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Working with its Affiliated Institutes from the industry, the Institute of Banks Malaysia (IBBM), the Islamic Banking and Finance Institute Malaysia (IBFIM), the Malaysia Insurance Institute (MII) and the Securities Industry Development Corporation (SIDC), AIF has an important role in driving and supporting the development of talent in the financial sector. This also includes the development of intellectual capital through research that is being undertaken in the AIF Risk Management Centre and the Applied Finance Research Centre. 2 BIS central bankers’ speeches AIF has the vision to build a world class financial sector workforce. In support of this vision, AIF has developed a Learning Programme Assessment and Accreditation Framework (LPAAF) which provides a structured and comprehensive approach that defines quality assurance standards for training programmes for the industry. Benchmarked against international standards, the framework is designed to be both current and forward-looking. The education standards promulgated through the framework ensures first class, job-specific training to meet the industry requirements, and equip practitioners with the practical knowledge, skills and expertise that are important to their respective job functions. Malaysia’s financial sector has continued to forge ahead. The contribution of the financial industry to the country’s GDP has increased from 9.2% in the year 2000 to 11.7% in 2009 and this figure is expected to grow further in time. Likewise, the employment growth in the financial sector will continue to accelerate, with increasing demands for specialised skills and enhanced expertise in finance. | The promotion of more effective international cooperation on training and skills development to meet the changing demands of the industry, more comprehensive strategies on talent development and greater mobility that is consistent with the realities of the global economy will support such talent development. Despite these demands, under investment in learning remains in a significant proportion of financial institutions. This is largely due to the focus on keeping short term costs low. This has however resulted in drawing talent from the existing pool which has in turn resulted in rising costs of talent. Surveys suggest that the biggest skills and knowledge gaps faced by financial institutions are in knowledge of regulatory standards, communications, management skills and risk assessment and management. Professional and technical skills, particularly in the middle to senior levels, are still very much needed in many parts of Asia. These skills shortages will intensify as financial institutions expand their operations. Strategies for talent management and development must therefore change if financial institutions want to be competitive and well positioned to adjust and adapt to the changing conditions. The Asian Institute of Finance (AIF) was initiated by Bank Negara Malaysia and established jointly with the Securities Commission in [2009] to respond to the growing needs of the financial industry for high quality and efficient training opportunities that would develop indemand skills. | 1 |
Mr. Erçel discusses financial risk and its management Address by the Governor of the Central Bank of the Republic of Turkey, Mr. Gazi Erçel, at the Sixth Annual Global Finance Conference, Bilgi University, Istanbul, on 8 April, 1999 _________________________________________________________________________ $ University. Today I like to discuss financial risk and its management which are one of the hot topics in the international financial circles. The 1980s and 1990s witnessed a major transformation in the international financial markets. The advent of more complex and dynamic transactions have substantially increased uncertainties in the marketplace, and, in today’s environment, dominated by a dynamic, aggressive financial service industry, market participants are exposed to greater financial risks than before. Of course, there are several reasons for these changes. The first reason is the globalization of the international markets. Markets all over the world are becoming consolidated into a vast world market as obstacles to the free movement of capital are gradually being removed. This can be seen in the present global crisis, which arose because problems occurring in one region of the world promptly made themselves felt by markets and investors in other regions. Another reason is that the international markets have become much more volatile. Volatility, which means the fluctuation of market prices and ratios, is one of the principal sources of financial risk. When market volatility increases, market participants are exposed to greater uncertainty--and greater risk. Still another change of conditions in the international markets is the appearance of new forms of investment with very complex structures. | This would entail prejudicing, or setting aside, the price-stability target. Without prejudicing the price-stability target, monetary policy cannot aim at a higher level of resource utilisation than the normal level. It is thus a misconception, and unfortunately a common one, that the stipulation to not prejudice the price-stability target means that monetary policy should only aim to stabilise inflation around the inflation target irrespective of what happens to resource utilisation, what is usually referred to as strict inflation targeting. The stipulation means instead that monetary policy should also stabilise resource utilisation, but around a normal level, not a higher level. As far as I can judge there is now general agreement about this interpretation of the provisions of the Sveriges Riksbank Act and its preparatory work. So, at every monetary policy meeting we, that is the members of the Executive Board, have to decide what repo-rate path will best stabilise inflation and resource utilisation. The Riksbank usually expresses this by saying that monetary policy should be well balanced. If there is a conflict between stabilising inflation on the one hand and stabilising resource utilisation on the other, then a well-balanced monetary policy entails a reasonable compromise between the two. Such a conflict is in fact regarded as the normal situation, but a conflict does not always exist. In my view, there is no such conflict at present. | 0 |
These reforms, by promoting registered employment, will also help us overcome problems in our social security system. Unemployment Rates (Percent) 18 15 12 9 6 3 0 2004 2005 Unemployment Rat e 2006 2007 2008 2009 Non-Farm Unemployment Rate Source: TURKSTAT, CBRT. Distinguished Guests, 22. The impact of the global economic crisis on Turkey’s foreign trade has been evident, and the contraction in domestic and foreign demand and the slumps in commodity prices, especially in crude oil as well as iron and steel led imports and exports to shrink rapidly as of the last quarter of 2008. Significant declines have been observed throughout the year in imports and exports, which tended to recover as of the second quarter of 2009 as signs of revival in global economic activity appeared. Total exports of goods fell by 22.1 percent to 109.7 billion USD, while total imports of goods fell by 30.7 percent year-on-year to 134.4 billion USD in 2009. Consequently, the foreign trade deficit, which was 53 billion USD in 2008, dropped to 24.7 billion USD in 2009. 23. The adverse impact of the global crisis on tourism revenues was translated as a decrease in expenditures. In 2009, tourism revenues decreased by 3.2 percent. The said decline is mainly attributable to the fall in average tourism revenues. In fact, the number of visitors increased by 3.3 percent in 2009. Due to the recovery in other services items, the slowdown in the services surplus remained limited at 5.3 percent. | The decision on whether monetary policy measures in the form of foreign currency purchases are necessary is based on an evaluation of the threat of deflation and the monetary policy expansion needed in order to counter this. Monetary policy inaction during the dramatic phases of 2009 and 2010 was not an option. The primacy of monetary policy applies, and the top priority of monetary policy is to ensure price stability. The SNB’s legal mandate is explicit in this regard. This is the contribution which the SNB can and must make to economic prosperity in this country. BIS central bankers’ speeches 1 | 0 |
Zeti Akhtar Aziz: Finance and the real economy – fostering sustainability Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Islamic Development Bank (IDB) Regional Lecture Series on Islamic economics, finance and banking: “Finance and the real economy – fostering sustainability”, Jakarta, 19 December 2012. * * * I am most honoured to be invited to deliver this inaugural lecture of the Islamic Development Bank Regional Lecture Series. I am also most delighted to be back here in Jakarta. I would like to thank the Islamic Development Bank for the invitation, and Bank Indonesia for kindly hosting this event. For more than three decades now, the Islamic Development Bank has had an important role in promoting economic growth and development in so many parts of the world, and associated with this, has been its role in fostering the development of Islamic finance. It has supported the building of key international financial infrastructure that has been important for the orderly global development of Islamic finance and for safeguarding financial stability. The Islamic Development Bank has also supported research and education efforts in this area, while its strategic interests in financial institutions in different jurisdictions have been an important catalyst for their establishment and expansion. | Given this, it does not appear entirely unnatural for fiscal policy to support monetary policy in exceptional circumstances with regard to maintaining confidence in the inflation target – and thereby ensuring that the central bank's policy rate can continue to be an effective tool in the future. Conditioning of monetary policy a possible route? An area that we as central bank have control over, and where we could possibly become more effective, is our communication of future monetary policy. Although we have been publishing a forecast for the repo rate for many years now, 10 For a more detailed discussion of the Riksbank’s monetary policy toolbox, see Ingves (2020). 11 Moreover, ideas have recently been put forward with regard to fiscal policy being a more effective stabilisation policy tool than monetary policy in some situations, in that fiscal policy measures can more directly target individual sectors of the economy where the problems are greatest, see Woodford (2020). 12 See, for example, Sims (2016). This idea has also been put forward earlier in the Swedish debate, see Borg (2003). 7 [15] we have to acknowledge that our forecasts during the past decade have systematically overestimated how quickly the interest rate can be raised. We have not been alone in this overestimation – the market forecasts have looked fairly similar (Figure 6). They were better than the Riksbank's during the period 2011-2013, but the pattern is essentially the same – substantial overestimates and inaccurate forecasts. | 0 |
