ speeches Charts and Tables Chart 1: Evolution of the global financial Chart 2: Composition of IMF resources safety net as a percentage of external liabilities (1980–2014) Per cent of global external Per cent of global external liabilities liabilities 14 3.5 Regional Financing Arrangments Swap Lines 12 3.0 IMF Temporary 10 2.5 IMF Permanent Self Insurance: FX Reserves (LHS) 8 2.0 6 1.5 4 1.0 2 0.5 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 0.0 Sources: IMF, central bank websites, RFAs, Lane and MilessiFeretti (2012) and Bank calculations. GAB – General Arrangements to Borrow NAB – New Arrangements to Borrow Source: IMF and Bank calculations. Chart 3: Regional FX over- and underinsurance (2014)(a) Sum overinsurance Sub-saharan Africa Middle East and North Africa Latin America Central and Eastern Europe Sum underinsurance Asia $ billion 1000 900 800 700 600 500 400 300 200 100 0 Sources: IMF and Bank calculations. BIS central bankers’ speeches 9 (a) Degree of insurance is measured against the standard IMF metric. Chart 4: Access to regional financial arrangements bigger than 0.5% of regional GDP (2014) Sources: National Sources, IMF and Bank calculations. 10 BIS central bankers’ speeches References Brooke, M et al (2013) Sovereign default and state-contingent debt, Financial Stability Paper No. 27. | 0 |
My dear friends, as we all know, the speedy resettlement of the internally displaced people has also been a top priority for the Government. Towards this goal, many extraordinary efforts have been taken. Out of the over 300,000 internally displaced persons who were rescued and had to be temporarily housed in welfare camps, over 217,000 or 72% have already been resettled. All those from Vavuniya, Mannar, Jaffna, a part of Mulativu and Killinochchi have now returned to their homes. The others mainly from Mulativu and Killinochchi are also to be resettled systematically without any undue delay, depending on the speed at which the de-mining processes take place. This is an outstanding achievement against all odds, and I believe the successful resettlement is a tribute to the deep commitment of the Government, the tremendous efforts of our public service and the dedicated contribution of several international organizations. I am also tempted to mention that this surprising outcome may have been a pleasant surprise to many who at certain times BIS Review 16/2010 1 expressed the belief that the government may not have had the inclination nor the urgency to carry out this challenging task so expeditiously. My dear friends, the Central Bank has also contributed its mite to these normalization processes. We have, so far, over the past 8 months, granted approvals for the establishment of more than 90 banking outlets in the Northern Province. | 17 However, in line with the previous discussion, instruments other than interest rates are likely to be much more effective in avoiding excessive credit growth and asset-price booms, and should thus be used as a first best alternative. Interest rates that are high enough to have a noticeable effect on credit growth and asset prices may have strong negative effects on inflation and resource utilization, and a central bank will probably rarely have sufficient information about the likely beneficial longer-horizon effects on inflation and resource utilization for the trade-off to be worthwhile and motivated. 18 16 Walsh (2009) points out that when financial factors cause distortions, these distortions will in general introduce corresponding terms in a loss function for monetary policy that is a second-order approximation to household welfare. Curdia and Woodford (2009) present a model where the second-order welfare approximation is a standard quadratic loss function of inflation and the output gap between output and potential output, but where potential output is affected by financial factors. Then inflation and the output gap remain the target variables, with and without financial factors. The neutral rate in the model, that is, the real rate consistent with output equal to potential output, is then also affected by financial factors. 17 Adrian and Shin (2007, 2009) argue, in a model with a risk-taking channel as in Borio and Zhu (2008), that short interest-rate movements may have considerable effects on the leverage of securities broker-dealers in the market-based financial sector outside the commercial-banking sector. | 1 |
The aim is that the banks must reduce the differences in maturities between their assets and liabilities and their dependence on shortterm market funding. To achieve this, the banks must match their funding and lending to a greater extent than they do today. Assets with short maturities can have short-term funding while long-term illiquid assets, such as mortgages, will need more long-term and stable funding. All funding with a remaining maturity of more than one year will be counted as stable funding. This is a sound and important feature of the new Basel regulations. And it will probably affect the Swedish banks’ business models. Currently, none of the four major Swedish banks meet the structural liquidity measurement requirements (Net Stable Funding Ratio). This is mainly because they largely fund their lending through short-term market funding. The banks will need to think again here. In addition, a number of the Swedish banks do not meet the shortterm measurement (Liquidity Coverage Ratio) either. These banks must, before the LCR is introduced, either strengthen their liquidity buffers, for example by buying government bonds, or reduce their short-term net outflow. A weakness of the new standards is, however, that they do not contain any specific rules for matching maturities per currency. This is something Swedish authorities should look at more closely. Two thirds of Swedish banks’ market funding is in foreign currency. A certain proportion of this is converted via the swap markets to SEK and then lent. | When you look at the last thirty or forty years, you see repeating cycles of stop-go-policies. So, the trick is to attack the budget deficit, which is crucial. If you are able to do that, then other things will fall into place. The Government has taken several measures recently to boost exports. By recognizing the need for broad-based institutional support, the Government has already taken steps to create an Page 12 of 17 Agency for International Trade. The AFIT is taking the lead in negotiating a series of trade Agreements. An early harvest is being sought to increase the benefits from the existing FTA in goods with India. These include Mutual Recognition Agreements among Standard Institutions and relaxing quotas on goods of interest to Sri Lanka. Negotiations are also underway to deepen and broaden the Agreement in goods through adjustments to the negative lists. The ETCA will also extend the application of negotiated rules to services, investment, training and technology. Similar agreements are being negotiated with China and Singapore. Now there is a natural concern, natural nervousness about a small country like Sri Lanka negotiating Partnership agreements with enormous countries like China and India. We are not the first small country to negotiate trade agreements with a large country. Mexico is not a small country, but it is interesting that Mexico has benefited most from NAFTA, much more than the US or Canada. | 0 |
Our recent experience shows that a small currency on the highly volatile financial markets risk being more affected than the bigger currencies by factors out of its control and with no direct relevance to their economic performance. One such example was the reaction on the currency markets in the days following the 11 September events. It is also quite apparent that the present strengthening of the krona was influenced by the Prime Minister raising the issue of a referendum on EMU. Furthermore, recent experience implies that the deviations from the euro average growth should not be very large in the normal case. Even if Swedish growth and productivity have been somewhat higher than those of the euro area since 1999, recent evaluations show that that the business cycles in the euro area and Sweden are fairly synchronised, despite the asymmetric shocks due to the crises in the mobile telecommunications and IT sectors. However, it cannot be ruled out that Sweden can become subject to serious asymmetric shocks, i.e. disturbances affecting Sweden differently from the rest of the euro area. On those occasions it is important that Sweden has an alternative way of stabilising the economy. One possible instrument is of course to use fiscal policy. The Riksbank recently presented its views on the government report "Stabilisation policy in the Monetary Union" where we elaborate on the possibility of using fiscal policy to stabilise inflation in a similar way as monetary policy does today. | The UK is the exception: since the mid-1990s, the country has emerged as the growth model for Europe. For Switzerland, the sluggish development in Europe is especially regrettable, as the Swiss export sector usually serves as the engine for economic recovery. All in all, Switzerland's export industry is well positioned to benefit from higher demand from abroad. Switzerland has been able to reduce its production costs per unit in the past few years, and the Swiss franc even depreciated slightly versus the euro since the launch of the single currency. As regards domestic demand, consumer sentiment remains satisfactory overall, but this should not be expected to stimulate growth decisively. While construction activity is robust, it has lost some of its momentum. Investment in equipment is still brisk, and the recent modest slowdown should not last too long. On the whole, the Swiss economy is still on its growth trajectory, but it lacks stimuli from abroad. This situation is the same as the one underlying the National Bank's interest rate decision of December 2004. Even though Switzerland is particularly affected by the lacklustre performance of the European economy, overall prospects are not gloomy. Growth in the rest of the world remains dynamic, and this is expected to benefit Europe in due course. For Switzerland, a growth rate of 1.5-2% is still realistic. With the Swiss economy thus continuing to grow below its potential, the labour market will not see any sustained improvement. BIS Review 11/2005 1 | 0 |
Since inflation is at the same time lower, the differences in the real interest rate are less, however. An important reason for inflation being so low is the broad agreement on the price stability target that now seems to exist. An expression of this is that inflationary expectations remain at a stable level despite expectations on a continued very strong upswing. The Riksbank’s most important duty in future is to ensure that expectations remain at around 2% inflation. The very low inflation which is now registered has, however, surprised many people, including us at the Riksbank. An important explanation as to why GDP growth has now been able to exceed the growth in output that is possible in the long term for many years without threatening the inflation target is, of course, that the upswing started from a level of output that was greatly depressed after the years of crisis, where a lot of resources had been made redundant. When unemployment was at its peak, there were many who feared that it would persist permanently at a considerably higher level than we were previously used to. There was also opposition to the inflation target policy just for that reason. Examples were pointed to in Europe where unemployment had been over the Swedish for a long time, but where there had been greater success in combating inflation. The labour market is performing better than expected It is difficult to determine the rate at which GDP can increase in the long term. | The latter approach is called “certainty equivalence” in academic research and is a good policy only under fairly restrictive assumptions of how the economy functions. It is therefore probably less useful as guidance in policy-making. Moreover, the central banks’ actual behaviour and communication indicate that uncertainty plays an important role in the monetary policy decisions. 21 See Greenspan (2003). 20 [24] A more useful approach is probably William Brainard’s insight that monetary policy should be conducted more cautiously when there is considerable uncertainty over its impact. 22 Brainard’s uncertainty principle is based on the insight that central banks’ actions can affect the uncertainty in the economy. If, for instance, a central bank were to act more forcefully to try to attain its inflation target more promptly – in a scenario where there is great uncertainty over the impact of monetary policy – there is a risk that it would instead miss the target by a wide margin. By acting forcefully, the central bank contributes to greater variations in inflation and also to greater uncertainty in general. To avoid this, the central bank should act more cautiously. This uncertainty principal is often referred to by central banks and can be one reason why central banks, who want to avoid making major mistakes in all circumstances, are sometimes perceived as “sluggish” in their behaviour. One of my themes today has been long-term trends. When such trends change, it often takes a long time before one notes the change and this can moreover be difficult to assess. | 0 |
One of Singapore’s key roles as a financial centre is to connect investors and markets across Asia and beyond. Our expanding financial ties with China is a good example. Singapore is one of the top three offshore RMB centres globally. • Singapore’s financial centre has played a constructive role in supporting the internationalisation of the RMB. • This has in turn helped to forge stronger trade and investment links between China and South-east Asia. Singapore also offers a gateway for the expansion of Chinese corporates into the region. • More than 6,500 Chinese enterprises are established in Singapore. • Many of them have based their regional headquarters in Singapore to cover their Southeast Asia portfolio – well-known firms like Xiaomi, Alibaba, Haier, Baosteel and Qingjian, to name a few. As an international financial centre, Singapore offers Chinese corporates the necessary breadth and depth of banking and capital market services – from advice on regional markets to funding solutions. A trusted financial centre The third key attribute for the success of Singapore’s financial centre is trust. • Financial institutions from all over the world come to Singapore because this is a jurisdiction they can trust. • There is rule of law, clarity and consistency in regulation, rigour and fairness in supervision, and no tolerance for misconduct. Upholding high standards of integrity in the financial industry is an absolute priority. | Finally, the financial industry in many parts of the world is facing a crisis of trust. • Financial institutions have come under increasing public scrutiny over their business conduct. • Globally, we have seen repeated cases of mis-selling financial products, manipulating benchmark rates, and using the financial system for illicit transactions. Singapore’s financial sector has to overcome these headwinds and manage these risks as it develops further. And it must do this while seizing on opportunities presented by a growing Asia and technological change. Let me touch on three attributes that our financial sector needs to maintain and strengthen in the years ahead: resilience, dynamism, and trust. A resilient financial centre I will start with resilience. • We cannot insulate our financial sector from the stresses and turbulence in international financial markets. • We must remain open but be able to absorb shocks from abroad and bounce back. High prudential standards have therefore been a hallmark of Singapore’s financial sector since the very beginning. • In recent years, we have further strengthened the resilience of the system through higher capital requirements and enhanced liquidity rules. Singapore banks operate well above the regulatory capital minimums. 2 BIS central bankers’ speeches • The Basel Committee prescribes a minimum Tier 1 capital adequacy ratio of 6%; • MAS has set a regulatory minimum of 8%; • The three local banking groups have Tier 1 ratios in excess of 13%. | 1 |
By going through the issuance process ourselves, along with the help of external parties, we have hopefully showcased to potential green bond issuers, both locally and overseas, that Hong Kong is a convenient platform for issuing green bonds, for three reasons: 3/4 BIS central bankers' speeches (i) Hong Kong has a strong presence of finance and legal professionals, who can advise on all aspects of the bond offering and assist in arranging, managing, co-ordinating and marketing the green bond certification and issuance; (ii) Hong Kong combines the best market practice from internationally renowned green reviewers and local agencies. For example, we obtained a Second Party Opinion from Vigeo Eiris for the Green Bond Framework and the inaugural transaction under the Framework has also received the “Green Finance Certificate” (Pre-issuance) from the HKQAA; and (iii) Hong Kong is home to leading international institutional investors, including many of the investors who have made strong commitments to green investments. 20. During the roadshow for the green bond, we were joined by our Environment Bureau colleagues to reach out to overseas investors in major cities such as London, New York, Paris, and Frankfurt, in order to demonstrate to the international community the HKSAR Government’s coordinated commitment to green finance and our broader objective to address climate change risks. We believe the exercise has gone a long way in asserting Hong Kong’s branding as the premier regional green finance hub to the leading institutional investors around the world. | Eddie Yue: Hong Kong - the Asian hub for sustainable finance Opening remarks by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Euromoney’s 2nd Asia Sustainable & Responsible Capital Markets Forum, Hong Kong, 25 June 2019. * * * Distinguished guests, Ladies and Gentlemen, 1. I would like to thank Euromoney for inviting me to speak at this 2nd Asia Sustainable and Responsible Capital Markets Forum today. It is indeed an honour to have this opportunity to talk about this important topic, especially here in Hong Kong, where we place a high priority on and direct much effort towards developing our sustainable finance platform. 2. I understand that we will have a very comprehensive programme today, covering not just the potential of sustainable finance in the region and the role of different stakeholders, but also exciting developments of green bonds and other innovative products. Allow me then to focus my remarks on the bigger picture and on three areas in particular: (i) First, the potential for sustainable finance in Asia; (ii) Second, Hong Kong’s role as Asia’s hub for sustainable finance; and (iii) Third, some of the Hong Kong Monetary Authority (HKMA)’s latest initiatives on this topic. Potential for sustainable finance in Asia 3. The effects of climate change are already visible around the world: more severe weather events, infrastructure damage, problems with food security, water resources, and even human health. No country or community is immune. | 1 |
Puerto Rico’s real, or inflation-adjusted Gross National Product has declined for the past four years and this has been accompanied by a sharp decline in the real income of Island residents. According to a monthly index of economic activity produced by the Government Development Bank for Puerto Rico, economic activity began to decline as far back as 2005. Although the index has been stable for the past several months and this may be a signal that the economic downturn on the Island may have ended, a solid recovery has yet to take hold and conditions remain challenging. The job market remains a trouble spot for the Island’s economy. Total employment fell by about 13 percent or roughly 140,000 jobs, between its peak back in 2005 and mid-2010. This is nearly double the 7 percent job loss on the mainland. For the past two years, employment has appeared to have bottomed out, but there has been little evidence of recovery. The Island’s unemployment rate has fallen by more than a percentage point over the past year, but this is not necessarily good news. The fall was largely the result of a fall in labor force participation. At 14.8 percent the unemployment rate remains unacceptably high. High unemployment and low labor force participation remain perhaps the biggest challenges to the Puerto Rico economy. Even in relatively prosperous times, the unemployment rate on the Island has been more than double the rate on the mainland. | William C Dudley: The competitiveness of Puerto Rico’s economy – reducing the cost of doing business and improving labor market opportunities Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and Chairman of the Committee on the Global Financial System (CGFS), before the Puerto Rico Chamber of Commerce Annual Convention, Fajardo, Puerto Rico, 29 June 2012. * * * Good morning and greetings from New York City. I sincerely thank the Chamber for giving me the opportunity to address your annual meeting. Unfortunately I am unable to be in Puerto Rico in person, because I have a broken leg and am under doctor’s orders not to fly. The good news is that I am on the mend and that I have this opportunity to speak to you via video. We at the New York Fed are pleased that Puerto Rico is part of the Second Federal Reserve District that we represent in the Federal Reserve System. We are committed to the people of the Island and to its growth and prosperity. Our commitment is reflected in our ongoing work with our many partners on the Island. Last spring, with the Puerto Rico Chamber of Commerce and other local partners, we co-sponsored a forum aimed at helping small businesses in Puerto Rico learn about export opportunities. We have been involved with education on the Island for two decades, including by helping to set up the Alianza. | 1 |
2 BIS central bankers’ speeches Impact of deleveraging on Asia 13. Emerging Asia will not be immune to this synchronised deleveraging in the advanced Western economies. Fiscal consolidation and household deleveraging in the US and EU will have significant spillover effects on Asia, principally through the trade channel. Asia ex-Japan exports about a quarter of its goods to the US and Europe. Already, Asian export growth has decelerated from 25% at the beginning of 2011 to 10% in the last quarter of the year. 14. While Asian economies have started to restructure their economies towards increasing domestic demand, and intra-regional trade within Asia has been growing, these trends will, at best, cushion only part of the fall in demand from the West. Rebalancing of demand is a long-drawn process. It is unrealistic to expect Asia to become the main engine of growth for the global economy over the next few years. 15. The deleveraging of Eurozone banks will impact Asia mainly through the financial channel, in the form of tighter credit. Euro area banks as a whole provide 36% of global trade finance loans, and French and Spanish banks together account for more than two-fifths of trade finance loans in Asia. 16. To-date, the impact on Asia of deleveraging by Eurozone banks has been quite limited. Through most of last year, many Eurozone banks substituted the drying up of interbank funds in Asia with increased inflows from head office, which enabled them to continue funding activities in Asia. | Infrastructure finance is indeed promising, but has been promising for two decades now with little of the promise realised. There are a variety of country-specific risks – institutional and legal – that must be taken into account when operating in these markets. Managing risk and navigating a varied terrain are key to success. Singapore as the leading Asian asset management centre 37. This is where Singapore comes in. Singapore’s strong physical connectivity and trade and financial linkages with the rest of Asia make it a key node in the flow of information and ideas. It is an ideal vantage point for asset managers to understand Asia and manage pan-Asian investments. BIS central bankers’ speeches 5 38. The asset management industry in Singapore is broad based. Top-tier global funds have centralised a host of critical functions in Singapore, including portfolio management, investment research, trade execution, and product structuring – across both equities and fixed income asset classes. Singapore is also seeing a flourish of alternative investment managers specialising in strategies or asset classes that provide return streams uncorrelated to the broader market, or as the industry terms it, “generating alpha”. New initiatives to develop Singapore’s capital markets 39. A key component of the broader ecosystem that supports the asset management industry in Singapore is the capital market. Over the years, MAS has been making concerted efforts to broaden and deepen Singapore’s debt capital market. | 1 |
It reflects the impact of the Job Support Scheme that shored up local employment; and the border control measures during the COVID-19 pandemic that made the employment of foreigners difficult. Job growth in the financial sector has been consistently strong over the past 5 years A total of 21,000 net jobs were created during 2016-2020, with Singaporeans taking up about 16,000 or about 75% of these jobs. With more financial institutions setting up their regional and global hubs in Singapore today, 40% of financial sector jobs here are primarily international-facing. Half of these jobs are filled by Singaporeans. They include good jobs such as: application developers who develop digital products for overseas markets; private bankers who serve regional clients; and risk managers who monitor risk metrics for the regional or even global business. The employment outlook for the financial sector in 2021 remains positive. Late last year, MAS and the Institute of Banking and Finance (IBF) conducted a survey of financial institutions’ projected hiring from January to December 2021. Close to 800 financial institutions responded, representing about two-thirds of the financial services workforce. Financial institutions are offering 6,500 newly created positions in 2021. These are new jobs created and do not take into account gross outflow of jobs. About 6,000 of the newly created positions are permanent jobs. Half of these jobs are in technology and consumer banking, with the remaining jobs spread across other business lines and functions. | Yet Hong Kong now finds itself with a consumer price level that is 12% below the peak of four years ago, and with a GDP deflator some 15% below its peak and 22% lower relative to that of the US than it was four years ago. What is the explanation, and can one live with this? There is general consensus, supported by both recent IMF analysis and research conducted within the HKMA, that Hong Kong's deflation is predominantly cyclical. I shall return to Hong Kong in a minute, but let me first dwell for a moment on the global slowdown in inflation. Over the past four years the rate of consumer price inflation has averaged 2.5% in the USA, only 1.7% in Euroland, minus 0.3% in Japan, and minus 0.3% in Mainland China. In six other economies of east and south-east Asia taken together, the inflation rate fell to 2.7% on average in these four years as 1 against 4.4% in the preceding four. This widespread slowdown in inflation, and in some cases the emergence of deflation, is not just a cyclical phenomenon. There are, I believe, some more fundamental institutional and structural factors which have been contributing. Underlying forces a. Successful central banks First of these is the commitment of monetary authorities to combatting inflation and their evident success in doing so (or even over-achievement in some instances). With so many of them represented here today, I do not need to elaborate further. b. | 0 |
The grey broken curve called “Low interest rate path without initial increase” shows an interest rate path with an unchanged repo rate in October and then a gradual increase up to around 2.7 per cent at the end of the forecast period, that is, the repo rate path advocated by Karolina Ekholm and myself at the monetary policy meeting in October. Figures 9c and 9d show with the same colours the corresponding forecasts for CPIF inflation and unemployment, all conditional on policy rates abroad according to market expectations. Figures 9c and 9d clearly show that the low repo rate path without initial increase provides the best outcome, with a CPIF forecast closest to the target and with the lowest unemployment forecast. This is also illustrated with the aid of the mean squared gaps in Figure 9b, in which this repo rate path results in a point corresponding to a lower mean squared gap for both the CPIF and unemployment. The mean squared gap for the unemployment gap is calculated on the basis of an equilibrium unemployment rate of 5.5 per cent. The low repo rate path dominates, even if the equilibrium unemployment rate is assumed to be as high as 6.5 per cent. Judging from this figure, an even lower repo rate path could provide an even better outcome for CPIF inflation and unemployment. | Norges Bank’s mandate reads as follows: Monetary policy shall be aimed at stability in the Norwegian krone’s internal and external value, 1 If clothing prices had risen at the same pace as other consumer prices, the overall saving for households is estimated at about NOK 10 billion in 2002. BIS Review 65/2002 3 contributing to stable expectations concerning exchange rate developments. At the same time, monetary policy shall underpin fiscal policy by contributing to stable developments in output and employment. Norges Bank’s implementation of monetary policy shall, in accordance with the first paragraph, be oriented towards low and stable inflation. The operational target of monetary policy shall be annual consumer price inflation of approximately 2.5 per cent over time. The first paragraph of the mandate sets forth its intentions. The last paragraph specifies what Norges Bank is required to do. The first sentence in the mandate refers to the value of the krone. Stability in the internal value of the krone implies that inflation must be low and stable. Low and stable inflation fosters economic growth and stability in financial and property markets. The regulation also states that monetary policy shall be aimed at stability in the external value of the krone. The krone exchange rate fluctuates from day to day, from week to week, and from month to month. We have free international trade and free capital movements. We do not have the instruments for fine-tuning the exchange rate. | 0 |
In our experimental surveys, we instead administered the follow-up to everyone. We found that if we administered the follow-up question only to those giving responses over 5 percent, then the median long-term expectation would be 4.3 percent instead of 3.7 percent in our test sample. Thus, we have reasons to believe that the 5 percent follow-up question in the Michigan Survey leads to a systematic overestimation of actual average responses. 19 In contrast, for the Survey of Primary Dealers discussed later, we added a question in 2007 that directly elicited uncertainty over CPI inflation from 5 to 10 years ahead. See Potter (2011, 2012). 6 BIS central bankers’ speeches as food or gasoline.20 In related research, we have shown that respondents tend to express more extreme inflation expectations when they are prompted to think of specific prices in answering the question rather than overall inflation.21 In the SCE, we therefore ask directly for expectations about the rate of inflation or deflation.22 Probabilistic questions on the SCE As I noted earlier, a key feature of our survey is its use of probabilistic questions. Following the current practice in the literature for the elicitation of expectations about continuous variables, we tested questions that elicited density forecasts by asking respondents to assign the percent chance that the value of interest would fall within different pre-specified ranges or “bins.” For instance, for inflation, we ask for the subjective probability distribution over a range of possible future inflation outcomes. | The findings from these surveys have provided new insights into consumer behavior, such as the impact of subjective earnings uncertainty on precautionary saving.1 The Bank of Italy was also a pioneer in using probabilistic questioning to elicit expectations from businesses in its 1993 Italian Survey of Investment in Manufacturing. Data from this survey have been used to analyze the impact of uncertainty about future product demand on the investment decisions of Italian manufacturing firms.2 As always, the views expressed are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or of the Federal Reserve System. Why are expectations data useful? The importance of compiling high-quality data on the expectations held by economic agents has been increasingly recognized in both academic research and policymaking. Most economic decisions involve uncertainty, and are therefore determined not only by preferences but also by expectations for future outcomes. Typically, neither preferences nor expectations are directly observed – a condition that poses a significant challenge to understanding economic behavior. Although different combinations of preferences and expectations may be consistent with the same observed behavior, they could result in different responses to shocks or to alternative policies and could therefore have different implications for public policy.3 The standard way to address this problem within economic models has been to assume rational expectations – that is, expectations that are consistent with equilibrium behavior in the model. | 1 |
