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Krzysztof Rybiński: Global labour market and its limitations – reasons and effects of the emergence of homo sapiens globalus Address by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the debate: “WORKERS 2020 – a vision of the labour market and the labour environment in the forthcoming decades”, Gdańsk, 10 June 2006. * * * Ladies and Gentlemen, The question about the symbol of the global labour market would most probably be answered by a majority of the Europeans with the words: “the Polish plumber”. In France, the Polish plumber has become the key culprit of the rejection of the European Constitution, with the French media showing the Polish plumber on his quest for depriving the hard-working French plumbers of their work. At the same time, the data of the French society of plumbers show that there were 140 Polish plumbers working in France at that time, with 6000 plumber jobs still remaining vacant in the country. 1 This example demonstrates how many false preconceptions concerning globalization are embedded in the media and in the public opinion. In the recent years, the process of globalization has been broadly based across all the markets: the financial market, the capital market, the market of products, services, knowledge, and the labour market. In many countries, the opportunities and threats related to the process of globalization have been observed early and their economic policy has been adjusted accordingly. | In the past, in response to increasing fuel prices or costs of living, trade unions demanded wage increases. It would result in the so–called second–round effects, and central banks had to increase their interest rates to mitigate inflation. Now, trade unions must take into consideration the fact that if wage increases exceed the growth in productivity, manufacturing may be off-shored to countries with lower manufacturing costs. In view of the research results presented at the recent conference organized by the Financial Times, dedicated to outsourcing and off-shoring 12 , an increasing number of companies is planning on the globalization of their manufacturing and services. This decision is underpinned with the wish to optimise costs, improve the quality, deliver new products, provide better customer service (e.g. use of various time zones to provide 24/7 customer service), mitigate risk, and drive innovation. The public sector holds the second position in the ranking of business sources for companies offering outsourcing and off-shoring services. The majority of the speakers stressed that the cost factor dominated in the first phase of off-shoring; now these are quality, innovation, and the use of talent bank in other countries that gain on significance. More and more often, aside from the supportive activity, companies outsource and off-shore their core business, as part of their elaborated strategy. They do so, because they obtain both lower costs, and better quality and innovation improvement. For instance, a call centre in Manila on the Philippines initially dealt with simple complaints. | 1 |
In light of the buoyancy of domestic demand in recent years, it is reasonable that private consumption and residential investment should show somewhat lower growth rates, although, as has been the case so far, a continued robust employment and population growth rate would fairly effectively counter the possible deceleration of these two variables. In the construction sector, moreover, investment in civil engineering and in non-residential building, which has so far shown greater resilience, will foreseeably remain vigorous in the 4 BIS Review 134/2007 next few years. This could soften the negative impact on growth caused by the slowing of residential investment, where a cyclical downturn seems to have started. Productive investment will probably continue to be the most buoyant component of domestic demand, although it is hardly likely that it alone will offset the lower contribution of household spending. Therefore, the role of net external demand will be fundamental in ensuring that a certain containment of expenditure is compatible with continued growth of around 3%. The contribution of this variable will hinge crucially on the behaviour of Spain’s export markets, but also on competitiveness, which is a factor that firms and the economic authorities are actually able to influence. In this respect, the basic channel through which the recent episode of financial instability and heightened international uncertainty could affect the Spanish economy’s expected growth scenario depends on the performance of the foreign sector. | One particularly positive effect of this pattern of behaviour in the current situation is that the institutions’ practice of keeping credit risks on their own balance sheets has acted as a powerful incentive for them to ensure that their risk BIS Review 134/2007 5 quality controls continue to work properly. Also, since the securitisation processes used by Spanish institutions have aimed to raise fresh funds rather than redistribute risks, instruments such as covered bonds or asset-backed bonds have been used, which are not very complex and are much easier to price than the structured products that have proliferated in other parts of the world. These sources of solidity should not lead us to overlook the danger that an excessive prolongation of the current bout of turbulence could ultimately have undesirable effects on investor confidence. These effects might extend above and beyond a desirable and healthy correction of abnormally low risk premiums and volatility levels, and substantially reduce the capacity of financial markets to offer useful yardsticks by which investors can discriminate the true credit quality of the different instruments. If this were to happen, the need for the Spanish economy to turn to the international markets to finance a large part of the investment spending of Spanish households and firms could become an obstacle to continued high buoyancy in the future. | 1 |
We have limited experience to indicate how the interest rate at the current low level will affect output and prices over time. If growth in household demand proves to be stronger than expected, the interest rate may be raised to a higher level and more rapidly than currently envisaged. BIS Review 139/2009 11 Fiscal policy is expansionary this year, and according to the National Budget for 2010, fiscal policy will provide further, albeit milder expansionary impulses to the economy next year. Under the fiscal rule, the government budget deficit should be reduced to about 4 per cent of the capital in the Government Pension Fund – Global when activity in the economy has resumed a normal level. Norges Bank’s projections are based on the technical assumption that the structural, non-oil budget deficit in 2011 and 2012 will remain unchanged from the level in 2010. If growth in the Government Pension Fund – Global is lower than in previous years, the deficit will still be more than 4 per cent of the Fund’s capital, even after capacity utilisation has risen to a normal level. If economic developments are broadly in line with projections, fiscal policy conducted in accordance with the fiscal rule could result in a lower interest rate and a weaker krone than projected. Unemployment is high in many countries. Unemployment in Norway has not risen as sharply as previously projected. The number of registered unemployed was 2.8 per cent of the labour force in October, unchanged from September. | The current unusual circumstances are one of the main drivers for the prolonged boom in the local property sector. The risk of over-heating in the property sector to financial stability in Hong Kong is no smaller than that seen in 1997. We should note in particular that while mortgage rates were generally over 10% in 1997, after the burst of the property bubble, US interest rates have fallen, and mortgage rates in Hong Kong have spiralled down reaching about 2% in 2004. The situation we faced now is just the opposite. Mortgage rates are around 2%. And, even if the low interest rate environment were to remain until 2015 as anticipated by the US Federal Reserve, the US interest rates are bound to head back to more normal levels. Will mortgage borrowers in Hong Kong then be able to withstand the impact of interest rate hikes and property price falls? For example, under a 30-year mortgage, even though the borrower will be able to enjoy a low interest rate in the first two years, the repayment burden could become much heavier as a result of interest rate hikes in the years that follow. This could have serious consequences for the well-being of those families in the coming years. Therefore, I hope that the public will be cautious and should not underestimate the risks that rising interest rate could have on repayment ability, asset prices and the overall economy in Hong Kong. 2 BIS central bankers’ speeches | 0 |
The measures aimed at raising the supply of housing and its accessibility will not be sufficiently effective if they do not include a reorganisation of the land market, which remains one of the main unresolved issues facing the Spanish economy. Also, a more neutral tax treatment of house ownership and further measures to foster rental could improve the working of this market. There are also implications for the behaviour of financial intermediaries and I will look at these now as I review the main recent developments in the Spanish financial system. The financial system The international financial system benefited in 2004 from the favourable trends in train since 2003 and still apparent in the early months of 2005. Very low long-term interest rates, stable interest rate spreads both in emerging countries and in the corporate sector, the performance of the main stock market indices, low levels of volatility and ample liquidity all made for a relatively easy scenario that contrasted with the difficulties experienced at the beginning of the decade. Despite this favourable environment, the financial situation is complicated by certain circumstances that cannot be ignored. First, financing activities are becoming increasingly complex in terms of both demand and management. Low interest rates have thus increased the appetite for risk and spurred the development of new financial products, such as credit derivatives, and of new intermediaries, such as hedge funds. | As virtual banks are not allowed to operate physical branches, they will have to come up with innovative ways to offer attractive and competitive banking services. This is likely to force existing banks to consider how to further upgrade their services, and better make use of technology in their offerings. The result, I hope, will be a more innovative and globally competitive banking sector in Hong Kong, offering customers more diversified and efficient services. Technology use is a means to an end 20. Last but not least, we should bear in mind that the use of technology is a means to an 2/5 BIS central bankers' speeches end, and not an end by itself. Most people appreciate new technology for what it can do to improve their lives. They don’t really care whether the algorithms or the chips are amazingly innovative. To achieve wide adoption, any innovation has to offer users a “unique value proposition”. In plain language, the consumer wants to know “what can it do for me?” 21. Take mobile payment as an example. This has rapidly taken off for retail payment in Mainland China and some other places. In Hong Kong and other markets, people already use credit cards and e-payment systems like Octopus, so mobile payments will grow more slowly. The point is that mobile payment technology is only the means to an end. The Hong Kong consumer will ask: “what can it do for me?”. | 0 |
Openness and clarity can thereby contribute to increased credibility and anchor inflation expectations around the target. This was an important reason why the Riksbank began to publish its forecasts and other material on which decisions were based early on in the new inflation-targeting regime. I am convinced that we would not have been able to build up confidence in the price stability target as quickly as we did if we had not been as open as we were regarding our work and our decisions. The economic argument in favour of transparency is also linked to the fact that openness and clarity are today considered an important part of the monetary policy in itself. According to economic theory, there is a correlation between interest rates with different times to maturity. Expectations of short-term interest rates, which the central bank governs, are important to the long-term interest rates. By influencing expectations of short-term interest rates, a central bank can therefore also indirectly affect interest rates with longer maturities. Greater influence over rate-setting for all maturities – the yield curve – will raise the degree of impact of monetary policy. This is sometimes called conducting monetary policy by “management of expectations”. Monetary policy is to a large degree about influencing expectations. And the best way to do this is to provide good information. The most obvious way for a central bank to influence expectations of monetary policy is to present the future path for the policy rate that the bank itself considers most reasonable. | Central banks probably invest greater resources than any individual agent into studying the economy, assessing the economic situation and making forecasts. Reasonably, central banks should also know more about their own intentions than any other agent. It is therefore possible to construct theoretical cases where a lower degree of transparency is preferable to a higher degree. But on the whole the research appears to indicate quite clearly that a high degree of transparency is something the central banks should aim at. It is easy to agree with this conclusion. Here I think that the demands on a public authority in a democracy have great importance. Then I believe that in practice there are limits as to how transparent a central bank can be. In some respects it is quite simply difficult to be open and clear. This applies, for example, to how much emphasis the central bank places on stabilising the real economy relative to stabilising inflation. In theoretical models this is usually represented by a special parameter in the central bank’s so-called goal function. However, placing a value on this parameter which is then published would probably be 2 Morris, S. and H.S. Shin, (2002), "The Social Value of Public Information”, American Economic Review 92, 1521-1534. 3 Svensson, L.E.O., (2006), “Social Value of Public Information: Morris and Shin (2002) Is Actually Pro Transparency, Not Con,” American Economic Review 96, 448-451. BIS Review 40/2007 3 very difficult in practice. | 1 |
BIS Review 131/2009 3 Output in Norway fell through two successive quarters and although unemployment picked up last autumn, it is still lower than in previous downturns. Norwegian banks felt the impact of the turnaround in the economy, but government measures have prevented the liquidity crisis from becoming a crisis in the real economy. Norwegian banks primarily experienced a liquidity crisis and not a solvency crisis. The Icelandic bank Glitnir’s Norwegian subsidiary received a short-term loan from the Norwegian Banks’ Guarantee Fund. But there has never been any risk that distressed banks would overstretch our fund-based guarantee scheme. Lessons from the crisis – the work ahead The global financial crisis has revealed weaknesses in the financial system. The Basel Committee on Banking Supervision and the EU are working on proposals for revising the regulatory framework and introducing new regulations. Banks will be required to build up larger capital and liquidity buffers and to strengthen the quality of bank capital. The proposals also aim to reduce the procyclicality of bank behaviour. Banks should build up buffers in good times that can be drawn on in periods of stress. The authorities will focus in particular on methods of regulating systemically important banks. Bank capital Banks play a key role in ensuring that depositors’ savings are managed securely, in extending credit and providing payment services. Banks are commercial enterprises, but they are also similar to public utilities. | Bond premiums are nevertheless likely to remain clearly higher than prior to the financial crisis. Investors cannot be certain that government will cover bond investors’ losses when banks’ capital evaporates during the next banking crisis, c.f. the planned UK proposal to impose a “living will” on the large institutions. A favourable source of funding for banks is covered bonds, referred to as OMF in Norway. These debt instruments are secured by sound collateral backed by residential mortgages, public loans or commercial property loans. The risk premium on these loans is therefore lower than on ordinary bank bonds. The covered bond market was also heavily impacted by the financial crisis. Activity in the secondary market has been low, and investors showed little interest in new issues. The swap arrangement introduced by the Norwegian authorities eased the situation for banks. The market has recently improved. Covered bonds have a long tradition in other countries’ housing markets. As manager of the Government Pension Fund – Global, Norges Bank has taken initiative to strengthen the European covered bond market. Together with several other large investors and support 14 BIS Review 131/2009 from a number of central banks, the “Covered Bond Investor Council” was established. One of the main aims of the Council is to improve liquidity in the covered bond market, through for example more transparent and standardised borrowing terms. The Norwegian covered bond market is new and small compared with that of other countries. | 1 |
Unlike the experience of many other countries, loan portfolio of the economy increased over the past year; banking supervision framework was improved and financial stability was further strengthened. Although non-performing loans increased, the Albanian banking system, responding to strengthened prudential regulations of the Bank of Albania and our initiatives to enhance the transparency of its balance, remains solid, with adequate capital and liquidity to support the economic development. *** I will proceed with a more detailed analysis of the foregoing issues, focusing on Bank of Albania’s main directions. *** 1. Economic and financial highlights for 2011 GDP expanded by 3.1% in 2011. Likewise in 2010, external demand was the main driver to economic growth, though its impact pursued a moderating trend due to the slowdown in partner countries’ economies. On the other hand, domestic demand remained relatively sluggish. Consumption and private investments remained under the impact of consumers and private businesses. These significant aggregate demand components did not reveal any strong signs of recovery over the past year, despite the improving financial conditions. The sluggish consumer spending reflected the continuation of consumers’ high propensity to save and the heightened uncertainty surrounding the future. On the other hand, the presence of spare production capacities and tight lending conditions gave rise to a slow performance of private investments. Judging from the distribution of 2 BIS central bankers’ speeches credit flows, these investments were mainly allocated to industry and services sectors, which benefited the most from the external demand performance. | There must also be a concerted effort by project developers to make project delivery more cost-efficient, productive and financially viable to mitigate risks for investors While considerable attention has been focused on increasing the supply of infrastructure financing, we also need to think about how we can “get more for less” by optimising the project delivery value chain. Improving project implementation processes McKinsey has estimated that productivity of the infrastructure value chain could be increased to achieve 40% savings, if project sponsors globally adopt proven best practices. This would translate to an average of $ per annum in infrastructure cost savings over the next 18 years. Such best practices may include having processes in place to select projects that best address infrastructure needs, finding innovative ways to structure and execute these projects, as well as maximising the use of existing capacity. This is not just a regulatory or public sector issue. On the part of project developers, greater attention has to be paid to productivity improvement across the entire value chain. Put simply, project developers must find ways to deliver projects on time and on budget, boost asset utilisation and undertake proper maintenance. If investors have confidence that there is “less leakage” from cost overruns, this will help to reduce financial buffers and in turn the required hurdle rate. There are various ways in which sponsors can enhance their delivery of projects. They could invest in project design at an early stage to avoid costly subsequent changes. | 0 |
Global institutions and fora play an essential role for three reasons. First, they achieve a better understanding and a common assessment of the global spillovers from domestic policy actions and the potential policy trade-offs. The discussion on capital flow management measures is a good example.12 The IMF should continue to lend its analytical and impartial voice to this effort. Second, even if the scope for coordination is limited in good times, they make coordination possible in bad times. Consider, for example, the establishment of a system of bilateral swap agreements among major advanced economy central banks, or the recent decision to establish such an agreement between the ECB and the People’s Bank of China. 9 See B. Eichengreen (2014), “A Requiem for Global Imbalances”, Project Syndicate. 10 See H. Rey (2013), “Dilemma not trilemma: the global cycle and monetary policy independence”, Proceedings – Economic Policy Symposium – Jackson Hole, Federal Reserve Bank of Kansas City, pp. 1–2. 11 See Forbes, K. and Warnock, F. (2012), “Capital flow waves: Surges, stops, flight, and retrenchment”, Journal of International Economics, vol. 88(2), pp. 235–251. 12 See IMF (2012), “The liberalisation and management of capital flows: An institutional view”, IMF Policy Paper. | We have often argued in Europe for simpler approaches for small firms, but the differing legal traditions across the EU27 and the desire to harmonise regulation and supervision are powerful forces in the opposite direction. It is impossible to know at this stage, but under some Brexit outcomes we might have room to revisit this question for small domestic firms. It is notable that both Switzerland and the U.S. are taking quite radical steps in this area; while I am cautious about the leverage-ratio-only capital regimes they are working on, and small British firms might be cautious about a 9% leverage ratio requirement, we are taking a close interest. Sixth, there is the debate – which came up most recently in the context of the Treasury Select Committee’s inquiry into Solvency II – about whether our competition objective would be better cast as a primary objective. I have a number of reservations about this idea. One is purely practical: with the FCA and CMA already having primary competition objectives, do we really want a third regulator doing this for the financial services sector? It strikes me as a recipe for bureaucratic overlap. Another is that the sort of referee role the PRA often plays, making sure that firms are competing fairly and not by running excessive risks with policyholders’ and depositors’ funds, is itself the most important contribution we make to competition. | 0 |
These will help affected professionals, including women and working mothers, to find jobs suitable for their skills. We believe that industry professionals such as yourselves will be able to make significant contributions towards this initiative, and we urge you to participate in any way that you can. BIS central bankers’ speeches 3 20. As leaders in your respective companies, we hope that you will be welcoming to those looking to rejoin the industry, and acknowledge the experience that these professionals bring to the table. 21. Thirdly, given the challenging environment in financial services, it is more important than ever for employees to take charge of their own learning, careers, and development. Each of you can do much to encourage and institute training initiatives in your company, and to allow more time for employees to pursue further education in their specialisations. We look to FWA to continue being that strong influence in encouraging professionals to pursue continual rejuvenation, both in terms of skills and mindsets. Celebrating successes 22. I am glad to say that many financial institutions are with us in the journey of developing talent in the sector. In fact, a number of them are institutional members of FWA, who not only are close partners with us in building a strong manpower pipeline, but are also especially supportive of nurturing female talents. 23. For instance, Barclays, our host today, is the first bank in the world to join the United Nations initiative, HeForShe, which promotes gender parity in corporations. | Today, from this modest ceremony, I would like to assure you that we are fully responsible for this as useful as difficult mission. The Bank of Albania will be always attentive to ensure macroeconomic and financial stability for the country. In the spirit of end-year celebrations, I cannot help focusing on the Albanian young generation, an inspiration to our work and a fruit of our investments for a better future. Following its established tradition, the Bank of Albania has the pleasure to announce the Governor’s Award for the best diploma theses in 2011”. This year, we decided to announce this award in this important activity, in the presence of friends and colleagues. This is an expression of our appreciation for research by these today’s students – tomorrow’s colleagues. The Bank of Albania pays particular attention to the young generation, especially to its education. When I look back and see how we started financial education five years ago, I recall what may be a naive but a significant comparison; Neil Armstrong’s landing on the moon. In addition to his famous quote “...That’s one small step for (a) man, a giant leap for mankind” he said “...the surface is fine and powdery. I only go in a fraction of an inch, maybe 1/8 of an inch, but I can see the footprints of my foot from the trail”. Looking back, we may spot our footprints. | 0 |
M R Pridiyathorn Devakula: Outlook for 2002 and the road ahead Speech by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, to the Foreign Banks Association, Bangkok, 6 March 2002. * * * Mr Weerasinghe, distinguished guests, Ladies and Gentlemen, Let me begin by thanking the Foreign Banks Association for hosting this enjoyable event and for inviting me to speak. I am honored to be here and would like to extend once again my congratulations to Mr. Weerasinghe on his presidency of the FBA. The formal meeting we had in late January offered an opportunity for me to exchange many useful views and ideas with you. I consider that fruitful and I also appreciate the opportunity given to me this evening. I hope my talk tonight will enhance communication and our mutual understanding even further. I wish to use my time tonight to share with you our view on the current state of the Thai economy as well as what we see now as the outlook for 2002. It is my intention to discuss with you our assessment of the nature of the incipient recovery process that is now taking place, and to identify the risks and challenges we may face in the near future. Ladies and gentlemen, permit me to go straight to the crux of the matter. We enter the year 2002 with more confidence. The Thai economy had most assuredly bottomed out last year. | The IMF’s projection is just over four percent for real global GDP growth. The consensus of private forecasters sees growth in Europe and Japan close to estimates of potential, or in the neighborhood of two percent. Growth in the major emerging markets looks impressive, reflecting not only the benefits of a positive external environment, but also the impact of better economic leadership and policies more supportive of macroeconomic stability and reduced external vulnerability. In China, officials now seem more confident that they have induced the desired moderation in growth to a more sustainable, but still high pace of growth. The global economy has weathered the oil price shock quite well. If the long term futures prices are right, we need to be prepared to live with the possibility of a sustained period of higher oil prices, and perhaps more volatility in oil prices, and the world seems to be getting itself more prepared for that prospect. In the financial markets, this broadly positive outlook has been accompanied by a dramatic reduction in risk premia, leaving the price of insurance unusually low against a less favorable or more volatile environment. These developments imply a view among market participants that future macroeconomic shocks will be more moderate than in the past and more likely to be absorbed without broader damage to economic performance or the financial system. They reflect a general increase in confidence that monetary authorities here and in other countries can keep inflation stable at appropriately moderate levels. | 0 |
As a logical consequence, a question arises about how the monetary policy should be conducted in these circumstances, and in particular, whether it should respond to the increase in asset prices despite the fact that inflation of consumer goods and services remains low or very low. Another vital question arises about the appropriate level of central bank interest rates when long-term interest rates remain low, possibly as a result of globalisation. A hot debate accompanies the issue, both among the central 26 27 bankers and among academics. The Chairman of the Federal Reserve, Ben Bernanke, in his address 28 last month, presented possible diagnoses regarding the sources of low interest rates on the bond market despite as many as fourteen increases in the central bank references rates. There are at least two explanations of such situation. If the long-term interest rates remain unchanged and the short-term ones increase, this means that either the markets pessimistically assess the perspectives of economic growth or the risk premium related to forward rates decreases; here this may be the inflation risk premium or real interest rates volatility risk premium. Another explanation may be the very effect of global imbalances, i.e. the result of large purchases of sovereign bonds by Asian central banks and oil- exporting countries. Depending on which hypothesis is true, the implications for the monetary policy are different. If the long-term rates go down as a result of poor growth prospects, the current short-term interest rates should be lowered 23 See e.g. | • Let me finish with a few words on the development of macro-prudential frameworks across the globe. For the most part good progress has been made in setting up effective macroprudential frameworks at a national level. However, many emerging macro prudential risks are cross border in nature – for example the GFSR has identified global factors as having played an important role in the quadrupling of corporate debt across major emerging economies, much of which is in foreign currencies. The risk inherent in this build up of leverage has motivated calls for a normalisation of advanced economy monetary policy sooner rather than later – a global leaning against the wind. • But tightening advanced economy monetary policy solely to discourage further borrowing could make the job of getting inflation back to target more difficult. So, just as using a targeted macroprudential tool is preferable to using monetary policy to tackle domestic financial stability risks, so too would it be preferable to use efficient and effective international macroprudential tools to target global risks to financial stability. The framework for international macroprudential co-ordination is currently still in its infancy, and there is much room for improvement by way of surveillance, design and implementation of global macroprudential tools. This perhaps is the next frontier for macro-prudential policy and an important one for the FSB and IMF to take forward given the potentially significant negative spillovers that might result. BIS central bankers’ speeches 3 | 0 |
Chart 18: UK banks hold only a small fraction of CLOs Chart 17: Corporate gearing still well below peak but has grown recently Per cent of earnings Other corporate debt Commercial real estate debt 400 EA Banks US Banks Japanese Banks 300 US Insurers Pension funds 200 100 0 1998 02 06 10 14 18 Sources: Association of British Insurers, Bank of England, Cass Commercial Real Estate Lending survey, Deloitte, LCD, an offering of S&P Global Market Intelligence, London Stock Exchange, ONS, Preqin, Deals Business Intelligence from Refinitiv and Bank calculations. Indicative Bank staff estimate. For further detail, please see Chart F.5 in the November 2018 Financial Stability Report. UK Banks These types of investor would typically hold the riskier tranches SMAs Other investors (mainly Open‐ended international) funds Hedge funds Structured credit funds UK Insure EA Insurers Other SMAs CLO managers Sources: BarclayHedge, Bloomberg Finance L.P., FCA Alternative Investment Fund Managers Directive (AIFMD), Firm public disclosures, LCD, an offering of S&P Global Market Intelligence, Morningstar, National Association of Insurance Commissioners, Securities Industry and Financial Markets Association, Solvency II submissions, and Bank calculations. Indicative estimated holdings of CLOs by global investors. 1 square = 1% of $ billion global CLO market. For further detail, see footnotes to Chart F. 8 in the November 2018 Financial Stability Report. | Calibrating PEPP This brings me to the second question – the calibration of the PEPP. By removing duration risk from the market, PEPP reduces the bond free-float ratio –the share of bonds that need to be held by private price-sensitive investors relative to total bond supply (see left chart on Slide 8). In the absence of our new measures, this ratio would have gradually increased on the back of the large coronavirus-induced increase in debt issuance, thereby putting upward pressure on bond yields. The PEPP envelope has been calibrated with a view to restoring and preserving financial conditions that are consistent with bringing inflation back to the pre-COVID-19 inflation path. The evidence speaks for itself. Upon the announcement of the PEPP, and again in response to our actions last week, the euro area GDP-weighted yield curve has shifted downward measurably, and today it is not far from the level we observed before the outbreak of the crisis (see right chart on Slide 8). In view of the historically weak inflation outlook and the already accommodative stance, the question arises whether our actions are sufficient and proportionate. In answering this question, the Governing Council assesses whether the benefits of achieving a faster return of inflation to levels closer to 2% outweigh the potentially adverse side effects. In other words, it assesses how long the “medium term” should be, given current circumstances. | 0 |