As a result, the ECB recently lowered policy rates to the ZLB, has started undertaking additional unconventional monetary policies, and is now encouraging fiscal expansion among eurozone countries that are able to do so. These lessons from monetary history strongly suggest that there are great risks to premature liftoff from the zero lower bound or near-ZLB conditions. Unless economic conditions are fundamentally strong and the previous impediments to growth have receded sufficiently, the odds remain high that monetary authorities will need to retreat right back into the ZLB. And the costs of being mired in the zero lower bound are simply very large. I have already talked about how the ZLB prevents using our very best policy tools to address negative shocks. The constraint also means that interest rates cannot fall low enough to equate the supply of saving with the demand for investment. This, of course, significantly impedes capital formation, future economic growth, and further employment expansion. Furthermore, the ZLB often comes hand in hand with undesirably low inflation or even a falling price level, carrying with it the associated costs of debt deflation on the real economy. The risk of too-high inflation What about the other risk to our policy goals that I mentioned – the risk that the U.S. economy could face pricing pressures that accelerate rapidly and ultimately leave inflation far above our 2 percent target for an unacceptably long period? | At some point when the economy has clearly overcome the remaining impediments from the largest economic and financial downturn since the Great Depression, the odds of inflation rising noticeably above target could become palpable. But such a breakout is just not at all very likely today. Indeed, many Fed critics have been voicing this concern since 2009, and it hasn’t even come close to happening. What if inflation just ran moderately above target for some time? Well, I see the costs of this outcome as clearly being much smaller than the costs of falling back into the ZLB. First, I believe the U.S. economy could weather the modest increases in interest rates that would be needed to keep inflation in check. Such rate increases would be manageable for the real economy; this is particularly true if industry and labor markets have already made the most difficult reallocations of jobs and overcome other factors so that productive resources are more efficiently and fully employed. Second, as I’ve noted many times in the past, a symmetric inflation target means we should be averaging 2 percent inflation over time. We’ve averaged well under that 2 percent mark for the past six and a half years. With a symmetric inflation target, one could imagine moderately-above-target inflation for a limited period of time as simply the flip side of our recent inflation experience – and hardly an event that would impose great costs on the economy. The murky state of inflation expectations is another factor that enters my risk management considerations. | 1 |
Low for long makes demand management of the economy more difficult in downturns, reducing the space for monetary policy easing with conventional tools. This is because, for a given inflation target and with the reduction in long-run real rates, policy rates are closer to their effective lower bound. Changes in the structure of the financial system as a result of low for long may also weaken the transmission mechanism. Monetary policy, to be clear, is not powerless at the effective lower bound. As post crisis experience has demonstrated, ‘unconventional’ monetary policy tools can and have provided stimulus when interest rates are at or near the effective lower bound. These are now very much a part of central bank toolkits.24 22 For example, the share of corporate debt owed by UK companies with a ratio of net debt to EBITDA greater than four was 35% in 2018, compared to 28% in 2007. 23 See Bank of England (2019), Chart F.6. 24 See, for example, a recent BIS paper that conducts a cross-country analysis of unconventional monetary policy tools. Potter, Smets et al (2019). | The regulator as well as the external auditor starts their examinations and audits with the financial reporting aspects of companies. The external auditor is basically looking at the financial performance of the company and its compliance with the laws, observance of auditing and accounting standards and rules and regulations set out by the regulator. They also look into aspects such as health of the balance sheet, status of the profit & loss account and the ability of the company to operate as a going concern. The regulator, on the other hand, has to make sure that not only companies adhere to provisions in the governing laws and comply with rules and regulations but also ensure that finance and leasing companies have put in place necessary processes and procedures to mitigate risks, be it credit, liquidity, market or systemic. The regulator makes recommendations to initiate action, if such risk mitigation methods are not considered adequate. The regulator is conscious of not only the viability of the company to operate as a going concern, but also its ability to pay its liabilities to creditors and depositors. Sometimes, there is an over-lapping of the two roles of the regulator and external auditor, but with closer dialogue, coordination and cooperation, the duplication of work can be avoided. The regulator should have quarterly/monthly dialogue with the companies and external auditors which is a healthy practice than working on an isolated basis. | 0 |
Such financing are also in line with ethical and responsible financing principles, that contribute towards the long-term sustainability of this business. Governments around the world are also playing a critical role in catalysing sustainable development, through policies and regulations that encourage the adoption of green BIS central bankers’ speeches 1 solutions. South Korea, for example, has adopted a shared vision for green growth and established the Green Growth Institute to implement efforts to deal with climate change and resolve environmental and energy issues. The Philippines introduced new legislation on climate change and established a Climate Change Commission to coordinate, monitor and evaluate the government’s actions to mitigate and adapt to the effects of climate change. In Malaysia, sustainability represents one of the key principles underpinning the New Economic Model and has been identified as a Key Strategic Reform Initiative which has led to the establishment of key agencies such as Malaysian Green Technology Corporation (MGTC) and Sustainable Energy Development Authority (SEDA). In the foreseeable future, green technology will be a driver to promote sustainable growth and development. It is in the financial industry’s interest to be involved and engaged in its rapid development. The Government has put in place, the necessary support, incentives and infrastructure. Therefore the banking industry must reciprocate in kind, by allocating more resources and putting in place the required ecosystem to expand financing into this exciting new era of new financing. | Taking into considerations the two points I earlier raised, Bank Negara Malaysia has worked closely with the Ministry of Finance and the Ministry of Energy, Green Technology and Water to establish the Green Technology Financing Scheme (GTFS), a framework designed to improve the preconditions for financial institutions to finance viable and innovative green technology companies. This is achieved through arrangements that help to bridge information gaps between financiers and businesses. These arrangements also involves credit enhancements and financial incentives, to address current market short comings in meeting a legitimate economic need. Also critically important are efforts being pursued to strengthen the capacity of financial institutions, to provide continuing advisory support to businesses that are mutually beneficial to both business ventures and financial institutions. Central to this effort is the certification process to verify that businesses which qualify for the GTFS are not only able to demonstrate the required technical capabilities, but are also commercially viable. Other complementary efforts include education and awareness programmes, organised around the country to inform and update, financial professionals as well as businesses on the latest developments in the green technology sector. Likewise, courses offered by IBBM are designed to equip finance professionals to effectively assess the viability and risk of green technology projects. In 2010, a Joint Action Committee comprising of government agencies and financial institutions was formed to provide an efficient and coordinated platform to tackle implementation issues, such as, on the compliance and monitoring processes of green projects financed under the GTFS. | 1 |
[2] Given the economic and social hardship associated with this year’s reduction, such a drop is hardly feasible by simply reducing economic activity. The pandemic is therefore a stark reminder that preventing climate change from inflicting permanent harm on the global economy requires a fundamental structural change to our economy, inducing systematic changes in the way energy is generated and consumed. With brutal clarity, the current crisis has exposed two major risks to the global economy: first, the farreaching damages imposed on our society by a lack of prevention and early action, fostered by disbelief in science, in the face of a global shock that threatens not only the economy but our lives. And, second, the repercussions of a failure to act collectively in a globalised world where inaction in one part of the globe can lead to highly disruptive and long-lasting spillover effects in other parts, hitting the poorest and most vulnerable in our societies most severely. In this sense, the pandemic has been a warning shot with regard to the much greater challenge arising from climate change. In his famous speech, Mark Carney, then Governor of the Bank of England, has argued that “the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix”. | There seems to be a negative relationship between the outstanding volume of green bonds and their spread over non-green peers (see figure 6). Figure 6 Green bond outstanding volume in % of size of direct curve peers (x-axis) vs. premium (y-axis) Source: Commerzbank Research. Hence, green bonds tend to be priced at a premium over conventional bonds, in part reflecting poorer liquidity conditions. For example, the daily trading turnover of French conventional government bonds remains notably higher than that of their green counterparts (see figure 7). Figure 7 Average daily bond turnover for selected French bonds(5-day moving average) Source: Commerzbank Research. The current crisis could give an unparalleled boost to the green financial market and thereby help reduce the costs of transitioning towards a low-carbon economy. We have already seen firms and governments employ more diverse and creative funding strategies in recent weeks. Many euro area governments have started, or are planning, to issue green bonds for the first time. This is undoubtedly good news. But current market forces will not be sufficient to mobilise the funds required to finance the transition towards a more sustainable economy. Further policy actions are urgently needed, primarily on two fronts. First, the costs of the crisis are mainly debt-financed. But growing empirical evidence suggests that stock markets are more effective than bond markets in financing the greening of our economy, given the high capital intensity, high risks and long-term horizon of most projects. | 1 |