Otherwise it would hardly have been possible to obtain political support for the public funds needed. The unwillingness to adopt an equally strict approach in many Asian countries has presumably been a major factor behind the difficulties in dealing with the problems there. The central bank’s primary function in this context is to provide emergency lending for acute needs in order to avoid a systemic crisis and aid the work of the new authority. The experience from bank crises clearly demonstrates the importance of incorporating such emergency lending in the general structure for crisis management instead of treating it as a separate measure. This has to do with the great difficulty in practice of distinguishing between liquidity support and support motivated by problems with solvency. At the Riksbank we have made very concrete preparations in this field. We have, for example, produced manuals specifying who is to do what and how in various conceivable crisis situations. Before turning to monetary policy, permit me finally to underscore that I am well aware of the difficulties of various kinds, not least of an institutional and political nature, that exist at the European level when it comes to composing a clear set of rules of this type. At the same time this conference has strengthened my belief that a development towards a more integrated European banking system can be swift. The least we can do is to prepare ourselves on the national level. It will probably help us managing a crisis at the European level if one would emerge. | Final remarks I would like to finish with some comments on a matter that has concerned me for some time which is, on what subjects a Central Bank board member can talk, and in particular the Governor of the Bank who is the official spokesman. There is no formal restriction, but there is a practical limit which is that no board member would like to spoil his professional and communicational reputation by speaking without well-founded arguments. It is true that the Bank has a limited mission but it also has an excellent group of economists. For example, at the request of the Senate Financial Committee, studies have been carried out at the Bank on the long-term growth of the Chilean economy and both myself and my predecessor have written articles on the same topic (Corbo and Tokman, 2007; De Gregorio, 2008). It is possible to speak and research on relevant topics as long as we do not stray far from our fundamental task. A few weeks ago, Ben Bernanke gave a speech on the challenges of health reform in the United States (Bernanke, 2008) and ten years ago Alan Greenspan gave a speech on income distribution (Greenspan, 1998). 6 BIS Review 92/2008 Just as the Central Bank asks that its autonomy is respected, which is far from not accepting criticism, the Bank must also respect the decisions of other institutions. Here the balance is certainly tenuous. | 0 |
Also, in some countries retail lending rates have increased markedly, while policy rates have decreased. Since mid-2011, the rate charged by the ECB on its main refinancing operations has decreased by 75 basis points but the composite cost of borrowing has decreased by a similar or greater amount in only 20% of cases. In another 20% of cases, it has even increased by more than 25 basis points. The dispersion of lending rates has risen both across jurisdictions and across categories of enterprises. For example, the cost of short-term borrowing for corporates in France is still around the same level as that recorded at the beginning of 2011; by contrast, in Italy, over the same period of time, the cost of borrowing for corporates has widened by almost 100 basis points. In addition, in countries facing economic and financial distress, bank financing conditions are tightening further for small and medium-sized enterprises. This is particularly problematic not least because of the limited access that small companies have to alternative sources of financing. For example, the spread between rates on small and large-sized loans has widened further in the case of Spain and Italy: in August 2012 it stood at 286 bps in Spain and at 188 bps in Italy, the highest levels for both countries since 2003. | It has come back to a significant degree. Before the crisis, some argued that these patterns could be due to common shocks, convergence of monetary policy frameworks, and increased credibility of those frameworks. However, case studies, comparisons of the pre- and post- 3 crisis periods, and other observations make it more and more plausible that global financial integration is the main driver. The bottom line is that it is becoming more difficult to conduct independent monetary policy in small, open, and financially integrated economies, and although a flexible exchange rate is a necessary condition for doing so, it might not be sufficient, especially when we factor in the financial stability aspects. This, I think, is why we find on occasion that we are closer to facing a dilemma than a trilemma. I think it is still a trilemma, but with trade-offs of variable severity.2 What can individual countries do about this? First, those that have the option can enter a monetary union. That has its own pros and cons, as you all know very well. But for a SOE were the MU constitutes the biggest trading partner, issues of excess exchange rate volatility and domestic currency mismatches become much less pronounced. Second, they can give up on independent monetary policy while maintaining their own currency by either pegging the exchange rate or pegging interest rates to those of global rate setters. The problem with the first is that, as history shows, it can be difficult to maintain with free capital movements. | 0 |
However, the sectors that have been affected would be in an even tougher position with a lax monetary stance at present, which would leave us facing a much higher rate of inflation and a strong real exchange rate at the end of this expansionary episode. Tightening the monetary stance under such conditions could also provoke problems and shocks for the financial system, with unforeseeable consequences. 2 BIS Review 22/2005 The real exchange rate is heading for a historical high this year which is unlikely to be sustainable for very long. It is important to engineer as soft a landing as possible. In this context I want to mention the study in the latest Monetary Bulletin which shows that the real exchange rate is no more volatile in Iceland than in other countries, for example other inflation-targeting countries with which we often compare our performance. On the other hand, the importance of foreign trade varies from one economy to the next, so exchange fluctuations have a different impact on households and business in different countries. According to the Central Bank Act, one of the Bank’s roles is to promote an efficient and safe financial system, including payment systems domestically and with foreign countries. I shall not dwell on financial stability issues on this occasion. The reason is that the Central Bank will be publishing a separate financial stability report in April which will include its assessment of the position of the financial system. | In addition to the practical issues I have mentioned, behind dynamic provisioning there lied a conviction, resulting from many years of supervisory experience and, more recently, also from empirical evidence, that credit risk appears in bank balance sheets at the time lending is granted. Risk is an ex ante concept, and default is no more than the ex post manifestation of this credit risk. As I just mentioned, banks commit lending policy errors in upturns, when there is excessive optimism and it is believed that the business cycle has disappeared and that recessions are a relic of the past that will not return, and when bankers, caught up in this wave of exuberance, relax their credit granting standards. By contrast, and as we are all experiencing at the moment, a reaction in the opposite direction occurs in recessionary phases. Banks, pressured by high default rates, which impact their income statement and their level of capital, contract credit significantly, granting financing only to those borrowers whose solvency is beyond all doubt. The end result is as follows: an overly expansionary credit cycle during the upswing and, by contrast, overly contractionary credit growth during the downswing. In addition, there may be a perverse effect on institutions’ income statements and levels of capital. During upswings, the failure to recognise risk through loan loss provisions results in very high profits. | 0 |
It would be unconceivable to think of a financial system and indeed of any financial instrument without a legal system to support it. The keyword for economists in this context is “asymmetric information”: the lender, in particular, does not know if the borrower is trustworthy or not, or whether the investment project the latter is undertaking is worthwhile. A financial asset is ultimately a claim in the form of piece of paper or even, and increasingly so, an account entry. In any credit relationship – and this includes almost any economic transaction beyond simple barter – the possibility of default is always looming and this inherent complication cannot be solved without a precise system of norms that protects both the creditors and the debtors. For the creditor to consider entering in a financial relationship, the legal system must not make it too easy for the debtor to walk away from his obligations. At the same time, the legal system cannot be too taxing for the debtor, as Shakespeare’s Merchant of Venice reminds us. The legal system has thus to develop along a fine line between protecting the rights of the borrowers as well as those of the lenders. No wonder that developing a sound legal system to support financial markets is a very complicated matter and we hope to learn something from today’s conference. 2. | As you know, a number of policy initiatives have been launched at the global level since the summer, for instance by Financial Stability Forum 5 or by the Porto informal ECOFIN 6 and it is still difficult to anticipate precisely the legal aspects which will be examined more particularly by the various international and European fora and bodies involved in this discussion. However, these initiatives provide an indication of possible legal considerations which might emerge, in particular in the European context. Legal certainty should go hand in hand with transparency. The focus on the transparency of complex financial instruments, of institutions and vehicles and on the appropriate disclosure of information on securitised debt and other structured financial products indicates that there is a need for regulatory and supervisory authorities to have a closer look on the legal frameworks applicable to securitisation transactions and market standards and how special purpose vehicles are currently regulated and supervised in the various EU Member States and at also at the international level. The report of the European Financial Markets Lawyers Group (EFMLG) of May 2007 on legal obstacles to cross-border securitisations in the EU 7 contains recommendations for further convergence of securitisation laws in the EU and invites the Commission to consider the adoption of a EU directive on specific legal aspects of securitisations which would enable Member States to adopt a certain number of principles common to all jurisdictions to ensure a high level of transparency, efficiency and legal certainty with regard to securitisation transactions. | 1 |
When Iraq then invaded Iran in 1980, the situation deteriorated even further. The price of oil also rose, but very briefly, when Iraq attacked Kuwait in 1990. Figure 2. Real oil price USD/barrel 150 150 Iran-Iraq War 125 125 100 100 Revolution in Iran Gulf War 75 75 50 50 25 Iraqi invasion of Kuwait Oil embargo in connection with the Yom Kippur War 0 1965 1970 1975 1980 1985 1990 25 0 1995 Note. Real prices have been computed with the CPI in United States. Souces: U.S. Bureau of Labor Statistics (BLS), U.S. Energy Information Administration and the Riksbank 19 Åsbrink (2019). 8 [14] However, the policy that was conducted during this period also played a significant role. It became, for various reasons, on average too expansionary or, as it is called, too accommodating. In economic textbooks, this period of high and longterm inflation in the world is known as ‘The Great Inflation’. This usually refers to the period 1965-1982, where ‘the Volcker disinflation’, the tight monetary policy conducted by then head of the Federal Reserve Paul Volcker to curb inflation in the United States, is regarded as the endpoint.20 For Sweden, it is more appropriate to refer to a period that both starts and ends about ten years later. The Swedish economy was wrestling with serious economic problems during this period. | Nevertheless, it is worth noting that, when Romania gave up monetary targeting, Estonia was its only peer among Central and East European countries in terms of longevity of the 2 BIS central bankers’ speeches monetary policy regime, with its currency board adopted in 1992. Shifts from one end to another of the spectrum of monetary and exchange rate arrangements were common in the region. Specifically, the Czech Republic, Poland and Hungary had various forms of exchange rate pegs during the nineties, before shifting to inflation targeting. As for Romania, the transition between the two regimes was smoother, since the monetary targeting framework included elements such as the disinflationary stance, exchange rate flexibility and, of course, the major role of monetary aggregates, which are also seen in the inflation targeting regime. Amid the never-ending, heated debates on rules versus discretion in monetary policy, which are so time- and energy-consuming in the academic world globally, inflation targeting may be viewed as an attempt to make both ends meet. This strategy has the merit of combining tight constraints in terms of the final objective (the inflation target) with a certain degree of discretion as regards the calibration of monetary policy instruments so as to provide an adequate response to shocks. While theoretical orthodoxy used to claim that inflation targeting needs a free floating currency, in practice, many inflation targeters opted for a light version of the strategy. So did many Marlboro smokers. | 0 |
A study of his speeches suggested that the concept germinated at the beginning of the eighties, before Margaret Thatcher paid him a visit in 1982 at the Great Hall of the People and raised with him the question of the political future of Hong Kong. The phrase was then used, for the first time in public, by Deng Xiaoping when he received industry and business leaders from Hong Kong in June 1984 1 . Since that occasion, it has become by far the most common formula for summarising the governance arrangements for Hong Kong after the resumption of the exercise of sovereignty. It has, indeed, turned out to be a most effective political expression, capturing succinctly China’s policy towards Hong Kong, emphasising that Hong Kong is to be ruled by Hong Kong people (港人治港) and that there is to be a high degree of autonomy in the governance of Hong Kong (高度自治). The policy has also been most successfully implemented, contributing further to the credibility of the formula and the unique political concept that it encapsulates. Indeed, whenever one hears the phrase "one country, two systems", the immediate context will almost invariably be the political arrangements for the governance for Hong Kong. | This is why the Basel Committee has devoted so much effort to developing the so-called Basel II capital framework, which was released in June 2004. The new capital framework is built on three mutually reinforcing pillars. The first pillar aligns minimum capital requirements more closely with banks’ actual underlying risks. The menu-based approach means that qualifying banks may also rely partly on their own measures of those risks, which will help to create economic incentives to improve those measures. In concept the first pillar is similar to the existing “Basel I” capital framework in that it provides a measure of capital relative to risk. What is new are the second and third pillars. The second pillar – supervisory review – allows supervisors to evaluate a bank’s assessment of its own risks and determine whether that assessment seems reasonable. It is not enough for a bank or its supervisors to rely on the calculation of minimum capital under the first pillar. Supervisors should provide an extra set of eyes to verify that the bank understands its risk profile and is sufficiently capitalised against its risks. BIS Review 45/2006 1 The third pillar – market discipline – ensures that the market provides yet another set of eyes. The third pillar is intended to strengthen incentives for prudent risk management. Greater transparency in banks’ financial reporting should allow marketplace participants to better reward well-managed banks and penalise poorly-managed ones. | 0 |
Similarly, although it is not possible to completely eliminate inflationary pressures stemming from rising world oil prices, efforts are nonetheless needed to moderate their impact on the economy. To this end, such efforts as conserving the use of petroleum products can go a long way in reducing the attendant inflationary pressures. Allow me now to turn to the issue of interest rates. As you may be aware, interest rates refer to the price of money. Over the last few years the general trend in commercial banks’ weighted average lending rates has been largely downwards. As at end-June 2005, the weighted average base lending rate had reduced to 28.6% from 36.2% in January 2004. The fall in lending rates has in large part been induced by a fall in yield rates on Government securities as banks in Zambia have tended to use yield rates as anchors. BIS Review 53/2005 1 However, at the current levels, lending interest rates are too high to contribute to sustainable productive investment. This calls for concerted efforts among other key stakeholders, namely, the Government, commercial banks and the borrowing private sector to continue playing their respective roles effectively to bring about a further reduction in the lending interest rates. It has also to be appreciated that inflation is another major contributing factor to high interest rates as banks set their lending interest rates above the rate of inflation thus the need to reduce the high inflation that has characterised the economy. | Caleb M Fundanga: Monetary policy issues and the process of foreign payments Presentation by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambian Heads of Missions Briefing Seminar, Lusaka, 19 July 2005. * * * The Hon. Minister of Foreign Affairs, Lt. Gen. Ronnie Shikapwasha, MP Hon. Deputy Minister of Foreign Affairs Permanent Secretaries Your Excellencies, High Commissioners and Ambassadors Senior Government Officials Distinguished Invited Guests Ladies and Gentlemen It is an honour for me to be here this morning to talk to you on the topic of “Monetary Policy Issues and the Process of Foreign Payments”. This topic provides me with an opportunity to explain the role of the Bank of Zambia in the economy and the process of foreign payments which has been a topical issue. As you may be aware, the Bank of Zambia’s mission is to formulate and implement monetary and supervisory policies that will ensure price and financial system stability. However, in line with the topic above, my presentation this morning will focus on the first aspect of the mission of the Bank, namely, price stability. There are generally three prices of major concern to the Bank of Zambia. These are general prices of goods and services, interest rates and the exchange rate of the kwacha against major foreign currencies. I will now deal with each of these in turn. The central bank deals with general prices of goods and services in the context of inflation. | 1 |
However, my assessment is that the low inflationary expectations are making it take a longer time before overheating tendencies are expressed in increasing consumer prices. This leads me to make the assessment that prices will not start to rise until the end of the forecast period but that price increases will then be stronger than the majority believes. My assessment is therefore that inflation at the end of the forecast period, in my main scenario, will end up marginally over the forecast that was reported in the last inflation report, which the Executive Board majority did not find reason to revise. My assessments of developments during the next two years differ then only marginally from the majority view. I am more concerned about the price tendency and the risks I see in developments after the forecast horizon. The assessments of the use of resources and future production possibilities are uncertain. Structural changes of the Swedish as well as the international markets make it particularly difficult to draw conclusions about future growth prospects. There is a risk that we go to excess. High, increasing indebtedness calculated as a share of GDP for both households and companies make me concerned for financial imbalances that can be on their way to being created, although our knowledge of what can be assumed to be long-term sustainable development is small. In my view, there is a risk that we overestimate potential output in the coming years and that we therefore accept an excessively high level of demand in the economy. | As there is normally great uncertainty in the inflation assessment of the main scenario, the Riksbank also produces risk scenarios; we also publish estimates of the probability distribution of different inflation outcomes. The distribution around the probable outcome is taken into consideration when decisions on the interest rate are taken. In the third place, we can make different assessments as to how monetary policy is to be conducted to strike a reasonable balance between fluctuations in growth and inflation. As I mentioned earlier, the Executive Board has agreed that we can decide not to bring inflation back to target within one to two years if CPI is affected by temporary factors or if the economy is affected by extensive disturbances. Making assessments and evaluating when - within these frameworks - there are sufficient reasons for avoiding output variations by extending the control horizon is far from self-evident, however. To maintain the credibility of monetary policy aimed at price stability, it is important therefore to justify such departures. In the fourth place - and I am now starting to sound as if it is not at all possible to conduct monetary policy with a demand for clarity - we do not know exactly the stimulation or tightening produced by a particular interest rate. This depends on our, like everybody else’s, limited knowledge of the “transmission mechanism”. It is also due to it being difficult to exactly define at what real interest rate, monetary policy has a neutral effect on demand. | 1 |
4 BIS Review 43/2006 demand for highly-qualified labour in relation to less qualified. However, the possibility that increased competition from low-wage countries is also part of the explanation cannot be entirely ruled out. So far, it appears as though Sweden has managed the structural transformation well. The Swedish Institute for Growth Policy Studies (ITPS) demonstrates in a study that Swedish-owned industrial companies which increased the number of their employees in low-wage countries during the 1990s at the same time increased their demand for labour with higher education in Sweden. This is in line with the development that has taken place in the United States and the United Kingdom. According to the Swedish Labour Market Administration’s figures on redundancy notification and ITPS’s media monitoring, few jobs moved abroad as a result of companies transferring their operations abroad during 2005. 4 In total, the number of jobs was 2 000-4 000, of which 1 500 involved a move to another EU country. The major challenge for the future probably does not lie in the number of jobs moving abroad, but in managing the transition required to make it possible to create new jobs as new employment is created mainly in other countries/regions/sectors. This demands a good corporate climate and a good capacity to attract knowledge and capital. It requires flexibility in the labour market so that employees can retrain as smoothly as possible, and move to new sectors and new regions. If this is not successful, then structural unemployment could become entrenched at high levels. | There are always disturbances in the economy that cause inflation to deviate from the target level. If we were then to rapidly bring it back to 2 per cent, we would sometimes be forced to change the interest rate to unreasonable levels. This would also lead to undesirable fluctuations in production and employment. We therefore consider carefully what is a reasonable period of time within which to bring inflation back on target. This is what is known as flexible inflation targeting. At present, our forecasts also indicate a fairly rapid growth in employment – the number of redundancies is declining and the number of new vacancies reported is increasing. The number of persons employed increased by just over 70 000 between the last quarter of 2005 and the first quarter of 2006. Assuming that economic developments are as favourable as we and most other analysts predict, open unemployment will fall to around 4.6 per cent in 2008. The reason why this will not happen more quickly is because the supply of jobs will increase. So, all in all, prospects look much brighter now than they did one year ago. As inflation will probably be low for some time to come it would have been possible for the Riksbank to wait a few more months before increasing the interest rate, without jeopardising the inflation target. One can regard it as a choice between beginning to increase the interest rate relatively early in small steps, compared with waiting and then increasing in larger steps later on. | 1 |
In the words of Alan Greenspan, “what turns otherwise seemingly minor imbalances into a crisis is an actual or anticipated disruption to the liquidity or solvency of the banking system”. When banks are already weak, for example because of a high level of non-performing loans, an external shock such as an attack on the currency will further damage confidence in the banking system. Banks will lose domestic deposits and will find themselves unable to rollover short-term external borrowing. The resultant capital outflows will put further downward pressure on the exchange rate, force up interest rates and drive down asset prices. The customers to whom banks have lent will get into financial difficulties, further weakening the position of the banks. With their capital and liquidity impaired, the banks are in no position to lend, and this leads to the “credit-crunch”, and resultant shrinkage of the real economy that we are seeing in so many countries in the region. The reasons for the banking sector weaknesses are various. Lending excesses drove up asset prices and allowed companies to become over-leveraged. Poor risk management on the part of the banks themselves was compounded by ineffective banking supervision and lack of transparency which provided little scope for market discipline to be exercised until the problems were glaringly obvious. At that point, the market reaction was extreme. Even if supervisors did have the will to tackle banking sector problems in their countries, they were often subject to political interference that stood in the way of prompt corrective action. | Recognizing that inflation targeting is not a panacea, the Monetary Policy Committee has supplemented the framework with a regular monitoring and assessment of seven key areas of financial imbalances, where buildup may threaten the macroeconomy and price stability. These seven areas are the country’s external position, the real estate sector, bank credit, household and corporate financial positions, the financial market, and the fiscal position of the Government. Ladies and Gentlemen, despite all these reform efforts and the stronger foundation the Thai economy now has, we have to remain vigilant. Today, the change of pace in the global economic environment is simply unprecedented. Some of these changes, if left unchecked, may have significant implications on a country. While the new global dynamics represents an opportunity for a country like Thailand to leap forward, it also entails increasing risk of economic instability. The evolving complexity of the global economy means that conventional thinking and approaches to deal with economic problems may, at times, need to be adapted. The 1997 crisis highlighted this point. Back then, the conventional wisdom for a crisis-ridden country is to adopt restrictive monetary and fiscal policies. As we all now know, overtightened stance aggravated the already fragile situation and created many unnecessary pains. Only when the crisis contagion spread to several countries was it evident that such measure was a wrong medicine for Asia, which ultimately led to the abandonment of some of these measures. Today we are faced with the major problems of global imbalances and large and volatile capital flows. | 0 |
Ravi Menon: MAS Marks 50 Years Serving Singapore Welcome remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at MAS 50th Anniversary Partners Appreciation Evening, 7 October 2021. * * * Prime Minister Lee Hsien Loong, Chairman and Board Members of MAS, ESM Goh Chok Tong, Friends and Family of MAS Welcome to the MAS’ 50th Anniversary Partners Appreciation Evening – the first in a series of events to commemorate our Golden Jubilee. This evening is a time for thanksgiving. There are about 50 of us here at the MAS Building and about 800 friends and family joining us virtually. This includes our friends from the financial industry, consumer and governance groups, tripartite partners, academic institutions, and international organisations. And of course, our family – past and present staff and leaders of MAS and our colleagues in the broader Public Service. This is a special occasion for me personally. I joined MAS in 1987 and have spent most of my professional career here. So much of what I have learnt and how I have evolved, I owe it to the many bosses and colleagues I worked with in MAS over the years. MAS was already a highly competent organisation in 1987, and I have seen it grow over the decades to become what it is today – a central bank and financial regulator highly regarded among its international peers and the global financial industry. | MAS has played a critical role in Singapore’s economic development – keeping inflation low, managing Singapore’s official foreign reserves, preserving financial stability, and promoting Singapore’s development as an international financial centre. What MAS has achieved reflects the strategic vision of its past leaders – its Chairmen and Managing Directors – and deep professionalism of generations of MAS officers. They worked hard, to keep our exchange rate strong, our reserves healthy, and our financial sector safe yet dynamic. MAS was fortunate in the outstanding leaders it has had. This evening, we are honoured to have one of them, PM Lee address us. PM has a long history with MAS. This is the third time he is speaking at a MAS anniversary; he spoke to us when we were 30 years old, then 40 years, and now when we’re 50. And of course, PM was Chairman of MAS from 1998 to 2004, when he spearheaded a series of bold reforms to liberalise the financial sector. But MAS could not have done it alone – even with its exceptional staff and outstanding leaders. 1/3 BIS central bankers' speeches MAS has succeeded because Singapore has succeeded. If Singapore’s public finances were not strong, our monetary policies would not have worked as well. If Singapore did not have a sound legal and enforcement framework, our regulatory policies would not have worked as well. | 1 |
This can be achieved through strategic partnerships with training providers, actively contributing towards industry-wide efforts to support the training agenda and continuous improvements to internal learning programmes. This is also the option that is by far more challenging, but ultimately the one that provides the optimal payoff for individual institutions, for our financial sector, and the economy. The magnitude of the task, however, demands our collective efforts to secure a sustainable pool of talent that will serve both the present as well as future needs of the industry. The industry also needs to participate in the formal learning programmes by the institutions of higher learning. It is encouraging to note that several have volunteered following the recent dialogue earlier this year organised by Bank Negara Malaysia and the Ministry of Higher Education . By contributing towards positive reforms in the academic curriculum and providing other forms of practical support, the industry is making an important investment in its own future. To take this effort further forward, Bank Negara Malaysia is initiating an extensive programme to train and prepare at least 1,000 deserving graduates for immediate placements in banking and insurance institutions. This effort will be undertaken in collaboration with the industry and training institutes and is aimed at boosting the supply of well-trained and competent personnel for the financial services industry. The selection process will be rigorous, and the training programme will be designed to produce first grade candidates for employment at the management trainee level. | Philipp Hildebrand: Switzerland and global competition - an all-purpose strategy Summary of a speech by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the University of St Gallen, St Gallen, 29 August 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch) * * * Openness was one of the major factors that made Switzerland one of the richest countries in the world. A significant portion of our industry, and one upon which our current prosperity is based, is the direct or indirect outcome of foreign expertise and the efforts of foreign entrepreneurs. These people were attracted to Switzerland – particularly in the 19th century – by its openness and its stable, liberal environment. Openness promotes competition, innovation and progress, thereby securing sustained prosperity. But Switzerland strayed from the straight and narrow when it began erecting barriers to competition – barriers that provided ever greater protection to its domestic market. The ensuing insulation of the domestic market is probably one of the main reasons for Switzerland's growth slump today. External trade policies are always domestic market policies as well. Consequently, external trade policies have instruments that can be effective in opening up the domestic market from outside. This openness to external trade is of utmost importance, therefore, not only for exporters, but also for the domestic market. Being open towards Europe and towards other trading blocks is not mutually exclusive. | 0 |