Miguel Fernández Ordóñez: Seeking solutions to Spain’s economic, financial and fiscal issues Address by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, to the Annual Assembly of the Instituto de Empresa Familiar (IEF) Madrid, 23 May 2011. * * * Many thanks for inviting me to talk at your Assembly. And since one of the functions of your Institute is to seek solutions to the legal and institutional environment in which the company moves, I’ve decided to focus my address today on what I think about this matter. Resolving a country’s economic problems should be no different from what any individual or company does to improve its situation. First, acknowledge that we have problems; second, identify the changes needed; and third, apply them. I’ll try to apply these guidelines to what, in my view, are our main problems: the relatively low level of educational attainment of the labour force; the need to adjust the imbalances accumulated over the course of 14 years of expansion; massive unemployment; and, for a year now, the mistrust of the markets to which we have to resort for funding. Let’s begin by looking at two examples where problems were not properly identified. The first of these was thinking that the main source of our difficulties was the international financial crisis and not the imbalances accumulated further to a long expansion based on indebtedness and the deterioration of our competitiveness. | Since the introduction of the MPESA mobile banking service in Kenya, the number of adults with access to financial services has increased from 42% in 2011 to 75% today. Agent banking in Malaysia has provided consumers with an innovative and alternative channel to access financial services, resulting in the percentage of sub-districts served by financial services access point to increase from 46% in 2011 to 96% in 2014. This has enabled 99% of Malaysians, particularly those in rural areas, to conveniently access and benefit from financial services. The microfinance 1 “Global Financial Development Report 2014”, World Bank, 2014. 2 Discussion note “Redistribution, Inequality, and Growth”, IMF, 2014. BIS central bankers’ speeches 1 institution Grameen Bank in Bangladesh has extended credit through its 2,500 branches to almost 8 million people, with 60% of them lifted from poverty. The loan recovery rate is higher than 98 percent. The experience in Bangladesh, in particular, dispels the myth that the poor is not bankable. Of proportionate regulation and the global standards The proportionate application of Global Standards for financial regulation is a critical factor in enabling innovative financial inclusion solutions, ensuring its delivery in a safe and sound manner. My remarks today will touch on the following topics: Recent developments in global standards and financial inclusion; Focus areas to advance Proportionality in Practice; and The importance of the Global Symposium to galvanise action. | 0 |
As ever, my votes on Bank Rate at the December MPC meeting and beyond will be determined by pursuit of the inflation target, and guided by the evolution of the economic and financial data. Conducting central bank asset purchases But the MPC is not only taking decisions about Bank Rate. In parallel with increases in Bank Rate, the MPC has also embarked on quantitative tightening. Gilts held as a result of QE conducted over the past decade or more have been sold as of the beginning of this month, following the decision in February 2022 to cease reinvesting the proceeds of maturing bonds. QT is another aspect of the normalisation of the monetary policy stance. The MPC has committed to unwinding its QE holdings in a gradual and predictable manner. Gilt sales are running ‘in the background’, rather than being responsive to month-to-month data news. As I have already discussed, responses to shocks at the margin involve what the MPC has identified as its ‘active’ instrument – Bank Rate. From the outset of its communication about QT, the MPC has emphasised that, were markets to become dysfunctional, asset sales could, if necessary, be paused. | As we saw with the onset of the global financial crisis, in the face of deflationary pressures, monetary policy makers can resort to asset purchases in the form of quantitative easing to ease the stance of monetary policy and financial conditions more broadly. Central bank asset purchases can be seen as working in two ways. Asset purchases as a substitute for changing Bank Rate First, they are a potential substitute for monetary easing via the conventional lowering of interest rates should the effective lower bound on Bank Rate bind. In this context, QE can influence the economic outlook through a number of channels. On the basis of quantity-theoretic considerations, an expansion of the central bank’s monetary liabilities may raise inflation expectations directly. QE can also offer guidance to the market about the Bank’s plans for interest rates. In short, QE may work through a signalling channel. The increase in central bank reserves associated with QE may lead to portfolio rebalancing, as banks attempt to restructure their balance sheets by buying financial assets or making loans. More generally, the absorption of duration from markets associated with Bank of England purchases of government debt financed by the creation of central bank reserves can trigger efforts by a broader set of market participants to rebalance portfolios, leading to a bidding up of asset prices. Higher asset prices ease the wider set of financial conditions faced by households and firms, supporting economic activity alleviating deflationary pressures. In sum, QE may also work through a portfolio balance channel. | 1 |
In terms of how to move forward I’d like to make three brief points before I close: First, the fact that we’re all sitting here in this room is a very positive sign. That so many leaders from major firms are here today, engaged in these issues, is a symbol of how organizational culture is moving up the agenda. The second is that the Banking Standards Board survey is a terrific tool for getting a snapshot of what your organization’s culture looks like and how it’s changing over time. It goes far beyond typical engagement questionnaires and provides powerful insights into the values of employees and the characteristics of an organization.7 It’s impossible to make progress if you don’t have an accurate picture of your starting point. The third is that when it comes to culture, I encourage everyone to look beyond their own lens of expertise. The Fed couldn’t do its work without the deep knowledge of economists, lawyers, and statisticians. But the solutions to challenges related to a firm’s culture are unlikely to be found if we keep our focus narrowly trained on our own specialties. We have so much to learn from experts in psychology, ethics, and management. 3/4 BIS central bankers' speeches That’s one reason I’ve been so looking forward to today’s panel discussion. It brings together experts from many of these fields, whose combined insights are the key to moving us all toward the business culture we want to see. | Employees may enter an organization with a strong sense of right and wrong. What they may not realize is that group norms can exert a powerful magnetic pull on their moral compass. The junior banker knew the way the number was being presented was unethical, and yet she complied with her boss. The response from the senior analyst, describing the situation as a “judgment call,” is a common phenomenon. Using a euphemism to describe the inflated statistic camouflages the wrongdoing and makes it sound more acceptable to others. We see it in our daily lives—terms like “troublemaker” and “not being a team player” are often used to shift the onus from the person whose behavior is being challenged to the challenger. Ann Tenbrunsel’s work has been very important for revealing how we use language to disguise or excuse behavior we know to be unacceptable.3 One of the other issues this example illustrates is how organizational norms affect our own sense of what’s right and wrong and whether to speak up. Many of you here today will be familiar with the Asch experiment, where students participated in a vision test. There was a control line and three other lines labelled A, B, and C. Participants had to state aloud which line was the same length as the control. | 1 |
This should increase understanding among the population for implementing necessary measures and put pressure on governments to do so. Every other year, a special Globalisation report will be produced. This will contain a more in-depth version of the annual analyses of global financial and economic stability. One very important question for the Fund’s legitimacy and ability to act is how it is governed. Today the governance of the IMF to a large extent reflects the distribution of power in the world when the IMF was established. The question of influence and governance has gained a new explosive force through the economic developments in a number of large growth economies such as China, India, Brazil and Mexico, who now demand greater influence. If nothing is done to reform the IMF’s forms of governance, there is a risk that the organisation will lose legitimacy and relevance. It will most likely take time before a sustainable solution has been drawn up. Personally, I regard the regional principle as the most democratic and efficient in the long term. This would mean that the large regions – which are currently more or less well-organised - the United States, Latin America, Europe, Africa, Asia, etc. - reinforcing there regional platforms in order to shoulder global responsibility together. Thank you! 8 BIS Review 35/2006 | More broadly speaking, the RMB is now the seventh most used payment currency according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), and the ninth most actively traded currency according to the Bank for International Settlements (BIS). 4. To me, the extent and pace of the development of offshore RMB business depends on three key factors. The first factor is the relaxation of controls and restrictions by the Mainland authorities. The second factor is the availability of the necessary financial market infrastructure, such as clearing and settlement systems. The third factor is the awareness and willingness of corporates and financial institutions, especially banks, to develop RMB business opportunities. 5. Since the RMB trade settlement pilot scheme was launched back in July 2009, the Mainland authorities have incrementally removed many controls and restrictions on the flow of RMB out of and into the Mainland. Presently all trade and current account BIS central bankers’ speeches 1 transactions between Mainland China and other parts of the world, as well as inward and outward direct investment into and out of China, can be conducted in RMB. Moreover, some cross-border portfolio investment flows, such as investments into China’s bond and equity markets, can also be made in RMB via the RMB Qualified Foreign Institutional Investors (RQFII) scheme. 6. More importantly, in April this year the Mainland and Hong Kong authorities announced a milestone project, i.e. the Shanghai-Hong Kong Stock Connect scheme. | 0 |
And, as the banks have grown larger and have increasingly expanded their operations over national boundaries over the last decade, each nation cannot solve such problems alone. The question of how to manage crisis banks is currently the subject of intensive discussion across the world, and new regulations of some form must also arise from this discussion. Today, I plan to address another lesson from the financial crisis, a lesson that has not yet led to any consequences in the form of regulatory changes, but which nevertheless must be dealt with in the long term. It applies to Sweden, but also to many other countries, particularly in Europe. It relates to the banks’ dependence on funding in foreign currencies, primarily US dollars. What kind of risks are the Swedish banks taking when they borrow in dollars – and who bears the cost? As usual, I would like to point out that the thoughts I present are my own and are not necessarily shared by my colleagues on the Riksbank’s Executive Board. The dollar crisis… As we all know, when Lehman Brothers collapsed in September 2008, the immediate effect was a liquidity crisis that affected the entire world to varying degrees. Banks and investment banks that had based their business on being able to rapidly obtain large volumes of shortterm borrowing, for example by issuing securities with short maturities, discovered that investors in these securities suddenly just vanished. | Oversimplifying, I would say that the French and English languages seem to be very much designed to “communicate”. My understanding of the German language is that it is very much designed to “think”, with its verbs at the end of the sentence. I am not surprised that it is such a good language for philosophy. FOCUS: Are you trying to say that Germans are not as good at small talk? Trichet: Not at all! I just want to say that the German language itself is particularly well suited to reflection. In speeches, for example, speakers let the audience think along with them. Only at the end of a sentence is the audience able to understand exactly what is actually meant. This is why it is pretty unacceptable for people in the audience to whisper during a speech. BIS Review 7/2010 5 | 0 |
It’s become standard practice, too, to assume that decision-makers are hyper-rational in how they form their expectations of future policy and future events; they are assumed to fully understand how the economy works. To be sure, the economy is subject to shocks, so that its course is unpredictable. But that uncertainty, according to this school of theory, is of no real consequence for households’ decisions about how much to save and consume, or businesses’ decisions about how much to hire and invest. The technical term is “certainty BIS central bankers’ speeches 1 equivalence”: In standard models, choices depend on what you expect will happen and not on the degree to which you are confident in your predictions. Such thinking is far removed from reality and, thankfully, there’s increasing recognition of that fact. A variety of uncertainty indexes have been developed and their importance in theory and in practice examined.1 Pretty uniformly, these studies suggest that changes in uncertainty have significant economic effects and that uncertainty has been elevated in recent years. In theoretical analyses, the impact of uncertainty is especially great when realistic financial and informational frictions prevent risk from being spread optimally. Because of such frictions, for example, debt contracts often require that borrowers post collateral. When uncertainty increases, so do collateral requirements, tightening credit and increasing the value of “safe” assets relative to other assets.2 There’s more than one type of uncertainty. | Simultaneously, the Fed tried – and I emphasize tried because the message seems to have been garbled in the minds of some intended recipients – to influence expectations of its own behavior once asset purchases have run their course. These “asset-purchase” and “forward-guidance” policies are relatively unfamiliar, and their impact is uncertain. 6 See “Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath,” by David Luttrell, Tyler Atkinson and Harvey Rosenblum, Federal Reserve Bank of Dallas Economic Letter, vol. 8, no. 7, 2013, www.dallasfed.org/research/eclett/2013/el1307.cfm. 4 BIS central bankers’ speeches One implication is that aggregate fiscal shocks – and, hence, also aggregate fiscal uncertainties – are likely to have outsize effects in current circumstances. Contractionary fiscal policy that would ordinarily drive down interest rates, providing offsetting stimulus to private expenditure, will have a larger-than-typical economic impact because this “crowding in” is absent once interest rates are confined to the zero lower bound. Expansionary fiscal policy, similarly, will fail to “crowd out” private expenditure if interest rates hold steady. Second, because the zero bound complicates the conduct of monetary policy and shortcircuits fiscal crowding out, it introduces a “kink,” or discontinuity, in the economy’s behavior. The existence of a kink means that uncertainty matters even if ordinarily it would not: “Certainty equivalence” no longer applies. When real growth and/or inflation prospects are weak – so that the economy is operating near the zero bound – downside risks to growth and inflation loom larger than they ordinarily would. | 1 |
We should continue to report a main scenario for economic developments and the repo rate in the coming three years, in which inflation approaches 2 per cent and resource utilisation approaches a normal level, but we should regard it as such – a potential scenario. We should also continue to analyse the consequences of other sequences of events. The base for monetary policy has improved gradually since the current monetary policy regime, with a floating exchange rate and inflation target, was introduced. A large number of models have been developed and the forecasts are now based on the Riksbank’s repo-rate path that can differ from the market’s forward rate curve. However, the base should be developed further. I have taken up some such areas in this speech: The forecasts for the GDP gap and other measures of resource utilisation should be developed further and the description of the uncertainty in these forecasts should be shown in the same way as the uncertainty in the GDP growth and inflation forecasts. The Riksbank should also take into account credit expansion and asset prices in its monetary policy. The forecasts for credit growth and asset prices should be developed and formally integrated into the materials on which the monetary policy decisions are based. In this case, too, it is important to show the uncertainty in these forecasts. The Riksbank’s models should be developed to be able to handle the difference between the Riksbank’s repo-rate path and the market’s forward rate curve. | 2 Unemployment peaked at nearly 12% in the eighties and over 10% in the early nineties – after smaller falls in output. 2 Labour force data were published after the date of this talk: unemployment has dropped to 7.9% in the three months to April. 2 BIS Review 91/2010 Throughout the recession we have heard many reports from firms about how they and their workforces have responded to recessionary pressures. Those reports are from our Agents or MPC members talking directly to business contacts across the regions and in all sectors – a truly invaluable source of information for the Committee. It has been clear that there has been an unusual response from companies and their employees. Many firms have sought to retain staff wherever possible, rather than shed them as in previous downturns – hours have been shortened and wages frozen or even cut where possible, rather than making people redundant. Large firms with smaller suppliers have tried to work with suppliers to keep their supply chains intact, which has helped smaller firms to survive. Many employees – at least in the private sector – have been willing to forgo income in order to retain their jobs. Tax officials have worked very hard with firms to give them the time for tax bills to be paid. | 0 |
Luis M Linde: The changing role of central banks Speech by Mr Luis M Linde, Governor of the Bank of Spain, at the 4th Future of Banking Summit, organised by Economist Conferences, Paris, 26 February 2013. * * * Ladies and Gentlemen, It is an honour, and a pleasure, to address such a distinguished audience as is gathering today in this conference. I would like to thank The Economist for giving me the opportunity to analyse some of the changes affecting central banks policies. I will organize my talk around the two main areas of Central Banking: monetary policy and banking regulation. Firstly, I will address the changing role of central banks in monetary policy, before the crisis and after the crisis. Up until August 2007 – before the global financial crisis –, the general mood prevailing among academics and policymakers was that there existed a well-defined, so to say, “science or model of monetary policy”. There was a kind of consensus among central bankers about most elements of monetary policy strategy; and monetary policy was perceived as being highly successful in developed countries, with low inflation and low variability of inflation and output. According to this consensus, macroeconomic stability was achieved through rule-based monetary policy, delegated to an independent central bank with an implicit or explicit inflation target and with very little role for discretionary fiscal policy. | The provision of liquidity had the desired effect of reducing strains in markets, narrowing the dispersion of rates, and keeping the federal funds rate within the target range.5 Moving to more recent events, in March of this year the global spread of the pandemic led to a rapid and massive movement of funds around the world as investors sought to protect themselves from the highly uncertain and darkening economic outlook. These flows threatened to overwhelm the financial system and resulted in intense strain and disruption in short-term funding markets and markets for Treasury securities and agency mortgage-backed securities.6 Measures of market functioning deteriorated to levels near, or in some cases worse than, those we saw at the peak of the 2008 global financial crisis.7 In response to the extraordinary volatility and signs of market disruption caused by the pandemic, the Federal Reserve greatly expanded its repo operations and decisively and immediately began purchasing enormous quantities of U.S. Treasury securities and agency mortgage-backed securities. Our approach was to deliver a rapid and overwhelming response that would give assurance to market participants that liquidity would be there in the coming days and months. These actions, combined with the introduction of emergency lending facilities to provide liquidity to funding and credit markets, proved successful. | 0 |
Currently, we have a semi-automated real-time delivery versus payment (DVP) system in place. It is a stop-gap measure but it serves as an important infrastructure in the settlement of the scripless government bonds. The system, when fully developed, will be supplemented by the intraday liquidity facilities and queuing mechanism, employing the latest digital signature technology to ensure secured and smooth real-time delivery and payment transactions. We are entering an era when capital flow across borders can only become more volatile than in the past. And we still have fresh memories of how disruptive it was before the crisis. In fact, it was a major cause of the crisis. How do we go forward? How do we guard against this? The work on the new International Financial Architecture seems to be very much lacking in the area of the behavior of key players, especially the highly leveraged institutions. In the eyes of the large 3 BIS Review 30/2000 Western countries, such issues have somewhat lost their urgency since the event surrounding the Long-Term Capital Management (LTCM) left the headlines. In the absence of such rules, it appeared that emerging markets can only look to our own selves for protection. We have to help ourselves. A well functioning bond market is an important tool in this respect. It will act as a reservoir that absorbs capital inflow, and channel it to good use. | However, we do have problems with high housing prices that lead to high household indebtedness and risks associated with this. But it is difficult to use monetary policy to influence household indebtedness without this having very negative consequences in the form of poorer target attainment for inflation and poorer stability in the real economy in the coming years. Poorer target attainment over a long period of time also entails costs and risks in itself which must be taken into account. The framework in which monetary policy is conducted in Sweden and in many other countries is based on the mandate of maintaining price stability, often specified as a target for inflation, as we have in Sweden. And it is this mandate that is the reason why central banks in general have been allocated a greater degree of independence than other public BIS central bankers’ speeches 1 authorities. Over the past two decades, the clear objectives for monetary policy and the independent work by central banks to attain them, have proved effective in anchoring inflation expectations and creating stability in the economy. However, the framework is based on the central bank actually delivering. If inflation is allowed to deviate from an established target over a long period of time it can affect the general public’s understanding of the policy conducted and their confidence in the inflation target. The more the central bank stretches its task of delivering the set objective, the more difficult it will be to understand and evaluate the policy conducted. | 0 |
I would like to emphasise, however, that calculations of this sort are uncertain. Chart 7 Probability distribution for NOK/EUR in one month On the basis of the prices for various currency options, we can calculate the implied probability distribution for the krone exchange rate. In simple terms, one can say that the further to the left in the diagram the figure is, the higher a future appreciation of the krone is priced. A narrow, symmetric curve - or a bell - indicates that the uncertainty surrounding the future krone exchange rate is considered to be relatively slight, and that the risk of a depreciation or appreciation is priced BIS Review 67/2000 8 symmetrically. The chart shows that the implied probability distribution for the krone has changed over time. Uncertainty surrounding the future krone exchange rate appears to have diminished. Chart 8 Probability distribution for USD/EUR in one month The corresponding bell for the exchange rate between the euro and the US dollar indicates that there is considerable uncertainty surrounding the future exchange rate between the two currencies. Since autumn 1999 this uncertainty has mounted, while at the same time the euro is expected to fall against the US dollar. Chart 9 GDP mainland Norway Projections for 2000 from Inflation Reports December 1998 to June 2000 The assessment of the economic outlook has changed over the past 18 months. | 83, Issue 1, Apr, pp 141–146. Asdrubali, P., B. Sorensen and O. Yosha (1996), “Channels of Interstate Risk Sharing: United States 1963-1990”, Quarterly Journal of Economics, CXI, Nov: pp 1081–1110. Barroso, J., M. Draghi, J-C. Juncker and H. Van Rompuy (2012), “Towards a genuine economic and monetary union”, available at http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/134069.pdf. Bean, C. (1992), “Economic and Monetary Union in Europe”, The Journal of Economic Perspectives, Vol. 6, No. 4 (Autumn), pp 31–52. Beetsma, R. and H. Uhlig (1999), “An Analysis of the Stability and Growth Pact”, The Economic Journal, Vol. 109, No. 458 (Oct.), pp 546–571. Blanchard, O. and L. Katz (1992), “Regional Evolutions”, Brookings Papers on Economic Activity, 1: 1–77. Buiter, W. (2000), “Optimal currency areas: why does the exchange rate regime matter? (with an application to UK membership in EMU)”. CEP Discussion Paper 462. Carney, M. (2013), “Canada Works”, remarks at Board of Trade of Metropolitan Montreal, available at http://www.bankofcanada.ca/wp-content/uploads/2013/05/remarks-210513.pdf. Chamberlin, G., Dhami, P., Farrington, S., Helgadottir, T. and Robins, J. (2012), “Cyclically adjusting the public finances”, Office for Budget Responsibility Working Paper No. 3, http://budgetresponsibility.org.uk/pubs/Working-paper-No3.pdf. Chari, V., and P. Kehoe (2007), “On the need for fiscal constraints in a monetary union”, Journal of Monetary Economics, Vol. 54, Issue 8, Nov. 2007, pp. 2399–2408 Commission of the European Communities (1990), “One market, one money: an evaluation of the potential benefits and costs of forming an economic and monetary union”, European Economy, No. 44, Oct. Crucini, M. (1999), “On International and National Dimensions of Risk Sharing”, Review of Economics and Statistics, LXXXI, 1, Feb., pp. | 0 |
Donald Joshua Jaganathan: Nailing down the winning strategies in bancassurance Keynote address by Mr Donald Joshua Jaganathan, Assistant Governor of the Central Bank of Malaysia, at the 15th Asia Conference on Bancassurance & Alternative Distribution Channels: “Nailing Down the Winning Strategies in Bancassurance”, Kuala Lumpur, 6 May 2014. * * * It gives me great pleasure to be here at the 15th Asia Conference on Bancassurance & Alternative Distribution Channels. This conference takes place at an exciting time for the insurance industry in Asia. After decades of strong growth and modernisation, Asia has achieved remarkable standards of living, with hundreds of millions lifted out of poverty and a middle-class population of over half a billion. Structural reforms following the Asian financial crisis have enabled the region to remain resilient throughout the global financial crisis of 2008/2009. Post-crisis, the vibrant economies in Asia have continued to be a pillar for global recovery, with this year’s GDP for developing Asia projected by the IMF to grow 6.7% 1. Insurance markets have also grown in tandem with the economy. Over the past decade, total premium in emerging Asia 2 increased by 10% per annum for life business and 13% per annum for non-life business on average 3 and is projected to grow 11% this year and 10% 4 in the next. The insurance industry, however, cannot be complacent and take this story for granted. | By leveraging on banks’ existing branch network and customer base, which are well established throughout most markets in Asia, insurers are able to scale up very quickly into geographical areas and customer segments that might not be accessible by existing channels. It is therefore not surprising that bancassurance is the fastest growing global channel for insurance. In China, bancassurance sales increased by 415% within 5 years from 2004 to 2009 11. In Malaysia, bancassurance accounted for 36% 12 of new life insurance business premium and 39% 13 of gross contributions for Takaful business in 2013. At the current penetration level of 5% of the banking population, there remains significant room for growth. Under the LIFE Framework, the Bank has envisaged a bancassurance penetration target of 10% 14 as part of the move towards diversification of insurance distribution channels in Malaysia. Rationalization of incentive structures proposed under the framework are aimed at improving persistency through more widespread adoption of needs-based selling, product strategy reviews and quality post-sales service. These measures are also expected to shift the mix towards protection and savings products from credit-related insurance that currently dominates this channel in particular for bancatakaful 15. Financial advisers on the other hand have the advantage of providing advice to consumers on overall financial planning by growing, managing and protecting personal wealth to meet specific financial goals. With increasing affluence, a growing segment of consumers with more complex financial needs and goals will require the sort of comprehensive service that is delivered by financial advisers. | 1 |
From the Eurosystem's perspective, there are five economic issues that appear to be of greater relevance at the current juncture: real convergence, inflation developments in the accession countries, monetary policy and exchange rate strategies, capital account liberalisation, and the structure and functioning of the financial sector. Let me elaborate briefly on each of these. BIS Review 92/2001 1 1. Real convergence Sustainable rates of GDP growth will be a key challenge for accession countries in the years, and even decades, to come. 2000 was the first year since the beginning of the transition process in which all accession countries experienced positive growth. The degree of real convergence with the euro area, that is, the catching-up of the per capita income and price levels of accession countries with those of the euro area, has remained limited. Looking ahead, it appears unlikely that the overall growth differential between the accession countries and the euro area will be significantly higher than a few percentage points. Overall, the gap between the average GDP per capita of the accession countries and that of the euro area remains large. On average, GDP per capita in the accession countries is, in terms of purchasing power parity, around 44% of that of the euro area, and this figure is even lower when current exchange rates are taken into account. | Two weeks ago, the HKMA issued a circular to banks providing guidance on the importance of sound governance and good corporate culture and what they should do to promote them. I won’t go into the details now as the main themes of these new guidance circulars will be covered in the Conference later today. 8. Today is going to be a long day for you because the Conference won’t end until 5:45 pm. However, I sincerely hope that by the end of the Conference there will be some takeaways that you will find helpful in your capacity as INEDs of banks. 9. Fellow INEDs, I have talked long enough and now is the time for me to introduce to you our keynote speaker for this Conference. We are honoured and highly privileged to have Mr Andrew Bailey, Chief Executive Officer of the UK Financial Conduct Authority, to fly all the way from London to join us today. Andrew needs no introduction. Before he joined the FCA last year, he was the Deputy Governor in the Bank of England and Chief Executive Officer of the Prudential Regulation Authority from April 2013 until June last year. So Andrew is truly exceptional in the sense that he has been in charge of both the prudential and conduct sides of banking supervision, and is very well-respected internationally. He is therefore uniquely well placed to share with us his experience and insights. Mr Bailey, please. 2/2 BIS central bankers' speeches | 0 |