However, the micro effects of volatility, particularly of unwarranted or unexpected volatility, may actually impair the smooth functioning of financial markets, through different channels. For instance: the asset pricing process and the determination of equilibrium prices is being complicated; transaction costs and collateralisation costs increase; the fragility of financial intermediaries’ balance sheets increases; the unequal ability of market participants to tackle volatility movements can increase polarisation among participants, and develop risks of an uneven playing field. Ultimately, these effects may unduly raise the costs and bias the allocation of capital, a source of concern from a financial stability point of view. Such a higher volatility may have a globally negative impact on market efficiency. Indeed, higher volatility may lead to excessive risk aversion among investors and finally to a misallocation of capital, at both the global and sectorial levels. It may also lead to some lack of discrimination between different debtors which can be especially detrimental to growth in countries who need capital most. 1.2. Several factors are at play when financial asset prices experience more amplified and volatile moves. The first set of factors relate to the behaviour of market participants: Some market participants have become more inclined to engage in "short-termism", that is, they might be too much concerned with their short-term results, exhibiting market “myopia”. This trend might result, in particular, from growing pressure of investors to yield immediate financial results that are not necessarily sustainable, the so-called “tyranny of return on equity”. | But much of my talk will focus on the unique complications associated with negative nominal interest rates and the extent to which these complications constrain how low the rates can be set. After outlining these challenges, I’ll suggest that the zero lower bound on policy interest rates is much like the low tide mark on a beach: Standing at that border between the land and the ocean, you can continue to lower your elevation by walking into the water, but with each additional step, you will need to push against the increasing resistance of the water. There is a distinct qualitative difference between positive and negative nominal interest rates, just as there is a distinct qualitative difference between the beach and the ocean. The zero lower bound is marked by this same qualitative difference: zero is a rate below which a central bank encounters the distinctive and increasing costs of a negative nominal rate, relative to a nonnegative rate of interest. Purpose In September 2014, the ECB lowered its deposit rate to its current level of negative 0.2 percent. More recently, in late 2014 and early 2015, the SNB, DNB, and Riksbank reduced their policy rates to levels below zero, with the SNB and DNB setting their rates at negative 0.75 percent. 1 These central banks established their negative rates for various reasons. Both the SNB and DNB established negative policy rates primarily to deter capital inflows and reduce the appreciation pressure on their currencies. | 0 |
Rest assured that the ECB Governing Council is fully committed to rein in inflation, and to ensure that it returns towards 2% by end 2024 or end 2025. II. Paris' momentum as financial centre Amidst this geopolitical and economic uncertainty, and despite the recent turmoil in the United States and in Switzerland, financial stability has been preserved in Europe. EU banks are robust, with substantial capital and liquidity buffers: they are in their overwhelming majority subject to stringent Basel requirements – which makes a big difference with the many mid-sized US banks. We have in the euro area no "Sorgenkind" or "problem child", such as Crédit Suisse; and since 2014 we have had a single and strong supervisor thanks to Banking Union. As President of the French prudential authority (the ACPR), I can in particular attest to how solid and diversified French banks are nowadays. Four of them are categorised as global systemically important banks (G-SIBS), and they act as catalysts for Paris as a financial centre. Indeed, Paris stands out as unique in the network of European financial centres: it is the only one to offer such a wide range of financial activities, from global asset management to insurance and banking, and it has further reinforced its position since Brexit. | Hamad Al-Sayari: A brief overview of the Saudi Arabian banking sector Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, at the opening of a branch of the National Bank of Kuwait, Jeddah, 6 May 2006. * * * Dear Audience, It gives me great pleasure to be here tonight to inaugurate the branch of the National Bank of Kuwait (NBK) in Jeddah, a city which has long been known for embracing the business sector due to its closeness to the sacred places and its unique location on the Red Sea. The commencement of NBK of its banking operations in the Kingdom of Saudi Arabia marks further consolidation of cordial relations between the two brotherly countries (Saudi Arabia and Kuwait). This is one of the fruits of mutual Gulf work which the leaderships of the two countries are keen to enhance. Dear Brothers, The inauguration of NBK branch comes at a time when the Kingdom is witnessing robust economic performance. In 2005, the Saudi economy grew in real terms by 6.5 percent; the private sector registered a real growth of 6.6 percent. What is reassuring is that the private sector has become the main impetus of the Saudi economy. Its average growth rate for the past years stood at 5.3 percent. | 0 |
3/11 BIS - Central bankers' speeches It eliminates settlement risk, duplicative reconciliation, and the need for large prefunding accounts. It has benefits not only for retail payments but also cross-currency and securities transactions. One of the most promising ways to achieve atomic settlement is through tokenised assets which can be exchanged simultaneously on a distributed ledger. This is what MAS has been experimenting with since 2016 through Project Ubin. Project Ubin demonstrated three things: banks paying one another without going through MAS; decentralised netting of payments while preserving transactional privacy; and final settlement and delivery-vs-payment by tokenising digital currencies and securities assets so that they could be simultaneously exchanged. The success of Project Ubin paved the way for further collaborations and progress. Partior – a joint venture among DBS Bank, JP Morgan, and Temasek – has used a blockchain based multi-currency clearing and settlement platform to reduce the settlement time for Singapore dollar and US dollar transactions from days to minutes. Project Dunbar – a partnership among the BIS Innovation Hub, Reserve Bank of Australia, Bank Negara Malaysia, South Africa Reserve Bank, and MAS – has built open-source distributed ledger platforms for international settlements using wholesale central bank digital currencies, or CBDCs. MAS will be launching Project Ubin+, a global initiative on the cross-border exchange and settlement of foreign currency transactions using wholesale CBDCs. It will focus on three areas: One, study business models and governance structures where settlement can be performed atomically, to improve efficiencies and reduce risks. | See Cassis, Y, tr. Collier, J (2006), ‘Capitals of Capital: A History of International Financial Centres 1780–2005’. See also Pogliani, P, von Goetz, P and Woolridge, P (2022), ‘The outsize role of cross-border financial centres’, BIS Quarterly Review, June 2002, pages 1–15. 13. See industry survey responses summarized in The Global Financial Centres Index 30, September 2021 14. IMF Country Report No. 22/105, April 2022 15. House of Commons Library, ‘Bank rescues of 2007-09: outcomes and cost’, October 2018 16. Institute for Fiscal Studies, ‘10 years on – have we recovered from the financial crisis?’, September 2018 17. Regulatory Initiatives Grid 18. Prudential and Resolution Policy Index | 0 |
This means that consumption will not increase as much and that an expansionary fiscal policy will have little or no effect (see for example Barro and Redlick, 2011). 7 IMF, World Economic Outlook, October 2010. 8 BIS central bankers’ speeches economy recovered relatively quickly following the crisis of the 1990s. However, Michael Bergman of Copenhagen University has shown that budget consolidation in Sweden between 1994 and 1997 actually had a negative impact on GDP and consumption and also led to an increase in unemployment.8 Given this it is reasonable to expect that cuts in the euro area and the United States will lead to reduced demand on export markets that are important to Sweden, and to lower resource utilisation. Risk of an impact on the exchange rate The fact that countries with weak public finances may be forced to implement fiscal tightening in what appears to be a weak economic climate has consequences for monetary policy. We can expect more central banks abroad to conduct an expansionary monetary policy in order to counteract the dampening effect of fiscal tightening on demand. However, as policy rates in many countries are already close to zero there is limited scope for further policy-rate cuts. Many central banks are instead expected to leave their policy rates unchanged for some time to come. | Research indicates that a fall on the stock market affects household confidence relatively quickly, that is already after two to four weeks.5 The indicator of Swedish consumer confidence in the economy published by the National Institute for Economic Research tends to fall when the Stockholm stock exchange falls (see Figure 6). There may therefore be good reasons for believing that the recent falls on the stock markets of the world are one of the reasons why the Swedish households have become more cautious and are expected to increasing their saving. Financial turbulence has also led the companies to lower their expectations regarding the period ahead and to begin to postpone investments. All in all this has a dampening effect on economic activity in Sweden. High sovereign debts abroad affect Sweden As we have noted, the level of debt is high in the euro area and the United States. Following many years of budget deficit, what were in many cases already weak public finances were further undermined in connection with the financial crisis of 2008–2009. In 2009, the average budget deficit in the euro area amounted to 6.4 per cent of GDP. This figure fell to 6 per cent 5 See for example Jansen and Nahuis, 2003; Kremer and Westerman, 2004; and Beckmann, Belke and Kuhl, 2011. BIS central bankers’ speeches 7 in 2010 and is expected to be 4.4 per cent in 2011. | 1 |