We believe it is important that internal information systems are capable of capturing the full range of exposures to individual counterparties across the firm; that potential future credit exposure is measured realistically, including through stress tests at the counterparty level and across the firm’s portfolio, and managed to prudent limits relative to capital; that credit limits and terms reflect the quality of information provided by the counterparty about its risk profile and risk management systems and are not eroded by competitive pressures; and that the risk management process tries to capture the risk to the firm that could result from the rapid unwinding of positions by leveraged counterparties. A second challenge relates to the growth in volume and complexity of new instruments for risk transfer, which has advanced, as it typically does, ahead of improvements in the trade processing infrastructure and risk management and control practices. Although these innovations seem likely to reduce overall risk in the financial system, shortfalls in the infrastructure leave the market more vulnerable than it needs to be to adverse dynamics in conditions of stress. These gaps are evident in the degree of manual processing required for trade capture and settlement; the substantial backlog of undocumented or unconfirmed trades; the prevalence of assignments of trades without the consent of counterparties; and in the slow adoption of market services for automated processing. Shortfalls are also evident in the limits of models and other techniques for measuring potential exposures in conditions of stress. | Under the baseline forecast, next year inflation will come close to the target of 4–4.5%. Our policy rate will range between 7.3% and 8.3% on average over the year. That level is relatively high but necessary to bring inflation back to target in the course of next year as we work towards that. I would like to stress again that the Bank of Russia’s policy will not hamper economic activity. On the contrary, it will foster sustained and balanced growth. We have to understand that sustained growth rates are certain to be lower than in the current rapid economic recovery. The key rate is on course to return to the so—called neutral range in the years to come, which is projected at 5–6%. That is the range when inflation neither accelerates nor decelerates. I will briefly outline the alternative scenarios. The alternative scenarios are not built in the abstract, but in order to see how the situation might change and how monetary policy would change then. We construct three alternative scenarios. Scenario one is ‘Pandemic Expansion’; scenario two is ‘Global Inflation’, and the third is ‘Financial Crisis’. Should the pandemic intensify, we would promptly change over to monetary policy easing to help the economy live through restrictions. In contrast, were the Global Inflation scenario to prevail, we would tighten monetary policy for quite a while. In the Financial Crisis scenario, the key rate would first be raised to deal with volatility and financial market problems, and the policy would thereafter become accommodative to support a recovery. | 0 |
Indeed, from the business perspective and being the international financial centre of China, we must position ourselves for and try and make the best of the opportunities that come with the inevitable process of financial liberalisation of the Mainland. So we spend much of our time and attention on monetary and financial issues on the Mainland. But I must still confess an occasional inability to understand exactly what goes on there. With a high savings rate, rapid economic growth, and the attraction of an emerging market of mammoth dimensions and ample opportunities, the Mainland of China can afford to adopt a cautious approach to financial liberalisation. Even with continuing, tight capital controls, there is no lack of foreign direct investments. The size and strength of the economic magnet of Mainland China are such that it has become, for a number of economies in the region, one of the largest trading partner and destination for outward direct investment. Foreign portfolio investments into the Mainland of China, to the extent that these opportunities are available, for example, in the stock market of Hong Kong, are also in great demand. With an abundance of domestic savings (the savings rate is around 30% to 40%), the emphasis is on financial sector reform, to enhance the efficiency of domestic financial intermediation, in order to sustain growth and development, rather than to attract an inflow of foreign savings. | First is a relative shift of dependence on foreign savings, as against domestic savings, as a source of funding domestic (fixed and portfolio) investments. Second is reduced availability of such funding, as evidenced by Asia being a net exporter 2 BIS Review 66/2004 of capital. To be sure, there has correspondingly been more efficient allocation and use of scarce funding on a global basis, made possible by the freer mobility of capital and the freer convertibility of currencies. But there has also been a change in the dynamics of financial intermediation in Asia, in that there is a process of recycling of Asian funds through the developed markets back into Asia that has become quite significant. And not only is it significant, it is also quite potent and demanding. Whether we like it or not, the behaviour of foreign savings in the hands of foreign financial intermediaries is quite different from that of domestic savings. To start with, they are more volatile than domestic savings and more sensitive to shifts in market sentiment and in macro-economic policies, to a degree that has proven, in the Asian financial crisis of 1997-98, to be brutally destabilising. Given also the existence of some forbearance, in terms of, for example, the disclosure of activities and the maintenance of concentrated positions, in the interest of sustaining the presence of foreign financial intermediaries and foreign savings, there is a much greater likelihood of market overshooting. | 1 |
The BNB Governor made it clear that the only exit from the current regime would be the replacement of the lev with the euro at the currently fixed exchange rate. The whole process of accession – first to the Banking Union and ERM II, and next to the euro area – could not substitute for the good macroeconomic practices and business projects, Mr. Radev said. A country refusing to comply with this is sure to suffer serious economic and financial difficulties whether inside or outside the euro area. The two proven pillars of good macroeconomic policy in Bulgaria are the fiscal stability and the monetary regime stability. Should these conditions, together with the continuous improvement of institutions, be present, the preparatory process and subsequently the accession to the euro area would be a catalyst for the social and economic prosperity of our country. 2/2 BIS central bankers' speeches | But attempts to target a particular level for the exchange rate or the slope of the change in the rate in response to different conditions will, as the capital account becomes more open, inevitably, come with substantial risks to monetary and financial stability. Managing the transition to a more open capital account and a more flexible exchange rate regime is not a simple task. These transitions need to be handled with care and attention to the development of a strong institutional framework for monetary policy and the financial system. The more successful transitions came in contexts where the monetary authorities were independent of political constraint, where balance sheet problems and currency mismatches in the government and the financial system were not acute, where the prevailing legal framework provided reasonable protections for property rights and the enforcement of contract, and where there was effective supervision of the banking system. Where these conditions were weaker, the transitions from fixed exchange rate regimes were more traumatic. These conditions seem exacting, and the understandable need for caution often is invoked in defense of protracted and very gradual transitions. A certain degree of caution is wise: there is a great deal of risk in a poorly managed and premature shift toward flexibility. But there is risk in gradualism too. Delay magnifies the costs of living with the distortions caused by a managed rate. | 0 |
Beyond augmenting our talent pool, foreigners living and working in Singapore enrich our culture and diversity. They help us to develop an even more cosmopolitan outlook, and keep our city state abuzz with vibrancy and energy. External linkages Besides restructuring our domestic economy, we also need to expand outwards, to invest in the region and ride on its growth. To do so, we need to expand our horizons, to understand more deeply the world around us, of which South Asia is a major focus of our interest. The Singapore Economic Development Board will be setting up an office in Mumbai. This will be its first office in India, to better service Indian companies which are looking at investing in Singapore and our region. More importantly, our companies also need to venture out of Singapore, to ride the growth of India. To better appreciate conditions and opportunities in India, Singapore plans to set up a South Asian Institute (SAI) later this year. The Institute will be part of the National University of Singapore. It will track economic and political developments in the subcontinent and collaborate with key institutes in India and elsewhere. The SAI will complement the work of the current East Asian Institute (EAI) and Institute of Southeast Asian Studies (ISEAS). Together, these institutes will provide us with a more comprehensive assessment of the region within a seven-hour flight radius, and so encourage more of our companies to venture abroad. | John C Williams: Opening remarks – “Racism and the Economy: Focus on Health” Remarks (via prerecorded video) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at “Racism and the Economy: Focus on Health”,9 September 2021. * * * As prepared for delivery Good afternoon, and welcome everyone. I’m John Williams, president and CEO of the Federal Reserve Bank of New York. I’m here to kick off what is now the eighth installment of a landmark series on the topic of Racism and the Economy sponsored by the 12 Federal Reserve Banks. These events examine structural racism’s toll on the economy and identify potential actions that can improve economic outcomes for all segments of society. There is no facet of our society immune to racism, health included. So, this afternoon, we will be looking at key issues around race and the economy through the lens of health—a focus never more urgent and critical. Before we move on with the program, I’d like to share more broadly why this is so important for the Federal Reserve, what we’re learning, and what we’re doing. And with that, I must give the standard Fed disclaimer that the views I express are my own and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. Having poor health is a challenge on many levels. We’re keenly aware that health can be a huge driver of economic inequality. | 0 |
W A Wijewardena: Microfinance – issues in the current context Keynote address by Mr W A Wijewardena, Deputy Governor of the Central Bank of Sri Lanka, at the Seminar on Microfinance Services in Sri Lanka, Colombo, 29 June 2009. * * * A new word that has been added to Sri Lanka’s vernacular usage recently has been “sakvithi”. This word has so far not got into lexicographers’ lexicon in its new sense. Literarily, it means the “Chief God of Heavens”. But, the contemporary media have used it in a different sense, drawing on a recent episode of fraud that had ended up pauperising many investors who were ambitious of high gains. Hence, its contemporary meaning has been clear even to its first-time spotters. The picture created in the mind when one hears the word is not that of a god but a man: a man bent on deceiving others with false promises of unusually high gains, but at the end, finishes up by appropriating to him their wealth. It is also the picture of a man who has played with the psychological frailties of people with crafty marketing and propaganda by projecting himself as a saint, friend and saviour. Those who fall for his artful schemes will get one thing for sure: complete loss of their life-time savings. It, therefore, foretells of shattering of hopes which they may have cherished about a better future as well. Sakvithi’s lessons for microfinance Sakvithi episode is not an isolated incident of breach of trust. | Related to all this, the EU must ensure that requirements to clear through CCPs apply also to exchange-traded derivatives and to vital cash markets, not just to “standardized” OTC derivatives. Whatever anyone says, there is really no excuse for where things currently stand on this in Europe. The MIFID II package provides an opportunity to correct it next year. 1 Thanks for comments to Andy Haldane, Edwin Schooling-Latter, Anne Wetherilt, Graham Young and David Lawton (FSA). BIS central bankers’ speeches 1 Those who argue that the gap in the EU’s framework should persist are serious about private gain but, sadly, not about stability. The crisis that threatens to engulf us all illustrates why we should give no room to such sentiments. 3. CCP default and resolution There is a big gap in the regimes for CCPs – what happens if they go bust? I can tell you the simple answer: mayhem. As bad as, conceivably worse than, the failure of large and complex banks2. We therefore need effective resolution regimes for CCPs (and other financial market infrastructure). The Financial Stability Board will drive this forward as part of our work on the resolution of SIFIs. (A comprehensive package on the resolution of banks and dealers will go to the G20 Leaders Summit shortly. If endorsed, and Finance Ministers have already given their endorsement, it will become a Standard to which countries/jurisdictions pledge to abide.) The EU’s own work on resolution regimes has been a hugely positive input to this global process. | 0 |
My talk today is to update you on the recent economic and financial developments, and to share with you our assessment of the prospect for next year, including the challenge for policy. Let me begin first with the global economy. Recent economic data, especially of the last few months, point to a picture of greater stabilization and more consistent signs of recovery in the global economy. The severity of the early economic contractions has eased while the levels of economic activities are gaining traction on a worldwide basis. In most major economies, final demand is showing signs of strengthening along with improvements in consumer confidence and business sentiment. More importantly, although the financial system in the advanced economies has not returned to normalcy, financial conditions have improved markedly with lower market volatility, reduced risk premia, and the unfreezing of interbank and other short-term funding markets. These positive developments have led to a view that the worst of the global crisis is now behind us, and forecasts of economic growth have been revised upwards for this year and next year. On the financial front, reflecting these recent developments, appetite for risky assets has returned, leading to a resurgence of capital flows to emerging markets and strong rallies in equity markets especially in Asia. And for economies that the prospects for recovery look most certain, policy interest rates have started to increase to return policy accommodation to a more normal level, as is the case of Australia and Norway. | After two years of market stress and decline in economic activities, we can now cautiously look forward to a return to growth. Looking back, the last two years have also been an important testing time for Thailand as the impact from the global financial crisis has been large and quite unprecedented. As it turns out, the economy has been able to weather the impact of the global crisis quite adequately. This is to say, while the decline in output was unavoidable, economic and financial stability was maintained, the banking sector remained resilient, and the economy was able to adjust to the impact of the turmoil in an orderly manner, with output growth now recovering. In my view, these things were of no accidents. Instead, they manifest a number of inherent qualities embedded in the Thai economic system that have contributed to the relative resilience of the economy. Such qualities include: first, a strong and resilient banking sector resulted from good risk management practices by financial institutions and careful supervision by financial regulators at home; second, a disciplined conduct of macroeconomic policy that emphasizes prudent fiscal and monetary frameworks with a clear focus on maintaining growth with price and financial stabilities; and third, the promotion of economic flexibility as a mechanism for the economy and the private sector to adjust to macroeconomic shocks. To me, these qualities are of no accidents. | 1 |
Thank you. *** 13 Figure 1 Annual GDP growth (contribution, percentage points) 6 6 Total 4 4 Non-mining 2 2 0 0 Mining -2 -2 15 16 17 18 Source: Central Bank of Chile. Figure 2 Employment creation (1) (annual change, percent) 10 10 Construction 8 8 Trade 6 6 Services (2) 4 4 Total private salaried 2 2 0 0 -2 -2 -4 -4 -6 -6 14 15 16 17 18 (1) Quarterly moving average. (2) Communal and financial serivces. Sources: Central Bank of Chile and National Statistics Institute (INE). 14 Figure 3 Activity gap (*) (percentage points) 4 4 2 2 Sep18 Report 0 0 -2 -2 Jun18 Report -4 -4 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2013 2014 2015 2016 2017 2018 2019 2020 (*) Gray area shows minimum and maximum gap estimates using different calculation methods for potential GDP (see Fornero y Zuñiga (2017)). Source: Central Bank of Chile. | As I noted earlier, while the Code is not a set of rules, nor is it regulation, support for the Code and its principles is central to achieving its goals. With that in mind, I would like to turn now to the Statement of Commitment that was developed alongside the Code, talk about steps the New York Fed itself is taking, and then touch upon some of the industry measures underway to support adoption. The Statement of Commitment was developed and appended to the Code to provide a standard tool by which an institution may—on a voluntary basis—demonstrate its commitment to the principles of the Code. The Statement of Commitment provides that an institution is an FX market participant and has reviewed the Code. By using it, an institution acknowledges the principles as reflecting good practice and exhibits a commitment to conducting that institution’s activities in a manner consistent with the Code. The Statement, like the Code itself, acknowledges that market participants vary by size, complexity and nature of activities, and that diversity should be reflected in the steps they may need to take for adoption and adherence. Central banks, similar to FX market participants, are committed to the Code’s adoption as well. Following its publication, BIS central bank governors expressed their support for the Code by noting that central banks “are strongly committed to supporting and promoting adherence to the Code. | 0 |
The ideas and experiences shared could then be contextualised to the prevailing local conditions to enhance financial inclusion. This proposal was welcomed by the members and resulted in the first Financial Inclusion Advisers programme conducted in Lusaka, Zambia in April 2009. The success of this inaugural programme hosted led us to this second programme hosted here in Malaysia with the support of JICA. JICA has long been involved in capacity building in BIS Review 4/2010 1 the African continent, and we look forward to collaborating in the future in this area of building more inclusive financial systems. The Malaysian experience on the financial inclusion agenda In Malaysia, the commitment to the financial inclusion agenda is reflected in the new Central Bank of Malaysia Act 2009 which incorporates financial inclusion as an objective of the Central Bank. With the enactment of the Act in November of 2009, the Central Bank has imbedded in the legislation the financial inclusion agenda to ensure that future generation of central bankers will continue to direct efforts to building an inclusive financial system. Additionally, the Central Bank in the process of formulating a new blue print for the financial sector for the next decade. This blueprint would also ensure the development of a more inclusive financial system. The results of the financial inclusion measures thus far have shown positive results. | The synchronized recession which ensued has made it even more urgent not only to ensure that our financial systems are resilient and able to absorb external shocks but that sufficient attention and resources are also available for achieving the financial inclusion agenda. We are now entering a period of improved international economic and financial conditions. However, even in times of economic stability, financial inclusion is a demanding endeavour. Firstly, the outreach needs to be comprehensive to include the low income and underserved segments, given that that they are generally geographically dispersed and have low levels of financial literacy. Secondly, micro finance institutions need to generate sufficient sustainable returns to cover the high costs involved in providing such services and the lack of potential for economies of scale so as to remain viable. Thirdly, such financial institutions also face the challenges of obtaining sustainable and competitive funding. Recognising the challenges in addressing these issues to achieve financial inclusion, this programme, which started more than two years ago, is an outcome of a proposal I made at the Langkawi Commonwealth Partnership for Technology Management (CPTM) Heads of Government meeting in 2007, which discussed the subject of poverty eradication through human capital development. The purpose of the Financial Inclusion Advisers programme was to provide practitioners and regulators in the area of financial inclusion with practical ideas via the sharing of knowledge and experiences on developing institutional structures, creating an enabling environment and enhancing financial literacy. | 1 |
That is achievable for relatively simple commercial banks operating in a single jurisdiction, and all of whose contracts are under the law of that jurisdiction. It is harder for so-called Systemically Important Financial Institutions (SIFIs), spanning many markets, jurisdictions, and currencies, with complex counterparty relationships. As one international colleague put it, the standard toolkit would face an “exponentially greater challenge”. Top-down capital restructuring: bail-in That is why resolution authorities in a number of countries are exploring how to execute “top-down” resolutions of complex groups, employing bail-in of debt issued by the holding company or top-level operating company. The US and UK have been working together very constructively in planning how to operationalise that strategy; and if we continue to make progress I hope that we will be able to say more about it over the next few months. Imagine that a large, complex, global firm – just one legal entity for the moment – has 20 lines of business, each the same size, which is to say using the same amount of balance sheet and capital. Imagine it is 50 times levered. Now imagine that one of those lines of business is completely toxic, worthless. The firm is insolvent, bankrupt. Unless it can be resolved, it must cease trading and go into insolvent liquidation. But, in this stylized example, only a single line of business is toxic; the other 19 are fine. In other words, the franchise has value. In the non-financial corporate sector, there are established tools for this. | And we don’t have much time to succeed, in the very next years. *** In conclusion, let me come back to the natural complement to the Banking Union: the Capital Markets Union. We all agree that we badly need it, even more so after Brexit: here in Eurofi, on 3/4 BIS central bankers' speeches the Governing Council, and – in principle – around the Ecofin table. But almost nothing, or very little, has been done. One paramount reason for this failure is that our technical product has not so far engaged sufficient political ownership. We need a stronger purpose, a more visible “flag”. Let me suggest one: the implementation of the European Green Deal will require the reallocation of resources towards “green” activities, in a Financing Union for Sustainable Investment. To keep its leadership in the green transformation, Europe must act as a united block in its financing. Moving forward on the Banking Union requires effort, but the rewards will make it more than worthwhile. Thank you for your attention. 4/4 BIS central bankers' speeches | 0 |
(2015), shows that EMEs countries exposed to the original sin (unable to borrow internationally in local currency) appear as tightening CBMs on banks’ liabilities during the 2013-2015 period. Our understanding is that the databases used in cross-country analysis still contain a high degree of self-judgement by reporting countries that sometimes affect the quality and consistency of the information provided. At least this is our experience regarding answering the IMF’s survey on exchange rate Page 3 of 12 Central Bank of Chile September 2019 arrangements and exchange restrictions (AREAER), which is used in the majority of cross-country comparison of CBM and capital controls usage. High-level Policy Seminar on Integration or Fragmentation? International Capital Flows in the Post-crisis World, September 2019 CENTRAL BANK OF CHILE Currency-based measures With the exception of China, only countries suffering from original sin used and tightened CBMs on banks’ FX liabilities Tightening No tightening No Original Sin Original Sin Source: De Crescenzio, Golini, and Ott (2015), “Currency-based Measures Targeting Banks - Balancing National Regulation of Risk and Financial Openness,” OECD Working Papers on International Investment 2015/03. Recent evidence on the evolution of capital controls shows that Chile has taken more liberalization actions than tightening actions on both inflows and outflows (Pasricha et al., 2018). The following Figure shows the cumulated weighted net inflow easing actions and weighted net outflow easing measures in Chile and in a group of EMEs (excluding Chile). | International Capital Flows in the Post-crisis World, September 2019 CENTRAL BANK OF CHILE Monetary policy framework and its effectiveness Monetary policy is strongly supported by the free-floating FX regime 10Y interest rate and FX volatility (*) Currency implied volatility 1-month EE (sample: 2017-2018) (percent) 30 FX Median 10-year interest rate (weekly change) 0.14 20 Brazil Egypt 0.12 Nigeria Turkey 10 0.10 Philippines 0.06 Indonesia 0.04 Vietnam 0.02 0.00 0 Jan.10 Romania 0.08 Bulgaria Peru Mexico Croatia Hungary Poland 10-y rate Median Jan.14 Jan.16 Jan.18 (percent) 0.6 0.4 Russia 0.2 Chile 0.5 1.0 Exchange rate (weekly percentage change) Jan.12 10Y rates volatility 1-month EE South Africa India Thailand Malaysia China 0.0 Colombia 1.5 0.0 Jan.10 Jan.12 Jan.14 Jan.16 Jan.18 (*) Red points correspond to economies with free-floating FX regime according to IMF classification (Annual Report on Exchange Rate Arrangements and Exchange Restrictions, 2017). Source: IMF and Bloomberg. This framework has basically remained in place for almost two decades and its effectiveness has improved as markets, agents and institutions have adapted to it. | 1 |
In a world of popular narratives, where emotions shape decisions and where stories can snowball, aggregates measures of activity may do a less good job of capturing the forces shaping people’s decisions. The qualitative, the conversational, the narrative, the emotional are the new data in this new world – optimism and anxieties about tomorrow, as much as income and jobs today. Harvesting these new data calls for a different set of approaches and reaching new communities in new ways. 71 One example of that is making greater use of surveys of sentiment. The Bank of England recently set up a new survey of companies to assess their degree of uncertainty around Brexit and what impact this was having on their decision-making. It is as much a survey of sentiment and perceptions as investment intentions. This follows previous analysis undertaken by Nick Bloom and Steven Davis in collaboration with the Atlanta Fed. 72 Working with psychologists, the Bank has undertaken research to capture sentiment in financial markets, applying semantic-analytic techniques to the words used by market participants. 73 More generally, the same semantic techniques used to study central bankers’ words could be applied to the words used by the general public to capture their topics of conversation, their sentiment and their popular narratives on the economy. Clearly, there is further to go. | Regularly canvassing the views of the public, on the economy and on the setting of monetary policy, would be one way of harnessing that wisdom. This would allow central banks to listen to a potentially much wider and richer array of views on the setting of policy, in particular from those who might otherwise be distant, disenfranchised or distrustful of central banks and their actions. It would open central banks’ ears (and eyebrows) to a wider range of societal stakeholders when setting policy. The information provided from the public could serve as another input to the policy-setting process, much as monetary policy rules (and other data) do today. What are the public telling us about the right setting of policy and why? Clearly, neither rules nor polls should be followed slavishly - the scope for misinformation and mishap is simply too great. And the whole purpose of delegating policy to an independent third-party is to avoid the short-termism that may sometimes affect the general public. Nonetheless, if crowds, like rules, sometimes contain wisdom – different perspectives, different views, different narratives – then harvesting this information could be an important additional input into the policy 79 80 81 Earle et al (2016). Mackay (1841). Tetlock and Gardner (2016). 26 All speeches are available online at www.bankofengland.co.uk/speeches 26 process. It would help reach, and solicit direct feedback from, those parts of society otherwise out of central banks’ reach. And it may, as a by-product, also improve public understanding of policy and the economy. | 1 |
Lee Hsien Loong: Seizing the opportunities Address by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the MAS Staff Seminar, Singapore, 18 November 2003. * I. * * Introduction We held our last Staff Seminar in October 2002 against a backdrop of weak global economic conditions and uncertainties in the Middle East. We anticipated then that MAS would have to manage within a riskier environment. And this turned out to be so. For us in Asia, the Iraq war and the SARS outbreak weakened business and consumer spending, and caused a major setback to the recovery of the regional economies. However, with the easing of geopolitical tensions and the containment of SARS, sentiments have rebounded and the outlook has brightened. We should now actively prepare ourselves to ride on the recovery and seize the opportunities that are emerging. II. Economic and financial landscape In the third quarter this year, the US economy expanded at a brisk annualized 7.2%, buoyed by rising productivity, strong investment and consumption. Economists are generally upbeat about US prospects for 2004. But they are concerned that in the longer term the US may not be able to drive the global economy, because of its large twin deficits, record household debt, and low personal savings. Europe is just starting to recover from two years of very weak growth. | It is up to the Singapore banks and their shareholders to consider these opposing arguments and continually reassess their strategies. They will need to decide whether they need further scale to compete effectively, and if so whether it should be achieved through consolidation at home, expansion and acquisition abroad, or a combination of both. MAS cannot make this judgment for them, though the continued strength of our banking system depends on their making the right judgment call. Whatever the outcome, we need a core of strong local banks, as the stability of our financial system hinges on that. Overall, the prospects for our financial centre look good. Last year, employment fell slightly because of mergers, consolidation and the general economic weakness, but the worst seems to be behind us. More jobs are being created by the new activities that are being attracted here and by expansion in 5 FitchRatings, The Singapore Banking System, 19 Apr 2002. established areas like wealth management. The financial sector will continue to be an important contributor to economic growth. IV. Progress review of MAS’ 2003 business priorities Let us now briefly review how well MAS has achieved its business priorities over the past year before we focus on what we must do to grasp the opportunities arising from the financial services upturn. Managing within a riskier environment First, managing within a riskier environment. The financial industry is ever-changing - risk management practices are constantly being tested and challenged by new business models and financial products. | 1 |