First: there are now a larger number of financial groups, which comprise banks, insurance and mortgage companies, etc. The size of these entities has increased the risk of negative systemic effects if problems should occur in one of them. On the other hand, size increases the scope for spreading risk. Second: the number of foreign financial institutions in Norway has increased. They will normally operate in several markets and engage in a broader range of activities. They may thus be more resilient to a recession or a crisis situation in Norway than banks whose activity is confined solely to Norway. The risk of contagion to other institutions is thereby reduced. Third: globalisation of financial markets means that events outside Norway feed through to the Norwegian economy faster and with greater force. Payment system As mentioned, several measures have been introduced to strengthen the payment and settlement system. At the same time, the volume of payments has increased sharply. The risk of problems in the banking sector spreading through the payment system has not been eliminated. A high-priority task of Norges Bank is to identify risks and, together with the industry, contribute to more secure and effective systems. It has also become increasingly important for our settlement systems to have good international links. Interdependence of financial and monetary stability The objective of monetary stability - which in Norway means exchange rate stability and low inflation - and the objective of financial stability are interdependent. | For better or for worse, we are increasingly exposed to developments in other countries. The banking crisis taught us how costly financial crises can be. We brought the crisis on ourselves. Many other countries have experienced similar problems. The root of the crises can be traced back to overly zealous financial market participants with reduced risk awareness. The authorities’ role is to prevent crises in the financial system and - if they still occur - handle them with a view to reducing the adverse effects and the likelihood of their recurring. In view of the globalisation of financial markets, international cooperation in this area is crucial. The financial system is also important with regard to Norges Bank’s conduct of monetary policy. By setting the terms for banks’ deposits/loans in the central bank, Norges Bank influences the level of interest rates. Monetary policy is also dependent on financial stability. However, monetary policy is not the topic today. I will focus on the issue of financial stability. 2. What is financial stability? Financial stability is the absence of financial crises. The root of a crisis is that exuberance, optimism and greed take precedence over risk and return considerations when investment decisions are taken. The price of financial assets and property rises. Bank loans and household and corporate debt increase. As a result, all agents become more vulnerable if the situation is perceived as taking a turn for the worse. This may in turn trigger a plunge in property and equity prices. | 1 |
But in some circumstances one can do better to approach things the other way round, starting with general credit conditions, examining the interactions of non-bank and bank lending, and then broad money as a (partial) counterpart to M4L. My remarks today will follow that structure, which will provide a framework for some observations about the current tightening in credit conditions, as well as about the preceding expansion. 1 “The transmission mechanism of monetary policy”, a paper by the Monetary Policy Committee at the Bank of England, April 1999 and Harrison R., K. Nikolov, M. Quinn, G. Ramsay, A Scott and R. Thomas, “The Bank of England Quarterly Model”, Bank of England 2005. The Bank’s wider “suite of models” does include richer asset price channels. BIS Review 149/2007 1 Credit Credit is, of course, vital to any economy, enabling households and firms to make choices about whether to bring forward or defer spending from income. There are conditions in which it would play no active role, passively reflecting cyclical fluctuations in output, employment and inflation. In a world of more or less complete transparency between borrowers and lenders, very low transactions costs, and very low risk aversion, access to credit would not be rationed; and ex ante yields on financial assets, including loans and bonds, would not embody risk premia. So if households and firms wanted to bring forward spending in the face of shocks to the economy, they would be able to do so restricted only by their need to remain solvent. | First, in contrast to the textbook account of shocks to the Money supply via the proverbial helicopter drop of base money (pound notes), firms and households are not caught in a bind where, in aggregate, they are forced to hold the increased supply of broad money, even if it exceeds demand. Following a shock to the supply of credit, in which some people or companies become less credit constrained, it will be open to others to reduce their existing borrowing as the extra money circulates around the economy via the purchase of goods, services and financial assets. Second, and more important, the shocks to credit supply are, in themselves, real not nominal shocks. And like other real shocks, causing changes in the balance of Aggregate Demand and Aggregate Supply, there is a nominal effect only if monetary policy does not respond via alterations to the path of short-term interest rates to keep the economy on a stable path and in line with the inflation target. Absent an appropriate policy response, the easing in monetary conditions would in time feed into inflation through an expansion of nominal spending. In the first instance, the expansion of “liquidity” represented by faster money growth may sometimes work through asset prices. That is because with imperfect substitution between different kinds of financial assets, relative risk premia may be altered, which in turn may affect borrowing conditions in capital markets. | 1 |
To overcome the damaging fragmentation, Europe needs to advance its institutional framework towards – among other things – a true banking union with single supervisory and resolution mechanisms. The set-up of euro area wide supervision under the auspices of the ECB is a prerequisite for breaking the vicious circle of sovereign and banking risks. Moreover, it will reinforce financial integration, mitigate macroeconomic imbalances, and – last but not least – unburden monetary policy. BIS central bankers’ speeches 7 | Manuela Pfrunder, the graphic artist, has further developed her drafts and completed the design for the CHF 50 note, taking the technical aspects of banknote production into account. At its meeting of 29 August 2008, the SNB Bank Council approved the design of the new CHF 50 banknote and gave the go-ahead for the further work that is to be done. Preparations for the technical aspects of implementation of banknote production are now in full swing. A particular challenge is posed by the security features that will be used in the new banknote series for the first time. Based on the progress of work to date, the SNB is confident that the first banknote in the new series will be ready for production within the planned time period. The CHF 50 banknote will mark the beginning of the new series of banknotes and is scheduled to be issued in autumn 2010. The appearance of the new banknote and the security details for the entire series will be presented shortly before the scheduled issue date. 1 Nout Wellink, The Importance of Banking Supervision in Financial Stability, High Level Meeting, 17 November 2008, Beijing BIS Review 157/2008 3 | 0 |
The third imbalance is the one that results from globalisation and from the escape from poverty of hundreds of millions of people, notably in China, India and elsewhere in Asia as well as in Africa, a change which is putting pressure on energy and agricultural commodity prices. The imbalance between growth in global demand and rigidity of supply points to scarcities that are reflected in prices. The uncertainties of the financial markets have in the end contributed to price tensions. Also in this instance, the alarm was raised some time ago, although little notice was taken. The price of oil, for example, was around USD 20 a barrel in 1999 and in the eight years thereafter it rose fivefold (tripled when priced in euro). Fortunately, European countries have resisted the temptation to reduce energy taxes, which would have led to an increase in demand and therefore ultimately raise the rich countries’ oil bill. On the other hand, other industrial countries have continued to keep energy taxation at very low levels, in order to support consumption. In some cases production of “bio-fuels” has been encouraged, which has led to further distortions in energy and food prices. The main oil and energy companies until two years ago have continued to price oil at USD 40 a barrel in their industrial plans, thus underestimating the need – and the opportunity – for investment in order to increase supply. | Time will also be needed before the supply of commodities can react to demand in such a way as to keep prices down. As for agricultural commodities, the use of new productive land implies long-term investments and implementation times. Climate change could increase the variability of supply. The same applies to energy commodities. Without a stronger policy of 2 BIS Review 61/2008 energy saving, in particular in the US, the equilibrium between demand and supply cannot be ensured at moderate price levels. In brief, there are, above all, structural factors at the heart of the current crisis which will take time to recover. This suggests that to accelerate the adjustment economic policies of a structural rather than cyclical nature are necessary. Let's turn to those economic policies. What are the do’s and don’ts in the light of both economic analysis and of past experience? Let’s start with the don’ts. What do the errors of the past teach us and, in particular, what was done in earlier crises, in 1929, 1974-75, 1992-93 and in 2001-2002? There are at least four errors that should not be repeated. The first error that should be avoided is to allow that some exogenous price increases lead to a generalised higher inflation on a permanent basis. The rise in headline inflation must remain temporary and limited to food and energy prices, and not spill over other sectors of the economy. | 1 |
And why, for countries where there have been larger and faster increases in household debt levels, recessions have tended to be deeper still. The Financial Policy Committee has already acted in response to the growing momentum in the housing market. As well as the general strengthening of bank capital, the FPC, in conjunction with other regulators and the Treasury, withdrew both the cheap funding and favourable capital treatment of mortgage lending introduced after the crisis to help support the housing market. And, we have asked the FCA that when lenders test whether prospective borrowers can afford, through time, the mortgages they seek they should bear in mind future Financial Policy Committee recommendation on the appropriate interest rate stress test to use in assessments of affordability. Whether and how to act further if, following the pause of the last couple of months, momentum continues to build will be the most challenging judgment the FPC will have to take in the coming months. The FPC’s response will depend on the nature of the risks to stability identified. The FPC’s powers of direction in relation to the capital banks and building societies bear most directly on mortgage lenders’ ability to weather a downturn and housing bust once it has emerged. Others, like the FPC’s powers to make comply or explain recommendations to the PRA and FCA could bear more directly on the crucial underwriting standards and affordability constraints like debt service to income, loan to income and loan to value. | Jean-Pierre Roth: The long path to restoring faith in financial markets Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the CEO Luncheon of the Swiss-American Chamber of Commerce, Zurich, 4 September 2002. * * * At the outset I would like to acknowledge the long-standing ties between the Swiss-American Chamber of Commerce and the Swiss National Bank. In the past, members of the Governing Board have been invited to speak before this select audience. It is a great pleasure and honor for me to continue this tradition. My remarks today will focus on the present challenges faced by the global economy: a crisis in confidence which has pushed equity prices to unexpected lows and an economic recovery which does not seem to take the desired path. Nevertheless, I am convinced that the fundamentals are in place for a return to sustained growth. Inflation is low in almost all industrial countries, monetary policy is supporting the recovery, household consumption still plays a stabilizing role and public finances despite short-term difficulties - are not far from equilibrium. While numerous factors are responsible for the present economic uncertainty, the prolonged volatility witnessed in equity markets has hit investors particularly hard. In hindsight the stock market correction fits partially the classic story of fundamentals; one that is driven by a bubbles collapse in dotcom companies and the anticipated slowdown in economic activity. | 0 |
A pedantic approach to monetary policy in much of the developed world has led to near zero and negative interest rates in many of these economies. Yet growth has remained stubbornly weak. Such policies also risk merely creating the transfer of growth across time rather than promoting sustainable growth over time. It is perhaps time to start asking whether the best way to recover from the blow-out of one debt bubble is to create the conditions for another. Central bankers and financial markets seem to be caught in a cycle of brinkmanship and central banks are caught in a trap of their own making. The outcome has been almost a decade of worsening financial repression, the progressive build-up of risks in the global financial markets, accompanied by weak investment and weak growth. It is clear that the lessons of the financial crisis have not been fully learnt in these economies – not by the financial markets and not by the policymakers. Similarly, fiscal policy is supposed to be a tool that should be useful in supporting demand. But that is only if it is used prudently and has been used prudently. | Sukhdave Singh: The rise of the South at a crossroad – a view from East Asia and Latin America Opening address by Dr Sukhdave Singh, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the World Bank Knowledge and Research Hub Conference “The Rise of the South at a Crossroad: A View from East Asia and Latin America”, Sasana Kijang, Kuala Lumpur, 16 May 2016. * * * I am pleased to welcome you to today’s Conference on “The Rise of the South at a Crossroad: A View from East Asia and Latin America” organised by the World Bank Knowledge and Research Hub in Kuala Lumpur. For those of you who have not been here before, I would also like to welcome you to Sasana Kijang. I congratulate the World Bank Knowledge and Research Hub for organising this conference on economic integration. Economic integration within the current global context It is indeed an opportune time for us to look at economic and financial integration and what it can offer to emerging economies in Asia and Latin America. It is an opportune time because the world seems to have been unable to bounce back towards a healthy growth path after the financial crisis in the developed world. It is an opportune time because policymakers have not been successful in generating strong sustainable growth. The traditional tools for nursing the economy back to health don’t seem to be working as well – possibly because of overuse or misuse. | 1 |
While that diversity should be welcome – it should be a source of strength – it can be a source of weakness if it simply moves gearing into a shadow on our radar screen. It’s essential that our radar technology keeps up. The Bank’s Commercial Property Forum, ably chaired by Ian Marcus, helps us minimise the shadow on the screen. But we also want systematic data. That’s why I welcome the efforts of your industry, in partnership with us, to build a database of CRE loans: a dataset that will be run and managed for the public good, while respecting commercial confidentiality. It can give you, and us, the information we need to manage the risk of loosening underwriting standards. Long-term valuations But still more is needed to nurture a resilient market environment. You can become overgeared without technical slipping of underwriting standards. We’ve seen in the past how a change in sentiment can drive commercial property prices up even without the prospect of improvement in the cashflows which the property will generate. That creates headroom for those already in the market to borrow more without breaching their loan-to-value standards. And the use of that headroom drives prices up further. An ultimately pernicious spiral of sentiment and debt begins. Valuations and debt increase sharply relative to the cashflows that support them. When the music stops, the process goes into sudden reverse. As valuations fall, borrowers are left struggling to service loans that are greater than the value of the property. Firesales begin. Sentiment deteriorates. | And if the flow of foreign capital were to dry up or even reverse, there would be wider consequences for spending, output and exchange rates. So your continued success is important to everyone. And yet, as you know all too well, the UK’s commercial property market hardly has a record as a beacon of stability. But we shouldn’t be fatalistic. We’re not doomed to repeat the past. Yes, the cycle is a force of human nature. But resilience to it can be nurtured. It will be a battle of nurture against human nature. The time to start it is when people most feel like celebrating: when your market is on the up. We have to start now. And if we’re going to have any success, we – the Bank of England, you – the industry, and us – together, need to step up and act. So this evening I want to set out what is being done. At the heart of it is the need to ensure finance supports you through the whole cycle. The need to avoid the pattern – all too familiar to you – of financing conditions going from conservative to careless and then to completely closed, all too rapidly. BIS central bankers’ speeches 1 The need to replace financing that magnifies cycles of sentiment with financing that mutes them. | 1 |
International efforts range from the creation of specialized units of behavioral risk experts to risk culture assessment frameworks to supervisory guidance that directs supervised institutions to develop and promote a sound corporate culture. I view this variation in approach as a feature and not a bug of the official sector focus on culture reform. There is rarely a single solution to a complex problem with many interdependencies and deep uncertainty. Rather, the official sector must experiment and innovate; probe and adapt; and try new approaches to foster a healthy culture that promotes appropriate conduct. One common thread of the recent innovations, however, is that supervisors can provide a horizontal perspective on culture reform that reflects broad social goals in a way that the private sector cannot. To be clear, it is not the supervisors’ job to dictate the internal culture of a firm, but when there are market failures such as externalities or information asymmetries, then there is a role for the official sector to push firms to do more to address these issues and mitigate misconduct risk. We should be cautious, however, about our ability to influence precisely and predictably. Public health studies, for example, document “policy resistance” where interventions are defeated by the system’s response to an intervention.8 As an example, a rules-based regime that focuses on reducing conduct risk by prescriptive regulatory fiat runs the risks of creating a “check-the-box culture” where everything not explicitly banned is considered acceptable behavior. | 8 84 8 5 4 3 ^8 48 91 8 1 c1 1 8 8 1 1 6813 1 353 bed 5 715 1615 613 83 61 61 395 6 993 163 5 68 8619 16 3 638813 6813 )3 61 19853 638813 ) 65619 5 95 ) 83 13 6 ' 5 615 95 61 3 6 13 3 83 6-' 1 2 )67 61 2 63 )- 563 13 3 95 6 95 83 13 3 )33 3 1615 3 6 3633 6813 bjd 95 8 )3 615 3 2 5 66 13 2 61 )673 6389919 61 61 95 93 15 2 -3 38 2395 3 ' 38615 2 95 681 6615 7 6813 3 50 51 62 05 5647262 05 770105 60 0 262 bcde 0 55 68 75 2 68 5262 2 52 05 68 LMNMOPQMRPOMST 507 0 552 2 52 05 04507505 1055 216250152 Z2 7 8152 0 507 507 32 05 2105 7262 210 40862 '&) "- 2 210 0 4125 # 5 2 $ 9#2 7 2& #2 9%9 0^ Y[ 6 282 $ 2682 5 6 6 92 52'72 7 782# 6 6 2978 9%97&h 29786 $ 69682 9& d $ \2 92 75& p p $ 6 6 98& 6 5 $ #&# $ 956!# 9895# %55# 8'6(77 7'6#! $ 9 75 %%%&'6#&! | 0 |
Companies can also come forward and test their ideas in Bank Negara’s Regulatory Sandbox, and we will facilitate a safe environment for companies to develop viable solutions to identified problems. This is the time for MSB companies to be forward-looking, not hold on to the past; to be agile and responsive to change, not slow to evolve; to be bold and ambitious, not reactive; and to be secure in strong professional and ethical standards for conducting business, and not exposed to practices that can harm the industry’s image and reputation. The Bank has every confidence in the industry’s ability to grow and develop further from strength to strength, well supported by a dynamic Association that has had a key role in driving many of the accomplishments that have brought the industry to this point. On that note, thank you for having me here this evening. Congratulations to all the recipients of the customer service excellence awards, and all MSB companies that are present here for supporting the important work of the Association. On the part of the Bank, we look forward to the implementation of the industry’s five-year strategic blueprint up to 2020. Bank Negara Malaysia will continue to engage constructively with the Association and industry on these initiatives to develop a modern, dynamic and progressive industry. 3/3 BIS central bankers' speeches | High and volatile inflation causes lenders like banks and other financial institutions to demand a higher fixed interest rate on loans to compensate for the risk that inflation will move around, thus raising 2 the cost of finance for investment. At the same time, financial institutions need to offer higher nominal and real interest rates to encourage savers to deposit their money to mitigate the risk of high and volatile inflation eroding the real value of their savings. High and volatile inflation increases the margin between lending rates and deposits, and this high cost of financial intermediation penalises both savers and borrowers. High and volatile inflation encourages workers to bargain for higher wages. High and volatile inflation also prompts producers and sellers in the economy to add higher markups in pricing of goods and services. The combined result of this self-fulfilling cycle will be lower economic growth and higher current account deficits, depleting reserves and volatile exchange rates, and the country will end up with a commercial capitalist class of buyers and sellers of imported goods, or a class of middlemen! Then the question is, what is the appropriate level of low and stable inflation, which will result in more desirable outcomes? Most advanced economies set their inflation target in the low single digits around 2 per cent. For example, the United States and the United Kingdom desire to maintain inflation at around 2 per cent, while in the Eurozone it is below but close to 2 per cent. | 0 |
But what is meant by a lesser or greater stability of inflation and resource utilisation? Determining this requires a quantitative measure of stability, the mean squared gap. The mean squared gap for inflation measures how much the inflation forecast deviates from the inflation target. The mean squared gap for unemployment measures how much the rate of unemployment deviates from the sustainable rate. A smaller mean squared gap entails better stability. Panel b in Figure 7 shows the mean squared gaps from the latest monetary policy decision. They are calculated by taking a mean value of the sum of all the squared deviations for the respective target variables and calculating the size of them. The closer to zero the mean squared gap is, the better the stabilisation of the respective target variables; that is, the better the target attainment. Normally, it should be the case that it is not possible to stabilise one of the target variables better without stabilising the other variable less well. Otherwise, monetary policy is not “effective”. Which interest-rate path is chosen then depends on the relative importance one attaches to stabilising the respective variables. Different members of the Executive Board may attach different levels of importance to the two variables and thus advocate different repo-rate paths. The point of the mean squared gaps is that they give us clarity and transparency regarding the various monetary policy alternatives. | The difficult thing about using the unemployment gap as an indicator of resource utilisation is to determine the sustainable rate of unemployment. However, this is not more difficult, in fact it is probably easier, than determining potential output and potential hours worked. On closer inspection, it can be seen that the sustainable rate of unemployment has several advantages compared to other measures of normal resource utilisation. The sustainable rate of unemployment can be expressed as a stable percentage – for example 5.5 or 6 per cent. It changes slowly and lies within a limited range. Estimating potential GDP is, in comparison, like shooting at a moving target. It grows over time, and in the view of many, can be seen as a random process, similar to a so-called random walk with drift. The sustainable rate of unemployment can be determined using several different methods – structural search models similar to those developed by the Nobel prize-winners Diamond, Mortensen and Pissarides, so-called UC-models, DSGE models and NAIRU estimates. The results of these different estimation methods can be compared and their robustness and reliability assessed. We can then calculate the average of the estimates and weight this with the assessed reliability of the various estimates. When estimating the sustainable rate of unemployment it is also important to include the assessed effects of labour-market reforms (Forslund 2008). | 1 |
The Bank has been conducting an industry-wide benchmarking exercise since 2001, in line with recommendations of the Financial Sector Master Plan to drive performance improvement. I believe the industry has benefitted from this initiative to improve the standard of services provided to its customers. Going forward however, it is timely and economically sensible for the industry to collaborate and assume this role to develop its own range of indicators. If we were to strive for quality, the benchmarking should be against the world’s best, and not confined to our domestic market alone. The benchmarking could cover a wider range of indicators including financial and operating statistics, distribution channels as well as customer service indices that will benefit every member company. In many countries, it is the industry associations that undertake this role. In this regard, I call upon the associations present here tonight to give this matter a serious thought. Collaborate and cooperate with others as synergy drives efficiency for the ultimate benefit of customers Synergy creates new value and has a multiplier effect on outcomes that would not be possible, individually. Studies have shown that even the best individual efforts cannot stack 4 BIS central bankers’ speeches up against today’s complex and interconnected problems. The challenges of market liberalisation will require players to achieve more despite limitations in individual resources. But having to do more with less, simply means having to do it together. The industry through pooling of capacity, expertise and resources can addressed, perennial issues faced by individual companies, collectively. | “The Great Leveraging,” NBER Working Papers, No. 18290. BIS central bankers’ speeches 1 this context, Turkey established the Financial Stability Committee in 2011. Along with the Central Bank, the Committee is composed of the Banking Regulation and Supervision Agency, the Capital Markets Board of Turkey, the Savings Deposit Insurance Fund and the Undersecretariat of Treasury. Distinguished Guests, Now I would like to briefly mention Turkey’s contributions to global financial stability. Turkey became a member of the Financial Stability Board (FSB) in 2009. In 2014, Turkey will participate in G20 Troika and assume Presidency of the G20 in 2015. During the period from 2014 to 2016, when Turkey will be taking part in G20 Troika, our representative from the Undersecretariat of Treasury will be assigned to the FSB Steering Committee. Turkey became a member of the Basel Committee on Banking Supervision (BCBS) and the Group of Governors and Heads of Supervision (GHOS) in 2009. The Central Bank of the Republic of Turkey will participate in the FSB Steering Committee during the period 2013–2015 when it will be chairing FSB Regional Consultative Group for the Middle East and North Africa (MENA). The New Constituency group, formed upon an agreement signed within the International Monetary Fund (IMF) governance reform framework, includes Austria, Hungary, the Czech Republic, Slovakia, Slovenia, Belarus and Kosovo along with Turkey. According to this agreement, during the periods of 2014–2016 and 2018–2020, Turkey will assume the Executive Director position on behalf of the group for two-year terms. | 0 |
Today over 60 per cent of foreign direct investment into the Mainland is routed through Hong Kong. A similar figure applies to China’s outward investments. Hong Kong is the pre-eminent fund-raising venue for Mainland corporates, through equity IPOs, debt issuance, bank lending, and various forms of private investment. In recent years, two major developments in financial linkage have been gaining momentum. One is the continuous opening of the Mainland’s financial markets to global investors through the various northbound Connect schemes with Hong Kong. The other is the increasing southbound traffic, again through the Connect schemes, that enables Mainland investors to invest in overseas financial assets. These are significant developments. They demonstrate China’s confidence and willingness to be connected to the global financial markets. The southbound schemes also send a clear 2/4 BIS central bankers' speeches message: as China’s economy grows and its people become more affluent, both institutional and retail investors look for more diversified allocation to overseas assets. Let me offer some context here. When we think about the northbound traffic, we should bear in mind that, in global terms, China’s stock and bond markets are second in size only to their US counterparts. For the southbound traffic, we are talking about managing the wealth of the world’s second largest economy and most populous country. And we are only in the early stages of these two-way flows through the Connect schemes. Hong Kong is the natural choice of venue to host the Connect schemes. | The new regulatory framework also made it harder for originators to get capital relief insofar as the conditions that must be met in order to qualify for a significant transfer of risk (a necessary condition to free-up capital) are now much more stringent. This was unfortunate in the sense that the contribution of this class of securities in alleviating systemic effects, which should warrant a more reasonable regulatory treatment, was overlooked; in at least two ways. First, ABS sales are, from an aggregate perspective, a better way for banks to deleverage vis-à-vis credit supply restrictions. In fact, if many banks deleverage simultaneously by restricting credit, this will have an aggregate impact on the total supply of credit, which might end up in a credit crunch. In contrast, deleveraging through securitisation does not mechanically induce a credit supply restriction, even if many banks do it simultaneously. In fact, deleveraging through securitisation could provide banks with enough funding and capital to enable them to increase lending, or, it could help transforming zombie banks into active players in the economic recovery. Second, there is considerable home bias in the loan portfolio of banks whereas diversification of assets and reserves across the euro area, something which is achievable through cross-border purchases of ABS, could act as an absorber of asymmetric shocks. 2 BIS central bankers’ speeches All this suggests that the next regulatory steps could justifiably give a more favourable treatment to ABS. | 0 |
Monetary policy response The CBRT has been clear about its approach in responding to inflation resulting from factors beyond its control: Monetary policy will tolerate the first round effects, but will promptly respond to any deterioration in overall pricing behavior. I want to emphasize that the policy pursued since September 2007 should be interpreted in this context. In September 2007, the Monetary Policy Committee (MPC) decided to initiate the rate cuts, which had already been signaled earlier in the year. Accordingly, policy rates were lowered by 225 basis points between September 2007 and February 2008 (Table 2). Table 2: Monetary Policy Committee (MPC) Decisions in 2007 and 2008 Dates for MPC Meetings Decision on Interest Rates Interest Rate January 16th, 2007 February 15th, 2007 March 15th, 2007 April 18th, 2007 May 14th, 2007 June 14th, 2007 July 12th, 2007 August 14th, 2007 September 13th, 2007 October 16th, 2007 November 14th, 2007 December 13th, 2007 January 17th, 2008 February 14th, 2008 March 19th, 2008 April 17th, 2008 No Change No Change No Change No Change No Change No Change No Change No Change -0.25 -0.50 -0.50 -0.50 -0.25 -0.25 No Change No Change 17.50 17.50 17.50 17.50 17.50 17.50 17.50 17.50 17.25 16.75 16.25 15.75 15.50 15.25 15.25 15.25 Source: CBT. In the January 2008 Inflation Report, we indicated that uncertainties in the global economy, hikes in electricity prices, and risks to price setting behavior had compelled the CBRT to be more responsive to incoming information. | Michael Gondwe: Economic and financial sector developments in Zambia Speech by Dr Michael Gondwe, Governor of the Bank of Zambia, at the official launch of the Zambia National Commercial Bank Limited (Zanaco) Ndola West Branch, Ndola, 27 June 2013. * * * The Managing Director, Zanaco Members of the Executive Management Team Members of the Press Distinguished invited Guests Ladies and Gentlemen Let me begin by tendering apologies on behalf of the Governor of the Bank of Zambia, Dr. Michael Gondwe who is not able to be with us this evening as he is attending to other commitments. He however requested that I represent him at this important occasion. It is therefore my honor and privilege to officiate at this important occasion to launch the new Ndola west Branch of Zambia National Commercial Bank Limited. I am told that the Branch was initially on Maina Soko Road opposite Barclays Bank and that the bank decided to move here because the place is bigger, which I believe will provide a better and spacious environment. Distinguished Guests, the Bank of Zambia is reliably informed that since the inception of the bank more than 37 years ago, Zanaco has grown its customer base to over 640,000 and has grown its network of branches and agencies to 64, in addition to the branch being launched today, 53 Zanaco Xpress offices and 26 Zanaco agents. The bank has also invested in more than 162 ATMs and 465 Merchant POS terminals. | 0 |