Now it becomes more and more clear that these trends will be the major forces that will shape the landscape and structure of our economy, and the pace and degree of changes will be faster and larger than before. On one hand, these changes could become big threats to your businesses and the economy as a whole if we don’t adapt. On the other hand, if we embrace these changes and recognize the many opportunities that come with them, we could ride this wave of changes forward. In doing this, business model transformation and large structural reform policies are needed in order to increase both the productivity and resiliency of the Thai economy. Let me end my talk by saying once again that we will not know with certainty what the Thai economy will look like in 2025. The structure, competitiveness, and resilience of our economy five years from now will depend critically on how we address the five major trends. Thank you very much for your kind attention. 10 | Now we are observing renewed tensions, as the costs of supporting financial sectors, fiscal stimulus and automatic stabilisers brought the focus to public finances across many countries both within and outside the euro area. BIS Review 70/2010 1 With hindsight, the financial crisis has reminded us that the seeds of financial instability are often the same: balance sheet mismatches, high leverage (on or off balance sheets) and very rapid growth of financial institutions. Essentially all of these elements were at play in one form or another in this episode. Now what are the lessons for financial stability monitoring and assessment frameworks as implemented by the responsible authorities? A first observation I would like to make in this respect is, that we, as other central banks, had been drawing attention in our semi-annual Financial Stability Review, which Lucas was overseeing for many years, to the risks that were building up. For at least two years before the turmoil began, we issued clear warnings about vulnerabilities that were building up on account of an increasingly aggressive hunt for yield which was underpinning significant under-pricing of risks across a variety of asset classes, not only credit derivatives. And, I should also say that, the same warnings were communicated by several other central banks. A second observation is that in parallel with our financial stability assessments, we also repeatedly warned euro area governments of the risks of not consolidating fiscal positions in accordance with the rules of the Stability and Growth Pact. | 0 |
Norges Bank is therefore considering whether the central bank should also offer the public central bank digital currency.8 Like cash, central bank digital currency will be a claim on the central bank. It will have to be designed to be a risk-free alternative to private payment solutions and to function in a contingency in the same way as cash does. It can be based on account systems, as we know them today, or it can be a digital variant of banknotes and coins. The latter alternative will entail a clear distinction between central bank digital currency and banks’ deposit money. In the future, central bank digital currency may be necessary for ensuring an efficient and robust payment system. Its most important purpose will be to underpin confidence in the monetary system. MONETARY STABILITY In order to serve as generally accepted means of payment, money must have a stable value guaranteed in a credible manner. There must be trust that money will be worth as much tomorrow as it is today. This is the primary task of monetary policy. In September 2018, Norges Bank raised the policy rate for the first time in seven years (Chart 11), reflecting the favourable developments in the Norwegian economy. The effects of the fall in oil prices in 2014 have faded, and both output and employment show solid growth. Underlying inflation is close to the 2 percent target. If economic developments prove to be in line with expectations, the policy rate will be raised gradually and cautiously ahead. 7 Kloster, A. | It is not only a topic for today’s conference but a challenge for each of us, for our societies and democracies, as well as for the financial system in the long run. Thank you for your attention 8 | 0 |
The monetary policy “normalization” period was proved to be short-lived as major central banks decided to delay or reverse their normalization paths in response to the global slowdown resulting from trade conflicts. Excess liquidity created in this low-for-long environment has led to at least two areas of vulnerabilities. Overleveraging of businesses The first area of vulnerability is the overleveraging of businesses. According to the recent IMF’s Global Financial Stability Report, corporate debt has spurred in recent years. In the event of a global economic downturn that is half as severe as the one spurred by the Global Financial Crisis, the IMF estimated that almost 40 percent of corporate debt—approximately 19 trillion USD—could be at risk of defaulting, exceeding the levels seen during the last crisis. In Thailand, we could observe high leverage in many business segments. Some firms even take on debts to buy back their equities from shareholders, thereby reducing their equity base. Moreover, some large corporations have increasingly engaged in new investment outside their core businesses, making risk assessments challenging. 8 In this rapidly changing world, the path ahead is filled with risks and uncertainties that may affect businesses’ revenue and cash flows. Businesses need to ensure appropriate capital structure. Having too much debt will heighten financial vulnerability and could amplify the effects of adverse shocks. Importantly, while debt is necessary for investment and financing through debt is especially enticing in this low interest rate environment, an appropriate level of equity must be preserved to ensure sufficient cushion for adverse events. | In the situation where some forecasts have been extremely pessimistic, one might expect markets to adjust correspondingly in an abrupt fashion. In the event, in the foreign exchange markets the dollar overall has remained rather steady; and the short-term interest rate futures curve implies that rates are expected to bottom out later this year and then begin to rise. Moreover, while the stock market has fallen back over the past year from what many felt were unrealistic levels, and has been volatile again in recent days, the downturn in the mainstream market has so far been relatively limited, with the greatest fall concentrated in more speculative stocks. Equity valuations are always uncertain at times of adjustment, and we could see some continued volatility in that area, but the overall picture is that the markets as a whole are "looking through" the present slowdown, on the basis that they see a reasonable prospect for a recovery in US growth after the present adjustment. A second area of uncertainty lies much closer to home, and happily its ramifications are almost wholly beneficent. This is the question of whether changes in the supply-side of the UK economy mean that we can hope to achieve higher rates of sustainable growth, consistently with our inflation target, than has been possible in the past. One essentially empirical argument that is sometimes made to suggest that we can achieve faster sustainable growth is that inflation has in fact run a little below our target for most of the past two years. | 0 |
Thus, central banks may implement, successfully, different communication strategies that may be appropriate and optimal given the above1/5 BIS central bankers' speeches mentioned factors. As most central banks, including the National Bank of Romania, have opened up a lot in recent years – by reviewing, adapting and refining their strategies, using modern and social media tools –, an effective communication approach should always include a degree of flexibility in order to respond to a rapidly changing economic environment, exceptional circumstances as well as the level and appetite for financial knowledge in the society. Forward guidance The global financial crisis pushed central banks to expand and heavily use their monetary toolkits besides identifying new instruments for the more delicate financial stability area. One weapon in their arsenal, involving a strong communication approach, was forward guidance, which was put to good use in the monetary policy field as central bankers attempted to calm the markets. Wisely exploiting the power of words, forward guidance was aimed at improving monetary policy transmission by offering more than just a glimpse at the central banks’ next moves. Greater predictability of the reaction function or an associated timing for the next actions enable market participants to better calibrate expectations. It worked in several instances. It also increased the initial framework to include, apart from the traditional policy rate, references to some other parts of the central bank’s toolkit (asset purchases), offering markets nice hooks to cling on in times of stress and heightened uncertainty. | No matter how hard times the European Union is going through and no matter how many challenges must be adequately dealt with, an in-depth analysis shows that political, economic and social interests converging towards the continuation of this great project, namely the strengthening of the European Union, are stronger and more motivated than BIS central bankers’ speeches 1 those stemming from rather circumstantial fears, arising out of the difficulties and vulnerabilities brought along by the global crisis. In order to stick to the virtuous direction that I have referred to – or to return to it –, I personally think that in these difficult times for the European Union, we should not forget to put things into perspective. This means that short-term policies must be harmonised with the long-term vision and policies. Romania’s stance is to consistently support EU-wide economic and institutional reforms. We believe that efforts to strengthen governance in the European Union and the euro area should be made without delay, and they should be understood and supported by all Member States. At the same time, particular attention should also be paid to the small- and medium-sized enterprises. In any country of the European Union, small- and medium-sized enterprises generate most of the turnover and provide jobs for most employees. Romania is no exception to this rule. | 0 |