Nonetheless, this pattern is at least consistent with a shift in working practices, towards a more divisible, idiosyncratic workforce, having contributed to a flatter Phillips curve relationship. None of this evidence is definitive or decisive. Taken together, however, it is at least suggestive that recent trends in the nature of work may have had some bearing both on wage-setting behaviour in general and on the weak wage puzzle in particular. Shifts in working patterns seem very unlikely, by themselves, to have been the prime-mover of weak wages. But they have probably been a contributor in the past and, more significantly, are likely to continue to do so in the future if these trends, as seems likely, perpetuate. 9 All speeches are available online at www.bankofengland.co.uk/speeches 9 The Case for Holding Fire Let me now turn to monetary policy. Clearly, wages are a key factor when judging inflation pressures in the economy and the monetary policy stance. Continuing the pattern since the crisis, recent wage growth has been, once again, surprisingly weak. Despite unemployment falling to its lowest level, and employment rising to its highest level, in a generation, whole-economy wage growth has failed to pick-up. Indeed, wage growth over recent months appears, if anything, to have been falling. At the start of the year, the Bank of England Agents’ annual wage survey suggested pay settlements would slow from 2.7% last year to 2.2% this. At the time, there was healthy scepticism within the Bank about these findings. | In particular, it is worth exploring whether these changes may have contributed, in any way, to the weak wage puzzle experienced over recent years. And, if so, given that these trends are likely to persist, whether they carry implications for the durability of wage weakness too. Why, in principle, might these changes affect wage behaviour? One story here is “divide and conquer”. There is power in numbers. A workforce that is more easily divided than in the past may find itself more easily conquered. In other words, a world of divisible work may reduce workers’ wage-bargaining power. Another story is that more flexible working practices may have induced previously inactive people back into work. With more people willing to enter employment, upward pressure on wages may be dampened even as labour demand picks up given the higher rate of labour market participation in the economy. In either case, the downstream consequences would be similar: weaker wage growth than in the past, for a given level of unemployment or demand in the economy. That is the theory. What empirical evidence is there to support these stories? The Changing Nature of Work Let me start by outlining some of the facts on the changing nature of work and the divisibility of labour. At the level of the profession or sector, one clear diagnostic comes from the changing pattern of unionisation. In 1990, around 38% of employees in Great Britain belonged to a trade union. | 1 |
Mr. Heikensten answers eight questions on monetary policy in Sweden Speech by the Deputy Governor of the Bank of Sweden, Mr. Lars Heikensten, at The Economics Association in Umeå on 19/2/98. Introduction During the 1990s monetary policy has been the subject of intensive discussion. This is not surprising, given the serious crisis in the Swedish economy at the beginning of the decade and the role that monetary policy played both then and as the crisis was building up. Since that time, monetary policy has had an explicit role to safeguard independently the value of money – a role that is new in Sweden in the post-war period. With a floating exchange rate, the decisions currently made by the Riksbank on its instrumental rate are very real and important to the behaviour of households and businesses and to economic growth. The monetary policy discussion has evolved over time. Questions and statements about monetary policy’s basic objective of price stability that were very frequent a couple of years ago are less so today. Understanding of the Riksbank’s actions seems to have increased. We are presently trying to evaluate this by asking the public how it views the Riksbank’s work and by following the media and newsletters written by the market’s players. It is also possible to form an opinion based on the market’s reactions to changes in the instrumental rates as to whether the policy is understandable. | In spite of the fact that knowledge and understanding of the Riksbank’s policy have gradually increased, I believe that from time to time there is a need to explain the basis for the policy and some of the principles that guide it today. The purpose of today’s speech is just that. I will endeavour to answer seven of the questions that I have encountered most often in recent years at meetings and in editorials and commentaries and that seem to permeate the discussion of monetary policy continually. By way of conclusion I will comment on an eighth question. Question 1: Why is low inflation good? The experiences of previous decades in Sweden and a number of international examples show that high inflation is associated with economic costs. Moreover significant costs ensue when one is compelled to gear down from high to low inflation – something that sooner or later always happens. It has been shown that high inflation is often associated with sharp fluctuations in the relative prices of goods. Rapid and abrupt price changes create uncertainty about the future for all the actors in the economy. It simply becomes more difficult to make long-range decisions. Households and businesses are compelled in practice to take greater risks and both then demand higher interest and profits. This reasoning is supported by research, which indicates that the growth rate of the economy may be lower, because the increased uncertainty reduces investment activity. In addition the risk of making erroneous investments increases. (Diagram 1. | 1 |
These enhancements could reduce barriers to trade: cutting transaction costs on international trade just by one percentage point would save firms $ in Africa alone. And with a focus on remittances as well as wholesale and retail payments, ultimately improve financial inclusion and help to alleviate poverty. That is what I call a worthwhile vision! Enhancing cross-border payments has been an objective for many decades. What is different now is that we have a clear vision, targets and a holistic approach on how to address the disparate set of underlying frictions. And the work is taking place at a time of rapid innovation in the payments industry and national payment systems, creating an opportunity to build on existing change programmes. Cross-border payments are high on the agenda for public policymakers and financial institutions. A lot has been achieved recently through the collaborative effort of authorities worldwide, including of many of you here today. We have developed frameworks on operating hours and access policies to support public authorities to enhance their domestic systems and increase interoperability. We have consulted on harmonisation requirements to ensure that the Page 3 new ISO20022 standards are used consistently around the globe. We have identified specific regulatory and legal barriers to seamless payment processing and proposed solutions. CPMI has recently published a set of recommendations[4] to improve adoption of risk-free PvP settlement in foreign exchange markets. Central banks and the private sector have successfully tested cuttingedge technologies for cross-border payments through BIS Innovation Hubs. | Mohd Razif bin Abd Kadir: Further development of the Islamic financial services industry in Malaysia Speech by Mr Mohd Razif bin Abd Kadir, Deputy Governor of the Central Bank of Malaysia, at the official launch of HSBC Amanah Takaful (Malaysia) Sdn. Bhd., Kuala Lumpur, 12 September 2006. * * * Bismillahir Rahmanir Rahim It is indeed an honour to be here this morning to commemorate the launching of HSBC Amanah Takaful (Malaysia) Sdn. Bhd. This occasion chalks up another accomplishment in the takaful industry in Malaysia, as we position ourselves towards achieving a dynamic, competitive and efficient Islamic financial system that is able to contribute to the overall development of our economy, and to enhance the integration of our Islamic financial system with the global market. The launching of HSBC Amanah Takaful (Malaysia) Sdn. Bhd. marks another significant milestone in terms of our strategy towards developing a progressive takaful industry, that is able to adapt to the increasingly challenging and competitive environment as well as adjust to the forces of change that has redefined the domestic and international financial landscape. Ladies and gentlemen, Over the past two decades, the takaful industry in Malaysia has grown progressively, underpinned by the holistic and pragmatic approach in the development of the Islamic financial industry. Indeed, we have witnessed an orderly development of the takaful industry. | 0 |
A reliance on third-party capacity The second area is the use of third-party capital and asset origination capacity, known as funded reinsurance, to support these large new business transactions that are both capital-intensive and put a strain on in house asset origination capabilities. In principle, attracting new capital to support BPA liabilities is positive – so long as the capital is aligned with the long-term risks it is intended to support. I spoke in September[11] on the emerging appetite for funded reinsurance to support new BPA business and the resulting counterparty risk. I explained that we would be engaging with insurers and other stakeholders to enhance our understanding of these risks and the most appropriate ways to address them. Our work so far has focussed on the evolving contract and collateral structuring, the counterparty risk management frameworks, internal model approaches and firms’ stress and scenario testing. Page 5 We are exploring these aspects carefully and are increasingly focussed on four key elements: 1. Recapture events: We have looked at the circumstances under which the risks that insurers have ceded might end up back on their own balance sheets. Default of the reinsurer is only one of them. Voluntary and automatic contractual termination triggers linked to solvency coverage ratios, credit ratings, or legal and regulatory environments bring material uncertainty to the recapture triggers. 2. Wrong way risk: We have observed the emergence of reinsurers with newer business models narrowly focused on credit markets where diversification benefits might be less evident[12]. | The Minister of Finance was decisive, and after a single “one-on-one” discussion with me, he gave the approval for the Central Bank to proceed with implementation of the intervention plan. The rest is history. The newly appointed directors and the managing agents, with the Central Bank in the background, were able to stabilize the bank within a short period of about 2 weeks. Thereafter, within a few months, the bank was able to infuse new capital and thereby qualify to exit from the close monitoring system of the Central Bank, in less than a year. This episode will be an important lesson for those who wish to study the way Governments and Central Banks should cooperate to bring stability, in the face of any instability in the banking sector. It also confirmed the validity of an important annotation in Exter’s Report. Let me quote once again from the first Chapter of his Report: “Many of its (Central Bank’s) powers may go unused for long periods, because they are designed for particular situations, some of which may never arise. Others are intended for use only in crises or to forestall a crisis, but prudence dictates that they be included now, so that they will be at hand in case of need. …”. | 0 |
Durmuş Yilmaz: Economic outlook for Turkey Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the Bursa Chamber of Commerce and Industry, Bursa, 11 January 2007. * * * Distinguished industrialists, businessmen, dear guests and members of the press, This is the first of the series of meetings planned for 2007, which has become a traditional platform aiming at bringing the representatives of the real sector together directly. Firstly, I wish to thank Dünya Newspaper and Bursa Chamber of Commerce and Industry for organizing this meeting and thereby giving me the opportunity to exchange information and views about the economic outlook with the distinguished industrialists and businessmen like you. In the first part of my speech, I would like to present a general evaluation of the year 2006 with a special emphasis on inflation, and to explain our policy implementations and to share our forecasts regarding 2007 in the light of the current data available. Then, I would like, once more, to mention about growth, employment and current account deficit that we have shared with the public many times, constituting the major items on the economic agenda. I will then elaborate on what should be done in this regard in the medium and long term. Distinguished Guests, The primary objective of the Bank is to achieve and maintain price stability, as laid down in the Central Bank law. | The rising expenditures, especially the investment spending increase the demand for machinery and equipment; and this demand can be met by imports due to the structural peculiarities of the Turkish economy. This process leads to the enlargement of the difference between the domestic savings and investments, which is an indicator of the current account deficit and causes the need for foreign resources to arise. With the help of the macroeconomic stability and the inflow of foreign capital, Turkish currency is appreciated and the process is reiterated giving way to an increase in the current account deficit in the environments where this resource can be provided and foreign borrowing becomes an option. A similar process was experienced due to the improvements recorded in the macroeconomic stability in the last five years and remarkable increases were observed in the current account deficit owing to the effect of high speed of growth. The current account deficit reached 34.4 billion USD in October per annum and the ratio of the current account deficit to national income in the third quarter of 2006 became 8.5 percent. However, the reasons besides the financing method should be examined in order to determine the extent of the risk that the current account deficit poses with regard to the macroeconomic balances. Current account deficit today basically originates from the faster increase of investments in comparison with the savings. Additionally, high increases observed in energy prices and especially crude oil prices influenced the increase in current account deficit in a vast amount. | 1 |
Benoît Cœuré: Interview in Corriere della Sera Interview with Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, in Corriere della Sera, conducted by Mr Danilo Taino on 27 January 2015. * * * In the last few days you have said that Tsipras must “continue to pay”. I said that there’s dual responsibility. Greece must continue to abide by the rules of the game: we are a community of purpose. On the other hand, Europe has to accept the democratic change in Athens, even if it is based on policies that are different from the ones before. No renegotiation of Athen’s debt, then. Not even an extension of maturities? Greece’s debt is made up of various components. As regards the government bonds purchased by the ECB as part of the Securities Markets Programme launched in 2010, we cannot grant even an extension of maturities: it would be like granting a loan to the country and that is prohibited by the treaties. As regards loans given to Athens by European countries, that’s not for us to decide. You’re indifferent? No, I’m saying that any decision that is made must have a goal, namely for the reforms in Greece to continue. There will probably be different reforms from the ones expected, given that there’s now a new government. But we have to be consistent: the country still needs reforms. Tspiras says that the troika is now finished in Greece. | The reality is that many Asian governments and corporations receive credit ratings that are lower than the minimum thresholds acceptable to institutional investors, including the managers of official reserves. There is certainly merit in strengthening the dialogue between the Asian issuers and the international credit agencies to facilitate a better understanding of the Asian situation by the rating agencies and improve the transparency and accountability of the rating process. There is also a case for considering whether it is advisable or viable to establish national or regional credit rating agencies, with or without support from the authorities. On top of these, I think there is a need to consider the introduction of market-based mechanisms for credit enhancement or guarantees. In Asia, I am aware of problems encountered by private sector initiatives in this field. It has proved difficult objectively to assess and manage the risks involved in such operations. Indeed, one feature of the recent explosion of international finance is market volatility that has been much higher than had been thought possible in the light of historical experience. But I think we have learnt from the recent years of financial turmoil and I hope we are now in a better position to identify and therefore properly price the risks involved in the provision of credit enhancements or guarantees. | 0 |
The serious consequences of overheating at the end of the 1980s also seem to have created a general insight that sacrifices were necessary for a time to bring the Swedish economy into a state where the conditions for sustainable growth and high and stable employment could be created. The problems after the high inflation years have probably also contributed to creating a broad support for the inflation targets of monetary policy. Laboriously won improvements must be safeguarded It is important now both for macroeconomic policymakers and otherwise in Sweden to avoid as far as possible the reappearance of the problems that were overcome with great effort in the 1990s and to avoid new imbalances being built up. The role of the Riksbank here is to ensure that price stability is maintained and to ensure the stability of the payment systems. After the financial crises that affected the world economy during the 1990s, a number of proposed measures aiming at preventing new crises have been discussed in various international contexts. Many measures have aimed at increasing the so-called transparency of the financial systems so that the agents in the markets were able to base their decisions on realistic assessments. My intention here is primarily to discuss the role that monetary 1 BIS Review 33/2000 policy can have to counteract financial imbalances being created as a consequence of rising asset prices. Let me first briefly describe the role of monetary policy in an economy that is in balance. | However, attention should still be paid to the downward pressure on prices stemming from weak demand, although the pressure has weakened given some recovery in private demand. In the financial market, the overnight call rate has generally stayed near zero, and financial institutions have been confident about the availability of overnight funds. The amount outstanding of funds in the call money market increased slightly in late March, and decreased thereafter. Interest rates on term instruments rose slightly toward end-March, the end of the fiscal year, but have weakened somewhat since the beginning of April. The Japan premium remains negligible. Yields on long-term government bonds rose marginally in mid-March and stayed above 1.8%, but declined somewhat from late March and are recently back in the range of 1.7-1.8%. The yield spread between private bonds (bank debentures and corporate bonds) and government bonds continues narrowing, primarily that between private bonds with relatively low credit ratings and government bonds. Stock prices weakened almost to 19,000 yen in mid-March, but then rebounded and are currently moving between 20,000 and 21,000 yen. In the foreign exchange market, the yen strengthened against the US dollar toward the end of March. However, it weakened at the beginning of April and has been traded at around 105 yen since then. With regard to corporate finance, private banks have basically retained their cautious lending attitude. However, constraint that had been caused by severe fund-raising conditions and insufficient capital base has eased considerably. | 1 |
Sharing the burden, as the cost of addressing the current crisis is more than a single party could bear on their own. The state shall not compensate parties for lost opportunities for profit, nor for losses due to preventative measures imposed to fight Covid-19; it is not possible to avoid losses or damages completely. Financial support is extended with the limited goal of surviving this current period and is only extended to economic entities and companies that enjoyed a strong position, ran with efficiency, and were contributing to the economy prior to this crisis. Ensuring that the economic cycle keeps running, so that companies that had suspended business may resume their activity as soon as life goes back to normal. Protecting the different segments of the national economy against damage sustained due to interdependence of economic sectors. Solutions and remedies provided through the stimulus package are based on currently available data and present conditions. Should the crisis stretch much longer into the future, other remedies would be presented that better correspond to new data and conditions. To come up with a balanced and comprehensive approach, the committee specified the issues that must be addressed and for which stimulus is needed within four main segments: the household, business, banking, and government sectors. Twenty-two measures had been presented to stimulate the economy, 11 of which were included in Council of Ministers Resolution (455). | We plan these trips so I can meet with a diverse array of representatives. This allows me to get a comprehensive picture of economic conditions in the region and a fuller understanding of the major issues and concerns. This is our fifth trip to Upstate New York in the past few years. Other recent trips have taken us to Northern New Jersey, the boroughs of New York City, Long Island and Fairfield County, Connecticut. My outreach trips complement the ongoing efforts of the New York Fed to assess conditions in the Upstate New York economy and throughout our District. We monitor economic performance on a monthly basis through special indexes we have created and through our monthly surveys of New York State manufacturers and business leaders in the nonmanufacturing sector. We also get important input on economic conditions from our Upstate Advisory Board, whose members play important roles in the Upstate economy. We conduct a biannual poll of small businesses to understand their credit needs and availability. The results of one particular poll led us to develop a series of clinics for small businesses to help them take the next step to access capital and identify new sources of funding. We have constructed a consumer credit panel that allows us to better understand the financial condition of U.S. households and students. More recently, we extended this national analysis to include more detail about the states in our district, including a profile of households in New York State and the Albany area. | 0 |
Investors probably bore in mind Iceland’s high sovereign rating in their decisions but ignored the risk that the króna might still depreciate, given that the real exchange rate was far above the average for the past quarter-century. At least, this risk was obscured by high interest rates. In the turmoil in early 2006, various investors in glacier bonds, institutional investors in particular, are likely to have closed their positions from autumn 2005 and thereby contributed to the depreciation of the króna, losing sizeable funds in the process. Glacier bond issuance has gone in waves, largely in line with global movements in carry trades. It was substantial in autumn 2005, dropped sharply in the first half of 2006, then picked up in the autumn and has been fairly large since then. Currently the outstanding amount of glacier bonds is equivalent to roughly a third of GDP. The first issues matured in autumn 2006 and several others since then. Maturities have not sent tremors through the FX market, even when relatively large issues mature. This is consistent with the experience of countries such as New Zealand, where “kiwi bonds” denominated in the New Zealand dollar have been issued for much longer than glacier bonds. Large issues of glacier bonds will mature shortly and it cannot be ruled out that they will cause some unease. There have been a number of effects from the glacier bond issuance. | Now I would like to review recent developments in the Puerto Rico economy and then outline for consideration and discussion several steps to help put the Island on a path toward fiscal health. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. Economic conditions in Puerto Rico Let me turn to economic conditions in Puerto Rico. As you are well aware, the news has not been good. Puerto Rico’s economy has been in a slump for nearly a decade. After declining for five straight years, real (inflation-adjusted) gross national product (GNP) rose 0.9 percent in fiscal year 2012 and only 0.3 percent in 2013, rates considerably below the respective U.S. mainland growth rates. A monthly index produced by the Government Development Bank for Puerto Rico paints a similar picture of an economy that has stabilized but at a depressed level. We are finally beginning to see some signs of improvement in economic activity on the Island, though there is little evidence to suggest that the strong recovery that we seek has yet taken hold. Puerto Rico’s labor market remains weak. Overall payroll employment fell by about 10 percent between 2006 and 2010 and has leveled off since then. | 0 |
12 All speeches are available online at www.bankofengland.co.uk/speeches 12 earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report”. Given that, why didn’t we vote in May to raise Bank Rate? The key thing to note here is the dependence on the data. Did the economy evolve broadly in line with our February projections? The simple answer to that question is no. Instead from early April we were faced with a string of much less encouraging data for the early part of the year. The March PMIs fell sharply and only partially reversed in April. Inflation surprised on the downside. GDP growth in Q1 was 0.1%. Consumer confidence fell. And consumer credit growth slowed sharply in March. Of course as always with data, there were more layers to the story. Most importantly, our staff analysis suggested the low GDP growth figure was likely to be heavily influenced by the bad weather we had in March. That was partly because the weather is likely to have had a dampening effect on activity – and the pattern of activity was consistent with this. And partly because GDP is typically revised up more than usual after periods of heavy snow: this chart (Chart 10) illustrates the size of revisions in previous periods of snow. | And, lastly, while it is still early days, our judgements on the behaviour of the economy so far in 2018, and the effects of the snow, appear to have been borne out. Nevertheless, our view of the outlook and the prescription for monetary policy remains conditional on the data, how they evolve and what pointers they give to the future. It is likely that supply, demand and the exchange rate will continue to move around as Brexit negotiations progress and external conditions change. 17 And the data and the outlook will change to reflect all of these. 16 Again, for more details see Box 5, “How has the economy evolved relative to the February 2017 Report”, in the Prospects for Inflation section of the May 2018 Inflation Report. In fact inflation overshot by a little more than we had expected, partly reflecting the rise in oil prices over the previous year, demand rotated by a greater degree than we had expected, and productivity growth slowed by more than we had expected. And, as discussed above, demand fell back by less than we had initially predicted in the August 2016 Inflation Report. But the broad shape of the economic response to Brexit was in line with what we had forecast in February 2017. | 1 |
So, from a cyclical perspective, the economy is in reasonably good shape. Over the longer term, however, the U.S. economy faces significant challenges. On the positive side, economic expansions don’t die of old age, and there appear to be few imbalances in the economy that could lead to the current expansion ending. But, in order for this to remain the case, it is important that fiscal policy and monetary policy are well aligned going forward. It is also important that the United States retains sufficient fiscal capacity so that fiscal policy can support the economy when the next cyclical downturn does occur. If fiscal policy can play a greater role in promoting macroeconomic stability, it would likely reduce the need for monetary authorities to take extraordinary actions to support economic activity. There are other structural issues worth noting. In particular, productivity growth has been anemic over the past few years, while income inequality has increased and income mobility remains low. As a consequence, the gains in living standards generated by the current business expansion have been modest compared to previous expansions, and these gains have not been widely shared. Much more could be done both locally and nationally to increase the economy’s potential to perform better for a broader array of our citizens. The outlook for growth and inflation The U.S. economy has been expanding at a moderate rate. Growth has averaged about 1.8 percent this year and seems likely to continue at or slightly above this pace in 2017. | They have all done high quality research and have secured good placements, two of them at the Banco de España. I am sure that we will see many papers from their theses appearing in academic journals. The 20 students who graduate today from the Master in Economics and Finance come from seven different countries: Argentina, Australia, Colombia, Chile, China, Costa Rica, Italy, and Spain. They will join more than 700 alumni of CEMFI's Master programme. Most of the students of this year's class will continue their graduate studies towards a PhD, five of them at CEMFI, while the rest have found or are about to find jobs in accordance with their high qualifications. It is for me a great privilege and honour to be given the opportunity to present the certificates of the Master Degree in Economics and Finance to the students in the graduating class. I am also pleased to announce the winner of the "Luis Ángel Rojo Prize" for the best student of the class of 2023 of the Master in Economics and Finance. The winner is: Kenneth Lai. Congratulations to Kenneth and to all the students in the graduating class. Finally, I would like to conclude my remarks by once again thanking Manuel Arellano, Samuel Bentolila, and Rafael Repullo for their commitment to CEMFI over more than 30 years. | 0 |
Moreover, the Government Bill (1997/98:40) lays down that in order to increase the possibility of democratic control, the statutory objective should be given its specific content by the Riksbank. Furthermore, in the prefatory documents it is said that as an authority under parliament, the Riksbank shall self-evidently support the general goals of economic policy, for example sustainable growth and full employment, in so far as they do not conflict with the objective of price stability. It was not considered necessary to legislate these obligations. 2. The inflation target and price effects of deregulations Market deregulation can have considerable effects on price formation. The immediate effect of a deregulation is often that the price falls, sometimes almost at once, so that the rate of inflation is lowered for the time being. All else equal, the rate of inflation then returns to the initial level as the months on which the statistical comparison is based move forward. Normally, however, deregulations also affect the conditions for competition and price formation in the longer run. I should add here that rising competitive pressure can also affect productivity but the economic effect of productivity growth is something I shall be considering later. A particular, limited deregulation need not call for measures of monetary policy. | The economy needed a new nominal anchor in order to return to a disinflation path. Inflation targeting was chosen as “the best of all bad” alternatives at the time. Such a sudden switch from a fixed exchange rate system to inflation targeting required a radical and fast change in the central bank’s mentality. This was perhaps the biggest challenge that the CNB had to face. Over the past five years it has involved much work on improving our forecasting tools, leading to substantial development in our internal analytical processes. At the beginning of 2002, the CNB settled on a new forecasting process. This integrates expert judgment and short-term analyses – which were the key pillars of the CNB’s forecasting tool-kit in the first years of inflation targeting – with a macroeconomic model that provides a consistent framework for the policy analysis. An important element of this step was a switch from a forecast with a fixed-interest-rate assumption to an unconditional forecast that includes a reaction function of the central bank. The initially established quarterly projection model was a small-scale model belonging to the second generation of such models. It was thus relatively simple and arguably missed many important links in the economy. Nevertheless, it was already quite close to the state-of-theart among the inflation-targeting central banks around the world, and intense work has been in progress to build a higher-generation model. As a result from July 2008 the CNB’s forecast is based on latest generation general equilibrium model, which is fully based on micro specifications. | 0 |