Almost no disruptions have occurred. We are steadily working on improvements to ensure a robust and efficient system also in the years ahead. Payments often start when an individual or firm makes a payment using an online banking service or using a payment card. Most payments are relayed from the data processing centre in the customer’s bank to NICS. On the basis of all payments we as customers have made, NICS calculates a position for each bank vis-à-vis the other banks. The result of this clearing is sent four times a day to NBO. There the balances of banks’ accounts with Norges Bank are adjusted. When the banks have been notified that the settlement in Norges Bank is in order, the banks adjust their customers’ accounts. All the large banks participate in these settlements. DNB and SpareBank 1 SMN also participate in the settlement in Norges Bank on behalf of smaller banks. Today, Norges Bank has published a new survey of payment costs using data from 2013. The overall social costs of using cash, payment cards and giro payments amount to just under NOK 15 billion, 3 or 0.6 percent of mainland GDP. The estimate includes the costs for both providers and users of payment services. These costs have declined since they were last estimated in 2007. Compared with other countries, the costs of the Norwegian payment system are low. This is a benefit to customers and represents a comparative advantage for the Norwegian business sector. | IT systems and websites are vulnerable to attack by criminals. Attacks can put services out of order and reduce confidence in the systems. Attacks take ever newer forms. This requires that system owners keep updated on the various kinds of attack. The establishment of FinansCERT by Finance Norway is a sound measure in this regard. In addition, participants must ensure robust defences against attack. This will not be any easier in the period ahead. Nevertheless: if we are to reap the benefits of IT and online services, a substantial use of resources on monitoring and security is a price we must pay. Banks and Norges Bank must in the worst case deal with situations where all or part of the payment system has been put out of action. New technology may in the longer term usher in new contingency arrangements. Even so, to date no sufficiently adequate alternatives have been documented to allow cash to be written off as a part of the overall solution. 8 Appendix F in the CPMI-IOSCO principles. BIS central bankers’ speeches 5 Finanstilsynet and Norges Bank are now examining closely contingency preparedness for both electronic payment and banks’ contingency arrangements for cash distribution. Norges Bank shall ensure that society has access to cash as a means of payment. Banks can make cash withdrawals based on deposits in Norges Bank. The general public go to their banks to withdraw cash. The Government presented a bill for a new Financial Institutions Act before summer. | 1 |
1,2 Labour markets have been subject to big structural shifts over recent years, including the secular fall in the degree of worker unionisation in a number of industries (for example, Schnabel (2013)), the emergence of the so-called “gig economy” (for example, Taylor (2017) and Katz and Krueger (2017)) and secular rise in the degree of globalisation and automation in the workplace (for example, Brynjolfsson and McAfee (2014) and Acemoglu and Restrepo (2018)). Each of these shifts has led to a change in employment patterns and tenures and in workers’ bargaining power. These structural shifts have been used to help explain the secular fall in labour’s share of national income and the recent weakness of wage growth across a number of advanced economies (for example, Dao et al 3 (2017) and Abdih and Danninger (2017)). They have also been used to justify potential shifts in the position and/or the slope of the Phillips curve (for example, Blanchard (2016) and Kuttner and Robinson (2010)). Each of these potentially has a bearing on the setting of monetary policy. Yet, over the same period, structural shifts in the product market have been no less profound. They include the emergence of highly-integrated global supply chains, increasing the degree of specialisation of product markets (Baldwin (2016)); the blossoming of companies benefitting from global network economies of scale and scope, who acquire “superstar” status (Autor et al (2017)); and the rapid emergence of e-commerce and price-comparison technology (Cavallo (2017)). | 1.2 = 20%) Mean (weighted by total sales) Median (weighted by total sales) 1.6 1.5 1.4 1.3 1.2 1.1 1.0 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Sources: Thomson Reuters Worldscope and Bank calculations 29 All speeches are available online at www.bankofengland.co.uk/speeches 29 Chart 10: Skewness of UK-listed firms’ mark-up distribution by sector Mining and quarrying Manufacturing Transport and storage Skewness coefficient 6 Skewness coefficient 5 5 4 Skewness coefficient 4 3 4 3 2 3 2 2 1 1 1 -1 1987 1993 1999 2005 2011 2017 0 0 0 -1 1987 1993 ICT 1999 2005 2011 2017 -1 1987 Construction 1993 1999 2005 2011 2017 Wholesale and retail Skewness coefficient 5 Skewness coefficient 5 4 4 Skewness coefficient 7 6 5 3 3 2 2 1 1 4 3 2 1 1993 1999 2005 2011 2017 Accommodation 0 0 0 1987 1987 1993 1999 2005 2011 1987 2017 Arts, entertainment and recreation Skewness coefficient 5 1993 1999 2005 2011 2017 Administrative and support services Skewness coefficient 2.0 Skewness coefficient 6 5 4 1.5 4 3 1.0 3 2 2 0.5 1 1 0 1987 1993 1999 2005 2011 2017 0.0 1987 1993 1999 2005 2011 2017 0 1987 1993 1999 2005 2011 2017 Sources: Thomson Reuters Worldscope and Bank calculations. | 1 |
Our new conditional inflation forecast is based on the assumption that the SNB policy rate is 1.5% over the entire forecast horizon (cf. chart 1). Stronger second-round effects and the fact that inflationary pressure from abroad has increased again mean that, despite the raising of the SNB policy rate, the new forecast is higher through to mid-2025 than in December. The new forecast puts average annual inflation at 2.6% for 2023, and 2.0% for 2024 and 2025 (cf. table 1). Without today’s policy rate increase, the inflation forecast would be even higher over the medium term. Uncertainty regarding price developments going forward remains high, and there is above all the risk of elevated inflation becoming embedded. Global economic outlook What is the economic outlook? The global economy hardly grew in the fourth quarter. Nevertheless, Q4 2022 and Q1 2023 will likely be slightly less weak overall than expected in December. Inflation is currently clearly above central banks’ targets in many countries. Against this background, numerous central banks have tightened their monetary policy further. The growth outlook for the global economy in the coming quarters remains subdued. At the same time, inflation is likely to remain elevated worldwide for the time being. Over the medium term, however, it should return to more moderate levels, not least thanks to monetary policy and due to the economic slowdown. Our scenario for the global economy is subject to significant risks, in particular due to the recent turmoil in the global financial sector. | Today, we can look back on a period of more than three years in which the ECB has successfully pursued a stability-oriented single monetary policy serving more than 300 million citizens. And we all have the tangible proof of Monetary Union in our pockets, following a highly successful cash changeover process which represents another historic milestone in the process of European monetary integration. Indeed, already now the level of cash payments in euro is close to 100% in all the countries of the euro area. This means that the cash changeover can be considered as good as complete, i.e. well before 28 February, after which date the legacy currencies of the euro will no longer be legal tender in any euro area country. Together with the Treaties founding the European Communities, the Maastricht Treaty is one of the most important and visionary legal texts in the history of the European integration process. With the euro, the Treaty offered tangible proof of what the vision of European Union is about, namely bringing the people of Europe closer together and ultimately facilitating their lives. Having been instrumental in laying the foundations for the euro, the Maastricht Treaty will remain vital and indispensable for the successful functioning of EMU. The medium-term macroeconomic policy framework laid down in the Maastricht Treaty has contributed to a stable macroeconomic environment, and will continue to do so. In addition, the Treaty provides for a clear allocation of responsibilities between EU institutions and Member States, as well as clear mandates for all involved. | 0 |
It has helped to ensure that the risks to financial stability associated with a persistent low interest rate environment have so far not increased to any significant degree since the introduction of negative interest. It is therefore all the more important for monetary policy purposes that we thoroughly understand the transmission mechanisms of negative interest. We have therefore extended our analyses in this area and are in regular contact with the relevant market participants. Third, as far as the impact of negative interest on investors is concerned, varying levels of risk appetite are observed. Domestic investments appear to be particularly popular. In international capital flows, we are continuing to see a strong aversion to risk among domestic investors. Current account surpluses in the economy are generally converted into Swiss francs and no longer invested abroad. This contributes significantly to the strength of the Swiss franc. From a monetary policy perspective, increased willingness on the part of major investors to take additional risks would certainly be desirable. Focus shifted to the foreign exchange market Let me turn now to the foreign exchange market. As I mentioned already, the SNB started to make large-scale purchases of foreign currency against Swiss francs in 2009. Naturally, the foreign exchange market is therefore of great interest to us. We are active in the foreign exchange market at all market hours. This is a particular challenge. After all, it is a global market and trading takes place round the clock. | Based on the examples of negative interest and foreign exchange market interventions by the SNB, I have shown that the requirements, scope and complexity of analyses as well as the importance of regular market contacts have significantly increased in this environment. Unconventional monetary policy has extended central banks’ reach in the financial markets, and their direct influence on various financial markets has increased. To reiterate, this is desirable from a monetary policy perspective since it helps to transmit the required monetary policy stimuli to the economy and inflation. Just how much the activity, sometimes intensive, of central banks on the financial markets has changed traditional price relationships and correlation patterns is difficult to answer definitively. However, it is still the case that financial market prices reflect investor expectations for the future development of the economy and inflation. I would like to thank you for your attention, and hand over to my colleague Dewet Moser. | 1 |
4 BIS central bankers’ speeches Existing models, then, do not tell us why stability today may come at the expense of instability tomorrow. Perhaps we should heed the advice of Ricardo Caballero, who has written that “macroeconomic research has been in ‘fine-tuning’ mode within the local maximum of the dynamic stochastic general equilibrium world, when we should be in ‘broad-exploration’ mode”. 14 So let me now move into broad exploration mode and give three examples in which a trade-off between monetary and financial stability might arise, and which could in theory justify a policy of aiming off the inflation target in order to reduce the risk of future financial instability, before I turn to whether such a policy would have been appropriate before the crisis. The first is where misperceptions about future incomes persist and are embodied in key prices, such as the exchange rate and long-term interest rates. Households, businesses, and banks can all make big mistakes when forming judgements about the future, and make spending decisions today which they will come to regret when their true lifetime budget constraints are revealed. There is no mechanism for ensuring that misperceptions about the sustainable level of spending are corrected quickly. It may take many years before those beliefs are invalidated by experience. So an equilibrium pattern of spending and saving can emerge that is stable temporarily but not sustainable indefinitely. And misaligned prices may reinforce mistaken beliefs if people are using market prices to extract signals about future incomes and consumption opportunities. | It is arguable, though not certain, that in the absence of a macro-prudential regime or tighter fiscal policy, persistently higher interest rates might have been a second-best strategy. It would, though, have been a big gamble. As the Chairman of the Federal Reserve, Ben Bernanke has remarked, “the issue is not whether central bankers should ignore possible financial imbalances – they should not – but, rather, what is ‘the right tool for the job’ to respond to such imbalances”. 32 So it is vital that macro-prudential tools and micro-prudential regulation are part of the armoury of a central bank to mitigate, if not prevent, the build up of excessive leverage and risk-taking in the banking and wider financial sector. From next year, the Bank of England will have those responsibilities, and the new Financial Policy Committee is already up and running. But macro-prudential tools deal with symptoms rather than the underlying problems of misperceptions and mispricing. Although we think the new tools given to the Bank would have helped to alleviate the last crisis, it would be optimistic to rely solely on such tools to prevent all future crises. It would be sensible to recognise that there may be circumstances in which it is justified to aim off the inflation target for a while in order to moderate the risk of financial crises. Monetary policy cannot just “mop up” after a crisis. Risks must be dealt with beforehand. | 1 |
But it must be recognised that these interventions are not to manage the level of exchange rate, as the ringgit remains a floating currency. Demand and supply forces must be allowed to determine the level of the exchange rate. But at the same time, we cannot be oblivious to the aberrations in demand and supply, originating from large speculative positions. Large swings in the exchange rate are detrimental to our country. It is highly risky for an open economy like Malaysia that relies on international trade activities and exchange rate as a price mechanism. Through experience and practice, we have generally accepted that in a floating rate regime, the market should be left to its devices in determining exchange rate levels. However, empirical evidence suggests that markets mechanisms often go through bouts of distortion. This is not at all surprising. It is proven time and again. The latest Nobel Prize recipient for economics, Professor Richard Thaler’s work have centred on the essence that economic agents are humans. And humans are irrational. This is the opposite of conventional economics that rely on the central assumption that all economic agents behave rationally. This irrationality is the main catalyst for speculative activities in the FX market. When speculative activities are large, they can swing towards extremes. Under these situations, and from the central bank’s perspective, intervention is then necessary to rebalance the supply and demand forces, and to manage the volatility caused by violent swings in the exchange rate. Intervention in a floating rate regime is not new. | Most of these are not statistically based, but rather convenient rules-of-thumb that ended up shaping our perception and driving sentiments. Unfortunately, in this information age, these perceptions and negative sentiments can be perpetuated rapidly and become self-fulfilling. The widespread negative coverage in the mainstream media feeds on our confirmation bias, where we seek out information that confirms rather than contradicts our preconceptions. And when such information becomes widely available, we risk falling into a self-reinforcing process known as the ‘availability cascade’, whereby a simple idea, whether it be right or wrong, gains traction given repetition and inherent simplicity. As the saying goes, “Repeat something often enough and it will become true.” Second, we tend to, in some other instances, base our perception on prior evidence and situations that we are familiar with, rather than update our views with new information. For many economists and analysts, Malaysia is an oil-dependent economy. When the oil price goes south, the Malaysian economy suffers. While this was true many years ago, these simple relationships are continuously assumed to be fixed and hold to perpetuity. Despite the many structural changes leading to a more diversified Malaysian economy and reduced reliance on oil, this perception has persisted. For the uninitiated, the percentage of oil revenues to government 2/7 BIS central bankers' speeches revenues was 41.3% in 2009 compared to only 14.6% in 2016. This fact seems to elude many analysts. | 1 |
Prepared for the Federal Reserve Bank of Kansas City, Jackson Hole Conference, August 2008. 10 You can think of the investors of the lower rated tranches as “buying” all of the subprime mortgages contained in the securities and borrowing funds from the investors in the highly rated securities. The thinner the initial credit protection, the higher the initial leverage that was being used to essentially purchase the underlying subprime mortgages. Repackaging these securities into CDOs and CDO-squared securities further increased the effective leverage. BIS Review 92/2010 5 overnight, reaching 75 percent in 2008. 11 These small haircuts implied that the broker dealers could use considerable leverage themselves in purchasing these securities. So, leverage was high at all levels of the financial chain from the individual subprime borrowers, to the investors in the lower rated securities, and to the broker dealers who invested in the highly rated securities. At their peak, subprime mortgage related securities amounted to only around $ trillion dollars – a relatively small size given the overall size of the repo market. Leverage, however, amplified the losses as house prices began to decline. Why did the point at which house prices peaked and started to fall in some housing markets spark a run on the repo market? Additionally, why did the problems in subprime mortgage assets spread quickly to other assets? Gary Gorton uses the analogy of an E. coli breakout. 12 Suppose that E. coli is thought to have infected a small quantity of the country’s meat supply. | Whereas two years ago we were trying to fight off heavy appreciation pressures against the krone, we have since last summer seen quite the opposite tendency. Last year, the krone exchange rate moved on a weaker trend, in spite of continued government budget surpluses and our still relatively healthy current account. As downward pressure on the krone grew, Norges Bank raised its key rates in seven steps last year, in line with its mandate to stabilise the krone exchange rate. In the course of five months, key rates were raised by a total of 4½ percentage points. In spite of this, the krone has been weaker than its initial range vis-à-vis European currencies since last August. In this situation, the focus of monetary policy must be to adjust fundamental factors in a way consistent with a return of the krone to its target range. Of course, monetary policy can do nothing to reverse the terms-of-trade shock brought about by the steep fall in BIS Review 16/1999 –2– commodity prices. However, the aim to stabilise the krone against European currencies implies that inflation over time cannot deviate from the inflation in these countries. If inflation is brought in line with inflation in the euro area, a return of the krone to its initial level becomes more likely. Thus, in the current situation Norges Bank must focus on relative inflation when setting interest rates. | 0 |
Using a near risk-free benchmark, such as SONIA in sterling markets, rather than LIBOR should, amongst other things: 4 https://www.theice.com/publicdocs/ICE-LIBOR-Weekly-Report-10Jun_2019-14Jun2019.pdf 6 All speeches are available online at www.bankofengland.co.uk/news/speeches 6 Reduce the funding mismatch for Bank Rate tracker mortgages bundled into securitisations; Increase certainty for corporate borrowers wanting to lock in a fixed credit component at the time bonds are originated; Allow market participants to take or hedge risk related to the evolution of monetary policy rates through swaps and other instruments without unintentionally introducing a variable credit component; and Incentivise the development of new products, such as swaptions based on risk free rates, allowing more efficient hedging of interest rate volatility, either on their own or as part of structured products . It has been argued that moving away from LIBOR will increase risks to banks, by making it harder for them to hedge variability in their cost of funding related to their own credit risk. It is clearly very important for banks to be able to manage this risk. But, as we have seen, LIBOR is not the right tool, because it no longer accurately measures banks’ true cost of funding. And, even if it did, it is stretching credibility to suggest that the optimal place to house funding risk is with real economy borrowers. This feels a particularly fruitful area for innovation, drawing on the much more sophisticated range of tools now available for managing such risks. | Join the revolution! Why it makes business sense to move on from LIBOR Speech given by Andrew Hauser, Executive Director, Markets At Risk Live, London 27 June 2019 I am grateful to Wayne Leslie for his help in preparing this speech, and to Peter Balint, Rohan Churm, Tom Horn, Al Hughes, Antoine Lallour, Adeshini Naidoo, Will Parry, Edwin Schooling Latter, Jugvinder Singh, Tim Taylor and Francesca Zwolinksy for their advice and comments. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches Introduction There seem to be two rather distinct themes to your conference today: The first is all about opportunity, the future, things you might want to do: fintech, AI, new tools and ways of working. All symbolised by a rather inspiring yellow lightbulb icon on your agenda: The second is all about the grim stuff: black swans, operational risks, or whatever else might lurk in your ‘hall of horrors’ sessions later – and the things you have to do in response. I’m not 100% sure which camp this speech has been put in. But I think there’s a clue in the icon you’ve put next to my name in the programme – which is a revolutionary clenched fist… In one sense I understand why I’ve been given a pugnacious icon. The programme to move the market from LIBOR to risk-free rates is a huge undertaking. Its goal is vital, and simply stated: to eliminate the profound system-wide vulnerabilities posed by LIBOR. And the deadline is clear: end-2021. | 1 |
Moreover, the market preoccupation with short-term stock price, rather than long-term creditworthiness also presents potential risks to financial stability. Notwithstanding these challenges, several recent positive developments in emerging economies have augured well for market discipline to have a more effective role in reinforcing sound governance. In particular, the development of financial markets have resulted in more efficient markets with wide options for investors to exert discipline. The adoption of international financial reporting standards, efforts to strengthen auditor independence as well as financial capability initiatives will also reinforce market-based discipline going forward. All of these initiatives will improve the prospects for financial stability by preventing problems from occurring at the level of individual institutions. However, the recent events in the international financial environment have demonstrated the increasing complexity of banking activities which has raised the broader challenges for financial regulation and the design of safety nets in the context of managing systemic risk. Regulators have begun to carefully consider the need to re-calibrate current regulatory approaches to appropriately address risks to the financial system stemming from large and complex institutions that are increasingly engaged in non-traditional activities. This has, in turn, placed new demands on financial regulators as well as for institutions to develop a deeper understanding of the interlinkages between the financial system and the economy, and in particular, the macroeconomic transmission of financial risk. | In our case, total productivity – the variable that seeks to approximate the level of efficiency of the economy and which depends, among other factors, on the effects of technological improvements and on the efficiency of the institutions and the regulations in place within an economy – worsened significantly during the years of expansion prior to the crisis, posting slightly negative rates as from 2000. Despite some improvement as from 2008, linked to the disappearance of unproductive firms, Spain continues to post significantly lower productivity growth than the average for the developed economies. There are simplistic analyses that would seek to explain these developments by resorting to singular and even anecdotal macroeconomic aspects; but the factors that appear to lie behind our mediocre productivity performance are varied and complex. Apart from the fact that Spain has significantly lower levels of technological capital than other developed countries, factors are often cited such as the high costs and administrative obstacles facing business start-ups, the low level of competition in certain sectors and the small size of our companies. Low productivity can also be related to some of the labour market aspects I referred to earlier, such as the disconnection between remuneration conditions and the specific situation of each firm, and labour market duality, which hamper the reallocation of resources across companies and human capital accumulation decisions. Conclusions To conclude, allow me first to refer to the situation of the euro area, and then to the Spanish economy, on the road to recovery from the crisis. | 0 |
Lars Nyberg: The Baltic region in the shadow of the financial crisis Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at Intervalor and Baltic Property Trust, Stockholm, 9 September 2009. * * * The global financial crisis has now been with us for over two years. It began in the summer of 2007 with anxiety about all the complicated credit instruments that had been issued using subprime US mortgages as collateral. However, the most acute phase of the crisis began almost exactly a year ago when the investment bank Lehman Brothers filed for bankruptcy protection. This was followed by such a rapid and extensive decline in liquidity in the international banking system that it led to a global financial crisis that also hit Sweden. The financial crisis accelerated and reinforced the economic downturn that had already begun. As a result, production around the world has fallen to an extent that we have not seen since the Great Depression of the 1930s. The countries in the Baltic region, which are the subject of today's discussion, have also suffered. The Baltic states, that is Estonia, Latvia and Lithuania, have been hit hardest by the crisis. As a couple of the Swedish banks dominate the Baltic banking system, this has had consequences here in Sweden too. Today, I intend to speak about how we at the Riksbank view the economic development of, and financial stability in, the Baltic region. | There were large savings deficits in both the private and public sectors and a high level of indebtedness in the private sector. The loans also gave rise to a growing currency crisis. In addition, increasing cost pressures gradually undermined the competitiveness of the three countries. When the global financial crisis broke out, economic growth in the Baltic states had already begun to decline. Declining growth and the large current account deficits led investors to begin reappraising the value of eastern European and central European assets. Capital inflows dried up, which made it more difficult to fund many projects and further reinforced the downturn in economic activity. The credit rating agencies downgraded the Baltic states, one after the other, which further aggrevated the shortage of capital. The lack of capital thus helped to reinforce the downturn in the same way that the surplus of capital once reinforced the dramatic upturn. There are some signs that the real economy in this part of the Baltic region has now begun to stabilise, but unfortunately the recovery may be a long, slow process. This is partly because external demand is still weak as a result of the global recession. Above all, however, it is because domestic demand is low due to the fact that the Baltic states are now carrying out so-called internal devaluations. This means that wages and other costs have been substantially reduced to restore competiveness and to counteract the serious weakening of public finances. | 1 |
Perhaps the best-known example of cellular automata came several years later: Conway's “Game of Life” (Conway (1970)). In 1949, the emerging technique of Monte Carlo analysis was beginning to gain traction. A symposium organised and sponsored by the RAND Corporation – a spin-off of the US War Department – was the springboard for developing some of the first military applications of ABMs. What had once been simple board-and-dice based war games switched to computational ABMs during the 1960s, borrowing heavily on von Neumann’s cellular automata (Woodcock et al (1988)). These models have since been used to provide insights in a range of real-world military operations, past and present. They have been used to understand the dynamics of past battles, such as the operation of German U-boat battles (Champagne (2003)), Hill et al (2004)). And they have been used, typically secretly, to plan 3 See Metropolis and Ulam (1949). Metropolis reports that he came up with the name, but it was inspired by Ulam's uncle asking for money by claiming he “just had to go to Monte Carlo''. By 1949, they had written a paper together outlining the potential uses of this method including a chain-reaction with particles as Monte Carlo agents. 12 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 12 military strategies for current conflicts, with organisations such as the US Naval Research Laboratory and the US Air Force investing in ABM technology (Manheimer et al (1997)). | And, most striking of all, flows of information across agents and borders are occurring on an altogether different scale than at any time in the past. All of these trends increase the importance of taking seriously interactions between agents when modelling an economy’s dynamics. These benefits can perhaps best be illustrated by drawing out some of the key behavioural differences between ABM and mainstream macro-models. These differences should not be exaggerated: in practice, ABMs lie along a spectrum with micro-founded DSGE models at one end and statistical models at the other. But nor should they be overlooked. (a) Emergent Behaviour In standard macro-models, system dynamics are fully defined by the distribution of shocks to the economy and the behavioural parameters determining how they ripple through the system. There is a classic Frisch/Slutsky impulse-propagation mechanism determining the economy’s fortunes. If the distribution of shocks and the parameters of the model are known and fixed, the dynamics of this system are well-defined and predictable. Complex systems, of which ABM are one example, do not in general have these properties. The Frisch/Slutsky decomposition is very unlikely to be stable, if it exists at all. The reason is that a complex system’s dynamics do not derive principally from disturbances arising outside the system but from interactions within the system. Dynamics are endogenously, not exogenously, driven. These feedback effects within the system may either amplify or dampen cycles. | 1 |
Eva Srejber: A reunited Europe – the roles played by Sweden and the Riksbank Speech by Ms Eva Srejber, Second Deputy Governor of Sveriges Riksbank, to the Baltik Financial Network, Stockholm, 13 February 2002. * * * Thank you for inviting me here to speak of and discuss this important subject with such a knowledgeable public. The enlargement will change Europe and Sweden and will also affect the Riksbank. For those of us in western Europe, this is an important opportunity to regain the right geographical, economic and historical perspectives. We talk about "eastern Europe", despite the fact that Prague and Ljubljana lie west of Stockholm, we forget that Riga and Tallinn are actually closer to Stockholm than Gothenburg. We often still have a mental curtain where the iron curtain once prevailed. Now this division will soon be at an end. A hundred million Europeans, who lived under a totalitarian Communist dictatorship for half a century, can now finally return to a single European community. The political dimension is undoubtedly the most important. The new community confirms democracy and thereby guarantees peace and stability throughout Europe, which will in turn provide a good foundation for growth and development. Today I intend to say a few words about an important facet of the EU enlargement, namely the economic consequences, which will affect the work of the Riksbank more directly. | But experiments conducted by both private firms and central banks must still prove that DLT can offer more benefits than existing technologies. Indeed, the potential advantages of DLT can also be obtained in other ways. Fast payment systems – such as the Eurosystem’s TIPS – prove that 24/7 instant payments do not require DLT. And questions about who can access central bank money for wholesale transactions, or which types of assets should be settled against central bank money, are unrelated to the technology used. Furthermore, automated and conditional payments can also be initiated through application programming interfaces (APIs). [7] Notably, there are initiatives that seek to improve wholesale transactions using conventional technologies. For example, interlinking existing systems could improve the efficiency of cross-currency transactions. [8] Where similar objectives could be achieved both with and without DLT, the costs and merits of each option should be compared before moving in either direction. And we need to consider the potential drawbacks of DLT. For example, the consensus mechanisms that some DLT networks use to validate transactions are inefficient, both from an environmental point of view – as they require large amounts of energy – and in terms of transaction speed and scalability. These concerns are most evident for permissionless[9] DLTs, such as bitcoin. Some permissioned DLTs are less energy-intensive but may still compare unfavourably to centralised infrastructures. Importantly, the governance of major DLT technologies and networks is dominated by actors who are either unknown or based outside Europe, which raises concerns about strategic autonomy. | 0 |