Cecilia Skingsley: A year of negative interest rates. Where do we stand now? Speech by Ms Cecilia Skingsley, Deputy Governor of the Sveriges Riksbank, at Danske Bank, Stockholm, 7 April 2016. * * * Thank you to Christina Nyman, Ulf Söderström, Charlotta Edler, Marianne Sterner, Emil Brodin and Anders Vredin for useful comments and assistance. Thank you for inviting me here today. I intend to talk about three issues: Is it possible to conduct a national monetary policy in a complicated international environment? How has Swedish monetary policy been conducted in recent years? What considerations should govern our choice of future path? Is it possible to conduct a national monetary policy in a complicated international environment? I believe that most people will recognise the description of growth and the recovery following the global financial crisis as being a disappointment in most countries. In many cases the setbacks have been severe and prolonged, for instance, in southern Europe, while in other cases growth has been positive but low. Many central banks, wishing to live up to their price stability commitments, have implemented more far-reaching and long-term measures to stimulate monetary policy than have previously been imagined as possible. So how did we get to where we are now, with such low interest rates? In the long run, it is structural factors such as the conditions for growth and the willingness to save that determine the level of the real interest rate. | This January, the Bureau launched a Fintech Proof-of-Concept Subsidy Scheme. This scheme provides financial incentives to banks to transform their processes through the use of innovative Regtech solutions. Regtech firms will also benefit as they will have more opportunities to showcase and validate their solutions and gain experience in the Hong Kong market. 17. In addition to offering incentives and opportunities for developing innovative use cases, I would also like to highlight several key infrastructure developments that will make launching Regtech solutions easier. 18. One example of these is that the HKMA is developing the CDI, the Commercial Data Interchange, that will allow SMEs to grant financial institutions access to their data at different commercial establishments, of course with their consent. These will include ecommerce platforms and utilities companies. With more alternative data available to financial institutions, SMEs will stand a better chance of obtaining bank financing and also other customised services that will be made possible by the use of advanced data analytics. 19. I should also mention the HKMA’s collaboration with the Government on the “iAM Smart” platform, which is a one-stop personalised digital services platform available free of charge for everyone in Hong Kong. Financial institutions can now leverage iAM Smart to provide 2/3 BIS central bankers' speeches customers with Regtech services such as remote onboarding and log-in authentication. The HKMA is now exploring a corporate version of iAM Smart, which will offer another important infrastructure to support Regtech development. 20. | 0 |
[8] The second vulnerability in the non-bank financial system relates to financial and synthetic leverage, which can amplify shocks and create spillover risks for banks. We saw an example of this with Archegos Capital Management, which defaulted on its losses from leveraged equity trades in March 2021. The fact that Archegos used total return swaps to generate synthetic exposures highlights another challenge in identifying leverage, as leverage can be embedded in derivative exposures. [9] While the Archegos default had only a limited impact on the broader financial system, the event nevertheless highlighted possible contagion channels to banks through the provision of synthetic leverage by prime brokers. The third vulnerability in the non-bank sector results from an insufficient preparedness to meet large demand for liquidity, especially from margin calls – as the recent stress episode in the UK pension fund sector has highlighted. In the United Kingdom, pension funds had made extensive use of leveraged strategies to hedge long-term interest rate risk and free up capital to generate higher returns in their investment portfolios. Many smaller pension funds had pooled their hedging activities in liability-driven investment (LDI) funds. But a sudden increase in UK government bond yields in September 2022 led to large valuation losses and margin calls, which meant these funds had to deleverage and raise additional cash from their pension fund trustees. As a result, pension and LDI funds were forced to sell assets, including gilts, which amplified gilt market movements and liquidity stress. | And in response, the Bank of England had to intervene on financial stability grounds through temporary purchases of long-dated UK government bonds. While these new risks and vulnerabilities are evident, the non-bank financial sector has remained largely stable in recent months, despite the stress in the banking sector that emerged in March. Fund investors shifted their exposure from higher to lower risk assets, especially from high-yield corporate to government bond funds. Portfolio de-risking has also been evident in insurance corporations and pension funds, as higher interest rates have reduced incentives for the non-bank financial sector to search for yield. But there are no grounds for complacency here. Structural vulnerabilities from liquidity mismatches and leverage remain elevated despite recent de-risking. Moreover, bank and non-bank financial institutions can be closely interconnected through funding channels, ownership linkages and common risk exposures. The non-bank financial sector remains particularly exposed to asset price corrections and credit risk should corporate sector fundamentals deteriorate substantially. In addition, non-banks’ exposure to property markets has increased markedly in recent years, rendering institutions vulnerable to ongoing price corrections in real estate markets. Fragile risk sentiment and elevated vulnerabilities in parts of the non-bank financial sector could amplify negative shocks. Strengthening the resilience of non-bank financial intermediation Given the vulnerabilities in the non-bank financial sector, it is vital to further enhance its resilience, also from a systemic perspective. To date, the macroprudential policy framework has mainly focused on the banking sector, while the policy framework for non-bank financial institutions still needs to be enhanced. | 1 |
Charles Bean: The economic outlook for 2011 and beyond Speech by Mr Charles Bean, Deputy Governor for Monetary Policy at the Bank of England, at the Market News International Annual Seminar, London, 13 December 2010. * * * Good morning! Christmas is the traditional time for looking back over the events of the past year and contemplating what the new year might bring. Today I shall follow that tradition by taking stock of economic developments over the past year and looking at the challenges ahead. Many of the recent activity indicators have been somewhat comforting. Global growth has recovered strongly on the back of a strong rebound in the emerging economies, with the IMF projecting expansion of close to 5% this year and more than 4% next year. Here in the United Kingdom, we have also seen a nascent recovery; output in the third quarter was, according to the latest ONS estimates, some 2.8% higher than a year earlier. That is marginally stronger than our projection for the most-likely path of four-quarter growth made a year earlier in our August 2009 Inflation Report. Around half of the growth over the past year was, however, down to the contribution of stockbuilding, as businesses reduced the rate of inventory decumulation and, in some cases, started to rebuild stocks. That can only provide a temporary boost to aggregate demand growth. And the contribution of public spending to growth is also set to fall as the Government’s planned fiscal consolidation gets underway. | Global ancillary services that are proficient in the Shariah, also have an important role in providing supportive professional services for such intermediaries and market players to effectively embark on such cross-border activities. In addition, having the required talent is another imperative in steering the Islamic financial sector towards increased internationalisation. The new financial landscape will require world-class business talent and boards with knowledge of the risks associated with internationalisation. Greater collaboration between the industry and education service providers will be important in supporting the talent requirements of the industry in its new phase of development. Today, we will witness the signing of a Memorandum of Agreement between an industry player and an academic institution for the establishment of an Islamic wealth management research centre. This commendable effort is dedicated to producing applied research in the area of Islamic wealth management. It is envisaged to spur innovation that will bring with it global benefits and that would also contribute towards setting industry standards in this key component of the Islamic financial industry. Thirdly, effective linkages and connections between global financial markets will be facilitated by business enablers, particularly in the area of legislation, taxation and regulation. The new global landscape of growing cross-border financial flows between regions that have national 2 BIS central bankers’ speeches and cultural differences also underscores the need for enhanced recognition and understanding of practices in the different jurisdictions. | 0 |