One reason was that the assumption of a constant repo rate often resulted in our forecasts for inflation differing from those of other forecasters; being higher when inflation was rising and lower when inflation was declining. This caused confusion in the discussions on monetary policy. Since October last year, our forecasts are instead based on the technical assumption that the repo rate will develop in line with market expectations regarding the future repo rate, as expressed in the implied forward rates. This has made it easier to compare ourselves with other inflation forecasters and also to assess our monetary policy. 2 The new interest rate assumption we now apply means that we can no longer use our old policy rule. If the forecast with a constant repo rate was close to two per cent, the repo rate would be held unchanged according to the old policy rule. If the forecast according to the new outlook shows inflation close to two per cent, the repo rate will normally develop in the way reflected by market expectations. This could mean that the repo rate, given the underlying inflation forecast, should be raised or lowered in a number of stages over the coming two-year period. The new outlook thus means that the monetary policy discussion is based on an interest rate path throughout the entire forecast period, while the old policy rule only took into account what should be done at the time the decision was made. | The increase in the repo rate is in line with the repo rate path expected by the market and which was used as a basis for the inflation forecast. On the one hand, the high GDP growth indicates that inflation could rise more quickly in future than we assumed in June. But on the other hand, productivity has been slightly stronger than expected, which has contributed to holding back cost developments and the rate of increase in unit labour costs. This has a dampening effect on inflation. However, there are indications that the labour market is beginning to strengthen, which should contribute to rising cost pressures. Our overall assessment was that inflation will increase and will be in line with the target a couple of years ahead, given that the repo rate is increased approximately in line with market expectations. Our assessment at the monetary policy meeting was that the upside risks and downside risks were roughly equal. Among the upside risks we mentioned were higher energy, oil and electricity prices, with a risk of contagion effects and a higher rate of wage increase following on from good growth in the economy. The downside risks included the continued strong domestic productivity growth and international price pressures. With regard to household indebtedness and house prices, we expect that the growth rates will slow down, but we have not yet seen any certain signs of this. The picture painted earlier in the year still remains largely unchanged. | 1 |
Mr Carse tackles the subject of “restructuring and workouts” in Hong Kong Speech by Mr David Carse, a Deputy Chief Executive of the Hong Kong Monetary Authority, to the American Chamber of Commerce YPC/Financial Services Committees Luncheon Meeting, held in Hong Kong on 29 April 1999. Ladies and gentlemen, I am very grateful to Amcham for giving me the opportunity to speak to you today on the subject of restructuring and workouts. I am conscious of the fact that I am following in the footsteps of Chris Barlow of PriceWaterhouseCoopers who spoke to a different gathering of Amcham on the same subject only a month ago. To return to the subject so soon may seem like overkill, but I think that it is a reflection of the fact that there are few more important issues for Hong Kong and indeed the region as a whole at present. As the Governor of the Central Bank of Thailand has rightly said: “Debt restructuring is the key to an early economic recovery based on the survival of viable business operations, while providing creditors the opportunity for maximum loan recovery.” In this speech, I intend to offer some thoughts on how the process is going in Hong Kong and how perhaps it might be improved, as well as explaining the role of the HKMA in workouts. A workout can be defined simply as a private contractual arrangement to assist companies in financial difficulties. | It would do so by imposing a moratorium on legal proceedings against the company which could be extended for up to 6 months or even beyond with the consent of the creditors. During this time a provisional supervisor would take control of the company and formulate a restructuring proposal to be put to creditors which are bound by the moratorium. A statutory framework of this kind has its own drawbacks, but the general view seems to BIS Review 45/1999 4 be that it would be particularly useful in giving a breathing space to smaller companies and freeing the lead banks from the effort of having to keep creditor banks in line in such cases. The non-statutory form of workout will however still be required even if the proposed legislation on provisional supervision goes ahead. To make this work more effectively, it would appear to be timely to review the operation of the HKAB Guidelines a year after they were launched. It may be desirable to issue additional guidelines on various aspects of the workout process, for example on the role of the steering committee, the operation of a standstill or the provision of new money. There may also be scope for clarification of the role of the investigating accountants, in particular whether they should be appointed by the borrower, as at present, or by the banks. | 1 |
But the digitisation of payments is diminishing the role of cash and its capacity to provide an effective monetary anchor. A central bank digital currency would offer a digital, risk-free standard and facilitate convertibility among different forms of private digital money. It would uphold the singleness of money and protect monetary sovereignty. We are advancing with our digital euro project and aim to complete our investigation phase later this year. Furthermore, the tokenisation of digital finance may require central banks to modify their technological infrastructure supporting the issuance of central bank money for wholesale transactions. This could involve establishing a bridge between market distributed ledger technology (DLT) platforms and central bank infrastructures, or a new DLT-based wholesale settlement service with DLT-based central bank money. [41] We will involve the market in the exploratory work that we have recently announced. [42] Conclusion To conclude, crypto-assets have been promoted as decentralised alternatives promising more resilient financial services. However, the reality does not live up to that promise. The blockchain technology underpinning crypto-assets can be extremely slow, energy-intensive and insufficiently scalable. The practicality of crypto-assets for everyday transactions is low due to their complex handling and significant price volatility. To address these drawbacks, the crypto ecosystem has changed its narrative, favouring more centralised forms of organisation that emphasise crypto speculation and quick profit. But recent events have exposed the fragility of the crypto ecosystem, demonstrating how quickly confidence in crypto-assets can evaporate. | Jean-Pierre Roth: No frontiers in monetary policy – from the fight to avoid internationalisation of the currency to the internationalisation of monetary policy Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Swiss Institute of International Studies, Zurich, 6 May 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * In view of the challenges with which it has been faced, the Swiss National Bank (SNB) demonstrated its adaptability time and again. Over the past thirty years, for instance, it abandoned its endeavours to prevent the use of the Swiss franc as an international currency. Moreover, it has gradually incorporated international elements into its monetary policy strategy and its monetary policy instruments. The goal when making these adjustments was always to improve the effectiveness of monetary policy in order to protect the country from any inflationary trend. In managing the current crisis, both the internationalised monetary policy strategy and the internationalised policy instruments have served the SNB well thus far. BIS Review 552009 1 | 0 |
The range of risks to be met by international business is thus far broader 3 The Economist, Global Finance Survey May 2003. BIS Review 120/2006 3 than in the past and demands permanent monitoring and continuous improvement of risk management at all levels. Financial, operational and reputational risks are all new by-products of globalisation, and we are only just beginning to come to terms with them. A survey of corporate directors quoted by the Economist in 2004 showed that a clear identification of risks is still too difficult for many well trained CEOs: 36% of the corporate directors polled actually admitted that they did not fully understand the risks faced by their company. Implications for the private sector With globalisation, your lives have undoubtedly become more difficult. Operating at a global level is infinitely more complex than the regional approach of the past. Globalisation is a challenge for business management. It entails many sources of uncertainties but also offers many vehicles to cope with risk. Can we beat these new risks? No. We must prepare ourselves to face them. We can only insure against some risks, but we cannot predict where the next blow will come from. I think that this is the most important characteristic of our times. What has increased is not our insecurity. We are, in many respects, safer than in the past. This, I hope, is what I have managed to convey to you. | Svein Gjedrem: Monetary policy and wage growth Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), to the general assembly of the Employers’ Organisation NAVO, 11 June 2002. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 22 May and on previous speeches. Please note that the text below may differ slightly from the actual presentation. * * * Norway’s economic policy is based on the guidelines for fiscal and monetary policy. The guideline for fiscal policy states that the use of petroleum revenues over the central government budget shall be equivalent to the expected real return on the Government Petroleum Fund. This means that all the capital in the Fund is being utilised. Monetary policy is oriented towards low and stable inflation. Historically, periods of high inflation have always been followed by a downturn. Low and stable inflation therefore fosters stability in the economy. Establishing guidelines for economic policy is not new. Both fiscal and monetary policy have been subject to a rules-based framework throughout the post-war period, with the exception of the last half of the 1970s and the first half of the 1980s. Monetary policy has had a clear anchor since 1986. The phasing in of petroleum revenues in the central government budget shall be equivalent to the expected return on the Petroleum Fund. Most of the phasing in of petroleum revenues will take place over the next ten years. | 0 |
In doing so, we have endeavored to ensure that the “New Basel Accord” is not merely another set of rules, but rather a framework that recognizes the important innovations in risk management that banks have achieved and encourages continued improvement over time. In my remarks today, I’d like to share with you some thoughts on how bank supervisors have worked to embrace and encourage those developments. My remarks will cover three related areas. I’ll begin with thoughts on how enhancements in banks’ risk management processes, driven by business imperatives, have concurrently led supervisors to move to a more process-oriented, risk-focused approach to supervision. Next, I’ll spend a few moments discussing how provisions in the New Basel Accord - or “Basel II” - support further changes in our supervisory approach, and promote further enhancements in risk management. Finally, I will describe how these developments will be coming together in our supervisory approach going forward - particularly in terms of our supervisory expectations for management of market risk, credit risk, and operational risk by large banking organizations. While I will offer my views as a former banker and now as a bank supervisor, I believe that many of the themes offer insight for other sectors of the financial services industry as well. BIS Review 5/2003 1 Complementary effort by Banks and Supervisors to Assess Risk Let me begin by sharing some thoughts on the efforts banks themselves have undertaken to develop a more forward-looking approach to risk management. | Moreover, it intends to allow already established companies or start-ups that aim to provide payment services to be involved in other business activities allowing them to diversify the business risk and freedom to grow. Open Banking – Benefits, challenges and risks Digital disruption is the driver that enables banks to keep pace with customer demands. By adopting the right digital business model, banks can take advantage of open banking to unleash new business value. Being an open bank means operating like a platform company, with a business model that connects people and processes with assets and a technology infrastructure to manage internal and external users’ interactions. Open banking—a platform-based business approach— is a new way of how banks generate value, born out of the increasing pressures from regulations and competitors. Outside the banking domain, industry leaders like Google, Apple, Facebook, Amazon and Alibaba are unleashing technology’s power by developing platform-based business models and taking advantage of the strategies they enable. Since the beginning of 2018, sharing proprietary data with third parties is not an option for European banks, with PSD2 in the European Union. Investments are being made to make this a reality; almost $ billion was invested in PSD2 enabled services in 2016 (up to 200 percent from 2015)1. 2/5 BIS central bankers' speeches In the core of Open banking are the application programming interfaces (APIs), which has also been used and facilitated by eBay starting in early 2000s, and also by technological giants like Google, Apple, Uber, and so on. | 0 |
The Riksbank now publishes a twice-yearly report analysing the stability of the Swedish financial system. In a crisis situation, the central bank plays a very important role. It may then need to go in and act as lender of last resort, that is, to grant emergency liquidity assistance (ELA) to banks and financial companies if this is considered necessary to prevent the financial system from collapsing. The two objectives of price stability and financial stability are related to each other in different ways, in addition to both being important components of an efficient payment system. The stability of the financial system is of course a necessary condition for a policy aimed at price stability, as the latter is fairly meaningless if the country is threatened with economic collapse. The financial stability objective can therefore in one sense be said to be superior to the objective of price stability. At the same time, it is very probable that price stability in the long run promotes financial stability, for instance, by making the price system function better and thereby reducing the risk of bad investments. However, price stability is no guarantee of stability in the financial system, which is illustrated, for instance, by the problems in the Japanese banks at the beginning of the 1990s. There is thus no reason for central banks to focus solely on the price stability objective and thereby assume that financial stability will follow automatically – both objectives are important. Other objectives than price stability and financial stability? | Of course a fall in house prices benefits buyers just as it hurts sellers so there is no necessary link to wider consumption. But the belief that in housing you could have your cake and eat it – that is your house would not just provide a place to live but would also provide an assured capital gain – has become widespread and the shock to expectations appears to be having a wider impact on confidence. There are also signs in some of the more timely survey indicators of consumer spending that weakness is spreading there too. If nothing else were going on, the MPC would expect this prospective weakness in overall demand to put downward pressure on inflation in the medium term and that would be pointing to further rate cuts. The commodity price cycle However, there is something else going on! Because if the US still drives the financial cycle, it has become less dominant in the world economy. According to the IMF, emerging and developing countries together generated around 70% of world growth in 2007, with China alone generating around 25%. And the world economy has been and still is growing strongly. That is what has been driving the rise in oil and commodity prices. For example, since the start of 2005, China has accounted for almost all of the increase in world demand for key metals such as aluminium, copper and zinc. And since 2000, around one-third of the increase in world demand for oil has emanated from China. | 0 |
Christian Noyer: European financial markets – opportunities for growth and value creation Speech by Mr Christian Noyer, Governor of the Bank of France, at the First French-Indian Financial Forum, Paris EUROPLACE, Mumbai, 16 May 2007. * * * Ladies and Gentlemen, In the absence of Mr Mestrallet, Chairman of Paris EUROPLACE and CEO of Suez Group, who cannot be with us today because of last minute commitments that require his presence in France, I have the great pleasure of welcoming you to our first French-Indian Financial Forum in Mumbai. India’s rapid economic growth in recent years makes it an attractive investment destination for international investors. And the economic revival in Europe also offers interesting opportunities to Indian investors and issuers wishing to diversify their investment strategy. That’s why Paris EUROPLACE believes that we all have a common interest in attending this forum today to discuss business opportunities between European and Indian Financial Markets. I would like to express my warm thanks to my friend Dr. Rakesh MOHAN, Deputy Governor of the Reserve Bank of India, for being with us today. We are also very honoured to welcome Mr Ashok WADHWA, Chairman, Capital Markets Committee of FICCI, the partner of Paris EUROPLACE in the organization of this forum, Mr Ravi NARAIN, Managing Director and CEO of the National Stock Exchange of India Ltd and Mr Peter KURIAN, Chairman of the Association of Mutual Funds in India, as well as all the other distinguished representatives of the Indian and French financial communities. | As you may know, Paris EUROPLACE brings together the whole range of market participants – issuers, investors and intermediaries – in order to contribute to the development of European capital markets and promote the Paris financial center. The financial industry in India, as in Europe, is expanding significantly. And we have already seen in the past few years the flourishing of partnerships between French and Indian financial institutions: such as in the asset management industry, the joint venture between Sundaram and BNP Paribas Asset Management, or the SGAM and SBI Mutual Funds partnership; in insurance services, the Bharti and Axa Life Insurance partnership, and the joint venture between SBI Life and Cardiff; and in online brokerage: current developments involving Cortal Consors and Geojit. It is for this reason that it was decided by Paris EUROPLACE to focus our program on the development of opportunities and potential new partnerships between Mumbai and Paris, as well as to review how the expertise of the Paris financial marketplace can be used and leveraged. Let me highlight the following questions: - Why has the European financial market become a major pillar of international finance? - And what are the key advantages offered by the Paris financial market place? 1. First, why has the European financial market become a major pillar of international finance to compare favourably with the other large markets of the world? | 1 |
We identify common control profiles for process types and assess their effectiveness based on risk ratings and past risk events. That informs the second line’s recommendations to business areas on control protocols. We also use the common control profiles to assess where we are over-controlled and have the opportunity to shift resources to other priorities. The risk information collected and the risk analysis performed by the second line is the basis for operational risk reporting in the Bank’s risk profile report that is presented to the Risk Subcommittee, the Management Committee, and the Audit and Risk Subcommittee. The risk profile report shows the Bank’s most significant risks (including operational risks) along with a risk rating and the status of mitigating actions and mitigation plans. In addition, the report highlights significant and notable risk events along with the event’s impact, root causes, and remediation activities. We have found that the risk profile report provides the necessary flow of information to create meaningful committee dialogue around risk issues, feedback to business areas, coordination across Groups and lines of defense, and when necessary, additional escalation. Past, present, and future As the theory and practice of operational risk management and the complexity of our operations have evolved, so has our approach. In the mid-2000’s, the Bank formalized its operational risk program. | Most familiar are likely to be the Bank’s execution of market operations to implement monetary policy directives of the Federal Open Market Committee and financial supervisory activities. As significant in the Bank’s operational profile are the financial services that the Bank provides to the U.S. government, financial institutions and businesses, and to foreign central banks and international institutions. Notably, the Bank operates the Fedwire® electronic payments and securities transfer service, which is a critical part of the nation’s payment system infrastructure. The Bank performs fiscal agency functions for the U.S. government including the auction of Treasury securities, and it provides correspondent banking and custody services to foreign central banks and international institutions. 1 The Bank’s risk framework Operations imply operational risk, so how does the Bank approach operational risk management? Let me back up for a moment, since a useful starting point to answer this question is to begin by describing the Bank’s overall approach to managing risk within the Bank’s risk framework. In particular, the risk framework is designed to enable the Bank to understand and communicate its risk profile to key stakeholders, assess how risks may change in response to planned activities or changes in the environment, take action to ensure risks remain at acceptable levels, recover quickly and effectively from risk events, and continuously improve the effectiveness and efficiency of the risk management. As part of the risk framework, the Bank defines risk management roles and responsibilities using the three lines of defense model. | 1 |
The fact that the increased lending results in an equal increase in deposits is due to all transactions in Swedish kronor being made through the banks’ accounts in the RIX payment system, which the Riksbank administers. The loans are distributed in the Riksbank’s auctions by means of the banks presenting bids for how much money and at what interest rate they want to borrow at each separate auction. Immediately after the auctions are over the money is distributed between the banks according to the bids that have come in. The Riksbank credits an amount corresponding to the allocation in the respective bank’s account in the RIX system. Then when the banks' transactions and payments are made during the day, the allocation of money between the banks changes, but the money never leaves the system. As we have already noted, the Riksbank has lent money to the banks on a wide scale since last autumn as a result of the financial crisis. However, monetary policy motives have gradually also gained significance in the lending. As the repo rate is close to zero and can in practice hardly be cut further, a need has arisen to supplement monetary policy with loans at longer maturities and at a fixed interest rate to also bring down slightly longer rates. | After this I shall discuss in greater depth the individual items on the balance sheet, to see how they have been affected over the past year. I shall conclude by looking ahead and discussing the question of when and how the extraordinary measures can be phased out. The Riksbank’s balance sheet Let us begin by looking at how the Riksbank’s balance sheet looks in rough outline under normal circumstances and at how it has changed during the crisis. The Riksbank’s balance sheet, like those of other companies and organisations, reflects the activities we conduct. The liabilities side shows how our activities are financed and the assets side show what the financing is used for (Figure 1). Figure 1 The Riksbank’s balance sheet Assets Gold and foreign currency reserve Lending to banks Other assets Liabilities Banknotes and coins Deposits from banks Other liabilities Own capital Under normal circumstances the Riksbank primarily finances itself by issuing banknotes and coins and through its own capital. Banknotes and coins in circulation normally comprise the largest individual item on the liabilities side. Own capital is the next largest. In addition, the BIS Review 160/2009 1 liabilities side in principle consists of deposits from banks and the item “Miscellaneous”. These items are usually small and less important than banknotes and coins and own capital. The Riksbank’s assets normally consist mainly of gold and the foreign currency reserve. | 1 |
2 For instance, a long-term U.S. government bond can be a safe investment for a life insurance company (because the security carries no credit risk and matches the duration of the life insurance company’s liabilities), but it is not money. 3 See, for instance, Thomas Eisenbach and Sebastian Infante, “What Makes a Safe Asset Safe?,” Federal Reserve Bank of New York Liberty Street Economics (blog), November 27, 2017. 4 See Benjamin Lester, Andrew Postlewaite, and Randall Wright, “Information and Liquidity,” Journal of Money, Credit and Banking 43 (s2), October 2011 and “Information, Liquidity, Asset Prices, and Monetary Policy,” Review of Economic Studies 79 (3), 2012; and Bengt Holmstrom, “Understanding the Role of Debt in the Financial System,” Bank for International Settlements Working Papers no. 479, January 2015. 5 For the purpose of these remarks, I assume that, as is largely the case in developed economies, the monetary authority is able to keep prices stable; I therefore disregard the difference between nominal and real future payoffs. 6 Assets accepted as collateral are assigned a lendable value deemed appropriate by the central bank, taking into account a haircut that reflects an assessment of credit risk, historical volatility, and market liquidity. However, the assets (and associated risks) remain on the balance sheet of the borrower. 7 Previously, the Federal Reserve had sterilized its liquidity provision by running down its Treasury portfolio. | In addition, FDIC deposit insurance complements strong capital by reducing depositors’ incentives to run on banks. Following the financial crisis, the regulatory and supervisory framework has been extended to more directly reduce risks from swings in the supply of liquidity within the financial system. In particular, the Liquidity Coverage Ratio (LCR) reduces the likelihood of runs by forcing banks to hold highly liquid assets against expected future cash outflows.11,12 Example of money fund reform Runs can also occur on nonbanks. One particularly spectacular run during the financial crisis followed Lehman’s bankruptcy and the Reserve Fund’s “breaking the buck” as investors fled prime money market funds. This run was stopped dramatically by a government guarantee. Recent work by some New York Fed colleagues provides a real-world example of how, in normal times, new regulation can induce investors to distinguish between safe and money-like assets.13 They used the Securities and Exchange Commission’s (SEC) recent implementation of measures to reform the MMF industry as a quasi-natural experiment to characterize investors’ preferences for money-like assets.14 In 2014, the SEC approved a new set of rules aimed at mitigating the fragility of prime MMFs. As of October 2016, prime funds have been required under certain conditions to impose liquidity fees on redemptions or gates halting the redemption of shares.15 Additionally, prime funds offering shares to institutional investors may no longer price such shares with fixed NAVs; instead, they must price their shares at the market value of the underlying securities, much like standard mutual funds. | 1 |
The Basel Committee has done a great deal in upgrading capital and liquidity rules. Under the direction of G20, there is long list of other regulatory reforms, including those dealing with the moral hazard problem arising from “too big to fail” and the risks observed in the OTC derivative markets. Some national authorities have introduced, or plan to introduce, measures that would separate core retail and commercial banking from BIS central bankers’ speeches 3 investment banking. Although, as I have said, very few people would dispute the need for urgent reforms, there are differences in views on whether the reforms that are underway are indeed adequate or entirely appropriate. 16. I hope that, at tomorrow’s Forum, you will have the opportunity to discuss these and other pertinent issues as we continue seeking to re-evaluate both the nature of risk management and the role of regulation and supervision in the wake of the Global Financial Crisis. Once again let me welcome you all and wish you Bon Appétit! 4 BIS central bankers’ speeches | Page 7/8 these outgoings, either benefits could be decreased or the period of benefit payments could be shortened. We do not express any preference as to which of these mechanisms is used. Making such a choice always involves a delicate balancing of interests, which is a matter for political circles rather than the SNB. Under these circumstances, however, it is clear that there is unfortunately no easy, universal solution. Adjusting to the realities of the investment world and demographic change comes at a price. And something else is also clear: in a pension system like ours, in which the key parameters are defined in nominal terms, this price will keep rising until such time as the problems are tackled. But holding on to the status quo also comes at a price. For example, we are seeing a rise in redistributions from young to older insureds, which was never intended by the system. This is also why the term ‘lifestyle’, as used in the relevant article of the Federal Constitution, targets purchasing power rather than any nominal quantity. Workable solutions can be found At the start of my talk I drew your attention to an international ranking of pension systems (cf. chart 6). In other countries, too, the population enjoys rising life expectancy while savers bemoan the low interest rates. Denmark and Sweden, for example, which are now ranked several places ahead of our country, have implemented far-reaching and thus painful measures to stabilise and modernise their pension systems. | 0 |
Clarity will be required as to whether, and if so how, such activities fall within their formal remits. In some cases they may be able to use existing tools designed for monetary policy purposes, as they did in the Covid crisis. But in others, those tools may prove poorly suited to the task, and new ways will be needed to achieve those ends, whether through outright purchase and sale operations, repo facilities or other means. 11 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 11 Second, central banks will need to decide which marketable assets should be in scope of any new tools. The most obvious candidate is government bonds, which lay at the epicentre of the dash for cash. For other, riskier, assets to qualify, a case would need to be made both that they are sufficiently core to monetary and financial stability, and that central banks can price and risk manage them effectively. It is notable that many central banks bought a range of assets beyond government bonds during the 2008-9 and Covid crises, including corporate bonds and commercial paper. Third, central banks will need to reflect on whether the use of their balance sheets to address market dysfunction should remain primarily discretionary, or whether at least aspects of that role should be formalised into standing facilities, the terms of which are known in advance. | Muhammad bin Ibrahim: Central bank collaboration in Asia – facilitating the use of local currencies for settlement of trade and investments Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Signing Ceremony of the Memoranda of Understanding between Bank Indonesia and Bank Negara Malaysia and Bank Indonesia and the Bank of Thailand, Bangkok, 23 December 2016. * * * My delegation and I are pleased to join Governor Veerathai and Governor Agus here in Bangkok today to mark the collaboration between our central banks to facilitate the use of local currencies for settlements of trade and investments. Our economies face common challenges in managing the risks from heightened volatility in the global financial markets. We can expect continued episodes of volatility to occur in the periods ahead, driven by a combination of policy uncertainties, negative sentiment and speculative activity. The arrangements signed today are part of our continuous efforts to provide the institutional and policy framework to promote orderly financial market conditions and support the efficient management of financial risks. In particular, these arrangements will enable exporters and importers in our countries to better manage foreign exchange risks by using local currencies to settle trade and investment activities. In addition to improving cost efficiencies for businesses, the increased demand for local currency financial products will also contribute towards deepening the region’s financial markets. This is important to further strengthen conditions for regional financial stability. | 0 |