We should consider giving authorities a greater ability to provide direction on the use of liquidity management policies by fund managers. This applies both to exceptional circumstances – where authorities currently only have the option to suspend redemptions, which may be detrimental for investors searching for liquidity – and also to normal times to limit the build-up of vulnerabilities in the first place. Second, regulatory shortcomings regarding the use of leverage need to be further addressed. In particular, we need to make sure that authorities can make effective use of their existing ability to limit leverage for alternative investment funds where, so far, a major impediment has been the lack of clarity on how it should be applied in practice. And, third, the crisis has shown that the current regime for MMFs may be inadequate in certain aspects and that regulatory reform in this area could be needed to mitigate liquidity mismatches and reduce the risk of suspensions during periods of stress. This includes a review of the liquidity requirements for MMFs and their portfolio composition, especially for LVNAV funds given their vulnerability to liquidity shocks. Conclusion https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201119_1~4a1ff0daf9.en.html 5/7 20/11/2020 COVID-19 and the liquidity crisis of non-banks: lessons for the future All in all, and with this I would like to conclude, the market turmoil earlier this year suggests that structural fault lines in the non-bank financial sector continue to persist. | More than 30 Mainland and multinational conglomerates have told us that they are actively considering establishing or expanding their CTC operations in Hong Kong. These include many household names in energy, electricity generation and power grids, infrastructure operators, consumer goods and financiers. This is exciting news for Hong Kong’s treasury sector and its practitioners. We should expect increased treasury activities taking place here, bigger demand for a wide array of financial products, and importantly more promising career prospects for the treasury practitioners including our younger, aspiring professionals. If we succeed in attracting big corporates to use Hong Kong for their CTC functions, which I am confident that they will, it should also make it easier to convince them to locate their regional headquarters’ management activities in Hong Kong too. 7. Ladies and gentlemen, IFC is a brutally competitive business because moneys are highly mobile, and asset owners and managers will only congregate in places which provide the best services. For Hong Kong to maintain its competitive edge, we must take a two pronged approach. On the one hand, we must continue to strive to improve and excel in the underlying product, i.e. to be able to deliver the safest and most efficient services in banking and finance. On the other hand, we must continue to promote and market Hong Kong as the most sought after brand in financial services. | 0 |
13 The Policy Normalization Principles and Plans indicates that all FOMC participants but one agreed that they did not anticipate selling agency mortgage-backed securities as part of the normalization process, although limited sales might be warranted in the longer run to reduce or eliminate residual holdings, and that the timing and pace of any sales would be communicated to the public in advance. Portfolio projections released in July 2017 do not include sales of any type over the forecast horizon. 14 Statement Regarding Reinvestment in Treasury Securities and Agency Mortgage-Backed Securities, September 20, 2017. 15 See, for example, Sack, The SOMA Portfolio at $ Trillion, July 20, 2011, and Bernanke, The Economic Outlook and Monetary Policy, August 27, 2010. 16 14 / 15 BIS central bankers' speeches 16 See Bonis, Ihrig and Wei, Projected Evolution of the SOMA Portfolio and the 10-year Treasury Term Premium Effect, September 27, 2017. 17 Kandrac, The Costs of Quantitative Easing: Liquidity and Market Functioning Effects of Federal Reserve MBS Purchases (2014). 18 The Treasury Borrowing Advisory Council considered this topic in its third-quarter 2017 meeting, including the potential impact of changes in central bank policy abroad. See the August 1, 2017, presentation by TBAC to the U.S. Treasury. 19 In addition to these topics, we are following closely the potential for the decline in the balance sheet to affect other aspects of the structure of financial markets or the banking industry. | In particular, there is evidence that the agency MBS market, due to the nature of its trading conventions, is prone to dislocation when market participants expect large transitions in central bank agency MBS flows.17 Such concerns can be self-fulfilling: if market participants are concerned that an abrupt shift in flow might be disruptive, they might, for example, withdraw from liquidity provision. An overly fast redemption flow of Treasuries could also create challenges in the government’s management of public debt auctions and result in communications challenges.18 A sustained portfolio runoff at an overly fast pace could also shrink the balance sheet so quickly that it impacts other aspects of monetary policy implementation. Rapid portfolio declines could have unforeseen impacts on overnight money markets, for example by creating significant shifts in dealers’ demand for overnight repo financing. We have seen such impacts in the past. During the Maturity Extension Program, the Federal Reserve sold substantial amounts of shorter-dated Treasuries. Some of these securities accumulated in dealers’ inventories, and secured financing rates rose a bit as dealers sought to finance these holdings. This sort of volatility did not, and would not now, pose a major problem to markets or policy implementation, but it is something worth avoiding if possible. Rapid portfolio runoff could also make it more likely that bank reserves become scarce unexpectedly or more quickly than policymakers had anticipated. Finally, overly fast portfolio runoff could introduce undesired noise into financial conditions. | 1 |
Forecast refers to ages 15–74 Sources: Statistics Sweden and the Riksbank BIS central bankers’ speeches 15 15. Unemployment gap Per cent 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 -3 -3 -4 -4 80 85 90 95 00 05 10 Note. Unemployment gap refers to the deviation between actual and long-term unemployment in Figure 14. Sources: Statistics Sweden and the Riksbank 16. Labour shortages Percentage of companies, seasonally-adjusted data 50 50 Labour shortages 45 Mean, 1996-2008 45 40 40 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 96 98 00 02 04 06 08 10 Source: National Institute of Economic Research 16 BIS central bankers’ speeches 17. Beveridge curve Per cent 0.6 0.5 2008 2011 Vacancy rate 0.4 2007 2001 2002 0.3 2006 2003 2004 2010 2005 0.2 2009 0.1 0.0 5.0 5.5 6.0 6.5 7.0 7.5 Unemployment 8.0 8.5 9.0 9.5 Note. Years indicate the first quarter of each year. | It is not yet possible to state with certainty that financial institutions could fund themselves without the support of capital controls and the declaration of a blanket deposit guarantee. In this context, it is critical to enhance the functioning of the financial markets, which are important for trading, funding, and risk diversification – particularly the foreign exchange and equity markets. It is also essential that financial institutions and other entities re-establish their access to foreign credit markets. A further task is to formulate policy regarding the nature, size, and international relations of the Icelandic financial system. It is no less important to formulate policy concerning the tools and institutional structure for financial stability: the financial crisis has taught us that assessing systemic risk is key, as are sound arrangements for the application of tools to mitigate it. The final crossroads is faced by economic policy, as a result of the changes I have described. In short, it can be said that the tasks at hand are shifting from the achievement of stability to promoting growth, and from crisis management to longer-term development. In terms of monetary policy, this can be seen in the Monetary Policy Committee’s shift of its bias from monetary easing to neutral. This does not mean that interest rates cannot be lowered further, but it does mean that because inflation appears to have hit bottom, economic recovery has begun, and the effective policy rate is closer to equilibrium than before, it is not as clear what direction upcoming interest rate decisions will take. | 0 |
3 https://www.bankofengland.co.uk/research/future-finance Transforming data collection from the UK financial sector - Discussion Paper (bankofengland.co.uk) 5 Transforming data collection from the UK financial sector: a plan for 2021 and beyond | Bank of England 4 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 These common standards can improve all aspects of the data collection process: how firms first find the data we are asking for; how they merge and consolidate data sets from different internal sources; how they submit and we receive data; and how they and we can compare data points that have been provided to us. But, just as in the middle ages commonly adopted measurement standards had benefits far beyond cathedral building, so common data standards are about much more than just improved reporting. Standards are a key part of the soft infrastructure of the digital age. They make it easier to source, move and compare data. They can make a whole range of activities easier: better financial reporting, cheaper payments, and more accurate credit scoring so customers get the financial products that suit their needs. They can boost transparency and help customers choose between competing products in a more informed way. They can support newer innovations like artificial intelligence and machine learning methods. In short, they bring benefits throughout the financial sector. The example of the Legal Entity Identifier Of course the development of common standards and identifiers, and a role for authorities in helping develop those standards, is far from new. | On the other hand, policies are possibly more short-term oriented and large policy errors more likely. Investors may therefore demand a higher risk premium. In direct democracies, the speed of reform is typically slower. Grid-locks are possible through referenda and therefore more common. On the other hand, political stability in direct democracies tends to be higher and economic policies typically have a more long-term orientation. As policy changes take more time to be introduced, the risk of large policy errors tends to be smaller. Over the long-term, investors appear to be willing to pay a premium for higher stability. Beyond differing parliamentary systems, our two countries’ political structures are organized along different principles. Whereas the political process in the United Kingdom can be broadly characterized as top down, Switzerland’s federalist structure implies a bottom-up political process with a great deal of political autonomy for our nearly 3000 communes and 26 cantons. It is interesting to note that there are at least some tentative signs of converging trends: In the United Kingdom, Tony Blair’s government has initiated constitutional reforms by establishing the Scottish Parliament and the Welsh Assembly in 1998 and by advancing the Regional Assemblies in England. In Switzerland, a number of centralization proposals are debated such as directly enhancing the power of the federal government or alternatively, merging a number of cantons with the aim of ending up with larger and fewer regional authorities. | 0 |
These plans should identify actionable options that the firm can take in response to financial weakness that will restore the confidence of the firm’s counterparties in the firm without the need for extraordinary official sector support. Firms must also have disciplined processes that analyze the root causes of their problems and identify longer-term strategies that will need to be employed as other recovery options to restore capital and liquidity are being executed. And firms must support the viability of their contingency and recovery plans by implementing the internal governance necessary to develop, test, update and implement them credibly. There is also more work that we, as supervisors, can do to reduce the probability of failure and to incent firm managers to act well before resolution becomes necessary. We need to do more to create incentives to force banks to act sooner to steer away from impending icebergs – cut capital distributions earlier, raise new capital faster, restructure businesses sooner, and restructure senior management and boards of directors more radically when the firm is not performing well. For example, one approach might be to implement a long-term debt requirement in a way that enhances market discipline. Another reform would be to reduce the incentives of large, complex firms to rely on shortterm wholesale funding to finance longer-term, illiquid assets. Among other benefits, reducing a firm’s susceptibility to sudden runs associated with short-term wholesale funding will lengthen the “runway” for management to implement the strategic actions that would restore the firm to health. | Encik Abdul Rasheed Ghaffour: Optimal balance of paper and digital, cash and cashless; and next page for physical currency Welcoming address by Mr Encik Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Currency Conference 2017, Kuala Lumpur, 15 May 2017. * * * Mr Richard Haycock, Chairman, Currency Research, Fellow central bankers, Distinguished participants. A very good morning and a warm Selamat Datang to Malaysia. Paper lives on A lot has changed in the past 10 years. In May 2007, there was no such thing as a smartphone. Tablets did not exist, and the human race had not discovered the fast-expanding universe of mobile apps. Back then, we read the news by leafing through the pages of a large newspaper. We listened to music with CDs, and bought or rented DVDs to watch movies. Today, most of these are streamed through internet devices. When e-book sales increased by over 1,000% in the two years leading up to 2010, many questioned the future of the printed book. The bankruptcy of Borders in the United States the following year solidified these fears. Similarly, there has been much hype about the end of cash. This has been sparked by the rising use of e-payments and the recent proliferation of digital currencies in an increasingly virtual world. However, just as physical books continue to enjoy increasing sales, we have seen cash in circulation rise in many countries, quicker than their GDP growth for some. | 0 |
Going forward, activity will grow above potential over the next two years and inflation will converge to 3% during 2020. The beginning of the MPR normalization will depend on our conviction that inflation is in a clear process of convergence to 3%. Especially important for this evaluation will be the way the labor market absorbs the strong immigration flow, the response of investment and external developments. At the same time, there are important risks around these projections. Let me now describe this scenario and associated risks. II. Macroeconomic scenario II.1. Recent evolution of activity and inflation In the first quarter this year, activity grew 1.6% annually, which combined a 3.6% fall in the mining sector and a 2.2% increase in the non-mining sectors (Figure 1). The high basis for comparison of the same period in 2018 anticipated that first-quarter growth this year would underperform that of 2018, but the result was lower than expected. This combined the negative performance of mining—affected by climatic factors, downtime at some mines and the lower ore—and several of the more volatile sectors—linked to natural resources—of non-mining GDP. In particular, the worse-than-expected performance of agriculture, fishing, and electricity, gas and water stood out. Most of the non-mining sectors whose activity is more related to demand behaved in line with expectations, particularly construction and services. One exception was the export industry, which combined high bases for comparison, weak demand from its target markets—mainly Latin America—and stronger competition abroad. | In less than half a year, we have raised the ECB interest rates by 250 basis points, the fastest increase in our history. And we have made it clear that ECB interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive, and stay at those levels for as long as necessary. In other words, we will stay the course to ensure the timely return of inflation to our target. Conclusion Let me conclude. The transition from one year to the next is traditionally associated with quiet reflection, when we take stock of things that have come to pass. But as the poet Rainer Maria Rilke once wrote: a new year is “full of things that have never been”. As we head into 2023, a changing world brings with it new challenges, but also opportunities. And let there be no doubt: with more self-confidence, more assertiveness and the right policies in place fuelling green and digital growth, Europe can adapt and thrive. But some things never change: namely, the ECB’s commitment to price stability. We will play our part in Europe’s next chapter by bringing inflation back to our 2% target. Thank you. 1. See Lagarde, C. (2022), “A new global map: European resilience in a changing world”, keynote speech at the Peterson Institute for International Economics, 22 April. 2. Lagarde, C. (2021), “Globalisation after the pandemic”, Per Jacobsson Lecture at the IMF Annual Meetings, 16 October. 3. | 0 |
Having a common survey instrument would promote benchmarking of, and accountability for, progress on culture and behavior. A core element of any firm’s mission and culture must be a respect for law. Federal Reserve guidance advises that banks should strive to “[m]aintain a corporate culture that emphasizes the importance of compliance with laws and regulations and consumer protection.” 4 To maintain such a culture, senior leaders must promote effective self-policing. If audit uncovers an instance of fraud in one unit, the firm’s leadership should ask, “Where else could this behavior occur?” If the press reports fraud at a competitor in a particular business line, the same self-assessment should apply. “Could this happen to us, could we have a similar problem here?” When fraud is detected, boards and senior leaders must ensure that they are informed promptly, and that a thorough inquiry is undertaken at once. The senior leaders of financial firms, and those who report to them, must also be proactive in reporting illegal or unethical activity. Early self-reporting sends a powerful message to employees and to regulators about a firm’s respect for law. This is one important reason why those who selfreport in a timely way should be treated preferentially, compared to those that drag their feet and whose bad behaviors are only uncovered by enforcement investigations. How will a firm know if it is making real progress? Not having to plead guilty to felony charges or being assessed large fines is a good start. | Another important element affecting culture has been the shift in the prevailing business model away from traditional commercial and investment banking activities to trading; that is, from client-oriented to transaction-oriented activities. Clients became counterparties – the other side of a trade – rather than partners in a long-term business relationship. In general, interactions became more depersonalized, making it easier to rationalize away bad behavior, and more difficult to identify who would be harmed by any unethical actions. High-powered pay incentives linked to short-term profits, combined with a flexible and fluid job market, have also contributed to a lessening of firm loyalty – and, sometimes, to a disregard for the law – in an effort to generate larger bonuses. Often allegiance to an external network of traders has been more important than the ties the trader has to his or her particular employer. This is particularly evident in the illegal manipulations of the London Interbank Offered Rate (LIBOR), and with respect to reference rates in the foreign exchange markets. Although cultural and ethical problems are not unique to the finance industry, financial firms are different from other firms in important ways. First, the financial sector plays a key public role in allocating scarce capital and exerting market discipline throughout a complex, global economy. For the economy to achieve its long-term growth potential, we need a sound and vibrant financial sector. Financial firms exist, in part, to benefit the public, not simply their shareholders, employees and corporate clients. | 1 |
The Albanian economy is estimated to have grown below its potential in 2012. Recent economic and monetary data confirm, overall, our earlier assessment for the presence of a negative output gap. On the demand side, economic growth was driven mainly by net exports growth, whereas domestic demand is estimated to have provided low contribution. Data on trade in goods during the fourth quarter show that exports increased 12% and imports fell 9.5%, year on year. Subsequently, the nominal trade deficit narrowed 20.1%, in annual terms, boosting aggregate demand in this quarter. On its side, domestic demand remains weak, due to consumers and businesses hesitation to consume and invest. Lending standards continue to be tight as banks are more prudent about lending. Budget expenditure fell about 0.3%, year on year, owing mainly to contracting capital expenditure. Collected revenue was also downward, eventually reducing the budget deficit by 1.2% compared to 2011. However, the fiscal policy was stimulating during the fourth quarter, materialising in 35% expansion of the budget deficit for this period. Though at low rates, public expenditure is expected to have positive contribution to economic activity in 2013. The monetary policy eased further in January, through the key interest rate cut to the record low of 3.75%. The easing was transmitted into the interbank market interest rates during February, while it is expected to be transmitted into other segments of the financial market. Low government demand for borrowing has exercised downward pressures on government securities yield. | Jean-Pierre Roth: The current economic and monetary policy situation Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Centro di Studi Bancari, Vezia, 17 September 2007. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * It is difficult to determine to what extent the turmoil in the US sub-prime mortgage market impacts on the real economy. It has hit Switzerland at a time when our economy is in enviably good shape. Should the situation in the financial markets not deteriorate any further, it is hard to imagine these factors abruptly slowing economic growth. With its decision to let the Libor slide back towards 2.75% in the short term, the SNB has clearly signalled to the markets an easing of the situation. In Switzerland, price stability has been maintained for the past 13 years, economic growth is significantly higher than in the 1990s and our unemployment rate is the lowest of all industrialised countries. It is our goal to preserve this favourable situation. BIS Review 102/2007 1 | 0 |
Unbalanced recovery of the world economy We observe that the global recovery is very dissimilar between advanced and emerging economies. The US, Europe and Japan are growing slowly and have high levels of idle capacity and unemployment. The financial crisis has caused them lasting damage in the 1 balance sheets of consumers, banks and governments that will take years to heal. Most likely, their demands will continue to grow slowly. Recent financial turbulences in Europe confirm this scenario. This situation contrasts with growth in Latin America and emerging Asia. In the past year, these economies have grown above trend, thanks to still expansionary macroeconomic policies, increased external funding available and, in our region, improved terms of trade. Output gaps are near exhaustion and policy-makers are withdrawing their stimulus to demand in order to avoid an inflationary resurgence and generate a sustainable growth path. The main projections of the world economy foresee that this disparity between emerging and advanced economies will go on for the next two years. These aspects will be addressed in more detail next week when we present our December 2010 Monetary Policy Report. The real issue here is that the recovery of the developed world will not hold if it happens at the expense of repeating the current account deficits of the pre-crisis years. A recomposition of global demand is necessary. The crisis has left an excess of savings in the world that drives down the international real interest rate. | At the country level, however, it must be said that production, employment, wages and investment are growing strongly. Our economy is totally back on its feet after the global recession and the outlook is good. 5 I am convinced that our country must grow in a harmonious way and the benefits of progress must spread to all the country. Economic growth and global integration generate sectoral and regional adjustments; some economic activities expand and some contract, with all the associated tensions. This is what progress is all about. To mitigate the costs of sectoral adjustments – and, above all, the social costs involved – without hurting economic growth, public policies face a tremendous challenge, but the instruments with macroeconomic reach such as the exchange rate are ineffective when it comes to resolving sectoral difficulties. Next week we will be presenting our Monetary Policy Report. We hope that our economy will continue dynamic over the next 24 months, boosting higher income and employment for our people. Our role is to ensure that the process is sustainable in an environment of stable prices. We will watch over it taking every measure necessary. In this presentation I have shown all the factors that may explain parity adjustments. However, many of the elements now pressuring the exchange rate may be reversed in the long term. As a matter of fact, today the real exchange rate is around the minimum levels believed to be consistent with its long-term fundamentals, hence the importance we assign to this issue. | 1 |
These arrangements, including senior level groups for coordination in and out of crisis – Cross Market Business Continuity Group (CMBCG) and Cross Market Operational Resilience Group (CMORG) respectively, are tested periodically to work through how the system would function in the face of particular types of shock or the loss of key systems. By definition, crisis events are unpredictable but regular exercising helps to establish common reflexes that will manage the consequences of a major operational disruption, including aspects that may not have been foreseen. Having set out the context and described our interest in operational resilience, let me turn now to cyber. It is one shock among many that could result in operational disruption. But cyber has specific characteristics that differentiate it from other threats to operational resilience. First it is not a game against nature. There are groups out there that are motivated to attack the sector. For most, the motivation is economic; that accounts for the rise in fraud. But there are actors out there, sometimes state-sponsored, who may be motivated to bring systems down and cause harm to the sector. Second it is adaptive and changing. Attackers do not stand still. Attack types are constantly evolving and readily scalable. In the cyber arms race, costs are stacked in favour of the attacker, not the defender. Organisations cannot rely on building a hard perimeter. They too need to develop defensive capability that is adaptive and invest in threat intelligence to understand potential attackers and attack types. Third detection is not easy. | This is why the FPC has replaced its existing cyber recommendation with 5 For more detail see http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech792.pdf. BIS central bankers’ speeches 3 a recommendation targeted at completing the current set of CBEST tests and making them a regular part of supervision. The FPC has now recommended that the Bank, PRA and FCA “work with firms at the core of the UK financial system to ensure that they complete CBEST tests and adopt individual cyber resilience action plans. The Bank, PRA and FCA should also establish arrangements for CBEST tests to become one component of regular cyber resilience assessment within the UK financial system.” In response, following on from the FPC’s recommendation, the Bank will therefore: • Seek to embed CBEST within our supervisory framework; • Undertake a broad, joint work programme with the FCA and HMT to enable the FPC to consider whether additional action is needed to address cyber risk. Both to improve ex ante cyber resilience in firms and ex post responsiveness; and • Ensure the framework for cyber resilience is both alive to the special features that cyber possesses but is also joined-up with our approach to deliver operational resilience of the sector more generally. And of course with all of this, we know that cyber knows no borders. Hence the importance of continued cooperation with our international counterparts. At the beginning of this speech, I set out the Olympian view of the threat cyber poses and its broader context i.e. | 1 |
I consider that a clear but, at the same time, flexible framework for macroprudential supervision will create the best conditions to counteract future financial crises. But this is not to say that this would be enough to ensure that no financial crisis ever occurs again. The crises of tomorrow will probably have completely different causes to the crises of yesterday, making them difficult to protect ourselves against. However, the scale of the costs of a financial crisis justify making every effort to protect ourselves. As regards the question of where responsibility for macroprudential policy ought to lie, it is clear that this area is closely linked to both the Riksbank’s and Finansinspektionen’s activities. The Riksbank has been analysing the stability of the financial system for fifteen years and also currently provides recommendations for safeguarding it in its Financial Stability Reports. Finansinspektionen also works for the stability of the financial system but with a focus on individual institutions. The competence and experience of both authorities will have to be utilised if macroprudential policy is to be effective in Sweden. While awaiting a more long-term solution for Swedish macroprudential supervision, the Riksbank and Finansinspektionen have set up a temporary council for cooperation. In addition to consulting and exchanging information on assessments of risks and possible countermeasures, one task of the council is to discuss the development of instruments and methods within macroprudential supervision. The joint communication of our assessments in connection with this council for cooperation is a benefit in itself. | In the same year, BNM was also the first Asian central bank to become a QFII investor and among the first wave of foreign investors in CIBM. In 2010, the Malaysian ringgit became the first emerging currency to be directly traded with the renminbi in the China Foreign Exchange Trading System (CFETS). In 2013, BNM signed a CrossBorder Collateral Arrangement (CBCA) with PBC to enable the use of home currency collateral to obtain domestic liquidity in the host country. In November 2014, BNM signed an MOU on a renminbi clearing bank arrangement. The Bank of China Malaysia was appointed as the renminbi clearing bank in January 2015. Going forward, BNM will work towards further enhancing financial co-operation with PBC in the area of Renminbi Qualified Foreign Institutional Investor (RQFII) to provide an alternative avenue for Malaysian investors to invest in onshore Chinese financial markets. BNM has also worked to integrate the renminbi into the domestic financial system by incorporating the renminbi in Malaysia’s Real Time Gross Settlement System (RENTAS). In November 2013, BNM introduced the Renminbi Liquidity Facility (RLF) to licensed onshore banks to facilitate more effective renminbi liquidity management in Malaysia. Today, the usage of renminbi in Malaysia has grown rapidly, with the daily size of renminbi foreign exchange volume at RMB6.7 billion. Malaysian institutions and corporations such as Khazanah, Cagamas, Axiata and Maybank have issued renminbi bonds. | 0 |
The second example I would like to mention here is the introduction of the minimum exchange rate in September 2011. This rate was introduced to correct a massive overvaluation of the Swiss franc arising from adverse developments on the foreign exchange market, and thereby avert the threat of a deflationary trend. I have explained to you why this instrument is still needed and is being enforced by us without any restriction. A measure like the minimum exchange rate can only succeed if the central bank is totally credible, in other words, if people believe it will actually defend the rate, if need be. Words can certainly achieve a great deal in the financial markets. But this only holds true if they are followed up with deeds when necessary. In the case of the minimum exchange rate, the deeds in question are unlimited foreign currency market interventions. In 2012, we were required to enforce the minimum exchange rate with extensive foreign currency purchases, and our balance sheet total increased significantly. If there were statutory restrictions on our balance sheet we would be unable to introduce and enforce a measure of this kind. The financial markets would call into question both our resolve and our ability to see the measure through. Concluding remarks Ladies and gentlemen, I come to my concluding remarks. Even seven years after the onset of the financial crisis, the environment remains very challenging for our economy and for Swiss monetary policy. | By contrast, interest rate increases could become necessary again in a number of emerging economies, to prevent further depreciation of their currencies and counter high inflation. As you can see from this list of items, unfortunately the risks for economic growth have not diminished. The European crisis may have become somewhat less virulent, but it has not been overcome. Moreover, additional uncertainties have emerged and the Swiss franc is still high. Overall, the environment remains extremely challenging for both the Swiss economy and our monetary policy. Outlook for Switzerland in 2014 I will now look at developments in Switzerland. In 2013, our economy did quite well, primarily as a result of stable domestic demand. This year we are expecting the economy to maintain a similar momentum, driven by domestic demand as well as, increasingly, by foreign demand. Thus the global economy will supply positive growth impetus, which will assist export industries, in particular. Accordingly, production capacity utilisation is expected to be higher and companies should see further improvement in their financial situation. Given this situation, investment looks set to regain momentum. During the months ahead, unemployment is likely to decline slightly. However, this essentially positive scenario is associated with external risks which I have already outlined. Furthermore, the popular federal initiative approved in February to curb 2 BIS central bankers’ speeches immigration represents an additional element of uncertainty as far as the economy is concerned. | 1 |