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. Lower-than-projected wage growth may be related to the fact that there were few signs of improvement in labour market conditions prior to this year’s wage settlement. Lower-than-projected consumer price inflation last year may also have contributed. Low wage growth will in turn contribute to curbing the rise in prices for domestically produced goods and services. Prices for imported consumer goods have continued to fall. The decline in prices may reflect high productivity growth in the production of some goods and large investments to increase production capacity, particularly in China. This has led to strong competition and a low rise in prices for internationally traded goods. The shift in imports, for example clothing imports, towards low-cost countries seems to be substantial again this year. Structural changes in world trade have been important for the Norwegian economy, not least for the rise in prices for imported goods and services. The shift in imports towards low-cost countries has come gradually. | Statistics Norway’s business tendency survey indicates continued favourable prospects for Norwegian manufacturing. Activity is expected to increase in service industries and the construction sector in the near term. Capacity utilisation in the Norwegian economy now appears to be close to a normal level. In manufacturing, capacity utilisation is close to its historical average. According to Norges Bank’s regional network, about 40 per cent of companies will have some or considerable difficulty in increasing production. Even though growth in the Norwegian economy has been high for a long period, substantial pressures have not yet emerged in the labour market. The rise in the number of employed in the first half of the year was fairly modest in relation to output growth. This may be due to lagged effects of the sharp fall in sickness absence through 2004. In many companies, the large increase in available person-hours was probably not fully utilised immediately. A considerable share of output growth may be the result of improved utilisation of company workforces. According to the quarterly national accounts, employment rose by 0.5 per cent from the first half of last year to the same period this year. Measured by the 1/7 Labour Force Survey (LFS), the number of employed rose by 12 000 from May to June and by a further 2 000 from June to July. The use of foreign labour has increased in the year that has passed since the enlargement of the EU. | 1 |
As CCPs are designed to be shock absorbers at the centre of the financial system, damage to a CCP presents risks to the system as a whole. In order to ensure that what has been designed as a shock absorber does not under stress become a shock transmitter, CCPs not only hold collateral from their members, they are required to hold additional default funds large enough to cover the default of their two largest members. This default fund includes the CCPs own capital. And they are able to call for further resources from their members under their recovery plans if these funds are exhausted. Notwithstanding the high level of resilience that has been achieved in this area, I think there are three important ‘prudential risk’ challenges for CCPs going forward. The first is to ensure that CCPs are prudent and require enough collateral, or ‘margin’, from their counterparties in good times to ensure they are protected in times of stress against movement in financial asset prices and in counterparty credit worthiness. CCPs use mathematical models to calculate, on the basis of past and potential market moves, the size of the risks they need to insure against. Posting margin to a CCP is a cost for a CCP counterparty and its clients. CCPs need strong internal systems and controls to ensure that over time, commercial pressures and competition from other CCPs do not lead to inadequate margining. | They should be empowered to assess the risks that a bank poses to its stakeholders and the financial system. This will enable them to deal with risks at an early stage. But if the rulebook becomes too extensive and too detailed, supervision turns into a simple boxticking exercise. A large, detailed and seemingly comprehensive set of rules would make supervisors less flexible and effective; it would leave no room for discretion. Supervisors would no longer be able to react quickly to newly emerging risks in an ever-changing banking sector. They would be walled in by rules that were devised to cover every possible situation but, in reality, were outdated right from the start. So, looking ahead, we must fight the urge to make the rulebook ever more detailed. But don’t get me wrong – we shouldn’t unwind any of the reforms. What has been done was necessary. But we should be cautious about going too far. A few clear principles can be more effective than 1,000 complex rules. The two pillars of regulation and supervision are equally important and we should not favour one at the other’s expense. And this brings us to the third pillar of a stable banking sector: market discipline. With all this talk about rules and supervision, we must not forget that banks operate in a market economy. So why not use market forces to keep risks in check? There is nothing like the prospect of failure and financial loss to keep a lid on risk-taking. | 0 |
While we are seeing competition between lenders pushing down on rates, particularly in the mortgage market, we have not yet seen evidence of a general deterioration in underwriting standards. Countercyclical macroprudential policy As we move forward in the credit cycle, I think we will need to consider whether and how risks are building in the financial system and how they should be addressed. This is of course already a regular and important element of the FPC’s discussions. But my guess is that it will become even more so in the next phase of the cycle. With that in mind I want to turn now from the conjunctural assessment of credit in the UK to what may look like a more theoretical question but one that is going to be increasingly important to us – what is the objective and the framework for time-varying macroprudential policy? Here I think one can distinguish a number of different strategies. The first is not to attempt time-varying macroprudential policy at all. The second is to set policy to aim to maintain a constant degree of resilience relative to risk. And the third is to use policy actively to lean against the credit cycle. I want to look at these three approaches for the core and riskiest part of the financial system – leveraged banking – and in particular the use of countercyclical capital buffers for banks. I have some sympathy for the “don’t do it at all” approach. | The use of permanent on-site supervision, the link between off-site supervision and on-site inspections or the powers of the supervisory authority (if any) in relation to accounting regulations, are simply some examples. Differences between national supervisors also exist regarding the availability of data. To give you an example, Central Credit Registers – which in our experience are a highly valuable source of information for prudential supervision purposes – are not yet available in all jurisdictions. The EBA has played a very important role by improving cooperation between national supervisors and promoting supervisory convergence. But these improvements fall short of the needs of an effectively unified supervisory system. Substantial and swift progress in this field is therefore needed. Let me just finish by making a general comment. It is obvious that the creation of a banking union poses enormous challenges for Europe that will require strong political support and effective cooperation among all authorities involved. The good news is that if we look at the process of European integration from a historical perspective, we realise that this is not the first time that the way forward has been highly complex. And, past experience has regularly shown that the response has always been to deepen integration and increase the transfer of national powers to the Union as the best – and possibly only – way to preserve all the achievements made so far. BIS central bankers’ speeches 3 | 0 |
Crude oil prices rose to about USD 75 per barrel over the summer, partly owing to the conflict in the Middle East and reduced production in Nigeria and the US. In recent weeks, oil prices have edged back again. Brent Blend futures prices nevertheless indicate that oil prices will remain high several years ahead. Export prices for Norwegian natural gas largely follow developments in oil prices with a lag. Since autumn 2005, prices for Norwegian gas exports have risen substantially according to the quarterly reports of the oil companies Statoil and Hydro. In the next few years, natural gas will account for a steadily larger share of total petroleum production on the Norwegian continental shelf. Petroleum investment has reached a high level after three years of strong growth. In 2005, investment was close to NOK 87 billion, and it is expected to edge up again this year. The large Ormen Lange and Snøhvit projects have contributed to high petroleum investment, and high oil prices have fuelled activity even at oil fields that have been in production for a long period. The development of the Skarv Idun fields will contribute to holding up petroleum investment from 2007. Information from our regional network suggests that petroleum investment provides considerable impulses to activity in Norway’s coastal regions. According to the network, suppliers to the petroleum sector are expecting strong growth to continue in the coming months. | As global capacity utilisation increases to a more normal level, demand for Norwegian exports might remain buoyant. A growing number of export enterprises are facing capacity constraints, particularly in the production of metals and refined petroleum products. Export growth in the years ahead will probably occur in industries such as the engineering and shipbuilding industries. Production growth is now high in these sectors, and employment is rising after declining for several years. High growth in the global economy has also pushed up prices for non-oil commodities. Rising commodity prices and buoyant activity in markets that are important for Norway have generated growth impulses to the Norwegian economy. Since May this year, commodity prices have varied BIS Review 80/2006 3 widely, but on the whole edged up since end-June. International equity markets have stabilised since the turbulence in May, and have edged up since the previous monetary policy meeting. The benchmark index on the Oslo Stock Exchange is now about 15 per cent higher than at the beginning of the year. Interest rates are still low among many of our trading partners, in spite of the increases in several countries as a result of rising energy prices and higher consumer price inflation. In the US, there are now expectations that the rate tightening cycle is nearing an end, and that the policy rate will be lowered in the course of next summer. A rise in key rates is expected over the next year in the euro area, Sweden, the UK, Australia, Japan and Switzerland. | 1 |