2 BIS central bankers’ speeches But to be clear, the MPC has no pre-set course. The ultimate decision will be data-driven. At this point it is safest to conclude, as the MPC has, that there remains scope for spare capacity to be used up before policy is tightened and that a host of labour market, capacity utilisation and pricing indicators should be watched closely to determine how that slack is evolving. Growth has been much stronger and unemployment has fallen much faster than either we or anyone else expected at last year’s Mansion House dinner. So far this has been largely matched by indicators which suggest that there is more supply capacity in the labour market than we had previously thought. As a result of these two welcome developments, despite rapid jobs growth, pay pressures and unit labour cost growth have remained subdued.3 The MPC expects the rate at which slack is being eroded to slow during the second half of this year as output growth eases and productivity growth recovers. But thus far there are few signs of a deceleration in output growth. And a challenge in deciding when to begin normalising policy is that actual output can be observed but potential supply cannot. That is why the MPC is monitoring a broad range of indicators including coincident ones such as the behaviour of wages and prices. Of course navigating the upcoming bend in the river isn’t the end of the journey. | Rather than appeal to the stately Duchess of York on which my predecessor sailed, I will look to the trusty canoe – a craft that can navigate the most rapid and treacherous waters…provided its paddlers work in sync. Those economic currents are flowing swiftly, with the economy expanding at an annualised rate of 4% and jobs growing at a record pace.2 But there are rapids ahead, with old imbalances persisting and new ones emerging. The economy is still over-levered. The housing market is showing the potential to overheat. And the current account deficit is now at a record level. Navigating these hazards requires close coordination between all those in the boat; that is, between fiscal, monetary and prudential authorities. Tonight I want to explain the Bank’s contribution to delivering a durable expansion characterised by balance in the macroeconomy, the housing market, and the financial sector. Before doing so, I would like to join the Chancellor in paying tribute to two individuals. The first is Sir David Lees, who as Chairman of Court has overseen the transformation of the governance and responsibilities of the Bank. David, I am extremely grateful for your support during my first year as Governor. I’m also enormously grateful for the wise counsel of Charlie Bean during the past year. Always working, Charlie is tonight discharging his duties as President of the Royal Economic Society. Throughout his career, at the Treasury, in academia and at the Bank, Charlie has been a leading thinker and practitioner in the pursuit of macroeconomic balance. | 1 |
For instance, in 2007 total foreign reserves held by African countries amounted to $ billion translating into an average of 9.2 months of import cover for each country. In the same year the African Development Bank (AfDB) raised funding from international capital markets amounting to UA724 million $ million) at a weighted average cost of 6-month US Dollar LIBOR minus 32 basis points. 2 The amount raised by the AfDB accounted for a mere 0.3% of the total reserves for African countries as at 2007. Hence, an allocation of some of African countries’ foreign reserves to fund African development institutions in which most of the countries are members would greatly enhance 2 2 African Development Bank Annual Report, 2007. BIS Review 126/2009 the capacity of these institutions in the provision of development finance, thereby assist the continent’s development programmes and poverty reduction efforts. In summary, it is important for African countries to consider alternative ways of making use of foreign reserves in the financing of development using resources that are already available, including the direct use of foreign reserves in financing development and making available part of the reserves to African multilateral development institutions to augment the resources available in the financing of African development. (b) Pension funds African countries need stable sources of development finance and as long-term investment vehicles, pension funds seem intuitively to be one potentially good source of domestically generated financial resources. | This may be easier said than done as leveraging can bring transient prosperity and euphoria to everyone. To avoid committing such mistakes and the pains of de-leveraging in the future, we must stay alert and discipline ourselves not to over-spend; (b) Beware of wrong signals resulting from market failures, which may induce borrowers to wrongly believe that access to low-cost funds will never be cut off and prosperity and affluence funded by borrowing is legitimate and sustainable; (c) Strengthen market regulation to reduce the risk of market failures. Major reforms to be introduced include enhancing the policy functions for maintaining financial stability; implementing appropriate counter-cyclical regulatory measures when necessary; strengthening bank capital and liquidity requirements (Basel III); and increasing the regulation of credit rating agencies. Most of these reforms are still at various stages of implementation and may not be ready remedies for the current debt crisis in the US and Europe; (d) Understand and accept that there is no clever or easy way out of the trap of excessive leverage. While innovative financial derivatives may facilitate borrowing and leverage, or even conceal them, no financial engineering can reduce debt and achieve de-leveraging without the required reduction in public spending and the economic and social pains that the de-leveraging process generates. (e) While the government should step in to help if the financial system or the whole economy gets into trouble, this is feasible only if the government has the fiscal headroom to foot the bill. | 0 |
Regional integration: the ASEAN model We stand today on the brink of very exciting times for ASEAN as we draw closer to the vision of an ASEAN economic community in 2015. If the AEC vision was aspirational when it was first conceived, it is now clearly an imperative. This has prompted an increased momentum in efforts to realise an integrated ASEAN economic community, notably by achieving increased financial integration, higher levels of intra-regional trade and greater two-way cross-border investment flows. Like most regional blocs, the integration process for ASEAN seeks to promote greater regional connectivity which will in turn expand and reinforce the region’s growth potential. The region’s integration process however, has followed its own path. Given the diverse nature of our economies within ASEAN, the integration model adopted for ASEAN has been one that focuses on (i) strengthening preconditions through collective capacity building to promote more open market access among the economies in ASEAN; (ii) progressively reducing barriers to facilitate cross-border trade; (iii) developing the market infrastructure and enabling environment to promote efficient and effective intermediation of cross-border financial flows; and (iv) establishing the appropriate safeguards for financial system stability. Progressive financial integration through this ASEAN model has been a strategy that has augured well for the region, allowing for the greater integration at a pace that is based on readiness and strength of the financial sector. Since 2007, ASEAN has achieved considerable progress in its efforts to deepen financial integration. | Macroprudential instruments like debt service-to-income (DSTI) or loan-to-value (LTV) are very powerful in preserving financial stability, but the access to credit for households from the lower income percentile might be affected. 2 However, in the long run, these macroprudential policies might have a positive contribution to preserving the wealth of borrowers, underpinning also financial inclusion. This is also the Romanian experience. When we entered the European Union in 2007, we had to get rid of all our macroprudential measures like LTV (loan-to-value) or DSTI (debt-service-to-income), because at that time such instruments were considered to hinder the free movements of capital. We reintroduced these measures in 2009, after the outbreak of the crisis. The bulk of non-performing loans we witnessed came exactly from exposures dating back to the time when the above-mentioned measures had been lifted (2007-2008) and the most affected borrowers were from lower-income buckets. For these individuals, higher access to finance and better financial inclusion in the short run implied over the medium and long term difficulties in repaying debts and, in many cases, negative equity for their balance sheets. Our lesson is that improving financial inclusion should take place in a sustainable manner. Macroprudential instruments might hurt this inclusion in the short term, but they will support it in the medium and long run. Our active involvement in raising the degree of financial education of the population is crucial for reaching the same objective. I am very interested to hear your views and experience on this matter. | 0 |
Within limits, it has tolerated periods of above-target inflation in order to support the real economy, while at all times respecting the primacy of the inflation target. That said, it is important not to over-interpret these results. Specifically, the MPC’s average revealed lambda in the past does not reveal a simple monetary rule that can govern decisions regarding inflation control in all scenarios in the future. I stress this point because some have suggested monetary policy ought to follow, or be evaluated against, a simple rule, such as a Taylor (1993) rule. 21 But it is important to recall that, while such rules were estimates of actual stances of past policy – positive descriptions of central bank behaviour – they have been reinterpreted as guides for what the central bank should do in all circumstances – normative prescriptions. Taking the past as a strict guide to the future is to assume that the nature shocks does not change and that the structure of the economy remains constant. Such stability is hard to square in an era of financial crises; deep, variable technological change; and potentially large shifts in openness. In a changing world, monetary policy decisions would more properly emerge from optimal control approaches to monetary policy, which respect the different nature of shocks and circumstances which the monetary authority must weigh in setting its strategy. | The result is improved fiscal balances and better public debt structure, which is heavy toward longer maturities and domestic-currency denominated. Monetary policy’s first priority is to achieve long-term price stability, and in certain countries, Thailand included, central banks actively pursue explicit inflation targets. To be sure, countries have made efforts to ensure stronger prudential regulation and supervision of banks. The evidence is mixed on this front, but increasingly, more countries are adopting risk-based supervision and international accounting standards, including Basel II and IAS 39. A number of Asian emerging economies have also achieved significant 2 The same is true when comparing relative volatility in growth rates of consumption and income (Kose, Prasad, and Terrones, 2005). While this is a broad characterization of emerging markets, some countries, for example Thailand, have experienced a much less volatile consumption to income ratio. (Aguiar and Gopinath, 2007). 3 From the new External Wealth of Nations Mark II (EWN II) dataset, compiled by Lane and Milesi-Ferretti (2006). The extent of financial integration is measured by the total international assets and liabilities as a percentage of GDP and the degree of trade integration is measured by exports plus imports over GDP. 2 BIS Review 99/2007 consolidation and modernization of their financial institutions. They have built up new legal and information infrastructure to strengthen the foundation for financial system capacity for crisis prevention and resolution. In some countries, new foreclosure laws, bankruptcy laws, debt restructuring mechanisms, and credit bureaus, which were absent before 1997, are now in place. | 0 |
Systemic financial crises, as this episode shows, are not new. The invention of credit and the development of banking and financial systems have been key to the improvement of human living standards throughout history. But they bring with them the boom and bust extremes of the credit cycle, driven by greed and fear, and the risk of systemic crises which can badly damage the real economy. As financial systems have developed and spread, public authorities, from Tiberius’ administration to the Financial Policy Committee (FPC) of the modern Bank of England today, have had to adapt both to deal with financial crises when they occur and to try to prevent them occurring in the first place. It has often been an unequal struggle. I want today to review a little of that history from the Bank of England’s perspective. I will draw out the development of what – following the great financial crisis of 2008–9 – has become known as “macroprudential” policy. Put simply, this is the regulation and supervision of the financial system as a whole rather than just the “micro” regulation and supervision of the firms and the markets that go to make up the system. In doing so, I want to review the progress of macroprudential policy and the FPC of the Bank, which is the UK macroprudential authority. Have we built a more resilient financial system and one that can provide the financial stability that is essential for sustainable economic growth? | Therefore, it appears that our real problem is not the lack of knowledge, but the lack of interest for knowledge. 1/2 BIS central bankers' speeches I have to tell you that the National Bank of Romania has established 9 years ago its activity of financial education and last year we created a specialized department for this purpose. This conference is organized under the umbrella of our broader project Academica, meant to stimulate the contacts between the academic world, our central bank experts and the public. With this triangle of knowledge, we hope to become more and more successful in reaching the hearts and minds of citizens, but also of policymakers and company managers. We have a long way to go in both directions. We still see large groups of population that have insufficient or zero knowledge about the economy and the risks to their economic life. The last survey on financial literacy in Romania revealed that only 22% of the adult population could be considered financially literate. This means that the rest of respondents have problems in understanding the perils of inflation or the risks associated with a bank credit. Therefore, it goes without saying that in order to have successful policies, we have not only to integrate more knowledge in our policy design, but also to convince people to integrate more knowledge in their financial decisions. And this is twice as hard to achieve. | 0 |
Reservations regarding such decisions could have the opposite effect to that desired. Instead of strengthening financial stability, we could weaken it. Despite this, our concrete measures functioned well during the financial crisis. At the Riksbank, we have, in practice, successively moved away from the principle of all six members of the Executive Board needing to be involved in and decide on all issues. Just 10 I know of only two other authorities with several heads: the Swedish National Audit Office has three heads, of whom one is an administrative head, and the Parliamentary Ombudsmen have four heads, of whom one is an administrative head. Like the Riksbank, both of these authorities are under the Riksdag, which does not have any extensive experience of appointing and leading authorities. BIS central bankers’ speeches 11 over ten years ago, the five Deputy Governors were responsible for preparing matters within one or more departments. This was changed even before I came to the Riksbank, six years ago, when they were given preparatory responsibility for certain specific areas. Eventually a management group was formed. This consists of the Heads of Department, with the Head of the General Secretariat as chairman. It took over responsibility for certain strategic issues and responsibility for coordinating many of the daily operational issues which, previously, had largely fallen to the Executive Board to handle. Decision-making responsibility for daily operational issues has been delegated to the Heads of Department. | In its role as the regulator, the Bank of Albania’s vision is to contribute to the future, aiming to establish a highly adequate environment for boosting financial innovations and modernising the financial structure. Our regulatory regime aims at fostering innovation, being a positive catalyser and not a barrier. We aim at being avant-garde for a modern financial infrastructure. But experience shows that technology always is a step ahead and rapidly spreading. Technology has no limits and we, as regulators, should adopt rules and laws that these technologies be used by the consumers, individuals or businesses. At the same time, we should be aware of the risks that accompany these new technologies. Finding a perfect balance between the promotion of new ideas and the regulatory prudence constitutes one of the major challenges in this regard. BIS central bankers’ speeches 1 Bank of Albania has designed a payments regulatory framework, which paved the way for the development and modernisation. This framework provides all banks or other suppliers of financial services with the possibility to access the payment system in an equal and transparent way, thus contributing to the development of a competitive payment industry, without any asymmetry. Bank of Albania welcomes the contribution of innovation and technology in financial services as a support for achieving its strategic objectives for financial inclusion and reduction of cash use in the economy. These objectives serve crucially to both the transmission of the monetary policy and the safeguarding of financial stability. | 0 |
When the crisis hit and the mood changed, these households radically reduced their consumption back to a more normal level. This has been highlighted as an explanation for the negative link between indebtedness and consumption developments among Danish households (see Figure 7). 8 Substantial falls in housing prices impact households’ balance sheets, in that the relationship between assets and debts rapidly deteriorates. There were clear signs of this in the countries in which housing prices fell heavily in conjunction with the financial crisis. For example, over a short time, the average loan-to-value ratio among US households with mortgages increased from under 60 per cent to over 90 per cent, while the average loan-to-value ratio among households in Denmark increased from under 45 per cent to over 60 per cent (see Figure 8). 8 See Andersen, A.L, Duus C. and Lærkholm Jensen T., “Household debt and consumption during the financial crisis: Evidence from Danish micro data”, Working Paper, Copenhagen University, 2015. BIS central bankers’ speeches 7 Figure 8 Households’ loan-to-value ratios in the United States and Denmark Per cent Sources: Gelain, P, Lansing, K.J., and Mendicino, C., “House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy”, International Journal of Central Banking, 2013, and Andersen, A.L, Duus C. and Lærkholm Jensen T., “Household debt and consumption during the financial crisis: Evidence from Danish micro data”, Working Paper, Danmarks Nationalbank. When debts take up a larger share of the value of housing, consumer demand decreases. | In terms of financial stability – my own focus – it is vital that the risk manager in the CCP, which means the heart of the CCP, should have a clear and independent line to the group board, so that they cannot be lent on by the affiliated exchange to reduce or shade initial margin requirements or collateral terms or portfolio investment policies in order to generate more turnover. This will matter more than ever during a period in which there is likely to be more than one CCP clearing some markets. In the same spirit, the core risk management functions of CCPs should not be outsourced. Regulators have been slow to embrace this. But I am glad to say that it does get some recognition in the EMIR text, perhaps not as unambiguously as is warranted in my view. 2. Global CCPs and access The efficiencies and risk management advantages of multilateral netting across a variety of products make it likely that the world will have a few global CCPs. There must be broad access to these CCPs, provided always that that can be made consistent with maintaining the integrity of risk management (including default procedures). The benefits of putting over the counter (OTC) derivatives trading through CCPs cannot be confined to a few currencies or markets. That is not what the G20 mandated; and, in any case, it would not be in the interests of global stability. | 0 |
With these additions, we reaffirm the Board's decision to not only disclose rigorously how the institution is managed, but also use its autonomy to improve the quality and transparency of its processes beyond what it is strictly required by law. The Monetary Policy Report In recent months, inflation and growth were below the estimates in the June Report. However, the main differences were related to factors that we consider to be transitory, in particular supply-side factors that affected the performance of activity and the level of certain prices. For this reason, neither the outlook for the economy for the next two years nor the general orientation of monetary policy, differs much from the projections contained in it. In the baseline scenario I will examine in a moment, core inflation —the CPIEFE— will gradually return to 3% as from mid-2018, after several months around 2%, while headline inflation will rise somewhat faster, as prices of its most volatile components return to their historical patterns and market expectations about the world prices of fuel and foodstuffs are confirmed. We expect GDP growth to pick up beginning in the second half of this year. With this, the activity gap should remain fairly stable for some time, to begin closing gradually towards the second half of 2018. | A major reason for this is the debt brake, which is extremely important for monetary policy and contributes to safeguarding an independent monetary policy. By pursuing a monetary and fiscal policy oriented towards stability, the negative impact of the crisis on the Swiss economy could be mitigated. As the events of the last two years have brought into focus, the monetary policy of a small open economy must also be able to rely on healthy fiscal policies in other countries. The debt crisis and the way the markets perceived it have considerably impaired the conduct of monetary policy in Switzerland. To fulfil its mandate, the Swiss National Bank has had to take far-reaching measures, such as setting a minimum exchange rate against the euro. BIS central bankers’ speeches 1 | 0 |
In other words, the Riksbank would not just keep inflation low and stable, but also help to solve the unemployment problem. Today, it is generally accepted that a central bank cannot lastingly increase growth and employment by conducting a systematically expansionary monetary policy. A risk with a statutory, numerical dual mandate is also that politically uncomfortable reforms, that actually could lastingly increase employment, are not implemented on the grounds that employment is the Riksbank’s responsibility. The dual mandate would in this case do more harm than good. The evaluations made of the Riksbank on behalf of the Riksdag have so far argued against the introduction of an explicit, numerical employment target for monetary policy. At the same time, it has been taken for granted that the policy should be flexible insofar as it, in addition to the inflation target, should also try to stabilise fluctuations in employment. 27 The current arrangement with an inflation target and other reasoning in the preparatory works feel about right for me. Greater consensus on consideration for financial stability Another issue is whether flexible inflation targeting should also include taking the degree of financial stability into consideration. 28 This issue has sometimes been perceived as very controversial, but I think I see greater consensus among experts. I think it is obvious that there are close links between monetary policy and financial stability. The degree of financial stability affects how monetary policy measures spread to inflation and employment (the socalled transmission mechanism). | With a higher inflation target, say 3 per cent, the nominal interest rate would be higher, which in turn would create greater scope for stimulating the economy in the event of future recessions and prevent the policy rate’s effective lower bound becoming binding. This is very much an ongoing discussion and it remains to be seen how it will end. The target level is not set in stone but a change should not be made lightly. There may be reason to wait until a reasonable degree of consensus has been reached among central banks and in the research community. This would probably increase confidence in a change to the target level. This is an example of how the scope for an individual central bank to take action entirely on its own is restricted. I will return to this issue anon. But there are parameters in our framework other than the target level that are perhaps more in need of adjustment. Which target variable is best? Ever since the Riksbank introduced inflation targeting, the inflation target has been expressed in terms of the CPI. The reason for choosing the CPI as the target index is not only because it is a broad price index that represents normal purchases, but also because CPI statistics are of good quality, not normally revised and published shortly after the end of the month. | 1 |
But we need to be careful not to expect too much from this new set of policy instruments, especially at the outset as the newly formed Financial Policy Committee learns about the use and effectiveness of its policy tools. Just as monetary policy does not attempt to eradicate the business cycle, so macroprudential policy is unlikely to be able to eradicate fully credit cycles. The creation of the Financial Policy Committee with the responsibility for conducting macroprudential policy represents a major advance in responding to the missing instrument problem. Ensuring the stability of our banking system will contribute greatly to our future prosperity. But macroprudential policy is not – nor is it intended to be – the solution to all problems associated with financial markets and the international monetary system. Unless or until effective instruments can be found to manage these other issues, vulnerabilities will remain, to which monetary policy will need to stay vigilant. Monetary policy So what does all this imply for monetary policy? The job of the Monetary Policy Committee is to hit the 2% inflation target. Judged against that objective, we might not appear to have done a very good job recently. CPI Inflation stood at 3.2% in October. Over the past 4 years, inflation has been above target for 39 of the 48 months and has averaged almost 3%. And inflation is likely to remain above target throughout 2011, elevated by the increase in VAT to 20% at the beginning of next year. | I will return to the monetary policy implications of this growth outlook in a while. The missing instrument problem But before doing so, I want to report on the progress that has been made in strengthening the macroeconomic policy framework in the UK in response to some of the fault lines exposed by the financial crisis. Much analysis and soul searching has been conducted in the aftermath of the crisis, and the lessons and implications for different aspects of economic, financial and other areas of public policy are wide ranging. In terms of the lessons to be learnt for monetary policy, many commentators and policymakers – myself included – told a variant of what could be termed the missing instrument problem. 3 This analysis argues that the case for an inflation targeting framework remains sound: the focus on a clear numerical target for monetary policy has served our 3 4 Dale (2009). BIS Review 161/2010 economy well, and low and stable inflation remains a cornerstone of our long-term prosperity. However, it acknowledges that control of short-term interest rates – the main tool of monetary policy – is a relatively blunt instrument best deployed maintaining a broad balance between nominal demand and supply. In particular, movements in short-term interest rates are not well suited to managing risks from credit cycles and other imbalances within the financial sector. | 1 |
This will help to cool the labour market and contain some of the domestically-driven inflationary pressures that historically have threatened to become more persistent. Concluding remarks 7/8 BIS - Central bankers' speeches These are the three main arguments of my monetary policy reaction function at present. Developments on these three fronts will shape my policy decision in November. As I have hinted, these three elements are not only important in themselves, but they also interact with and feedback from one another, in ways that can only really be captured by an encompassing analysis. That is why it is valuable and necessary to base our next policy decision on the comprehensive assessment embodied in our November policy round, which will ultimately be reflected in the November MPC forecast. Given the uncertain world and volatile markets we face, November can seem a long time away. At present, I am still inclined to believe that a significant monetary policy response will be required to the significant macro and market news of the past few weeks. But I will see when we get to November how events have evolved in the meantime. As always, my policy choices will be driven by the data and guided by pursuit of the inflation target. And with that, I am happy to take your questions. The views expressed in this speech are not necessarily those of the Bank of England or the Monetary Policy Committee. | While at first read this looks like a rare piece of good news, viewed through the lens of efforts to return inflation to target it is a mixed blessing. Indeed, the association with the mid1970s is not reassuring in that respect. Tight labour markets support wage growth, currently running at rates above those we typically deem as consistent with the inflation target. Crucially, the low unemployment rate reflects a fall in labour market participation to a significant extent. In other words, people are choosing to stop working or looking for work. The reasons for this rise in 'inactivity' are still being explored, but the after-effects of the pandemic on health are probably a key driver. Aside from the impact of long Covid, the backlog of operations and lengthening of waiting lists in the health service owing to the pandemic, the rise in mental health issues, and an increased need to provide at-home care for family members have all weighed on labour force participation. This is an area where we need further work, since the UK appears to be something of an outlier relative to its advanced economy peers. Another supply-side driver of labour market development is migration. Understanding the impact of Brexit and new government policies in the area are key. Demand issues are also now beginning to exert an influence. As the economy slowed through this year, vacancies have turned. Employment has stagnated and is now showing tentative signs of falling. | 1 |
In addition to the most recent cycle, examples of such behavior include high-yield bond and leveraged buyout lending in the 1980s, and Latin American investment and lending in the mid1980s. Too often, management edicts to reduce risk occur during the latter phase of the credit cycle, after substantial losses have already occurred. Second, I would argue that targeting returns commensurate with risk over an appropriately long time horizon probably is the single most important defense against violent swings in the credit cycle. Individual banks can protect themselves if they recognize when margins become too thin to cover risk by restraining their credit activities at those rates. They can benefit by expanding their credit activities when returns have risen enough to cover risk once again. To limit credit cycle volatility, appropriate risk and return analysis must be practiced widely and consistently throughout the financial system. Third, more attention must be directed at stress testing, the leading technique in assessing the direct and indirect effects of unusual market and economic events. Stress testing is a fundamentally qualitative and judgmental process, typically used in conjunction with more formal, statistical approaches to risk measurement, such as risk modeling. The primary goal of stress testing is to identify scenarios, usually low probability, high-stress events, that could jeopardize the health of a financial institution. Stress testing of market risk exposures is not a recent development. However, the analysis of distinct classes of fixed-income securities all too often occurs in isolation. | Governance may be seen as the manner in which power is exercised in the management of a country’s social and economic resources for development. We all know that good governance involves setting adequate policies, programs and regulations, which then have to be translated into legislation. As I often say, sustainable development hinges on the consistency of economic policies – there is no substitute for consistent, sound and stability-oriented economic policies. In this context, institutions are central to the way a country is governed and these are the formal and informal rules in a society. As the Nobel Prize winner Douglas North pointed out “the formal rules are set by the state through laws and regulations, while the informal rules come from the culture, history and experience of each society”. Only in the last 10–15 years most economists have discovered good governance – with its four pillars: transparency, accountability, predictability and participation – as a major determinant of economic growth. Thus, economic governance implies the need to ensure stable, transparent and predictable rules that encourage competition and fair access to public services. It is achieved through a country’s public and private sector institutions and the civil society. Moreover, the recent international crisis has underscored the need for an in-depth reform of economic governance at both European and global levels. | 0 |