The US dollar has remained the main international currency, as a result of the predominance of US financial markets and also the inability of several emerging economies to pursue independent policies (for example by de-pegging their currencies from the US dollar). But there is little reason to believe that these factors will not change over time. The renminbi, in particular, should be in a position to relatively quickly emancipate itself from the dollar and become a major international currency if the Chinese authorities were to consistently pursue capital account liberalisation, greater exchange rate flexibility and all related policy measures in the years to come. The international role of some other emerging market currencies is also likely to increase over time. We are clearly moving towards a multipolar currency world. The question is whether the euro will be one of the poles – so to speak – of the new system. I will not dwell on the advantages for Europe of being one of the poles, but rather I invite you to reflect upon what would happen if it were not. To be sure, the euro, like any other currency, would be affected by economic and political developments in the countries issuing the leading reserve currencies, and would suffer severely from external shocks. Consider, as an illustration, the recent experience of the Swiss franc, a currency which is renowned for its stability. | In addition to voting, we engage in dialogue with management teams in a number of companies. We must remember that when we point a finger at a company, we are also pointing a finger at the laws, regulations and practices of the countries where the company legally operates. We make demands, yet we are at the same time a guest in our neighbour’s house. Excessive activism in other countries may defeat its own purpose. Scepticism towards foreign investors, and in particular towards large sovereign funds, is not an unfamiliar phenomenon. We could risk being perceived as a political fund rather than a financial investor. We have therefore chosen ethical guidelines and corporate governance principles that are based on OECD and UN principles. 31 Our experience is that the fund is perceived as a welcome financial investor – not as a political player. Former South African central bank governor Tito Mboweni told me he preferred investments by the oil fund to development assistance. “Assistance means you feel sorry for us,” he said to me, “investment means you believe in us.” 32 Conclusion The larger the visible wealth is, the greater becomes the risk that sound management principles are relegated to the background. Both John Collett and Gunter Sachs had considerable wealth, and spent it generously all their lives. At the same time, both were interested in developing more permanent values through research. | 0 |
The combined effect of these developments affected negatively the real sector of the economy, mainly the business sector. In the first quarter of this year, business confidence index fell under its historic average, reflecting a more difficult financial situation. The latter was also shown by the lower-thanplanned realization of fiscal revenues as well as by the decline of loan portfolio quality that banking sector has encountered throughout the period. In the short-term, the public authorities took measures to lessen the impact of the global financial crisis in the economy. Through the significant increase of the fiscal expenditures share designated for investments, mainly in infrastructure, the government supplied an important impetus for the support of the real sector of economy to cope with the global crisis effects. The Bank of Albania has also been active to provide liquidity in the interbank market, with the aim to preserve the stability of the banking sector and to lessen the expected decrease of its intermediation role. We removed quantitative limits in the size of the liquidity injections through our week-long reverse repurchase agreements, and extended the maturity of our injection operations up to three months. Following a cut of the policy rate by 0.5 percentage points in January and the subdued inflationary pressures at home, the monetary policy paid an important attention to the financial stability, by keeping the policy interest rate unchanged throughout the period. | When the conversion from petroleum wealth to financial assets has been completed, the objective will still be to restrict withdrawals so that the real value of the Fund’s capital is maintained - in principle, indefinitely. The Petroleum Fund functions as a buffer against movements in the krone exchange rate when oil prices vary. The cash flow from an increase in oil prices will accrue to the Fund and be invested abroad. In this way, the Fund contributes to limiting an appreciation of the krone and maintaining a stable exchange rate. At times, it seems that participants in the foreign exchange market underestimate the Petroleum Fund’s buffer mechanism. Since the summer of 2004, the krone, measured by the trade-weighted exchange rate index (TWI), has appreciated by about 5 per cent. The chart shows the exchange rate and the price of oil since 1999. There does not appear to be any clear relationship between the nominal exchange rate and oil prices over time. The krone has appreciated in periods with high oil prices, but the same has occurred when oil prices have been low. The correlation between the oil price and the krone exchange rate has varied over time. Since inflation targeting was introduced in March 2001, the average correlation has in fact been zero. This result is worth noting and indicates that the export of capital via the Petroleum Fund has protected the nominal exchange rate from price fluctuations in the oil market. | 0 |
BIS Review 6/2004 3 The choice of horizon for monetary policy implicitly provides some information about the central bank’s loss function.8 A central bank that places considerable emphasis on inflation and little emphasis on the real economy will choose a short horizon. A central bank that places considerable emphasis on the real economy will choose a long horizon. Behind the choice of a horizon of normally two years lies a perception of how the interest rate affects developments in inflation and output, and the central bank’s trade-off between variations in these two variables. According to theories on optimal monetary policy, the horizon should vary and partly depend on the size and duration of disturbances to the economy. For some types of disturbances, such as demand shocks, the optimal choice may be to achieve the inflation target relatively rapidly. For other types of disturbances, such as cost shocks, a longer horizon may be optimal, provided that confidence in monetary policy is not in jeopardy. Even though, according to the theory, the horizon should be variable, there are some advantages to maintaining a fairly firm horizon that have not been as prominent in the literature. It is crucial that the public and market participants understand how the central bank sets the interest rate in order to contribute to confidence and credibility in monetary policy. According to the principle normally followed by Norges Bank, the interest rate is set with a view to achieving inflation of 2½ per cent at the two-year horizon. | The deviations enter the loss function quadratically. Large deviations from the targets are thereby deemed to be a considerably more serious disadvantage than small deviations. In the event of large deviations between inflation and the inflation target, or substantial imbalances in the real economy, the use of relatively strong measures may be appropriate. The trade-off between inflation stability around the inflation target and stable growth in output is expressed by parameter . The higher is, the greater the emphasis on real economic stability in relation to stability in inflation. With a is the definition strict inflation target, i.e. emphasis is only placed on inflation, is equal to zero. of flexible inflation targeting. Although the loss function has two add factors, both of which are given emphasis, a fundamental difference is that the monetary policy authorities can choose the inflation target but not the level of potential output. In practice, no central bank uses a loss function of this kind directly. What inflation-targeting central banks do in practice does, however, contain elements of the thinking behind this theory. 6 See the box “Flexible inflation targeting and indicators of pressure in the real economy” in Inflation Report 3/03, p. 46, for a more detailed description of the different indicators. 7 See for example Svensson, Lars E. O. (2002): “Monetary Policy and Real Stabilization”, in Rethinking Stabilization Policy, A Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 29-31, 2002, pages 261-312. | 1 |
Moreover, in 2016, the wealthiest region in Romania was almost four times richer than the poorest one (measured by the regional GDP per capita as a percentage of the euro area average). The second guiding principle towards sustainable and smooth convergence is to keep going. By this, I mean that progress, once made, should not be undone. We now need to maintain the economy on an upward trend, while being extremely careful to preserve the macroeconomic equilibria restored through a painful adjustment after the crisis. The only way ahead is by means of a coherent macroeconomic policy mix and resolute structural reforms aimed to boost the economy’s growth potential, while making it more resilient. This approach should never leave room for pro-cyclical policies. As we have clarified that the consistency and the sustainability of real convergence are extremely important, now it is time to discuss how monetary policy can support these two dimensions of the convergence process. It is beyond any doubt that countercyclical monetary policy favours smooth convergence. This has always been one of the guiding principles for calibrating the stance of NBR’s monetary policy, as well as for developing and employing our policy tools. An example of the latter are the unorthodox prudential measures taken before the global crisis to mitigate the impact of extremely volatile capital flows; with these in mind, the IMF mentioned the NBR as being among “the pioneers” of what was later referred to as “macroprudential instruments”. | François Villeroy de Galhau: Pushing back the limits of insurability Closing remarks by Mr François Villeroy de Galhau, Governor of the Bank of France and Chairman of the Autorité de contrôle prudentiel et de resolution (ACPR), at the 10th international conference on insurance, Paris, 26 October 2018. * * * Ladies and Gentlemen, I am delighted to be with you today to give the closing remarks at this tenth international conference on insurance, organised under the aegis of President Bernard Spitz. We don’t say it often enough: the financial sector is one of the French economy’s key strengths. Another point that bears repeating is that, within this financial sector, insurers play a critical role in financing our economy. This will be the first point that I touch on. I will go on to look at regulatory developments, hailing the progress made in the last year and picking out some European challenges that we must face together. I will close by speaking about “the limits of insurability”: your theme today is as old as your profession, which dates back to the bottomry arrangements used to protect shipping ventures in ancient times and the first recorded insurance policy written in Genoa in 1347. But the question has taken on a renewed urgency today with the emergence of new risks, particularly those relating to climate change. ** I. Insurers play a critical role in financing the economy. The ACPR recently published its annual statistical report, which showed that the French insurance sector is in good shape. | 0 |
We will then be back to managing monetary policy through the more traditional tool of the overnight lending rate that anchors the yield curve. Enter forward guidance This is no small matter. Quantitative easing has made life easy not only for corporate treasurers and homeowners and consumers burdened by debt, but also for money market operators. It has run up the price of stocks and bonds mostly in straight-line fashion, and it has taken volatility out of the marketplace, allowing market operators and their clients to profit with little effort. The question of when and under what conditions the FOMC will begin to raise the base rate off the floor is understandably of intense interest. For example, every quarter, FOMC participants each provide forecasts of the year in which they presently think the target overnight rate will be raised, based on what they individually consider to be the proper conduct of monetary policy. This has given rise to what I consider a rabid focus on the economic projections, or “dots,” that accompany our FOMC statements on a quarterly basis. Monty Python could almost have written a sketch on the pundits’ preoccupation with the dots. 4 Truth be told, although many of us have econometric models and all of us have a phenomenal team of economists who help us develop our projections, these estimates are, in the end, largely guesswork. Especially the further out in time they go. | “We’ll see”: 摸 石 頭 過 河 The point is: Forward guidance can be a complicated monetary policy tool. I had an interesting discussion about this two weeks ago with a couple of the members of the Bank of England’s Monetary Policy Committee (MPC). They noted that Chris Giles of the Financial Times has devoted a substantial amount of thoughtful attention to the discussion of forward guidance. In Giles’ Money Supply blog post of Oct. 2, 2013, he wrote: “Forget triggers, thresholds, knockouts and long lists of conditions. Paul Fisher, the Bank of England’s head of markets, says everyone is wrong to think forward guidance is complicated. The policy was summarized in a single simple sentence of the [Bank of England’s] explanatory document, he said in a speech today. This is the sentence,” and I’m quoting Giles quoting Paul Fisher: “In essence, the MPC judges that, until the margin of slack within the economy has narrowed significantly, it will be appropriate to maintain the current exceptionally stimulative stance of monetary policy, provided that such an approach remains consistent with its primary objective of price stability and does not endanger financial stability.” To a central banker, that may have seemed about as concise a Delphic statement as possible. | 1 |
Also taking place in conjunction with this Forum is the ceremony for the inaugural “The Royal Award for Islamic Finance” under the auspices of Bank Negara Malaysia and the Securities Commission, to commemorate the contribution of the world’s most outstanding individuals in global Islamic finance. Let me conclude by taking this opportunity to record our appreciation to the many distinguished speakers for their contribution to GIFF 2010. Let me also once again, express our deep gratitude to the Prime Minister, Yang Amat Berhormat, Dato’ Sri Mohd Najib bin Tun Haji Abdul Razak and to Duli Yang Teramat Mulia Raja Dr. Nazrin ibni Sultan Azlan Shah for gracing this Forum. Thank you. BIS Review 140/2010 3 | As we all know, there are many uncertainties when dealing with an assumption of political nature. And, for this year in particular, our forecast team had a hard time making fiscal assumptions. On the one hand, the government is trying to accelerate budget disbursement and push through infrastructure projects. On the other hand, the country is BIS central bankers’ speeches 1 undergoing structural reforms in many areas. Some on-going reform processes, such as those related to fighting corruption 1, cannot help but delay government spending and investment. This is dynamism of the current reform period. Some measures incur “short-term pain” but are necessary to create “long-term gains”. (Slide 2) Underlying fundamentals and medium-term outlook Ladies and gentlemen, Despite headwinds and disappointing growth last year, the underlying fundamentals that have been attracting investors to Thailand are still in place. The country’s overall economic stability remains sound against a backdrop of low unemployment, well-anchored inflation and a strong current account position. (Slide 3) Thanks to the painful lessons of the crisis back in 1997 and the adjustment thereafter, the main sectors in the economy (be it banks, corporate, households or government) have also kept their leverage in check. The banking and corporate sector had undergone a dramatic change and now possesses a fairly healthy structure. NPLs of the banking sector dropped from 43% during the crisis, to 2.3% in 2014, while debt-to-equity ratio in the corporate sector declined from 5.1 in 1997 to 1.3 in 2014. | 0 |
Banks should take advantage of opportunities to raise lossabsorbing capital, and should recognise the importance of using profits to rebuild capital rather than pay out higher dividends and compensation. But we must not forget the principle underlying the Basel approach: asking banks to maintain a buffer of capital above the minimum requirement allows them to run the buffer down in circumstances like the present. Rebuilding the buffer is a task for the future. So even though the Bank of England would have preferred an agreement to set capital ratios at higher levels in the long run, we have no intention of asking UK banks to adopt a faster timetable for implementation of Basel III. That logic should apply to any reforms we choose to implement. We should not expect to change the financial system for the better overnight. Rather we need radical reforms that will give us a much more robust system in the long run, accepting that it may take a period of many years to get there. As with a bank levy, it is no criticism of Basel III to say that it is not a “silver bullet”. The difficulty of identifying and calibrating the difference between the private and social costs of maturity transformation means that there is merit in having a basket of different measures to rein in excessive risk-taking. In the area of financial stability, it makes sense to have both belt and braces. 6. | The challenge with this approach is to prevent the costs associated with the activity of maturity transformation from gravitating to another set of institutions – the “shadow” banking system. Whatever solution is adopted, the aim must be to align private and social costs. 5. Why Basel III is not a complete answer Lauded as a new standard, Basel III is seen by some as the answer to the failure of regulation to prevent the financial crisis. It is certainly a step in the right direction, an improvement on both Basel I and the ill-fated Basel II, and we should all welcome it. But if it is a giant leap for the regulators of the world, it is only a small step for mankind. Basel III on its own will not prevent another crisis for a number of reasons. First, even the new levels of capital are insufficient to prevent another crisis. Calibrating required capital by reference to the losses incurred during the recent crisis takes inadequate account of the benefits to banks of massive government intervention and the implicit guarantee. More fundamentally, it fails to recognise that when sentiment changes only very high levels of capital would be sufficient to enable banks to obtain funding on anything like normal spreads to policy rates, as we can see at present. When investors change their view about the unknowable future – as they will occasionally in sudden and discontinuous ways – banks that were perceived as well-capitalised can seem under-capitalised with concerns over their solvency. | 1 |
We know that rapid growth in demand tends to put upward pressure on prices. So with numbers like these perhaps it’s not surprising to see inflation going up, here and in other countries. In the UK, annual CPI inflation has risen from ½% to 2½% in the past four months. That’s more than half a percentage point higher than in late 2019, immediately before the pandemic. The MPC expects inflation to rise significantly further, to well over 3%, over the next six months. But in some ways the extent of the rise is a bit surprising. The economy may have grown very strongly over the past year but that’s only because it contracted so spectacularly in the first half of 2020, during the first phase of the pandemic. Even now, it’s still a long way from where it was before all this began. Growth of 5% in Q2 would still leave UK GDP 4% lower than at the end of 2019. And economic contractions don’t normally lead to higher inflation. We can identify a number of contributory factors, things that help to account for this contrast, right off the top. One is base effects. Arguably, comparing economic growth over the past eighteen months with the change in prices over the past twelve isn’t quite fair. One of the reasons annual inflation has risen so steeply through this spring is that prices of goods (energy in particular) fell significantly a year earlier, during the first phase of the pandemic. | On the other hand, it is not etched in stone, and in the final analysis, experience will reveal the truth. The liberalisation strategy can be implemented in various ways and adapted to actual developments. Sound ideas on this subject are most welcome. But at this juncture, I believe it is best that we follow the path already mapped out, with strong emphasis on safeguarding the foreign exchange reserves, financial stability, and Treasury financing. 4 BIS central bankers’ speeches | 0 |
Giavazzi, Francesco and Mishkin, Frederic S. (2006), “An evaluation of Swedish monetary policy 1995-2005”. Report from the Riksdag 2006/2007:RFR1, Sveriges Riksdag. Goodfriend, Marvin and Mervyn King (2016), “Review of the Riksbank’s Monetary Policy 2010–2015”, Reports from the Riksdag 2015/16: RFR 16, Sveriges Riksdag. Goodhart, Charles and Rochet, Jean-Charles (2011), “Assessment of the Riksbank’s monetary policy and work with financial stability 2005-2010”, Reports from the Riksdag, 2010/11:RFR5, Sveriges Riksdag. 16 [21] Gourio, Francois, Anil K. Kashyap and Jae Sim (2018), “The trade offs in leaning against the wind”, IMF Economic Review 66 (1), 70¬-115. Heikensten, Lars (2008), More To It than Just ’Leaning Against the Wind’. Article in the Financial Times, 5 June 2008. Ingves, Stefan (2007), Housing and Monetary Policy: A View from an Inflation-Targeting Central Bank. In Housing, Housing Finance and Monetary Policy, Jackson Hole Symposium Conference Proceedings, 433-443, Federal Reserve Bank of Kansas City. Ingves, Stefan (2012), “Stora risker med alltför låg ränta” [“Major risks in excessively low interest rate”], debate article, Svenska Dagbladet, 18 October. International Monetary Fund (2015), “Monetary policy and financial stability”, IMF Policy Papers. Jansson, Per (2013), “How do we stop the trend in household debt? Work on several fronts”, speech at SvD Bank Summit, Stockholm, 3 December. Jansson, Per (2014), “Swedish monetary policy after the financial crisis – myths and facts”, speech at SvD Bank Summit 2014, 3 December. Kockerols, Thore and Christoffer Kok (2019), “Leaning against the wind: macroprudential policy and the financial cycle”, ECB Working Paper Series No. 2223. | Public inquiry required for a decision It is clear just from this short review that the introduction of an e-krona could have major consequences for both monetary policy and society as a whole. On the other hand, as I have also pointed out, it would involve a major change in a historical perspective if the Riksbank no longer issued any state-backed means of payment that can be held by the general public. Considering how economically important the issue is, the Riksbank cannot take the decision on its own as to whether an e-krona should be introduced and, if so, in what form. It is a decision that must have substantial political support and where parallels can be drawn with the changes in the payment system in 1809 and 1904 that I mentioned earlier. 26 Some economists see a more negative interest rate as the best solution to create room for manoeuvre for monetary policy in a world of very low neutral interest rates, like today – better than, for example, increasing central bank inflation targets. This, it is thought, could work even if there is still physical cash by creating an exchange rate between physical cash and e-money and steering it, see for instance Rogoff (2017) and Lilley and Rogoff (2019). 13 [21] In May this year, the Riksbank therefore submitted a petition to the Riksdag on the need for a public inquiry into the future payment market. | 1 |
It is encouraging to hear that the Institute has had a successful year and that you are working on new initiatives to promote even higher professional standards. This is most welcome, as education and professional development are fundamental to the sustainability of our financial sector and its continued success. Your strategic partnerships with the University of Malta and overseas professional bodies such as the European Banking & Financial Services Training Association (EBTN), the London Institute of Banking and Finance, and the Global Association of Risk Professionals Page 1 of 8 (GARP) - whose representatives are with us tonight - reflects the Institute’s excellent reputation. That a Committee member of IFS-Malta has been elected to the highest decision making body of a European association for a third consecutive term confirms the Institute’s integrity and professionalism. The Central Bank has always worked closely with IFS and will continue to support its activities. This year, we also cooperated with the IFS during the European Money Week to promote financial literacy to underprivileged youths and participated in the successful IFS Malta Annual Seminar on pension reform. I look forward to even more cooperation in the future. Mr President, well done and thank you for taking a proactive stance towards raising the standards of financial services education. I wish you and your Committee every success in your future endeavours. Malta’s recent economic performance: Against a backdrop of weak growth in Europe as a whole, economic activity in Malta remains robust. | Asset quality continued to improve, as non-performing loans, especially to the non-financial corporate sector declined by almost 12%, mostly reflecting improved creditworthiness and an increased commitment by borrowers to honour their loan commitments. As a result the Non-performing Loan ratio declined to 6.5% by mid-year and is expected to decline further to below 6% later on this year. While banks have continued to adopt a prudent stance by increasing provisions, and while such loans are generally covered to a significant extent by collateral, nevertheless they need to build further coverage and exercise restraint in dividend distribution to shareholders to preserve further the soundness of the banking system. In this regard, the authorities, namely the Central Bank and the Malta Financial Services Authority through the Joint Financial Stability Board, have taken policy measures to ensure that by preserving its soundness, the overall banking system remains supportive of economic growth. During 2016, the authorities introduced the Other Systemically Important Institutions capital buffer, to preserve capital in those banks that are the most systemically important for the domestic economy. We have also launched the Countercyclical Capital Buffer, although this has been currently set at 0% as credit growth has not been excessive relative to economic growth or contributing to asset price inflation. Page 4 of 8 Other decisions to maintain the soundness of the banking system relate to addressing the stock of NPLs, which is incidentally also high on the agenda of the Single Supervisory Mechanism. | 1 |
With more risk traded in and through markets, the potential knock-on effects from an erosion of liquidity in some segments or for some institutions have multiplied, and we are currently experiencing how unexpected this process can be. Risks have become “mobile”, if I may put it like that, so mobile that we lose sight of their true location. The third and final set of issues relates to global imbalances. The facilitation of crossborder capital flows may have relaxed financing constraints for borrowers, making it possible to finance ever larger current account deficits. In one sense, the contribution of financial globalisation to disconnecting national savings and national investment is a welcome development, to the extent that it allows for a more efficient global allocation of savings. However the differences in the development of financial markets around the world may also have created, or at least facilitated, global imbalances. The ability of countries to produce sound and liquid financial assets is largely disconnected from their level of economic growth : rising revenues in the emerging world need to “find a home” in sound and liquid financial markets. Finally, in any case, the question of sustainability – the resilience of capital flows to the accumulation of imbalances – remains a pressing one. While capital flows tend to move freely across borders, exchange rate regimes remain very diverse in their degrees of flexibility. This leads to asymmetric adjustments depending on the exchange rate regime, not only between currency areas, but also inside the same region, such as in Asia. | With the rapid changes in society, technology and economy, we need to remain flexible, constantly iterating financial education approaches to adapt to what works best in the given context. This is where fresh ideas are welcomed, like those being featured and celebrated today. On this, I would specifically acknowledge and congratulate the three winners of the Best Paper Awards today. I understand that the winners and other shortlisted papers will be given the opportunity to publish their research in a renowned academic journal or an edited publication. I trust that their exemplary work will inspire many others to contribute to this area of research. In closing, I am hopeful that all of us here today can be increasingly effective in our shared aim to promote financial literacy in Malaysia. Today's event is a step in that direction. Let us take this opportunity to learn from one another and reimagine new paths forward – helping Malaysians regain financial resilience and improve their financial well-being. Thank you. 3/3 BIS - Central bankers' speeches | 0 |
The most obvious example of the separation is precisely the one which occurred on 9 August 2007, when amid market tensions, it was decided both to maintain the rates unchanged and to intervene on a substantial scale to satisfy the banks’ demand for liquidity, with a € billion operation. And the same separation has been continued in all the months since then. That the decision to reduce interest rates in March to 1.5% was justified is, I believe, evident from the growth and inflation estimates published at that time. I remember the ECB staff projections were pointing to euro area GDP growth for 2009 and 2010 being equal to -2.7% and 0.0% and inflation of 0.5% and 1.1% respectively. Also taking into account the relevant horizon for monetary policy, between one and two years ahead, an interest rate of 2% 2 “Three questions on monetary policy easing”, University of Ancona, 6 March 2009 (available at www.ecb.europa.eu). BIS Review 82/2009 3 seemed excessive, also considering the downside risks to growth that the ECB’s Governing Council had signalled and that they duly manifested themselves. Indeed, the projections were again revised in early June, and the cut in the official interest rate to 1% decided in May is consistent with that revision. The objective of the decisions to supply liquidity to the banking system was not to “rescue the banks” but to ensure the continued functioning of the financial market, starting with its base, i.e. the money market. | It is a natural consequence of the Riksbank being in earnest about its task of ensuring a rate of price and wage increases that is in line with the inflation target in a situation where economic activity in Sweden is become gradually stronger. Here I am prompted to refer to what Knut Wicksell, the well-known political economist, pointed out in his day; it is a matter of looking for the “natural” rate of interest at which the economy can expand without prices and wages rising too quickly. 4 BIS Review 19/2002 | 0 |
Prior to the outbreak of the crisis at the end of 2006, the balance sheet total was just over CHF 100 billion. Today, it amounts to nearly CHF 500 billion. In the area of financial stability, the SNB, too, was entrusted with some new tasks, especially with regard to macroprudential measures. The countercyclical capital buffer as well as the designation of systemically important banks and their functions are probably the most well-known of these measures. On the whole, central banks around the world have thus far been successful in their role as firefighters. They managed to prevent the global economy from falling into a depression and to ensure price stability. In addition, in many countries, they worked side by side with their governments to shore up the banking system. This has bought some time – time that in numerous places should be used to solve the underlying problems. In many countries, BIS central bankers’ speeches 1 measures that should be undertaken to achieve this include well-designed structural reforms of the economy and comprehensive restructuring of government finances. The downside of the central banks’ success is that it could give the impression that treating the root of the structural problems is not necessary at all. | Yet the concerns which used to be expressed about preventive approaches are not entirely without foundation. It is not usually possible for central banks to fully measure the build-up of excesses on financial and asset markets in real time, to intervene at exactly the right time and thus put a stop to dangerous bubble formations at precisely the right moment. However, the current macroprudential toolkit neither claims nor intends to do this. Just as monetary policy is unsuited to fine-tuning the economy, macroprudential measures are also little suited 6 BIS central bankers’ speeches to fine-tuning asset and credit markets. Instead, what is involved are relatively limited interventions in order to prevent foreseeable larger imbalances that might possibly endanger financial stability at a later stage. While there is broad international consensus that the new instruments make sense, there is a wide difference of opinion about how the institutions that use them should be organised. In some cases, new bodies have been created to examine the use of these instruments, while in other cases responsibility has been placed fully in the hands of the central bank. A number of countries have gone even further by handing over the traditional area of individual banking supervision to central banks as well. Similarly, it is equally impossible to use a one-size-fitsall approach for all the measures and instruments introduced in different countries. | 1 |