The first is that the recovery is being propelled by a virtuous circle between rising consumption, employment growth and labour income. As low financing costs and, initially, low oil prices have 2/6 BIS central bankers' speeches fed through into household spending, the labour market has strengthened and real disposable incomes have accelerated. Around 50% of the rise in real labour income since mid-2014 can be explained by more people in work, with most of the rest explained by lower inflation boosting real wages. This has in turn fed further consumption growth as households have kept saving rates stable, leading to higher employment, income and spending. And as aggregate demand has strengthened, investment has also begun a cyclical recovery, which we expect to reinforce growth dynamics going forward. However, it still remains 10% below its pre-crisis peak and well below its historical trend. Importantly, domestic demand has firmed against the backdrop of improved private sector balance sheets, which is the second key feature of the recovery. For virtually the first time since the start of monetary union, spending has been rising while indebtedness has been going down. Especially in formerly stressed countries, debt ratios for both firms and households have fallen substantially. And pertinent for the strength of the recovery, the drivers of this deleveraging have been changing. Bear in mind that there are two types of deleveraging: “macroeconomic” deleveraging – reducing debt ratios through nominal growth – and “balance sheet” deleveraging: paying off or writing down debt. | Historically, the most drastic processes of deleveraging, including the post-war episodes and the recent post-crisis episode in the US, have relied on both mechanisms. But the contribution of nominal growth has always been decisive for success. In the euro area, until recently, real growth and inflation were too low to foster macroeconomic deleveraging, so balance sheet repair had to take place through the more painful channel, conflicting with the objective of macroeconomic stabilisation. Rising nominal growth is now helping to reconcile those two goals. Nevertheless, further efforts are still needed to work through the legacies of the crisis, especially in parts of the euro area banking sector where nonperforming loans remain high. The third important feature of the recovery is its broadness across sectors and countries – which is to say, it has not only strengthened but become more homogenous across the euro area. This reflects above all the effectiveness of our measures in narrowing financing conditions across different economies. If one looks at the percentage of all sectors in all euro area countries that have positive growth, the figure stood above 80% at the end of last year – above its historical average of 73% and the level observed during the 2009–11 recovery. Similarly, the dispersion in growth rates across both sectors and countries has also narrowed significantly and both are now at their lowest level since 1997. The same story is visible for employment. In early 2014 the vast majority of euro area headcount growth was coming from Germany. | 1 |
UK banks, in particular, have sizeable direct investments in the US and large cross-border exposures to US banks and corporates. Cross-border exposures to US non-bank borrowers stand at around $ bn, more than 50% higher than the equivalent exposures to the rest of Europe, while the total exposure of UK banks to the US amounts to $ bn, or 8% of UK GDP. Close ties in financial markets parallel the strong links in other sectors. Whether it is Grand Met seizing the Pilsbury Doughboy or Ford making off with Jaguar and Aston Martin, there has been a significant and increasing flow of direct investment in both directions across the Atlantic. The close correlation between movements in the FTSE and Dow is testament to the links between the US and UK corporate sectors. Given the strength of these ties, UK banks and investors are inevitably vulnerable to a US slowdown. The scale of UK exposures to the US helps to give some dimension to the scale of this risk. An analysis based on the market ratings of borrowers suggests that the statistically expected annual losses on UK bank's exposures to the US are likely to be around $ or about 1% of UK exposure. In principle, banks should have fully anticipated these losses in their loan pricing and general provisioning. But bank capital is there primarily to absorb unexpected losses, for example the consequences of an unexpectedly deep US recession. | I will return to banks' capital adequacy later but BIS Review 4/2001 1 first I want to say a few words about our perception of the US economy and the implications for the UK. US Economy: Soft or Hard Landing? The dramatic improvement in US economic performance through the 1990s, in terms of growth and productivity, gave rise to a sharp increase in expected returns to investment and, as a result, increased domestic and foreign demand for US assets. Investment has been particularly concentrated in ICT (information, computers and telecommunications), much of it financed by borrowing on the strength of projected future profits. However, growing uncertainty over the size and permanence of these productivity gains, and about the long run growth of GDP and profits, has fuelled the recent increase in market volatility. In addition, there have been more immediate worries about the impact of a cyclical downturn in productivity and earnings. Another area for debate has been the implications of any reversal in capital flows. As I have noted, buoyant earnings expectations drove up equity prices and encouraged high rates of investment. But alongside the rapid rise in the market value of US household wealth in relation to income came a sharp fall in domestic savings. The gap between savings and investment - manifested in an external current account deficit which has risen to an unprecedented rate of 4½% of GDP - has been filled by large capital inflows. | 1 |
Since there has been no deterioration in their money multipliers, central banks of emerging market economies have not felt the urge – experienced by their counterparts in advanced economies – for an unconventional broadening in their money bases. Esteemed participants, distinguished guests, In emerging market economies, the gradual alleviation of the pressure on financing sources – caused by public sector demand – has provided significant room for the private sector to invest in physical capital. These investments have enabled – via capital markets and the banking system – the use of both domestic as well as foreign savings. These shed light on the importance and prominence of institutional capacity and financial infrastructure for financial stability. Smoothly functioning payment and settlement systems is the first and foremost significant requisite for strengthening financial infrastructure in emerging market economies. The existence of both a stock market backed by a strong capital market and also a bond market in local currency is also essential. Another important structural factor is a sound banking system. An adequate legal infrastructure, strong capital structure and confidence-based management are the prerequisites for such a system. Distinguished guests, A strong infrastructure is a “necessary-but-not sufficient” component of financial stability. Another “sine qua non” for more stable global capital flows is developing and implementing a macroprudential policy framework, and emerging market economies have taken important steps in this direction in the post-2008 period. | If a non-European country wanted to help Europe, there is the question of whether it should send the money to the IMF or use it to purchase EFSF bonds, a senior tranche of the SPV, or the peripheral countries’ debt, i.e. with no intermediation. The many uncertainties associated with the specific operation of the EFSF are giving rise to general doubts about the appropriateness of the current approaches to overcoming the ongoing debt crisis in the euro area. I cannot help feeling that many solutions to the problems have been wrongly chosen in part because the main causes of the financial and debt crisis have not been correctly identified. Greece gets too much attention from decision- and policy-makers. It represents a mere 1/50 of the European economy. I believe that without the political will to provide Greece with massive support from European funds to restore its competitiveness – and I see little such will at the moment – its exit from the euro area will be inevitable, since depreciation of the Greek currency will become part of the measures to restore competitiveness. The provision of loans to Greece has so far primarily bought time. This has enabled wealthier Greeks to transfer their savings out of the country. The costs of such action have been a reduction in Europe’s credibility and harm to the reputation of the International Monetary Fund and its ability to raise funds outside Europe. | 0 |
A bank intending to serve such conglomerates should have an integrated system across countries and advisory services for alternative funding such as from the capital market. These require more investment in IT and people. On connectedness, financial integration has a key role in supporting business opportunities in ASEAN. If you compare the pace of financial integration to economic integration, there is still a lot of catching up. For example in Thailand, foreign assets in the banking system account for about 10 percent of total assets, still well below intra-ASEAN trade at 24 percent and investment at 17 percent. Currently, financial institutions are already on the journey toward financial integration through outward presence, as well as strategic partnerships and alliances. This will be further enhanced with Qualified ASEAN Banks (QABs) and greater cohesiveness and transparency of regulation in ASEAN. To underpin ASEAN’s promising future and growth potential, infrastructures necessary to facilitate financial integration is also important. Further linkages of financial infrastructures should be encouraged and promote usage of already integrated systems, such as the regional payment systems. I must admit that the regulatory landscape for banking in ASEAN countries are quite diverse and include many legacy regulations which impede integration. This makes financial integration more difficult to achieve. This is one area that ASEAN as a group has recognized and will tackle under its financial integration plan Post-2015 to accommodate AEC 2025 agenda. BIS central bankers’ speeches 3 Finally, on sustainability, a banking system that is competitive, inclusive, and connected needs to also be sustainable. | At the same time, the SSM will develop its own more detailed supervision manual, which lays down the supervisory approach to be taken by the SSM including on off-site and on-site reviews, risk assessments and model validations. The ECB and the EBA are cooperating closely to ensure that these two projects are fully consistent. Here again, the existence of the SSM will greatly facilitate the work of the EBA, as all SSM members will naturally converge in their supervisory practices. Third, the conduct of stress tests. The Council Regulation requests the SSM to conduct a comprehensive assessment of the banks that the ECB will supervise directly. This will have two main building blocks. First, a balance sheet assessment, which is a point-in-time evaluation of the asset side of banks’ balance sheets. Second, a forward-looking assessment of individual banks’ capital positions and provisioning levels in the form of a stress test. This stress test, and future stress tests undertaken as part of the SSM’s regular supervisory functions, will be conducted in close cooperation with the EBA, in particular regarding the design and timing of the exercises. European Systemic Risk Board As regards interactions with the European Systemic Risk Board (ESRB), the activities of the SSM will have a clear systemic dimension and so cooperation between the SSM and ESRB will be essential. | 0 |