38 All speeches are available online at www.bankofengland.co.uk/speeches 38 Jarrell, S B and Stanley, T D (2004), 'Declining Bias and Gender Wage Discrimination? A Meta-Regression Analysis', Journal of Human Resources, Vol. 39, No. 3, pp. 828-838. Lang, K (2007), Poverty and Discrimination, Princeton University Press. Lang, K and Lehmann, J-Y K (2012), 'Racial Discrimination in the Labor Market: Theory and Empirics', Journal of Economic Literature, Vol. 50, No. 4, pp. 959-1006. Lang, K and Manove, M (2011), 'Education and Labor Market Discrimination', American Economic Review, Vol. 101, No. 4, pp. 1467-96. Lewis, G B and Soo Oh, S (2009), 'A Major Difference? : Fields of Study and Male-Female Pay Differences in Federal Employment', The American Review of Public Administration, Vol. 39, No. 2, pp. 107-124. Longhi, S and Brynin, M (2017), 'The ethnicity pay gap', Equality and Human Rights Commission, Research Report, No. 108. Manning, A and Swaffield, J (2005), 'The gender gap in early career wage growth', CEP Discussion Papers, Centre for Economic Performance, London School of Economics. McKinsey & Company (2016), 'The power of parity: Advancing women's equality in the United Kingdom', McKinsey Global Institute, September 2016. Neal, D A (2004), 'The Measured Black-White Wage Gap among Women is Too Small', Journal of Political Economy, Vol. 112, No. S1, pp. S1-S28. Neal, D A and Johnson, W R (1996), 'The Role of Premarket Factors in Black-White Wage Differences', Journal of Political Economy, Vol. 104, No. 5, pp. 869-895. | Possible policy implications of such developments from a monetary and a financial stability perspective All the factors I have just mentioned require authorities to consider – in conjunction with the financial industry – ways of preserving monetary and financial stability in this changing environment. A. A stability-oriented monetary policy is a fundamental prerequisite for the smooth functioning of financial cycles. Financial deregulation has radically changed the conduct of monetary policies. More open economies and greater interdependence between financial systems have completely overhauled the context in which monetary policy is implemented. • Financial markets can now penalise inflationary monetary policies by withdrawing capital, with a subsequent rise in long-term interest rates and/or depreciation of the exchange rate. • At the same time, monetary policy transmission mechanisms have become more diversified and complex. This situation has prompted the authorities to separate the different instruments for implementing economic policy. In this context, monetary policy has been clearly been assigned the objective of maintaining price stability. Today, monetary policies are conducted within a framework characterised by three features: • Firstly, reducing inflation expectations depends on compliance with a number of rules that have been clearly defined in advance. Consequently, this policy can only be effective if the authority responsible for defining and implementing it is credible. The conjunction of a clear, overriding objective of price stability (which has been explicitly laid down in the statute of the ECB), with well-established institutional independence ensures the continuity of the monetary policy decisions made by the authorities. | 0 |
An investment boom preceded each panic – the earlier in copper and the later in housing – with much of the credit being funded by sources outside of any existing liquidity protections. When the bubbles began to deflate and prices began to fall, loan defaults quickly developed precipitating funding runs on the institutions involved in extending this credit. What seemed like large liquidity buffers by individual firms were quickly drawn down. Funding withdrawals precipitated asset sales, which put further downward pressure on asset prices. The resulting credit contractions adversely affected the real economy, setting up an adverse feedback loop that exacerbated the initial losses. 2 2 Walter Bagehot, 1873. Lombard Street. London: Henry S. King and Co. BIS Review 92/2010 Given the parallels between the events of 1907 and 2007 and, more importantly, the similarities of the lessons learned from those episodes, I believe the most instructive name for our latest financial crisis is the “Panic of 2007”. In the rest of my remarks, I will explore in greater detail the factors behind the panic, as well as the responses by the Federal Reserve. The first question to explore is the extent to which the financial system had evolved over the past several decades. 3 Over this period, demand deposits lost their market share to money market mutual funds, which, while considered safe, are not guaranteed like deposits. This made it increasingly difficult and less profitable for banks to fund loans on their balance sheets using deposits. | One name that has gained popularity is the “Great Recession”, which is dated as beginning with the bankruptcy of Lehman Brothers on September 15, 2008. This name conveys both the severity of what occurred, as well as the calamity of what was avoided. The contraction in real output in the six months following the demise of Lehman Brothers exceeded in size any other post World War II recession – in that sense, it was a great recession. However, aggressive monetary and fiscal policy actions both domestically and abroad were successful in preventing a complete meltdown of the U.S. and the world economy. In that sense, the name also emphasizes what the crisis was not. However, the name tends to focus one’s attention too much on the effect and not the cause of the crisis. An alternative name is the “Panic of 2007”, which is dated as beginning with the announcement by BNP Paribus on August 9, 2007, of its suspension of redemptions for three of its investment funds. This name stresses the financial crisis as the precipitating event leading up to the severe decline in real economic activity slightly more than a year later. The name conveys that at its very basic level, the crisis was a form of a banking panic. The parallel to the name “Panic of 1907” is also a reminder to us that history has a way of repeating itself unless we learn and apply its lessons well. | 1 |
During the Great Moderation, forecast errors shrunk. The MPC narrowed their fan charts in response, becoming more precise in their estimates of future output and inflation. Post-crisis, that picture has changed radically. Forecast errors increased. The fan charts were widened significantly, almost doubling for both future output growth and inflation. Like psychology students of the 1950s, there was a significant degree of pre-crisis over-precision by the MPC in their assessment of the economy. 55 IMF (2013). 56 Haldane (2013). 57 Lombardelli et al (2005) for the UK and Blinder and Morgan (2007) for the US. 58 Hansen, McMahon and Velasco Rivera (2014). 59 It is too soon to assess the decision-making structures of the FPC and PRA, all of whose decisions so far have been consensual. 60 For further discussion on decision making under uncertainty, see Aikman et al (2011). 10 BIS central bankers’ speeches Despite the post-crisis widening of the fan charts, it remains unclear whether the now higher degree of uncertainty in the fan charts is correctly calibrated. Chart 12 looks at outcomes for output growth and inflation since the crisis, relative to the MPC’s probability distribution at the one year horizon, broken down into 20% buckets. If the fan chart distribution had been roughly right, these outcomes would be equally distributed across the buckets. They are not. In practice, output and inflation have fallen systemically into the tails of the distribution, with around 50% in the outer 20% buckets. | In addition, with the cooperation of local and international authorities an early warning system should be constructed so that the fragilities in the international financial system would be identified and necessary and sufficient measures to fix them would be taken beforehand. In this context I believe that effective and efficient risk management and re-regulation will be the cornerstones of the new global financial architecture where the financial intermediation should not let the direct relationship between lender and borrower to be cut completely under various forms of effective risk diversification and securitization. Sound domestic policies for a healthy banking sector are necessary but not sufficient for addressing contemporary challenges of the global world. In this respect, improving policy coordination at the regional and international level is a must. Only then, we would be able to attain the optimal level of international financial regulatory rules and guidelines together with adequate tools that would match the complex nature of the international financial markets. With this consensus in mind, G-20 leaders at their summit in mid November, agreed upon an important set of principles on reforming the international financial architecture. We strongly support the promotion of these principles that include strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation and reforming international financial institutions. We must lay the foundation for reform altogether to ensure that a global crisis, such as this one, does not occur again. Thank you. 2 BIS Review 153/2008 | 0 |
The first round effects of exchange rate pass-through are expected to continue in the short term. Inflation in CPI excluding food, energy and tobacco items remained flat over the previous quarter and remained at 4.8 percent, confirming that the rise in inflation can be mostly attributed to factors beyond the control of monetary policy (Figure 5). The recent rise in core inflation indicators has reinforced the risks related to second-round impacts of previous shocks. Figure 5: Main Inflation Indicators and Policy Rates 18 11 17 10 16 9 8 15 7 14 6 13 5 Policy Rate H (right axis) H exc. Processed food (right axis) 12 11 4 3 03/08 12/07 09/07 06/07 03/07 12/06 09/06 06/06 03/06 2 12/05 10 H: CPI excluding unprocessed food, energy, alcoholic beverages, tobacco and gold. Source: TURKSTAT, CBT. 4 BIS Review 62/2008 Dear Members of the Press, Elevated prices of crude oil, food/agricultural products and other commodities continue to exert inflationary pressure (Figure 6). As a result, inflation has recently been rising worldwide (Figure 7). Inflation in developed economies edged up in the last quarter of 2007, while emerging economies with inflation targeting have faced an upward trend since June 2007. By the end of the first quarter annual inflation in Turkey was 9.2 percent, which is below its end2006 level of 9.7 percent. | Figure 1: Annual CPI Inflation and Target Path 12 11 10 9 8 7 6 5 4 3 2 1 0 12/08 09/08 06/08 03/08 12/07 09/07 06/07 03/07 12/06 09/06 06/06 03/06 12/05 Annual CPI Inflation Target Path Uncertainty Band Source: TURKSTAT, CBT. Prolonged increases in food, energy and commodity prices have recently led to upward pressure on headline inflation and in turn to upward revisions in inflation forecasts in many countries across the world. Turkey is not an exception in this regard, as the deviations of inflation from our forecasts can be mostly attributed to these factors. For instance, our BIS Review 62/2008 1 forecasts in the October 2006 Inflation Report suggested that inflation would converge to the 4 percent target at the end of the first quarter of 2008. The forecast was based on a scenario in which food inflation moderated to levels comparable with medium term targets and oil prices remained stable at 60 USD per barrel. However, oil prices continued to rise and averaged around 100 USD per barrel in the first quarter of 2008. Moreover, annual food price inflation has continued to remain at elevated levels, reaching 13.4 percent in March. As a consequence, 6.13 percentage points of the 9.15 percent annual CPI inflation in March came from food and energy items (Figure 2). | 1 |
In this scenario, the combination of slower growth, smaller surpluses in Asia and higher risk premia could move global interest rates higher, increasing the burden of corporate and household debts and challenging the creditworthiness of some sovereigns. Contrary to what you might have heard, it isn’t easy to win a trade war. If the UK has been somewhat more inwardly focused of late, it has been for good reason. In many respects, Brexit is the first test of a new global order and could prove the acid test of whether a way can be found to broaden the benefits of openness while enhancing democratic accountability. Brexit can lead to a new form of international cooperation and cross-border commerce built on a better balance of local and supranational authorities. In these respects, Brexit could affect both the short and long-term global outlooks. It is in the interests of everyone, arguably everywhere – from Frobisher’s grave to Frobisher’s Bay - that a Brexit solution that works for all is found in the weeks ahead. 30 While economic, policy and geopolitical uncertainties are very high, several market-based risk metrics are not. Credit spreads, the VIX and equity implied volatilities are below the 50th percentile of their historic distributions, as is equity risk premium in the US. Despite recent volatility, high-yield corporate bond spreads also remain below pre-crisis averages. | I will structure my observations around four points: • First, the factors that have led to the crisis and in particular how the euro area became engulfed first in the global financial crisis and then in the sovereign debt crisis; • Second, the crisis response in the euro area, including both monetary policy as well as other policies; • Third, the key lessons we have learned from the global financial crisis in the euro area and in particular the institutional weaknesses that were uncovered during the crisis; • Finally, I will touch on institutional reforms at the level of the euro area and the European Union at large, which have also contributed, in my view, to an improvement of the foundation of our monetary union which is, we hope at least, the harbinger for a better performance in future. Work in this area is still in progress, and for that reason I will then conclude by sketching the challenges that still lie ahead of us. 1. The factors leading to the crisis As I have argued on previous occasions, it might be useful to think about the development of the global financial crisis and subsequently the euro debt crisis in the last five and a half years as the gradual discovery of an iceberg. As you probably already know, because the density of ice is lower than the density of sea water, normally only one-ninth of the volume of an iceberg is above water. | 0 |
The Riksbank’s steering system is constructed to influence the shortest market rate, the overnight rate. This is the rate at which the banks manage their daily liquidity surpluses or deficits with each other. Interest rates for somewhat longer maturities are to a large extent determined, as you know, by expectations of future short-term interest rates. The idea is that by steering the overnight rate we also can affect interest rates further out on the yield curve. How do we steer the overnight rate in practice? First of all we lay down an upper and a lower limit – an interest rate corridor – for movements in the overnight rate. This we do via our standing facilities, which enable the banks to borrow or deposit funds overnight at the repo rate plus/minus 75 basis points. In addition, to ensure that the overnight rate is close to the repo rate, we perform a finetuning operation, if necessary, on a daily basis. For this operation, at the end of each bank day we are prepared to lend funds at the repo rate plus 10 basis points or to accept deposits at the repo rate minus 10 basis points. Our aim is that after the fine tuning, the banking system as a whole will be balanced. That means that we only lend the equivalent of the banking system’s net borrowing requirement or accept deposits for the equivalent of the banking system’s net investment requirement. | If the financial infrastructure does not function, payments and securities transactions cannot be made, which would bring the economy more or less to a halt. It would also prevent the Riksbank’s interest rate from exerting an impact on the economy. This means that the financial infrastructure and the ongoing changes in securities markets are relevant for the Riksbank’s two primary functions, namely to safeguard both financial stability and price stability. It is therefore important that we closely follow developments in these respects. Increased integration As many of you are already aware, major changes are currently in progress in the securities markets and the financial infrastructure. In recent years we have seen a number of tendencies whereby trading in financial instruments is becoming more integrated. Such tendencies have also been evident recently in clearing and settlement – the processing of securities transactions that follows the trade as such. 1 In a world conditioned by further globalisation, increased competition and advances in technology, companies use mergers and acquisitions to adjust. In the field of financial instruments, the creation of NASDAQ OMX Group in February 2008 has strengthened the links between Nordic, Baltic and American exchanges. The driving force behind this merger is primarily economic in that it confers considerable economies of scale. 1 Clearing involves balancing mutual claims and liabilities. Settlement involves the transfer of money and securities between transacting parties. BIS Review 153/2008 1 The changes in securities markets are also connected with regulations. | 1 |
In the case of Thailand, headline inflation peaked at 9.2% in July last year, but has fallen dramatically to -0.4% in January. While it is natural for forecasts to be revised in light of new developments and information, a concern arises that globalization is likely to have changed the various relationships in the economy. This is particularly timely now, when fear and uncertainty takes over rational behaviour. And if our models are still based on assumptions which have not incorporated these changing relationships, then we are likely to make systematic errors in our forecasts. As a result of this volatility in inflation and the marked slowdown in global output, many central banks have had to reverse their tightening cycles – originally conducted to tackle inflationary pressures, while others have pursued an aggressive easing of monetary policy to shore up growth and fight off prospects of deflation. Many countries, including Thailand, had to do both. This in turn, also becomes a concern for the central bank if frequent revisions or the abrupt reversal of the central bank’s monetary policy stance affects the public’s perception of the central bank’s credibility. As a result of the speed and magnitude of deterioration in economic conditions, central banks across the globe have pursued extremely aggressive monetary policy easing, with the intent of actively supporting their domestic economies against the global slowdown. This situation has led us to the second challenge to monetary policy – namely the challenge to its effectiveness. | The imbalances manifested themselves in huge trade surpluses and an accumulation of foreign exchange reserves in the countries which relied on export-oriented growth – including those in the Asian region. They were reflected in the dollar revenue which was subsequently reinvested in US financial markets – which in turn helped to finance the US saving deficit, permitting these imbalances to remain uncorrected for a prolonged period of time. And as a result, asset price bubbles were also allowed to persist for a prolonged period as well. BIS Review 33/2009 1 All was well as long as everyone continued to grow. However, as emerging markets opened up, global demand, and particularly demand from growing economies like China and India, drove up the prices of oil and other global commodities. Many economists began to predict a structural shift in global demand and changing dynamics of global inflation which would effect domestic prices and make inflation higher and more persistent. 3. Coping with the global financial crisis At the same time, problems were brewing on the financial side in the advanced economies. I will not lay out the causes of the financial crisis here, as that has been discussed widely elsewhere. In a nutshell, the slowdown in the US housing market, coupled with a mix of troubled banking practices, regulatory blind spots, and absolute faith in the market mechanism, among other things, led to a financial crisis in advanced economies. | 1 |
01.07.2019 “Banks and society. Looking to the future” Círculo Financiero de la Sociedad Económica Barcelonesa de amigos del país Margarita Delgado Deputy Governor Good evening. I would like to thank Fundación La Caixa for their kind invitation to me to take the rostrum today at the Círculo Financiero. It is firstly an opportunity to address an eminently distinguished audience. But it also allows me to visit Barcelona again, a city I know very well from my time as a bank supervisor and to which it is always a pleasure to return. You know better than me that Círculo Financiero has, throughout its long history, always offered a forum for open and frank debate on current topics. It has sought to tackle, from a constructive and European-oriented approach, the problems and difficulties we face as a society. Admittedly, the challenges before us at present are most significant ones. But it is no less true that Spain, throughout the history of this institution, has experienced and overcome even more turbulent times. Each of these convulsive periods was seen by our society as a crisis. Crisis and change The word “crisis” is from the Greek. Despite the adverse emotional reaction we all feel on hearing the word, the Greek term does not necessarily have a negative connotation. The root of “crisis” means “choice”, “dispute” or “decision”. Originally, then, the word “crisis” necessarily implied a change. But, above all, it reflected the need to act resolutely and decidedly in the face of such a change. | Public opinion shifts rapidly from criticising banks for their mistakes – frequently, for the mistakes “inherited” from banks that disappeared some time back – to criticising them for not sufficiently easing the way for 4/13 credit to reach economic agents; indeed, for the risk of financial exclusion stemming from potential branch closures. Like the song, it would seem we can’t live with or without them. But the truth is, with or without criticism, the role of banks remains as essential today for our economy as it was 20 or 30 years ago. However, debate has arisen over the future role of banks, set against the emergence on the scene of the so-called Fintech. This can be seen as a threat or as an opportunity. I believe it entails both. But in any event, banks must evidently adapt their business model to technological change, as Gonzalo so rightly said. If instead of looking at the small, innovative and nimble Fintech, we assess the potential effect that the irruption of one of the so-called Big Tech may have on the system as a whole, the debate takes on a systemic dimension. In this connection, the recent announcement of the launch of the “Libra” project, the virtual currency sponsored by Facebook, has potentially systemic implications. These are so serious that supervisors, central banks and credit institutions must all evaluate the possible consequences. Evidently, we must be sure that the project will not compromise the integrity of payment systems and the stability of the system as a whole. | 1 |
The lacklustre consumption and investment of recent years are telling in this connection, and denote the presence of structural shortcomings which dampen household confidence and dent corporate profit expectations. Accordingly, questions such as the uncertainty over the viability of the public pension system currently in place or the constraints preventing higher productivity growth not only have long-term repercussions but also exert a contractionary effect on the present economic situation. These overall characteristics of the area do not apply to all the member economies. Growth rates vary considerably, largely due to the different degrees of vigour shown by internal demand. Amid these divergences, Spain is one of the countries that has consistently posted substantially higher-thanaverage rates of expansion. The Eurosystem monetary policy has retained an accommodative stance, with the intervention rate set in June 2003 unchanged at 2%. Although the forceful oil shock has hampered the reduction of inflation, medium-term inflation expectations have held at a rate compatible with the Eurosystem’s definition of price stability, partly as a result of sustained wage moderation. The favourable trend of labour costs is a natural corollary of the prevailing sluggishness of activity and of employment creation, but it also reflects the credibility of the anti-inflationary goal of monetary policy. The European Central Bank has been able to sustain monetary conditions propitious to the strengthening of activity although, as indicated earlier, these have so far proven insufficient to achieve a satisfactory degree of dynamism. | However, through discussions with governors and other representatives from central banks abroad, the Board of Governors of the Central Bank of Iceland had become aware of growing opposition to the Icelandic banks’ accumulation of deposits. No doubt this opposition stemmed from many factors, among them the fact that banks in those same parts of Europe felt the pressure of the sudden competition and communicated their concerns to their authorities. Another cause was the fact that the accumulation of deposits in foreign subsidiaries increased the potential obligations of the deposit insurance schemes in the countries of operation. A third factor may have been concerns that the relatively high interest rates offered by the Icelandic banks might reflect underlying weakness. A fourth consideration was the concern about the Icelandic deposit insurance scheme with respect to deposits in foreign bank branches. It was clear, however, that the Icelandic system fulfilled the requirements set forth in European directives, which stipulate that the government must ensure that such a deposit insurance scheme is established but do not address the issue of government responsibility for the scheme’s commitments, and certainly not in the event of a system-wide shock. Official European documents corroborate this. Some declared outright that the Icelandic banks would be prevented from receiving deposits or that they would be forbidden to receive further deposits in the countries where they were already established. | 0 |
The lack of a breakdown between client and proprietary sources of revenues is problematic when making sense of investment banking activities, both in the run-up to and during the crisis. In the run-up to crisis, FICC and equity-related activity contributed significantly to revenues, partly on the back of proprietary trading in assets whose prices were rising rapidly. Some of these gains then dissolved when asset prices, in particular for FICC, went into reverse during 2008. The story of 2009/10 is of a strong recovery in FICC and equity revenues. The source of this revenue recovery is, however, different to the boom. Instead of proprietary risk-taking, increased revenues appear instead to have been driven by market-making activities on behalf of clients. These were boosted by a bulge in client activity and wider bid-ask spreads, against a backdrop of lower levels of competition (Chart 38). It is an open question whether these returns to market-making will persist. In some respects, returns to M&A and advisory activities represent even more of a puzzle. For a start, it is well known that most M&A activity is value-destroying (for example, Palia (1995)). Advisory fees of 0.5–1.5% are typically taken, even though these activities are essentially risk-less. And in total under-writing fees are often around 3–4% in Europe and higher still in the US, having risen during the course of the crisis. The level and persistence of these fees is also something of a puzzle. | Banks can in a variety of ways assume tail risk on particular instruments – for example, by investing in high-default loan portfolios, the senior tranches of structured products or writing insurance through credit default swap (CDS) contracts. In each of these cases, the investor earns an above-normal yield or premium from assuming the risk. For as long as the risk does not materialise, returns can look riskless – a case of apparent “alpha”. Until, that is, tail risk manifests itself, at which point losses can be very large. There are many examples of banks pursuing essentially these strategies in the run-up to crisis. For example, investing in senior tranches of sub-prime loan securitisations is, in effect, equivalent to writing deep-out-of-the-money options, with high returns except in those tail states of the world when borrowers default en masse. It is unsurprising that issuance of asset-backed securities, including sub-prime RMBS (residential mortgage-backed securities), grew dramatically during the course of this century, easily outpacing Moore’s Law (the benchmark for the growth in computing power since the invention of the transistor) (Chart 32). 5 Tranched structured products, such as CDOs (collateralised debt obligations) and CLOs (collateralised loan obligations), generate a similar payoff profile for investors to sub-prime loans, yielding a positive return in stable states of the world – apparent alpha – and a large negative return in adverse states. Volumes outstanding of CDOs and CLOs also grew at a rate in excess of Moore’s Law for much of this century. | 1 |
The economy is still below the pre–pandemic level, and even more importantly, the growth outlook is under new threat in the midstream of the recent upheavals in Ukraine. Subsequent shocks and the need to respond in crisis management mode increase the risk of distancing from structural policies that provide impetus to a faster transition and more productive growth. However, growth decomposition exercise reveals that even before the health crisis, the growth of the Macedonian economy, similar to the growth of other CESEE transition economies, was not predominantly driven by innovative and efficient sources. The average growth in the decade preceding the pandemics gravitated around 2.5%, somewhat above the CESEE average, with the contribution of total factor productivity (TFP), as a measure of economic efficiency and innovation, being relatively marginal. Although two thirds of growth dynamic was capital driven, the impact of the ICT capital was rather small. Labour had also positive contribution to the growth, but it was predominantly due to labour quantity, and less due to labour quality. During the pandemics, the bulk of the adjustment in fact went through the TFP which declined close to 5%, as the overall context was barely conducive for innovative decisions. 1/3 BIS - Central bankers' speeches In this context, global competitiveness index in terms of innovation capabilities and ICT adoption locates us at the 97th and 70th rank (out of 152 countries), similar to Western Balkans peers, but much further from the advanced Europe. | The issue, therefore, underscores the inadequate risk management, covering the entire process: from the lack of proper risk measurement, especially with regard to complex product, as well as liquidity risk, to inadequate risk management and control, and to micro-prudential risk-based supervision. In addition, there is now greater attention being paid to the importance of macroprudential approach, in recognition of the risk from procyclicality and interconnectedness of institutions, especially the large and highly complex financial institutions. Also, greater recognition is given to the problem of the unregulated shadow banking sector, like the hedge funds, which are also key in systemic risk process. All these issues pose a major policy challenge, as indeed the various working groups and committees of the BIS are now working on the guidelines, and on the key issues such as accounting, valuations, procyclicality, and adequacy of capital and provisions. In view of the depth of the current problem, and the fact that it may be quite sometime before the global standards on these issues can be settled, regulators, in my view, must be ready to take the needed action to ensure that we address these risks in our financial systems systematically. This is why Pillar II is all the more important, because the essence of Pillar II is to ensure that financial institutions have adequate risk management process and capital, commensurate with their risk profiles. | 0 |