Factors supporting higher inflows in 2002 include the further liberalisation of domestic regulations especially in the services and construction sectors; open and liberal trade regime; low cost of doing business; overall macroeconomic stability; high quality physical infrastructure; and efficient financial system. The Government emphasis on customizing incentives to meet the specific needs of industries and investors has also provided added stimulus. BIS Review 21/2002 3 Economic, Monetary and Financial Management in 2002 The immediate policy concern in 2002 is to ensure that recovery of the Malaysian economy gathers momentum and that any downside risks are minimised. Given Malaysia's strengthened fundamentals, Malaysia is well positioned to tap the emerging global recovery. Macroeconomic measures have provided a positive environment that contributes to improving the enabling environment for businesses. Malaysia macroeconomic policies are essentially already in place. The focus of policy is therefore on supply side measures to enhance Malaysia's competitive advantage. Emphasis is therefore on policies to accelerate further structural adjustments. Supply side measures aim to address the issues of enhancing efficiency and productivity to reduce the cost of business operations in Malaysia. Improving efficiency requires strengthening institutional infrastructure as well as more specific measures that contribute to increasing efficiency of public services, lowering cost of inputs to be in line with international prices, raising education and skill levels and enhancing use of information technology to widen technical capacities. These measures would essentially reduce operational costs and improve the nation's competitiveness. In this more uncertain environment a stable exchange rate is a major competitive advantage. | Jacqueline Loh: opportunities Innovation in central banking – seizing Remarks by Ms Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore, at the BIS Innovation Summit, 25 March 2021. * * * Introduction 1. Good morning, good afternoon and good evening – depending on where you may be attending this global event from. I congratulate the BIS on the success of this inaugural BIS Innovation Summit; which demonstrates the central banking community’s strong commitment to innovation, so that we may better serve our stakeholders. 2. I would like to share some perspectives on central bank innovation to round off this event. Firstly, why central banks should embrace innovation; Secondly, how central banks can facilitate and lead innovation while managing the inherent risks; and Lastly, how central banks can channel innovation capabilities to address two key challenges – improving sustainability and enhancing cross-border payments. Embracing Innovation 3. Let me first start with why central banks should embrace innovation. Innovation is transforming the financial sector. Digitalisation of financial services has made it easier for financial institutions to expand their global footprint, opened the door to new players, and set the stage for increasing cross-border connectivity. The adoption of new technologies has become more prevalent, and is fundamentally changing how the financial system functions. Distributed ledger technologies for example, have seen use cases expand beyond digital payments and trade finance, to the security of data and personal identity, as well as anti-money laundering. | 0 |
This Exchange Rate Mechanism (ERM) functioned well for a decade or so but it ultimately fell apart due to the divergences in the economic and fiscal policies of the participating countries. Speculative attacks ensued and ultimately triggered a crisis that forced two large countries – the United Kingdom and Italy – to leave the ERM in 1992. 2 BIS central bankers’ speeches Parliament), and judiciary (the EU Court of Justice). The creation of the single currency is an act of further political integration. Under the Maastricht Treaty the European Economic Community became the European Union, a proper reflection of the fact that the ultimate aim – the finalité, as we say in French – of the European project is more than just economic. The EU is a real, albeit limited, political union. 2. The Maastricht framework and its shortcomings Let me now review briefly what I consider to be the three most important shortcomings of the Maastricht framework – the ones on which we need to achieve progress urgently: i) stronger fiscal institutions; ii) real convergence across the euro area; and iii) the establishment of a financial market union. The Maastricht Treaty created the European Central Bank (ECB), which took up its monetary operations on 1 January 1999. The monetary dimension of the Maastricht Treaty has worked very well. Since the start of EMU, the ECB has kept annual inflation rates on average very close to 2%. As regards economic policies however, no new institutions or competences were created. | Importantly, the ECB has also decided to resort to outright purchases of bonds on secondary markets. Following the so-called Securities Market Programme, which has now been terminated, the Governing Council of the ECB agreed at its meeting on 6 September on the 4 BIS central bankers’ speeches modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area. The OMTs will enable the ECB to address severe distortions in government bond markets which originate from, in particular, fears on the part of investors of the reversibility of the euro. Monetary union is sometimes misunderstood as an exchange rate system which the participating countries can enter and leave, as was the case with the ERM. Such a perception of reversibility would imply that, ultimately, one euro would not be worth the same in different euro area countries. In other words, the single currency would no longer be single. This perception is fundamentally flawed. Let me be very clear: the Maastricht Treaty refers to the “irrevocable fixing of exchange rates” when a country enters monetary union. The euro is irrevocable. With the OMTs, under appropriate conditions, EMU will now have a fully effective backstop to avoid destructive scenarios with potentially severe consequences for price stability in the euro area. A necessary condition for the OMTs is that the country concerned adheres to strict and effective conditionality attached to an appropriate programme under the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). | 1 |
With increased globalisation of the world 4 BIS central bankers’ speeches economy, there is no doubt that Zambia stands to benefit from the rating assigned on condition that the country adopts appropriate policies that are supportive to sustainable economic growth environment. RECENT DEVELOPMENTS IN MINING AND MANUFACTURING (MFEZ) A. Mining Growth in the Zambian mining and quarrying sector has continued to be strong since privatisation. In 2010, the growth in the sector was 15.2% (20.2% in 2009), thus contributing strongly to the 7.6% real GDP growth in 2010. Growth in metal mining was 16.0% with copper and cobalt output increasing by 17.4% and 49.4% to 819,159.19 mt and 8,781 mt, respectively. During the first half of 2011, total copper output at 414,984.5 mt, was 4.0% higher than 399,062.0 mt produced during the corresponding period of 2010. Similarly, cobalt output was 4,352.7 mt, 8.5% higher than 4,012.8 mt produced in the first half of 2010. This outturn was largely explained by the increase in the scale of production by the mines coupled with the rebound in copper prices, following the relative recovery in the global economy. B. Manufacturing Performance of the manufacturing sector in 2010 and the first half of 2011 have been favourable with a 4.1% growth in 2010 (2.2% in 2009). Growth has largely been driven by agro-processing (food & beverages), including production of nonmetallic mineral and fabricated metal goods, chemicals, explosives and construction materials (such as cement). | Prasarn Trairatvorakul: Policy Forum marking the Bank of Thailand’s 70th anniversary Welcome remarks by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, to the Bank of Thailand’s 70th Anniversary and 3rd Policy Forum, Bangkok, 12 December 2012. * * * Governor Glenn Stevens, Distinguished Guests, Ladies and Gentlemen, 1. It gives me great pleasure to extend a warm welcome to all of you, our distinguished guests, to the Bank of Thailand’s Policy Forum. Today’s gathering marks the third such event organized by the Bank of Thailand. The policy forum serves as a platform for prominent academics, policy-makers and market participants to learn from the visions and insights of outstanding international leaders. More importantly, the discussion and knowledge-sharing arisen from this forum will further equip the Bank of Thailand with a broader and deeper pool of knowledge to pursue its mandate. On that note, let me add that this year marks the 70th anniversary of the Bank of Thailand, an institution that has always been committed to preserving economic and financial stability. This commitment would not be possible without continual upgrading of our knowledge base through forums such as the one today. 2. Today, the Bank of Thailand is truly honored to have Governor Glenn Stevens of the Reserve Bank of Australia with us to share his thoughts on “Challenges for Central Banking”. This talk is especially timely because the effects of the global crisis are spreading to our region. | 0 |
In general, and certainly if someone’s performance can be easily verified, it helps to offer incentives of this sort1. But if over-simplified targets sufficiently distort an employee’s incentives, because they ignore the less verifiable aspects of a job, it can be better simply to pay a flat wage2. The same analysis can also be used to think about how multiple tasks should be allocated in the first place. In some cases the various aspects of a job are inextricably linked – they can only be done by one person. Those broader parts of a child’s education have to be provided by the same institution – a school – that teaches what’s needed to pass exams. But in other cases the allocation may be a matter of choice. When it is, it turns out that it makes sense – all else equal – to group the more visible objectives together, in one job, and the less verifiable tasks in another. This limits the risk that one dominates the other. I think this insight has some bearing on how central banks, whose responsibilities have been expanded since the crisis, should be organised. Specifically, it’s relevant when deciding whether the newly created “macroprudential” policies should be conducted separately or jointly with monetary policy. Some have argued that, because there are significant interactions between the two, monetary and macroprudential policy should be housed not just in the same institution, but in the same policymaking committee within the central bank. The distinct MPC and FPC should become a single “FMPC”. | This probably reflects the strong competition that Norwegian producers of consumer goods encounter from international operators. At the same time, domestic demand is being stimulated by low interest rates, and in some industries capacity utilisation is providing a basis for higher margins. Service prices, which showed little rise last year, have increased again this year. In many industries, including the airline industry, where price competition is strong, low profitability has led to an increase in prices. High oil prices have also resulted in increased prices, for example for transport services. On the basis of the pay increases agreed upon in this year’s wage settlement, combined with the estimates for wage drift and wage carry-over, annual wage growth is projected at around 3½ per cent this year. This is somewhat lower than the average for the past ten years. The relatively low level of inflation implies, however, that real wage growth is in line with the average for the past ten years. Prices for imported consumer goods are still falling from the level prevailing one year earlier. Sharply rising production capacity in the world economy as a result of high investment levels in many low-cost countries has led to subdued price increases for many internationally traded goods. The dismantling of trade barriers has also boosted imports of consumer goods from countries with low cost levels. For example, clothing imports from these areas have increased markedly in the past few years. This has contributed to a significant fall in clothing prices. | 0 |
An important question here is how well equipped the Swedish society is to take advantage of this type of development and to deal with the problems that arise from accelerated structural transformation. In order to reap the full benefits of the growth made possible by technology, we will probably need further deregulation and changes to institutional rules. Those aspects which have so far dominated the discussion are higher labour productivity as a result of the new technology and the attendant effects of this, in the form of sharper competition, which is expected to result in further improvements in productivity and in restrained price development. If these hopes were fulfilled, it would be a very positive development. A more rapid productivity development in a society is a crucial factor for creating a high standard of living. If we had had the same productivity development during the period 1974 to 1993 as during the past 5 years, our income level could have been approximately 10% higher. Expressed in a different way, the general discussion so far has been dominated by the possibility that the supply in the economy has increased. But, if households raise their expectations with regard to their lifetime incomes, consumption may in the short term be adjusted upwards more than domestic production allows. With regard to deregulation, the analyses are similar. They lead to a downward shift in price levels via increased competition. But here it is a question of nonrecurring effects and should not be interpreted as lasting lower inflation. | Unemployment has fallen and is continuing to fall to levels that few believed possible only a few years ago. Productivity in Sweden has developed strongly. Between 1974 and 1993, for instance, labour productivity increased by no more than 1.5% a year on average, while the corresponding figure from 1994 onwards lies at around 2%. This appears to be due to companies succeeding in utilising existing labour and equipment more efficiently. What we know and what we believe This is at any rate the picture presented by Statistics Sweden. Now, we perhaps should not take it as a matter of course. Reality is not always so easy to capture in quantitative terms. One particular problem related to information technology is that it probably affects service production just as much as purely BIS Review 93/2000 2 industrial production. Service production is something of a black sheep in the economic statistics. There are often tremendous difficulties in distinguishing quality changes from price changes in this field, which leads to the statistics being less reliable. Although a lot of effort has been put into the work on calculating GDP and other measures of economic developments in Sweden, we should be aware of the uncertainty inherent in these estimates. This is also an important reason why a commission of enquiry was recently appointed to look into economic statistics in Sweden. | 1 |
Importance of industry collaborative efforts Now I will touch on the third and last point. The payments industry in Malaysia has a history of collaboration in industry-wide infrastructure developments. A notable example is the migration from magnetic stripe to chip-based cards. The migration exercise, which was completed in 2005, successfully eradicated cases of counterfeit fraud and contributed to greater confidence in the use of payment cards in Malaysia. As a result, the investment cost of about RM200 million was recovered in just two and a half years, most of it arising from cost savings from fraud avoidance. Tourist spending via credit cards had also doubled from RM4.3 billion in 2006 to RM8.7 billion in 2014, signifying greater confidence and the ease of use of payment cards in Malaysia. This is a very good illustration on how industry collaboration in the area of payment systems has contributed to the country’s economic growth. A successful payment system is often dependent on the network of payment systems reaching an optimum size, thus enabling its participants to build critical mass and achieve economies of scale. However, building a payment system infrastructure and expanding the network can be costly to an individual market player. Hence, the industry should pool its resources to develop and share infrastructure costs. As a principle, basic payment infrastructure should not be used as a competitive tool but rather as a means to reduce cost, promote inter-operability and support an enlarged network. | Second, even if commodity price pressures were to prove persistent, they have a smaller impact in the United States than they do in many other countries. Relative to most other major economies, the U.S. inflation rate is lower, the amount of slack much greater and commodities represent a relatively small share of our consumption basket. This small share helps to explain why the “pass-through” of commodity prices into core measures of inflation has been very low in the United States for several decades. Third, the Federal Reserve’s success in anchoring inflation expectations has also been important in limiting pass-through. Since 1984, for example, when the Federal Reserve began to achieve success in driving down and then subsequently anchoring long-term inflation expectations, there has been very little evidence of commodity price pass-through into core inflation. In contrast, prior to 1984, when inflation expectations were much less wellanchored, pass-through did occur and, at times, played an important role in pushing underlying inflation higher. Thus, while rising commodity prices may be giving some of you a bad headache, they are not likely to lead to a sustained rise in inflation to levels inconsistent with our dual mandate. We will have to ensure, however, that these pressures do not cause inflation expectations to become unanchored. | 0 |
10 For instance, the 2nd 2012-2014 Employment and Collective Bargaining Agreement, signed at the start of 2012, set out wage recommendations that excluded the energy component from any wage settlements in the event, as is currently the case, of rising energy prices. 9 makes it possible to estimate how a reaction in other domestic prices and in private wages, in line with the direct impact of higher energy prices on the general price level, might affect activity and employment. If higher energy prices are fully passed through, the overall adverse impact on activity and employment, in terms of the divergence from the current projections, could be around 1.5 pp in 2024. Moreover, real disposable household income would decline, owing to the fall in employment and a further increase in inflation. Conclusions I will end by highlighting three key messages I would like you to take away from my speech at this critical historical juncture in which the attack on Ukraine could represent, as well as an extraordinary human tragedy, a serious threat to the European social and political project. First, in a variety of ways, the war will undermine the gradual post-pandemic recovery under way, though we can for the time being only hazard a guess at the scale of the fallout. As is only to be expected, the impact will depend on the severity and duration of the conflict. | But when we look ahead, it is very probable that this will no longer apply; the rate of increase in the CPIX is expected to be lower than the rate of increase in the CPI for a fairly long period to come. Let me go into more detail as to why this is the case. When the CPIX is calculated, mortgage interest expenditure for home-owners is excluded. Mortgage interest expenditure for home-owners in the CPI is calculated as a product of two indices: an interest rate index and a capital stock index. The interest rate index consists of an average of interest rates on mortgages, from variable interest rates to interest rates with a fixed duration of eight years. The capital stock index, on the other hand, measures the acquisition value of the housing stock financed by the mortgages. But with the calculation method used by Statistics Sweden the rising house prices will only affect the capital stock index when the houses change owners. Even if house prices are increasing substantially, this will only have a limited impact on the capital stock index in the short term. After all, it is only a small percentage of houses that are bought and sold every year. On the other hand, an increase in house prices affects the index for a long period to come. If house prices increased, say, twenty years ago, this will still have some effect even on today's index. | 0 |
In some advanced economies, such as Spain (shown in light green in Chart 1) and the United Kingdom (in purple), output plummeted more than 20% within weeks of the first lockdown. The sharp increase in uncertainty caused substantial turmoil in the financial markets. In March last year, major equity markets, such as the S&P 500 (shown in blue in Chart 2) and the Stoxx Europe 600 (in yellow), dropped 30% and more in a matter of weeks. At one point, investors were forced to sell even their safest and most liquid assets, such as government bonds, in order to rebalance portfolios and raise cash. As you can see in Chart 3, due to this ‘dash for cash’, at the height of the panic in March 2020, yields on government bonds, which Page 2/10 typically serve as safe havens, spiked in spite of the very negative risk sentiment. In the foreign exchange markets, however, traditional safe-haven currencies like the US dollar and the Swiss franc appreciated, as expected. In response to these safe-haven flows, the SNB had to step up its efforts to prevent a sudden and detrimental appreciation of the Swiss franc. The red line on Chart 4 shows the nominal trade-weighted index of the franc since the start of 2020. With the outbreak of the global COVID-19 pandemic, the Swiss franc came under increasing pressure. To stem an excessive appreciation of the franc, the SNB bought foreign currency worth 90 billion Swiss francs in the first half of 2020 alone. | COVID-19 as catalyst for digitalisation and implications for SNB There are two trends of particular relevance to the SNB that I would like to highlight here. The first, most visible move towards a digital economy is the changing payments landscape, with an increasing use of mobile payments. A second apparent trend is big data and automation – particularly involving artificial intelligence. In addition to these two trends, cyber risk is also growing. Let me start with the changing payments landscape. Changing payments landscape The pandemic has boosted online shopping and contactless retail payments. Because of the measures to reduce interpersonal contact, such as shop closures and limited shopping hours, e-commerce has gained in importance. While cash remains important in Switzerland, the use of cashless payment methods has increased. The SNB conducted a survey on payment methods in the autumn of 2020. This will give us more insight into these trends. The details of the survey will be published this summer. Monitoring changing payment habits is important for the SNB because facilitating and securing cashless payments is one of its statutory tasks. Since the creation of the Swiss Interbank Clearing (SIC) payment system, the SNB has fulfilled its mandate as system manager and commissioning party of the SIC system. The SIC system – also referred to as the Page 5/10 ‘strong core’ of the Swiss payments ecosystem – is the central payment system for both interbank and retail payments in Swiss francs. | 1 |
Monetary policy decisions are taken, at the centre, by the Governing Council, but are implemented by the national central banks in a closely co-ordinated way. Strategy of the single monetary policy The Maastricht Treaty clearly defines the ultimate objective of the single monetary policy, that is to say maintaining price stability. However, for this it is essential to have a clear definition of price stability: we define it as a year-on-year increase in the overall Harmonised Index of Consumer Prices (HICP) of below 2% in the whole euro area. Bearing in mind this objective, our monetary policy strategy is based on two “pillars”. We have first assigned a key role to the monetary aggregate M3. This “pillar” is based on a reference value which we set at 4.5% for the annual growth rate of the broad monetary aggregate M3. The 1 concept of a reference value does not imply a commitment on the part of the Eurosystem to automatically correct deviations in monetary growth in the short term. Naturally, we also follow the counterparts of M3 closely, that is to say the sources of money creation, and especially lending to the economy, the evolution of government finance and capital flows with the rest of the world. However, it is common sense to say that monetary developments alone do not allow for a comprehensive assessment of the risks to price stability. | This is why we have defined a second “pillar” for our monetary policy strategy, consisting of a broad range of variables that act as leading indicators of the outlook for euro area price developments. In fact, we consider the maintenance of price stability over the medium term to be the Eurosystem’s greatest contribution to fostering an environment which is favourable to sustainable growth and employment in the longer run. And, it is also its greatest contribution to limiting unnecessary volatility of output and employment in the short run. The relatively low yields on long-term euro-denominated bonds confirm investors’ confidence in the new currency. This was not the case four or five years ago, before the setting up of the euro, when financial markets were convinced that the euro would be the weighted arithmetic mean of its legacy currencies and would not inherit the level of confidence and credibility of the strongest of these, such as the Deutsche mark, the Dutch guilder, or the French franc. The euro has actually been founded on a benchmarking principle, not on a convergence towards an average. That may explain why the euro’s interest rates were the lowest in Europe from the outset. Successful technical framework However, even the best monetary strategy needs an efficient technical framework. The launch of the euro on the financial markets, on 1 January 1999, has also been an indisputable success from a technical point of view. | 1 |
M R Pridiyathorn Devakula: Challenges and opportunities facing the Thai futures market Remarks by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the gala dinner hosted by The Agricultural Futures Exchange of Thailand, Bangkok, 23 February 2006. * * * Distinguished Guests, Ladies and Gentlemen, It is a privilege for me to be here today amongst distinguished personalities from the banking and finance industry. First of all, I would like to thank the Agricultural Futures Exchange of Thailand for inviting me to address this distinguished audience. I have been asked to share some thoughts with you on the challenges and opportunities that I see facing Thai futures market going forward. Thailand has been one of the world’s leading producers of agricultural products. Thailand has always been top-ranked in rice, tapioca starch, sugar and natural rubber production. In fact, Thailand has been the world’s largest rice exporter for more than a decade. Our rice export accounts for no less than one quarter of total world’s rice exports. Likewise, we supply more than one-third of the world’s total natural rubber production. With roughly half of our labour force being employed in the agricultural industry and with rice alone earning almost 2 billion U.S. dollars last year, the importance of the sector towards Thai economy cannot be overstressed. However, unique characteristics of agricultural products are that of long supply adjustment lags and inelastic demand. Prices therefore tend to exhibit inherently high volatility. | SPEECH DATE: 08/12/2017 SPEAKER: Governor of the Riksbank Stefan Ingves VENUE: Swedish House of Finance, Stockholm SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 [email protected] www.riksbank.se Do we need an e-krona? Do we need digital cash – an e-krona as the Riksbank calls it? This is a question currently being analysed and subjected to lively debate in the central bank world. It is scarcely surprising that there is so much interest in this question, given that it covers all of a central bank’s areas of activity – the responsibility for a safe and efficient payment market, monetary policy and the task of maintaining financial stability. The question also touches on almost philosophical musings as to why the need for central banks arose once upon a time. What was then needed was a public institution that created a standard method of payment that the general public could rely on. Several centuries have passed since then, but the same need probably remains. This is why the Riksbank wants to investigate whether an e-krona could be the solution to provide the general public with continued access to central bank money even when Sweden has stopped using cash. Banknotes and coins abandoned Various agents in society are approaching the subject of digital money from slightly different perspectives. | 0 |
So that is good news, if it turns out to be true, for people who wish to have good things done to the country. On a more mundane but essential matter, EDI is now operating between the importers, exporters and the Customs, the Ports as well as the Department of Commerce, and Office of Maritime Promotion Commission with rapid linkage into other government offices scheduled for the rest of the year. This will reduce costs and enhance competitiveness of delivery of Thai exporters, as it is so important to Thai exporters who export to areas where just-in-time production is the fad, in the leading economies. In the government, many advance institutes such as textile and gemmology and so on are being set up to enhance competitiveness of our producers, and civil service reform is beginning at least in the area of the total number of civil servants. 3 BIS Review 29/2000 The 30,000 people retired early are to be replaced only by 6,000 new recruits into the system who will reduce costs and bring in a newness to a very old and tired administration. One wishes one could have true reform where the way people are replaced throughout the ranks is also changed, or where incentives to work are changed, but I guess one has to start somewhere, and downsizing is better than nothing at all, and perhaps the most difficult part of a government programme. | It should be emphasised that the impact of Asia’ s economic and financial integration, would extend beyond its own region to other parts of the world. Today, the economic and financial linkages between the emerging economies have gained significant traction and are likely to continue. All the issues that I had mentioned earlier would only be significantly realized if we have a seamless payment system that links markets as one. As part of our continuing journey in deepening and strengthening our financial markets in Asia and Malaysia in particular, Bank Negara Malaysia is pleased to be a party to the launching of the Pilot Platform for Cross-Border Investment and Settlement of Debt Securities, jointly with the Hong Kong Monetary Authority and Euroclear Bank. This initiative marks an important milestone in our vision towards deeper financial integration. The rollout of BIS central bankers’ speeches 1 this platform will provide investors and market intermediaries with more efficient and cost-effective cross-border access to the bond markets in Hong Kong and Malaysia. Over the years, the bond market in Asia has expanded significantly. To date, Asia’ s share of the global bond market has increased by almost four-fold since the pre-Asian financial crisis. In tandem with the growth of the bond markets, the sukuk market in the region has also evolved as an important avenue for international fund raising and investment activities, generating significant cross-border flows. Malaysia has been an important part of this development with well developed bond and sukuk markets. | 0 |
At the very top end of the market, there are now over a hundred Michelin starred restaurants compared with less than thirty in my youth. The past decade has seen a huge investment in both hotels and visitor attractions. Three of the top five fee paying visitor attractions in the UK are less than five years old, with the wonderful London Eye now comfortably outstripping that doughty old trouper, the Tower of London. London doesn’t have it all its own way of course - the ground breaking Eden Project now comes in at a well deserved number three. Tourism has become more than good business. From the Welsh Valleys to the East end of London, it is increasingly seen as a catalyst for economic regeneration. With the success of the Manchester Commonwealth games, and Liverpool’s ambitious plans for 2008 as European City of Culture, not to mention London’s Olympic bid, there’s no shortage of high profile events and projects to provide inspiration for the future. Your industry is still a major employer, of course. You must provide more jobs than the NHS and the Armed Forces put together. I’d be the last person to underrate the importance of entry level and seasonal jobs; but you need highly skilled people too. So it’s good news that thousands of people are already on tourism and hospitality related FE and work based courses. Your new Sector Skills Council will provide an even sharper focus on defining and meeting your industry’s training needs. | Rachel Lomax: Staying ahead of the curve - remarks on recent UK monetary policy Speech by Ms Rachel Lomax, Deputy Governor of the Bank of England, to the Annual Luncheon of the British Hospitality Association, London, 1 July 2004. * * * It is a great pleasure to be here today. Judging by the capacity crowd, the businesses you represent are in pretty good spirits. What better way to start than by thanking you for your excellent hospitality. And what better place to celebrate an important double anniversary. Because that’s what today is, for me. It is exactly a year since I joined the Bank of England as Deputy Governor for Monetary Policy. And it is forty years, almost to the day, since I started my first job. I was a waitress: in a famous seaside town - the one that’s noted for fresh air and fun. It wasn’t much of a job. But then I wasn’t much of an employee, having no marketable skills, but plenty of attitude. I learnt how to carry several plates at the same time and a lot of interesting new words; and the job paid for a memorable holiday in Greece. Looking back on it, I’m sorry I left without giving notice: though I’m not sure my boss was. My work habits have improved immeasurably since those far off days. And so I think has British hospitality. The ‘eating out experience’ has certainly been transformed. | 1 |
Ardian Fullani: Overview of Albania’s recent economic and financial market developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Press Conference on the Monetary Policy Decision of Bank of Albania’s Supervisory Council, Tirana, 31 July 2013. * * * Today, on 31 July 2013, the Supervisory Council of the Bank of Albania reviewed and approved the Monetary Policy Statement of the Bank of Albania on the first half of 2013. Based on the latest monetary and economic developments in Albania, and following the discussions about their outlook, the Bank of Albania’s Supervisory Council decided to lower the key interest rate by 0.25% percentage points to 3.50%. Lowering the key interest rate would improve the conditions for a higher aggregate demand, hence helping inflation fall back toward the Bank’s 3.0% target. Further easing of monetary policy takes into account expectations for a contractionary fiscal policy over the second half of the year and makes room for a fast and low-cost adjustment of public finances. Let me now proceed with an overview of the economic developments and key issues discussed at today’s meeting. The first months of 2013 confirmed our assessments of Albania’s slow economic growth and weak inflationary pressures. Albania’s economic activity continues to suffer from sluggish aggregate demand reflecting economic agents’ uncertainties about the future, relatively tight lending standards, and economic weaknesses of our main trading partners. However, amid a challenging macroeconomic environment, Albania’s economic and financial stability remains stable. | Inflationary pressures were low during the last quarters. Reflecting also the Bank of Albania’s prudential monetary policy, inflation settled within its target in 2012. The increase in annual consumer prices was 2.4% at year-end, while the annual average inflation rate was 2%. The inflation rate increased progressively during the first three quarters and fell slightly during the fourth quarter. Inflation volatility was mainly driven by food prices, which were affected by the international market and domestic production. The effect of other basket goods’ prices on inflation was low and slightly volatile. Regulated or administered price inflation was insignificant, while higher prices for consumer goods, oil and primary commodities in the global market did not cause any higher inflation in the Albanian economy. From the macroeconomic viewpoint, all determinants of inflation contributed to keeping it at low levels. The incomplete utilization of productive capacity was associated with businesses’ low demand for labour, hence no pressures for increase in wages and labour costs. Also, the weak demand for goods and services reduced businesses’ ability to dictate final product prices and affected low levels of profit margins. On the other hand, low increase in the global market prices and the exchange rate stability helped in keeping import prices in check. Finally, expectations for a low inflation in the medium term were reflected in stable costs, prices and interest rate in medium-term and long-term contracts concluded in the labour market, in consumer goods and financial instruments. | 0 |