Second, further differentiating our regulatory and supervisory approach to capture new sources and transmission of risks while allowing room for experimentation and for firms to develop economies of scale. An important objective will be minimising regulatory arbitrage, which can lead to risks building up in parts of the financial system that may be subject to differentiated regulations. We anticipate that this will call for a much more dynamic approach to regulation and supervision as well as better communication of regulatory developments going forward. Third, strengthening platforms for collaboration. In this regard, the Bank, together with the financial industry, is in the process of establishing a Financial Threat Intelligence Platform. The platform will collate, analyse and disseminate real time information on cyber threats and trends to strengthen the detective capabilities of the industry against such threats. We expect to operationalise the platform before the year end. I am also pleased to announce the establishment of a dedicated innovation lab, right here in Sasana Kijang. The lab will provide a collaborative environment for the purpose of creating, elaborating, and prototyping innovative solutions to clearly defined problem statements. Recall that ocean tides present us with both opportunities and risks. The fact that humanity today is better able to understand, predict and master ocean tides should give us encouragement for the future of finance. The goal of a relevant, safe and socially responsible financial system can be attained by focusing our energies toward this shared goal in which we all have a critical stake. | 19 This is not to suggest that Gallatin was opposed to government-sponsored infrastructure projects. Indeed, in 1808, he presented the Gallatin Report on Roads and Canals. As he put it at the time, the vision of roads and canals to link up the young nation “could not be left to individual exertion.” 20 The federal debt stood at approximately USD 83 million when Gallatin took office in 1801. By 1808, Gallatin had succeeded in reducing it to USD 57 million, including the extra USD 15 million added by the Louisiana Purchase. United States nominal GDP has been estimated at approximately USD 520 million in 1800 (see Susan B. Carter, Scott S. Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright (eds. ), Historical Statistics of the United States, Volume Three: Economic Structure and Performance. Cambridge University Press, New York NY, 2006). Hence, almost doubling the size of the United States through the purchase of the Louisiana territory from Napoleon in 1803 cost approximately 3% of the GDP of the existing territory. 21 Balinky, op.cit., for example, comes out strongly against Gallatin’s debt reduction strategy, arguing that it was a narrow-minded and short-sighted fiscal policy for a country in need of economic development. 22 More precisely, the United States debt-to-GDP ratio was reduced by an estimated 56 percent between 1801 and 1808. This estimate is based on nominal GDP estimates for the US in the early 1800s provided in Carter et. | 0 |
Although there is a great number of arrangements that ensure money transfers between financial intermediaries, in practice, financial transfers tend to be concentrated on a few of them. Thus, the largest volumes and values of payment orders are currently carried out in multilateral payment systems. On the basis of several surveys conducted by the Eurosystem since 1999, we consider that the market share of these systems is nearly 80 %, both in terms of volume and value. However, we should not minimise the role of correspondent banking, which holds the remaining 20 % of the market. Correspondent banking arrangements also show a high degree of concentration: out of all reporting banks to the Eurosystem’s survey, the ten largest banks account for about 80 % of the overall value of correspondent banking transactions. Moreover, correspondent activities of some banks are substantial and similar in size to those of some interbank funds transfer systems. The issue of the infrastructures diversity for payments in euro across the EU was raised prior to, and due to, the introduction of the euro. At that time, it was realised that diversity had drawbacks to the BIS Review 49/2005 1 extent that it came together with a discrepancy of service level between national and cross border payments, at the expense of the latter. With respect to the objective of financial integration, it was clear that this situation could not be considered as an optimum. The issue was taken into account before the launch of the euro. | 2 BIS Review 49/2005 However, meeting this ambitious objective implies a significant evolution of the current retail infrastructures towards a pan European infrastructure, the so called PEACH, which will aim at reinforcing the global efficiency of payments in Europe. The main achievement with regards to infrastructures until now has been the launch of STEP2, since it is the first infrastructure compliant with the PEACH requirements, as defined by the EPC. But there is still a significant way to go since STEP2 handles low volumes, 170.000 payments in May 2005, and can still not offer the same level of service as national ACHs. In that context, it must be seen as a positive prospect that most national retail payment systems are now preparing themselves to the implementation of SEPA, through the spreading use of standardisation, which will allow the interoperability of infrastructures. In France for example, several banks have initiated the STET project in view of SEPA. However, one should note that the idea of consolidating the retail systems platforms is for the time being not really at the forefront of market initiatives, even though consolidation is a source of cost savings and efficiency. Why such a gap in the level of integration between large-value payment systems and retail payment systems? I see two main explanations. First, large value payment systems have benefited from the incentive of the adoption of the single monetary policy in the Euro area, which made the creation of TARGET mandatory. | 1 |
Whatever the criticisms, European integration has come a long way, not least in the financial field. The acronym “FSAP” in its specific European meaning has been successful in bringing increased efficiency and access, and lower costs to many, but more needs to be done, for instance for retail transactions. The flip side of integration is increased dependence and greater risk for contagion from developments in other countries. In the financial field we face this mainly in the cross-border operating banks and other major financial institutions and also in the infrastructure for the conduct of payments and settlements. But financial stability may also be indirectly affected by real sector developments, such as real estate prices. I can see two alternative ways of structuring a regional European FSAP. It could either be founded on a “whole region-approach” identifying the general situation and then analysing how various developments affect overall stability; or it could start from the individual countries and analyse how each country might be affected by influences from abroad – be it through their financial groups at home, abroad or through other channels, including the payment infrastructure such as regional exchanges. The analyses of a number of countries could then be added together to form a relevant BIS Review 52/2006 3 region, which could be the EU, the euro area, the EEA, some subset thereof or even one of these regions plus one or more financially important systems in the neighbourhood, such as Switzerland. My leaning would be toward the second one. | The storm shut down all New York City schools for a full week, and many schools across the region remained closed the following week. Hardships borne by students and families are also reflected in record low post-storm attendance rates. The New York City Department of Education moved quickly to relocate schools from damaged buildings to temporary premises, enabling children to resume their studies. But even two weeks after the storm, schools that had to be relocated had attendance rates below 70 percent, a huge drop from their regular rates of over 90 percent. Research shows that lost school days and relocations can significantly impair student learning. The good news is that the situation is getting closer to normal every day. Today, only 9 out of a total of 1,750 New York City schools remain relocated. Also of particular importance is that their leaders – administrators, teachers, principals and others – have agreed to make up three and a half days of the lost time. It is impressive that so many districts across the region are working hard to make up for much of the lost time. Our region must learn the right lessons from this experience. The storm revealed significant shortcomings in the resilience of our public and private infrastructures in three critical areas: power, transport and communications. This vulnerability must be addressed. National economic conditions Turning to the storm’s effects on the national economy, I expect a modest negative effect on the annualized growth rate of real GDP for the fourth quarter of 2012. | 0 |
Such an outcome is likely to raise the rate of unemployment consistent with stable wage growth i.e. the NAIRU. The second outcome is different. Vacancies may be temporarily higher, and above their steady state level in the short-run, if firms are anticipating that it will be harder to find workers in the future when unemployment falls. In that scenario, demand picks up, the impact of matching frictions in the labour market dissipate over time, and both vacancies and unemployment fall. The NAIRU would be less affected in this scenario. Another possible explanation is that the level of advertised vacancies is elevated due to employers overestimating the growth of demand to come just as the speed of the recovery falls off. In this case, some of the vacancies turn out not to be jobs as employers change their mind, or at least hiring is put back. The implications of these labour market outcomes are quite different for growth, inflation, and thus monetary policy, which illustrates the uncertainty we face. Before turning to inflation, I want to say something on earnings. On the face of it, headline earnings are elevated. Pay growth of around 8% for July (the latest available number) is very high. | As for the issue of asset price bubbles, while the signs of accelerating asset prices observed in many countries in Asia are not so apparent in Thailand at this time, the risk is not BIS Review 164/2009 3 neglected. As a matter of prudence, the Bank of Thailand will continue to closely monitor asset prices to ensure financial stability prevails in the long term. Ladies and Gentlemen, I would like to conclude my speech tonight by reiterating that the economic recovery in Thailand is expected to continue going forward. Nevertheless, the risk of an aftershock is not negligible due to fragile global and domestic environment. Hence, businesses and policymakers alike need to remain vigilant, but at the same time, should not be overcome by unreasonable fear. One important factor that will help speed up the process of recovery is the return of investment and trade within the country. With our economic resilience and strong economic fundamentals, I would like to assure you that Thailand remains a lucrative place to invest. Despite this difficult time, the BCCT has always been a great supporter of our investment programs, an example of which is your Thailand Means Business 2008 report which is very relevant in terms of attracting new or re-investment from British businesses. I hope that this long relationship will continue to be as good as ever or even better in the coming years. Thank you. 4 BIS Review 164/2009 | 0 |
That counterparty bids more aggressively for funds – something that is immediately observable from the pattern of bids (Table 2 and Chart 6). These examples highlight how the new ILTRs can provide an “early warning indicator” of stresses in the market, at both an individual and aggregate level. That information can be used to determine the size of and frequency of subsequent ILTRs (hence solving one important problem with the old LTRs). The ILTR supply curve The Bank’s supply curve is pinned down by its preferences – namely to provide liquidity insurance to the banking system at a price that doesn’t undermine the incentive to prudently manage liquidity. The Bank summarises its preferences using a Relative Supply Schedule (RSS). The RSS dictates how the proportion of each auction allocated to the wider collateral set responds to changes in the bids submitted, and specifically the difference between the clearing spreads on the narrow and the wider collateral set (known as the stop out spread). Chart 7 below shows some illustrative examples of an RSS. A larger stop out spread increases the proportion of the auction allocated to the wider collateral set, so the Bank’s “supply schedule” is upward sloping. Consider two simple examples. With a perfectly inelastic RSS, the Bank essentially pins down the quantity of funds it would provide against wider collateral, regardless of the bids submitted. With a perfectly elastic supply curve, the bank would, once a certain price threshold is exceeded, be prepared to allocate against all the wider collateral bids. | They are complexity on the one hand, and homogeneity on the other. In essence, the financial network has over time become progressively more complex and less diverse. Why? And what have been the consequences? In the 1987 film Wall Street, the financial sector mantra was “greed is good”. The stock market crash of the same year put paid to that doctrine, at least temporarily. By the early part of this century, both the circumstances and the individuals had changed. So too had the mantra. It had become the rather gentler “diversification is desirable”. Risk-taking became less Gordon Gekko and more Merton Miller. Diversification came care of two complementary business strategies. The first was “originate and distribute”. Risk became a commodity. As such it could be bundled, sliced, diced and then re-bundled for onward sale. Credit became, in the jargon, structured. Securitisation was one vehicle for achieving this. Derivatives, such as CDS, were another. As these marketable instruments passed between participants, the network chain lengthened. In principle, these instruments delivered a Pareto-improving reallocation of risk. Risk would flow to those best able to bear it. They had deep pockets which they sought to line with higher yield. For the system as a whole, this sounded like the land of milk and honey. For a risk shared was a risk halved – perhaps more than halved, given the magic of diversification. The network chain, meanwhile, just kept on growing. 1 Federal Reserve Bank of New York (2007); May, Levin and Sugihara (2008); Allen and Gale (2000). | 0 |
Without losing sight of the interest this seminar has in the challenge the new technologies pose, I would like to focus today on another major challenge that is not exclusive to the banking industry but applicable to everybody: financial education. Allow me first to set out, non-exhaustively, some of the results drawn from the Survey of Financial Competences presented by the Banco de España and the CNMV last month. I shall then refer to how important it is to continue dedicating efforts to financial education, especially in the current context of financial innovation. The Survey of Financial Competences The Survey of Financial Competences, which is included in the National Statistics Plan, adapts for Spain a questionnaire devised by the International Network for Financial Education, coordinated by the OECD. The aim is to measure, in an internationally comparable way, the financial competences of the population aged 18 to 79. The Survey measures these competences from different perspectives, and obtains information on: (i) financial literacy; and (ii) knowledge, holding, acquisition and use of financial products. To measure financial literacy, the Survey poses questions on three basic financial concepts: i) inflation; ii) compound interest rates; and iii) risk diversification. | Among cryptoassets are what are generally known as cryptocurrencies, conceived for use as a means of payment, and those known as digital tokens, conceived for obtaining financing and which confer on the purchaser the right to receive remuneration, or to exercise certain rights. The Bitcoin is an example of the former. The so-called ICOs (Initial Coin Offerings) are an application of the latter. Both have been the subject of growing interest, and there are at present numerous and highly heterogeneous initiatives. While their impact so far on global financial stability is considered to be limited, they pose a series of risks, in areas such as consumer protection and the prevention of moneylaundering and the financing of terrorism, which the authorities monitor closely and on which they have issued warnings and statements. In this connection, it should be stressed that these are assets of a marked speculative nature, without the backing of supervisors and susceptible to fraud or price manipulation. They cannot be considered as money or as deposits, and they do not enjoy the protection of the regulations governing banking and investment products. It is worrying that, in a setting in which less than half the population understands the concept of compound interest rates, there is such demand for complex assets with these characteristics. Lastly, I wish to refer to the risk of authorising – owing to a lack of knowledge or of due care – access to personal information that would preferably have been kept private. | 1 |
But whereas measures of credit and leverage may together serve as useful portmanteau guides to latent risks in the financial system, a considerable degree of discretion is likely to be called for. So a rigid linkage of macroprudential instruments to such indicator variables seems inappropriate. In the monetary policy sphere, we have the luxury of precisely defined measure of inflation against which the rationale for policy choices can be made. Unfortunately, we presently lack a similarly precise characterisation of the financial stability objective, so effective communication will be even more important than in the monetary sphere. Tonight I have offered you six lessons that I have taken from the crisis, though they are certainly not intended to comprise an exhaustive list. Moreover, some of us had more to learn than others. Here in Australia you have had a relatively “good” crisis – if that is not an oxymoron – in part because robust prudential supervision, coupled with enlightened monetary policy, helped to ensure that the banking system was in a better position to withstand the crisis than back in my own country. There the government has initiated reforms that seek to embed some of the lessons into the institutional framework. These include returning prudential supervision to the central bank and the creation of a Financial Policy Committee charged with protecting and enhancing the resilience of the UK financial system. We had our first meeting last month, issuing half a dozen recommendations to our banking supervisor and to our banks. | Bearing all this in mind, it is probably surprising how modest a deviation was actually shown from the forecasts for inflation and the current account deficit. So far, house prices have been the main driver of inflation above the target. If house prices alone are excluded, Iceland’s rate of inflation is low – and also in comparison with other European countries, for example. House price inflation was widely expected to stop sooner than it actually did. Monetary Bulletin, which was published yesterday, describes how the financial position of households has tightened due to a rise in short-term interest rates and in the lowest rates for new mortgages, compounded by the depreciation of the króna and higher inflation. For a number of familiar reasons, however, these monetary effects are not felt strongly yet, which is dampening efforts to slow down the economy. The increase in mortgage interest rates following yesterday’s rise in the Central Bank’s policy rate, however, represents an important contribution now. Private consumption grew by almost 12% last year. Growth at such a pace is rare and can only be short-lived. Disposable income has been driven up by wage rises, a higher employment rate and tax cuts. Household wealth has also grown as real estate and equity prices rose substantially. Most indications are that asset prices are the main driver of private consumption growth. Housing prices in the Greater Reykjavík Area went up by 45% over the past year and a half, and equity prices by almost 96% over the same period. | 0 |
At the same time, the value of the Norwegian krone against the German mark was almost halved, which contributed to high imported inflation. During this period, monetary policy was not oriented towards stabilising inflation. In order to achieve price stability, monetary policy must provide the economy with a nominal anchor. From the mid-1980s, it was recognised that a substantial revision of economic policy was necessary and that the problems created by inflation had to be taken seriously. From 1986 to 1992, Norway operated a fixed exchange rate regime. At that time, the fixed exchange rate was the anchor for inflation in Norway. The difference between inflation in Norway and Germany narrowed substantially. Deteriorating competitiveness as a result of high wage growth would no longer be remedied by means of devaluations. Instead, imbalances in the labour market would be addressed by means of countercyclical policy. Substantial emphasis was placed on the importance of wage formation for employment. Only when wage growth dropped below the level of our trading partners did unemployment begin to fall and the manufacturing sector began to pick up. The fixed exchange rate policy was not introduced in order to strengthen the internationally exposed business sector. On the contrary, it was a departure from the approach where monetary policy and frequent devaluations had been used to shelter these sectors. The fixed exchange rate was an intermediate target for achieving low and stable inflation. | Exchange rate adjustments in the face of large capital inflows, however, are not without costs. An excessively rapid appreciation of the currency could be disruptive to the real economy, since there often are constraints in the adjustments of the real economy, from labor market frictions to pricing behaviors. Here we have a challenge and need to balance well. In general, we would allow the currency to appreciate to the extent that the movements are broadly consistent with the economic fundamentals and that they would not cause undue disruptions in the real sector. Let me note here that I think the Thai economy, over the years, has become more capable in coping with exchange rate movements. We see more risk protection via financial market instruments on the part of the private sector. Exporters, in particular, have been able to diversify in terms of product lines and market destinations. Nevertheless, from time to time there is still a need to dampen the pressures on the exchange rate, and central banks often resort to exchange rate intervention. While such intervention could help contain excess exchange rate volatility, its focus is at the end of the process. In other word, FX intervention is a “passive” mechanism in dealing with capital inflows. By the time of intervention, capital would have already flowed into the economy. Imbalances could have already built up. | 0 |
Michael Bonello: The challenge of the Euro Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the Second International Summit organised by The Economist/Caja Madrid, Madrid, 8 July 2002. * * * It is a pleasure and an honour to be in Madrid today to participate in this discussion on challenges related to the adoption of the euro and to share a platform with such distinguished speakers. Since I have been invited to present the perspective of a small candidate country, I propose to start by briefly recalling some key facts about Malta and its economy. Malta is a micro-state, with a population of nearly 400,000 living in an area of just over 300 km2. In 2001 nominal GDP amounted to € billion, or less than 0.1% of that of the euro area. This translates into a level of income per capita estimated at around half the European Union (EU) average. Market services, including tourism and finance, account for nearly two-fifths of GDP, while manufacturing contributes almost a quarter. Given its size and lack of natural resources, it is not surprising that Malta has one of the most open economies in the world, with imports and exports combined amounting to nearly double GDP. The EU is Malta’s main trading partner, accounting for two-fifths of its exports and nearly two-thirds of its imports during 2001. It is an even more important market for the tourist industry and is a major source of capital inflows. | The Central Bank is aware that it will have to maintain the peg and manage a smooth transition to membership of the ERM and the single currency area in a rapidly changing economic environment. This will not be easy, but we should be able to rely on the well-established institutional and policy framework of the acquis and anchor our strategy to a clear end-point, the adoption of the euro. We, therefore, believe this to be a credible approach to euro area membership. In conducting monetary policy during this period, we recognize that international capital movements may present a growing challenge. For a long time, Malta’s exchange rate peg was backed by controls on inward and outward capital flows but these are now being gradually phased out. In theory, full capital account liberalisation may lead to large and volatile capital flows which, in turn, may put pressure on the peg. In practice, econometric evidence suggests that, because of its openness, the Maltese economy has already been exposed to significant capital flows. This, together with recent experience with a partially liberalised capital account, suggests that the impact of full liberalisation may turn out to be less than might have otherwise been the case. It is clear, nevertheless, that the Central Bank will have to adjust short-term interest rates – its key policy tool – to neutralise any pressures on the exchange rate. In other words, interest rates will not be able to respond to domestic economic developments, but will have to move in line with those abroad. | 1 |
A value above (below) 50 denotes optimism (pessimism). . (2) Business Perceptions Survey (EPN). (3) Monthly Business Confidence Index (IMCE) Sources: Central Bank of Chile and UAI/ICARE. Figure 10 Current account (percent) Percent of GDP of last 12 months Percent of quarterly GDP 2 0 -2 -4 -6 -8 -10 -12 -14 18 19 20 21 Source: Central Bank of Chile. 13 22 23 Figure 11 World inflation (annual change, percent) United States Headline 12 9 6 3 0 -3 10 12 14 16 Eurozone 12 9 6 3 0 -3 10 12 Core 18 20 22 United Kingdom 10 12 14 14 16 Core 18 20 22 Latin America (*) Headline 12 9 6 3 0 -3 Headline 16 Core 18 20 Headline 12 9 6 3 0 -3 22 10 12 14 16 Core 18 20 22 (*) Simple average of inflations in Brazil, Colombia, Mexico and Peru. Source: Bloomberg. Figure 12 Monetary policy rates in developed economies (*) (percent) 6 Eurozone United States 5 4 3 2 1 0 -1 19 20 21 22 23 (*) Diamonds represent monetary policy rates implicit in financial asset prices at the end of 2023 in respective economies. | Normalized 7 consumption, lower inflation and restored real household income will enable us to make progress in their recovery, over and above other efforts that may be made to strengthen them. This is another good reason why we must continue firmly in the process of inflationary convergence. It is vital not only for improving the welfare of households, but also to give them the tools to face the difficult times that the future might bring. There are many other challenges, of course, about which this Congress has constantly shown its concern. On one side, that of fostering greater investment and growth, which are also vehicles for improving well-being through employment and household income. On our side, we reiterate that monetary policy has done and will continue to do everything in its power: by reducing the volatility of the cycle and fostering a macroeconomic environment conducive to economic development. At the same time, the country must also address some very pressing issues. How to improve our productivity, how to face the challenges of a world in constant change and, particularly, how to overcome the impact that the pandemic had on such significant aspects as education. Dear Senators, the Central Bank has maintained a monetary policy that has played an important role in the process of resolving macroeconomic imbalances, helping inflation to decrease and move towards the 3% target. If this path is maintained, we will soon begin to reduce the Monetary Policy Rate. However, this task is not over. | 1 |
It means, the foreign savings is necessary, and part of it will pour through the foreign direct investments, while part through debiting. Of course, speaking from the viewpoint of the monetary policy, we would like to see the state to borrow also from abroad, not only on the domestic market, because it gives additional security and stabilization to the Macedonian economy. The level of debt is still moderate and causes no other unfavorable implications. So, whether like it or not, we must borrow, better abroad, in order to, if not else, cover also the current expenditures? Well, the state budget is structured in such a manner that it has a deficit, meaning a need of funding, but whether that funding is used for current or capital needs, it is hard to say, because it is one account of the Government from which all those needs are covered. If a problem regarding the repayment emerges, hypothetically, does it mean that the monetary policy can feel the consequences as well? The fiscal and the monetary policy are, of course, interleaving and the monetary policy is always adjusted in order to maintain the balance in the Macedonian economy. If we come to a situation when this balance is disturbed, the monetary policy will adequately react in order to restore the balance. The foreign reserves for a month "melted" by approximately Euro 80 million. Has these reserves been spent for maintaining the stability of the Denar, or for other purposes? | This one does not need to end – not because we are due Basel IV, or another raft of reforms, but because we will continually adjust as the industry itself innovates. Adjustments will be based on improved engagement with the industry about what’s necessary and conversations with a much wider range of people. Buried in your iPads, under the financial regulation section, is a list of all the current work streams of the FPC, FSB, BCBS, EC, CMU, et cetera – it’s all in there. Of course, there are very few people who know what all those acronyms are and what they mean – and shame on them if they do! This reinforces the point about comprehension, one of the most important takeaways from today. As Jon Cunliffe noted just a short while ago, rather than burying people in acronyms, the responsibility of the official sector is to explain what’s going on, why certain things are being done, and what else is necessary. In other words, as a senior banker once told me early on in my career in the private sector, “If it doesn’t make sense, it doesn’t make sense”. I asked him to repeat it because it didn’t make sense to me at first. If someone in finance explains something and it doesn’t make sense, and if when they repeat it still doesn’t make sense, it’s very likely that they don’t understand it themselves, which is quite often the case, or that, actually, it doesn’t add up. | 0 |
And yet, if you ask ten economists what precisely macroprudential policy is, you’re likely to get ten different answers. 1 So the time has come to take stock. I want to lay out what I believe to be five guiding principles for macroprudential policy. My aim in doing so is twofold: first, to help to build a common understanding of what it is and how it works; and second, to engage the finest minds – you – in partnership to push the frontiers of knowledge in ways that can make it better. 1) “It’s the real economy, stupid” 2 The first of my five principles is the one that motivates the whole exercise of macroprudential policy. For all that macroprudential policy may seem to be about regulating finance and the financial system, its ultimate objective – borrowing from James Carville’s famous election campaign advice – is: the real economy, stupid. 3 It is captured more precisely by Eric Rosengren (President of the Federal Reserve Bank of Boston) as avoiding circumstances in which “problems (or concerns about potential problems) within institutions, markets, payments systems, or the financial system in general …substantially impact the expected path of real economic activity.” 4 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 These problems typically arise when the financial system is overwhelmed by events in the economy; when it doesn’t have the resilience to absorb them and so amplifies them as: Credit dries up. Lenders are not matched with borrowers. | Zeti Akhtar Aziz: Corporate governance and aspects of the regulatory framework instituted in Malaysia Special address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 2nd Seminar for Central Banks and Monetary Agencies on AAOIFI’s Accounting Standards, Kuala Lumpur, 29 May 2002. * * * Assalamu`alaikum Warahmatullahi Wabarakatuh and Good Morning Malaysia is indeed honoured to host this annual Seminar organised by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) for Central Banks and Monetary Agencies on AAOIFI’s Accounting Standards for Islamic financial institutions. Since its establishment in 1990, AAOIFI has made a significant contribution in formulating and issuing accounting and auditing standards for Islamic financial institutions. The standards issued by AAOIFI have contributed towards the improved quality of financial statements and reporting methodology of Islamic financial institutions. AAOIFI has also issued standards on the role of Syariah committees as well as the code of ethics that should govern the accountants and auditors of Islamic financial institutions. Undoubtedly, efforts by AAOIFI have accelerated the pace of transparency and corporate governance of Islamic financial institutions globally. Ladies and Gentlemen, A well functioning and efficient banking system is vital for achieving robust economic performance. Within the context of the economy, the banking institutions perform the important function of mobilising funds that are channelled to productive investments thereby generating economic activity. | 0 |
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