The last time petroleum investment showed a sharp increase, in 1997/1998, growth was substantially stronger than had been assumed. An upturn occurred in the Norwegian economy as a whole at the same time. The unexpected increase in petroleum investment contributed to an economic upturn that was substantially stronger than projected. If oil prices rise further or remain at the current high level for a long period, petroleum investment may again amplify the cyclical upturn to a greater extent than projected. Inflation among our trading partners is expected to be low in the next few years. It is likely that high prices for oil and other commodities will continue to push up prices for goods where wages account for a small portion of total costs. On the other hand, growth among most of our main trading partners will probably be too low for idle resources to be utilised in the next few years. Particularly in the euro area, wage growth is likely to be low as a result of moderate economic growth and high unemployment. Overall, it would appear that external price impulses via consumer goods to the Norwegian economy will remain negative this year and next. There is no indication that growth in imports from low-cost countries is declining. For example, China’s share of footwear imports to Norway increased by 4 percentage points to 20 per cent in 2004. The share of clothing imports increased by 2 percentage points to 32 per cent. | I would once again like to thank the EU Delegation for enabling the implementation of this project with the hope for further support in providing subsequent project for the implementation of the recommendations, and thank the other guests for their presence. 2 BIS central bankers’ speeches | 0 |
After it became clear in August that Russia would not, in practice, be servicing its foreign debt, market participants became highly riskaverse. The unrest also spread to European financial markets and to Norway. Investors moved their funds to Germany, the US and Switzerland. The currencies of countries with less liquid and more volatile financial markets, such as Norway and Sweden, depreciated. The Norwegian krone depreciated from around 101 against the ECU index at the beginning of the year to 115 in October, the weakest rate since the objective of exchange rate stability against the ECU was adopted. Norges Bank responded to the sharp depreciation of the krone by raising its key rates in several steps through 1998. Following the last increase in interest rates on 25 August, the sight deposit rate stood at 8.00 per cent, 4.50 percentage points higher than at the beginning of 1998. Kjell Storvik stated a few days later that "The interest rate level which has now been established should, in addition to directly contributing to stabilising the krone exchange rate, dampen price expectations, which in turn implies that expectations of a further depreciation will gradually recede." During the autumn, it appeared that the effects of the depreciation of the krone on inflation would not be as great as assumed originally. First, the krone had depreciated less against an average of trading partners' currencies than against the ECU. Second, price inflation in the global economy fell. At the same time, it appeared that the turnaround in the real economy would be considerable. | The interest rate influences inflation indirectly via domestic demand for goods and services and via its effect on the exchange rate. When interest rates rise, it becomes more profitable for households to save, and consumption will therefore be postponed. Similarly, borrowing becomes more expensive, and investment will decline as a result. Lower demand then curbs the rise in prices and wages. Higher interest rates make it more attractive to invest in NOK and borrow in foreign currency. Therefore, higher interest rates normally lead to an appreciation of the krone. This makes imported goods cheaper. In addition, a stronger krone reduces activity, profitability and the ability to pay in the internationally exposed sector. Major economies such as the US, Germany and France are struggling with stagnation and fears of recession. Sluggish developments have led many countries to set very low interest rates in an attempt to stimulate growth. The business cycles in Norway and other countries have been desynchronised. While the turnaround abroad took place two years ago, the Norwegian economy continued to show a high level of activity. Towards the end of the upturn, the economy was facing labour shortages, higher wage growth and a sharp increase in household consumption and debt. Interest rates had to be kept at a high level in BIS Review 23/2003 1 Norway. This led to a widening of the interest rate differential against other countries. The main explanation for the wide interest rate differential is that interest rates abroad are at a historically low level. | 0 |
We of course are acutely aware of the importance of promoting market liquidity, especially in the early stages of our development of the CNH market. It was against this background that the HKMA has all along taken a proactive approach in seeking to strengthen the liquidity of the CNH market in Hong Kong. In June 2012, the HKMA launched a Repo facility to provide one-week funds for banks in Hong Kong as a backstop to facilitate banks’ liquidity management. However, the facility was for T+2 settlement and did not fully address the needs of the banks. In order to assist bank treasurers to better manage their liquidity, the HKMA shortened the settlement of the repo to T+1 in January 2013 and again to T+0 in July 2013. 9. Today, I am pleased to announce that, in preparation for the imminent launch of the Shanghai-Hong Kong Stock Connect, the HKMA will implement two additional 2 BIS central bankers’ speeches measures as backstop facility to assist banks in Hong Kong in managing their RMB liquidity: 10. (a) In addition to what the BoC HK, as the RMB Clearing Bank, is providing to the Participating Banks through intraday overdraft, the HKMA will provide an intraday Repo facility of up to RMB10 bn to banks in Hong Kong. The HKMA will charge a fee, based on the actual time used during the day, for the use of the facility. | So without further ado, let me quickly turn to the main theme of my remarks this morning: “What does it take to build a successful global hub for offshore RMB businesses?” The key to success, if I may summarise it, lies in the acronym: “PIPs”. 5. “PIPs” stands for “Policy Headroom, Infrastructure and People/Products”. Let me cover these three elements in the reverse order. For People and Products, I have said many times that for any financial centre to thrive and out-compete other centres, the crucial building block would be its people and products. It goes without saying that a world class financial centre must have the right people designing and distributing the right products that serve the needs of the financial consumers. This is an important and core component of the soft power that I have been talking about in the last few years. It is a key attribute that differentiates a global hub from the other financial centres. People and Products fall into the area in which the financial industry, including the individual firms, practitioners and industry bodies like the TMA, can and should play a dominant role. I am sure that you will agree with me BIS central bankers’ speeches 1 that policy makers and regulators, while having the responsibility to safeguard financial stability and to accord appropriate protection to financial consumers, are not really well suited to get too involved in gauging market demand and designing financial products that would best meet the requirements of the consumers. 6. | 1 |
The consideration of robustness also implies that monetary policy seeks to mitigate the risk of a build-up of financial imbalances. Hence, house price inflation and debt growth are also important for monetary policy. Norges Bank weighs the different types of risk against each other. Six years have now passed since the global economy was hard hit by the financial crisis. The Norwegian economy has fared well in the years following the financial crisis, stimulated by vigorous activity in the petroleum industry. Growth has slowed in recent years and a decline in oil investment will result in low growth for a period. Against the background of weaker growth prospects for the Norwegian economy and reduced foreign interest rates, Norges Bank lowered its forecast for the key policy rate through 2014 and reduced its key policy rate in December 2014. Chart: Money market rates for trading partners Global economic growth remains moderate, but there are wide differences across countries. The sharp fall in oil prices is positive for most of our trading partners, but is dampening activity in oil-producing countries at the same time. Growth in the US is now on a firm footing, even though developments have been slightly weaker recently. An expansionary monetary policy appears to be working and both consumption and investment have picked up. Unemployment has declined. Euro area activity is picking up, but growth remains low. Household consumption is on the rise, while business investment remains at a low level. | Therefore, key departments to the functioning of a modern central bank, such as monetary policy, economic research, banking supervision and regulation, had to be built from scratch. As we have come a sufficiently long way to remember this with a smile on the face, I would like to share with you two amusing stories I deem illustrative for the hardships of the beginning. One dates back to the autumn of 1990. Having been recently appointed at the helm of the National Bank of Romania, I held a press conference during which I stated that the banking system would operate on two tiers or two floors, with the central bank on the first floor and commercial banks on the second. The head of the institution’s commercial banking operations – the same person who would later manage Banca Comercială Română after its separation from the National Bank of Romania – took these words literally and immediately complained that he had just moved to the first floor of the building and warned me that he had no intention of moving again! 1/5 BIS central bankers' speeches At around the same time, in the early days of my term in office as Governor, someone “encouraged” me with the words: “Welcome and good luck running an empty bank!”. Unfortunately, the trials and tribulations of the first post-communist year had practically depleted the country’s foreign exchange reserves in nine months’ time. | 0 |
The same conclusion would be reached by looking at the measures required to achieve a balanced budget, which largely consist of reversing the decisions taken over the last ten years in respect of public sector wage rises, expenditure increases and the adoption of standard structural reforms which would bring Greece in line with other euro area countries. Just to give an example, if, over the last 10 years, Greek public sector wages had gone up at the same pace as inflation, and public employment had not increased, in 2010 the Greek budget deficit to GDP ratio would have been around 4 percentage points lower and the debt to GDP ratio about 30% lower.4 The key question is whether the Greek government and the Greek people are willing to implement these measures. The answer to this question largely depends on the alternative scenario, which is a default or restructuring of the public debt. A rational analysis comparing the economic, financial, social and political costs of implementing the needed adjustments, including privatisation, and the costs of a default/restructuring would conclude that the former costs are lower. A rational decision-maker would thus opt for the adjustment and, on that basis, Greece should be considered solvent and should be asked to service its debts. The second difference between debt workouts in the corporate and public sectors is that, unlike a company, a sovereign cannot be liquidated. | As you will have so many other matters to discuss, apart from the economy and the euro, you must forgive me for dedicating so much time to my own specific subjects. To conclude, I am sure these present Tertulias will, as in all the previous meetings, be successful, that the participants will enjoy themselves, and that our British friends will have very good memories of this visit to Madrid. Thank you. 2 BIS central bankers’ speeches | 0 |
New labour market institutions will need to balance facilitating labour mobility and encouraging appropriate protections of workers in non-standard forms of employment that emerge in industries, as considered in the UK by the Taylor review of modern working practices. 30 Other issues range from technology solutions to improve matching to news frameworks data portability (including reputational histories). Each industrial revolution has eventually been accompanied by major innovations in enabling or educational institutions. The biggest issue may be how to institutionalise re-training in mid-career and to integrate it with the social welfare system. The time for a quaternary system of education, founded on the same principle of universality as primary, secondary and tertiary education may eventually arrive. There are also roles for retraining schemes, such as the UK’s Flexible Learning Fund 31 and the Singapore SkillsFuture programme, which offers all its citizens aged 25 and over £ credit to pay for approved workskills related courses. Generous subsidies, of up to 90% for Singaporeans aged 40 and over, are available on top of this credit. According to SkillsFuture’s Chief Executive, the returns on that spending matter less than changing the mindset around continuous reskilling. An often overlooked but nonetheless critical element of the ecosystem is to build a financial sector consistent with the new economy. 30 31 Available at https://www.gov.uk/government/publications/good-work-the-taylor-review-of-modern-working-practices. The Government has allocated £ through the FLF in Spring2017 budget to run pilot projects. | Ladies and Gentlemen, in recognition of the need to provide a conducive regulatory environment which promotes sustainability, accountability, transparency and growth of the building society industry in Zambia, the Building Societies Act was amended in October 2005 to harmonise it with the Banking and Financial Services Act pending the modernization of the Building Societies Act under the Financial Sector Development Plan law reform programme. Ladies and Gentlemen, Bank of Zambia is concerned about the levels of lending interest rates charged by most financial institutions in Zambia, building societies included. With the achievement of relative macroeconomic stability in the recent years as evidenced by a significant reduction in the inflation rate to 11.1 percent as at June 2007, it is the expectation of the Bank of Zambia that all prudent lending institutions would make downward adjustments to their lending interest rates to make financial services accessible and affordable. It is also important to note that high lending interest rates can lead to high levels of delinquency. Ladies and Gentlemen, it is in this light that we anticipate that credit referencing services will help in reducing credit risk through the provision of widely accessible information on the loan repayment profile of borrowers. This should also provide another incentive for lowering of interest rates. Ladies and Gentlemen, in conclusion I wish to state that the Bank of Zambia is committed to broadening and deepening the financial sector through effective implementation of the Financial Sector Development Plan. | 0 |
Two points are worth mentioning at this stage: - First, due to the scepticism I already mentioned and for credibility reasons, it would have been damaging for the euro not to build on the credibility of the most efficient and successful participating national central banks, that had previously chosen 2% as the ceiling for their definition of price stability; - second, this criticism has abated recently and it is interesting to note that the definition of price stability has converged towards a level close to, if not below, 2%: in December 2003, Gordon Brown, then Chancellor of the Exchequer, announced a new inflation target for the Bank of England, based on the HICP, and set at a level of 2% for the 12-month increase; in the US, Ben Bernanke, while he was a member of the FOMC, advocated for a quantitative definition of the FED’s price objective comprised between 1 and 2% over the medium-term. The Eurosystem’s monetary policy is “medium-term” oriented What exactly are the implications of the medium-term orientation of the Eurosystem’s monetary policy strategy? The first is that the single monetary policy does not have a fixed horizon, defined once and for all ex ante, but aims, as far as possible, to take account of the “long and variable lags of monetary policy” dear to Milton Friedman. | In operational terms, this means that, in the conduct of their duties, neither the European Central Bank nor the national central banks of the Eurosystem may request or take instructions from the Community institutions, national governments or any other body. They are entirely institutionally, operationally and financially independent. Transparency and accountability are also essential for gaining credibility Naturally, the independence of these institutions requires transparency in their decisionmaking processes and accountability vis-à-vis the general public and their representatives. As regards new institutions such as the ECB, transparency is even more important for gaining credibility and building up economic agents’ confidence in the new currency. In order to establish this credibility and gain the confidence of agents, it is imperative to be understood, which in turn calls for transparency. For the sake of transparency, the Governing Council has specified and quantified its definition of price stability (inflation below but close to 2% over the medium-term). Second, the ECB has gone beyond the accountability requirements laid down by the Treaty by instituting regular testimonies by the President of the ECB before the European Parliament and regular informal meetings with the Eurogroup of Finance ministers. Another channel for transparency is constituted by the regular publication of reports on economic developments and Central Bank analysis, of the Eurosystem’s and ECB’s staff projections exercises, most prominently in the ECB’s Monthly Bulletin. | 1 |
At the same time, price stability contributes to a “safe and efficient payment mechanism” and facilitates stability in the financial system in general. The question discussed is whether the central bank’s responsibility for financial stability also means that financial stability should be an objective for monetary policy. I interpret the literature as there being a great deal to indicate that financial stability should in principle be an objective not only for macroprudential policy but also for monetary policy, although it will be a practical and quantitative question to determine in each given situation how much financial stability should be considered in monetary policy decisions. 29 In principle, it would be best if monetary policy and macroprudential policy could be coordinated, but there are also relevant arguments against such coordination. 30 It is claimed that macroprudential policy and microprudential policy should be the “first line of defence” against financial stability risks and that monetary policy should focus on stabilising inflation and growth in the real economy. But given the strong links between financial stability, price stability and real economic stability, it cannot be ruled out that monetary policy sometimes needs to be used to mitigate financial stability risks. How much depends, among other 26 In the preparatory works for the Sveriges Riksbank Act, it was stated that the Riksbank, without prejudice to the price stability target, should support the goals of general economic policy with a view to maintaining a sustainable level of growth and high rate of employment. | Williams, J. C. (2009), “Heeding Daedalus: Optimal Inflation and the Zero Lower Bound,” Brookings Papers on Economic Activity, No 2, pp. 1–37. Woodford, M. (2012) “Inflations Targeting and Financial Stability,” Economic Review 2012:1, Sveriges Riksbank. BIS central bankers’ speeches 19 | 1 |
To be a little drastic, one can say that the task facing the central banks is to avoid ‘The Great Inflation 2.0’, and to do so at the lowest possible cost in terms of lower production and higher unemployment. The conditions are better than before I intend to stick my neck out a bit here and say that the conditions for coping with this balancing act are quite good for Sweden and at least considerably better than they were when inflation began to rise in the mid-1970s. There are several reasons for this. None of these are news, but it is still worth reminding ourselves of them. Firstly, since 1993, we have had an inflation target in the Swedish economy. During the most recent period of lastingly high inflation, the idea was that inflation would be kept down by means of the fixed exchange rate. The fixed exchange rate was expected to have a disciplinary effect on price-setting and wage-formation, as excessive inflation in relation to the rest of the world would lead to difficulties for the export industry and increased unemployment. However, as I have pointed out, this did not work very well. Expressed in economist terms, there was no credible nominal anchor in the economy, that is, a clear, quantified benchmark for price-setting and wage-formation. Today, we have one in the form of the inflation target. During the period of inflation targeting, long-term inflation expectations, in the way we can measure them, have remained fairly stable at around 2 per cent. | The European panel's responses are presented at https://www.igmchicago.org/surveys/ukraine/ and the American at https://www.igmchicago.org/surveys/ukraine-2/. The results are summarised by Vaitilingam (2022). 10 [14] For a monetary policy decision-maker, supply shocks are more difficult to deal with than demand shocks. If inflation rises because demand has risen unexpectedly, the remedy is simple: The central bank raises the policy rate and thus suppresses both inflation and demand, thereby reducing the risk of the economy overheating. But if inflation rises as a result of a negative supply shock, the problem is more complex. If most people assume that the effect on inflation is transitory, the problem does not need to be so great. The central bank can then simply wait until inflation falls back again. However, one risk that is always present is that price impulses spread to other prices and start to affect economic agents’ expectations. These may then expect inflation to remain high, or even rise further. The signs of such second-round effects have now begun to increase in many economies. This creates a tricky balancing act for monetary policy: At the same time as one wants to maintain confidence in the inflation target and prevent inflation from becoming entrenched at a high level, one wants to avoid pursuing a policy so tight that the economy enters a recession. As we saw, this was what happened after the First World War, although the motive then was to return to the previous price level rather than bring down inflation. | 1 |
Commodity prices remain high by historic standards, consistently with the strength of emerging economies, some specific supply-side elements and the depreciation of the dollar. Worth noting are the recent sharp increases in the international prices of some foodstuffs and the copper price peaking at $ per pound (figure 4). The baseline scenario in the IPoM we are presenting today assumes that some of these factors will persist over the projection scenario. In the case of copper, even if it will not be as high as today, it will exceed September’s projections, at $ and $ per pound in 2011 and 2012, respectively. The price outlook for WTI oil is also revised up from September, to $ per barrel in the two years. The baseline scenario for the international economy is good, albeit with important associated risks. We expect an average growth rate of 4.2% for the world economy over the next two years, fairly high by historic standards, but around 0.3 percentage points below the market consensus forecast. This differential is based on the effects of the financial turbulences in Europe, tighter fiscal adjustment plans in the region and the absence of a vigorous recovery of demand in developed economies. In addition, because of the inflationary pressures present in some emerging economies, it is obvious they cannot continue to grow at the same pace they did this year (table 1). | The importance of the wage setting process and efficient labour market practices was evident in the statement, issued by the European heads of government in Brussels on October 26. In this regard, the statement specifically referred to commitments made by the Italian and Spanish governments with respect to structural reforms that included important changes in their labour markets. Spain will enact “labour market changes to increase flexibility at firm level and employability of the labour force …” Italy will “reform labour legislation and in particular the dismissal rules and procedures and … review the currently fragmented unemployment benefit system …”4 In the local perspective it is relevant to mention that collective agreements are negotiated at the level of the individual firm, and that helps to ensure that wage growth is compatible with the realities of the markets where the firm sells its products. Nevertheless, various steps could be taken to increase employment or enhance productivity. These could include measures that would encourage an increased participation rate, as well as measures to facilitate part-time employment and thereby increase employment rates. Increased flexibility and productivity are also important in the public sector. Any wage increases negotiated need to be moderate, taking into account the current uncertain economic environment. They should also be backed by improvements in productivity, so that the burden on state finances is kept to a minimum and justified by enhancements in quality and quantity of services provided. A further ingredient for economic growth is the smooth functioning of the financial system. | 0 |
As a matter of fact, whenever accelerated growth in credit and money aggregates occurs simultaneously with soaring asset prices and loose lending standards, increased inflation becomes very likely over the three years that follow (Roffia and Zaghini, 2007). 8 In this context, one can argue that an increase in lending with inflation prospects can be fought with a tightening of monetary policy. However, if the boom was triggered by lack of regulation or supervision, monetary policy tightening by itself could probably be ineffective – or even counterproductive – if the financial system is weakened because of excessive risk taking. Thus, financial regulation plays a major role in granting financial integrity. At the beginning, regulation focused on the strength of individual institutions. However, the tensions we are seeing now exemplify, once again, how individual fragility may quickly evolve into systemic problems. The interrelationships among financial institutions and the proper operation of the markets where liquidity is traded are essential ingredients of a market economy, but these characteristics are also the channels of financial contagion, as recently seen. So it is crucial to have a systemic vision, not only from the perspective of how the different institutions relate to each other, but also how the different types of financial and operating risks are intertwined, creating potential vulnerabilities. The Financial Stability Reports that many central banks put together periodically – including us – seek to evaluate the resiliency of the system as a whole to large disruptions, by carrying out stress tests. | Vergara, R. (2003). “El Dinero Como Indicador de Política Monetaria en Chile”. Cuadernos de Economía 40(121): 707-715. 8 BIS Review 150/2008 | 1 |
In short, improving the overall environment for NPL resolution would afford an opportunity not only to repair bank balance sheets, but also those of their clients. Both of these are ultimately necessary to achieve a sustainable recovery in bank lending, and in doing so to restore the effectiveness monetary policy transmission. Finally, banks’ incentives are necessarily affected by regulation. This is indeed its purpose. Regulation aims to internalise negative externalities, but it is the nature of regulating that policymakers must always be watchful that, in the process, they do not inadvertently create new forms of negative externalities. Regulations passed so far have rightly aimed to make banks internalise systemic risks and markets to better price them. And there is in principle no long-run trade-off between higher 5 For a discussion of how NPLs can affect cost efficiency see Berger A.N., and R. DeYoung (1997), “Problems Loans and Cost Efficiency in Commercial Banks”, Journal of Banking and Finance, Vol. 21. 6 World Bank (2013), Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises. 4 BIS central bankers’ speeches capital and higher lending. 7 But at the same time, much depends on the calibration of specific requirements, and here very careful macroeconomic impact assessments are required – for instance, to ensure that the transitional costs of implementing regulations do not have unwanted effects on credit. | And this depends in turn on several factors at the national level including the efficiency of insolvency regimes, out-of-court restructuring frameworks and judicial systems. For example, differences between countries in the speed of insolvency proceedings can affect the ability of banks to seize collateral, and hence influence their incentives and ability to resolve NPLs. To illustrate, according to the World Bank, to resolve insolvency in Italy takes 1.8 years, compared with just 0.4 years in Ireland. 6 Ineffective insolvency systems also render out-of-court restructuring frameworks less operable, as they fail to act as a credible threat, thereby dissuading creditors and debtors from agreeing on a restructuring. This latter point may be particularly important because, in a debt overhang environment, the overall efficiency of NPL resolution and the cost for society hinges crucially on the ease with which debt can be restructured outside of the insolvency framework. For firms whose business models remain fundamentally viable, liquidation may be economically inefficient and some form of voluntary debt restructuring could be essential to restore their viability and allow them to borrow and invest again. Several countries have already made progress in reforming their national legislation. To give just one example, in Portugal the government introduced new regimes for fast-track in-court and formalised out-of-court restructuring in 2011 and 2012. Experience has shown, however, that the effectiveness of an improved legal framework depends on various accompanying factors, such as improving debtor-creditor coordination and building sufficient administrative and judicial capacity to successfully mediate restructuring. | 1 |
In a situation in which extensive repo-rate changes have very large direct effects on the CPI, I consider it to be more appropriate to focus on stabilising the CPIF around the inflation target, instead of the CPI. BIS Review 32/2010 9 However, the assessment of the majority of the Executive Board was that the lower repo-rate path was not appropriate. At the monetary policy meetings held during the course of the year, the view of several members of the Executive Board was that the effects of the very low repo-rate levels on the economy and the financial markets were uncertain and that there was therefore reason to be cautious about reducing the repo rate below 0.25 per cent. It is not easy to make reliable estimates and forecasts of potential production and resource utilisation. The Riksbank’s estimates and forecasts for potential production and hours worked are in need of improvement and development. Such development work is currently underway. In 2009, the financial crisis reduced potential production so that resource utilisation in the economy is not as low for a given level of production as before. There is no doubt, however, that resource utilisation is very low and will remain lower than normal during the forecast period (see Figure 7). 10 BIS Review 32/2010 The numerical inflation target has entailed great progress for practical monetary policy and made it possible to measure and evaluate the target fulfilment of monetary policy in a much more efficient manner than before. | However, from December, market expectations have approached the Riksbank’s forecasts (see Figure 4). So how can the gap between market expectations and the Riksbank’s repo rate forecasts in 2009 be explained? Some of the deviations may be explained, for example, by the possibility that statements on the lower bound of the repo rate were interpreted to mean that there were only upside risks for the repo rate, but this does not explain them all. A major part of the deviations thus remain to be explained. One possible explanation may be that money market participants have taken a more positive view of economic development. For example, they may have expected GDP growth and inflation to be higher in the future than stated in the Riksbank’s forecasts, and thus require a tighter monetary policy. However, this hypothesis is not supported by surveys of the expected economic development. These show that the money market participants expected both lower inflation and lower GDP growth in the period ahead than the Riksbank. 12 The market participants seem to have believed in a different reaction pattern from the Riksbank than that expressed in the repo-rate path. The disagreement among the members of the Executive Board may have contributed to this. At the monetary policy meetings in July, September, October and December, reservations against the published repo rate path were entered by members who considered that the repo rate path in 2010 should be slightly higher. | 1 |
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