So there is evidence that at least some of the necessary structural adjustment has taken place, though in all likelihood it still has further to run. What sorts of policies would facilitate the required adjustment without relying on sustained weakness in the indebted countries? At Pittsburgh, in 2009, the G20 identified five ingredients. First, surplus countries should take steps to boost domestic demand. Second, deficit countries should implement credible strategies to support private savings and restore fiscal sustainability. Third, exchange rates need to be allowed to reflect underlying 6 See for instance: Broadbent (2012), Miles (2012) and Dale (2013). 4 BIS central bankers’ speeches fundamentals. Fourth, financial regulation and supervision should be strengthened to prevent the re-emergence of financial sector excesses. Fifth, structural reforms should be pursued, not only to boost long-term growth but also potentially to boost demand in the short run. This sounds straightforward, but why has it in practice proved so difficult to achieve? First and foremost, the actors have not always shared the same diagnosis of the underlying problems. Second, in circumstances like the present, when there is still a significant margin of spare capacity in many economies, an expansion in activity in one country generates beneficial spillovers onto other countries (the opposite would be the case if there was excess demand and overheating). But policy makers typically do not take account of these spillovers when judging how much to stimulate their economies. Consequently uncoordinated decision-making can lead to inefficiently low demand. | Big suppliers viewed them as unreliable given the costs and difficulty of small suppliers executing real-time inventory management. Only large firms with big IT budgets could afford the sunk costs of such systems. Today, a real-time inventory management system can be built using GS1 standards for a few thousand dollars. Small firms can connect to global product webs, through nodes such as Wal-Mart’s central inventory system, in the same way they might connect to a Facebook friend. A common language has levelled the playing field between the corner shop and the supermarket. The transformative powers of a common language have been even more striking in such well-established industries as publishing, music, advertising, news and retailing. For decades, large incumbent firms dominated these markets – EMI, Borders, Tower Records. Yet in less than a decade, new entrants with new business processes have completely reshaped the industrial landscape. Take publishing. Until 2007, publishing was an industry essentially unaltered since Gutenberg. The printing presses, while bigger and faster, would have been recognisable to a fifteenth century printer. 18 Vise and Malseed (2005). 19 McLaren and Shanbhogue (2011), Choi and Varian (2011). 20 Jorgenson et al (2010). BIS central bankers’ speeches 7 Copying and distributing a book to the public involved a complex chain of printers, wholesalers and retailers. This lengthy supply chain added both risk and cost. It also created a significant barrier to entry for new authors who were reliant on publishers to get their physical books onto physical shelves. | 0 |
Regular information on margins, on other risk management practices and on the use of the various types of collateral, as well as on the maturity and liquidity profiles, is important for assessing the risks associated with securities lending activities from a qualitative and quantitative point of view. Surveys on credit terms in securities financing and over-the-counter (OTC) derivatives markets, as have been launched by a number of central banks (around the world) and, soon, by the ECB, are a step in the right direction. The Financial Stability Board (FSB) is also monitoring efforts to improve data on shadow banking and OTC transactions. Even in the case of the regulated sector, objectives have not yet been met. At present, most efforts relate to harmonising, increasing the frequency, achieving more granularity and extending the coverage of the data for financial sectors in the EU. Given the important role played by contagion in the recent crisis, data should enable analyses of the interlinkages – notably across financial institutions, and between them and the shadow banking system. Information on interlinkages between important players in the financial system, including counterparty credit exposures in different forms, funding exposures of individual financial firms, as well as detailed information on their maturity BIS central bankers’ speeches 5 mismatches and leverage, is necessary. This is because vulnerabilities can stem, for example, from common exposures in lending activities, from securities transactions, from positions in derivatives markets, from funding relationships, or from settlement and clearing functions. | These cover, in particular, monetary and financial statistics, namely MFI balance sheet data, MFI interest rate statistics, investment funds statistics and statistics on securitisation, as well as consolidated banking data. Information from market data providers, available via the ECB’s Market Database, as well as from international institutions such as the Bank for International Settlements (BIS), Eurostat or the International Monetary Fund (IMF), which is part of the datasets collected by the ECB, complements the set of information to support the ESRB’s analysis and deliberations. Cooperation is under way to ensure that the new legislative initiatives of the three ESAs incorporate ESRB requirements to the extent that they can be addressed by using supervisory data. Extensive work has already been carried out with the EBA and EIOPA on the new supervisory templates to be introduced in the next few years. Given the need for agility in responding to new data to cover ESRB requests for information, work on procedures to conduct ad hoc surveys has been carried out, ensuring that the confidentiality issues are duly resolved. All this work requires a very close and ongoing cooperation not only within the ESCB, but also with the ESAs and national supervisory authorities, within other collaboration fora and with many other stakeholders, in particular in the industries concerned, as well as with international organisations in the context of the G20 initiatives. This cooperation is ensured through a Contact Group recently appointed by the ESRB Steering Committee at my request, and it has already proved to be very useful. | 1 |
The Committee has also indicated that it will take appropriate account of the likely efficacy and costs of its purchases when adjusting their size, pace, and composition. While noting that purchase activity will depend on these factors, the 1 The FOMC also directed the Desk to reinstate its previous policy of rolling over maturing Treasury holdings into new issues. See the Desk’s Frequently Asked Questions for more information. In practice, the amount of maturing proceeds will be quite small, since securities maturing within the next three years were sold as part of the MEP 2 This excludes about $ billion of MBS trades scheduled to settle in the future. 3 I would like to thank members of the Markets Group Staff, including Katherine Femia, Lorie Logan, Linsey Molloy, Roman Shimonov, and Nathaniel Wuerffel, who contributed to the preparation of these remarks. BIS central bankers’ speeches 1 Committee has not specified the time at which purchases will be complete or the total expected size of the purchases. Instead, under this conditional, outcome-based approach, the Committee has enacted a policy that will adjust to incoming information about labor market conditions and the broader economy, as well as its ongoing assessment of the efficacy and costs of purchases. Retaining the flexibility to adjust purchases is an important feature of the program, given our relatively limited experience with the use of the balance sheet as a monetary policy tool and the uncertainty about the policy’s effects. | One of the potential costs of additional purchases is that they could disrupt functioning in Treasury and MBS markets – a cost that the Desk carefully assesses when it implements the FOMC’s policy directive. As you know, there is a finite supply of Treasury and agency securities available to purchase, in terms of both total amount and amounts available in the market at any given time. If the Federal Reserve were to become too dominant a buyer or holder, it could reduce the tradable supply of these securities and discourage trading among market participants, leading to diminished liquidity and price discovery. A significant deterioration in liquidity could lead investors to demand a premium for transacting in these markets, ultimately raising borrowing costs and undermining the program’s policy goal.4 However, as discussed later, the purchases have gone smoothly so far, and market liquidity seems to be holding up well. Although the current program is different in some respects from prior balance sheet programs, its intended purpose and the ways the Committee anticipates it will impact the economy are similar. The purchases are conducted to achieve the FOMC’s dual mandate of maximum employment and price stability. Asset purchases help achieve this mandate by putting downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. The current purchases reduce interest rates and ease financial conditions through the same transmission channels as previous balance sheet programs. | 1 |
In order to achieve this, the board shall have clear, well-defined and understood responsibilities. There shall be a balance of skills, knowledge, experience and perspectives among directors so that the board works effectively to ensure the long-term safety and soundness of the institution.” The guidelines in this respect expect the board of directors to exercise professionalism by having a formal charter that sets out its responsibilities, having a rigorous formal processes for evaluating its performance along with that of board committees and individual directors and, ensuring that the institution complies with all relevant laws, and codes of business practice, and that it communicates with its shareholders and relevant stakeholders openly and promptly Principle 6 – roles of senior management “It is the responsibility of management, under the direction of the chief executive officer, to conduct the institution’s business and affairs in an effective, responsible and ethical manner, 2 BIS Review 129/2007 consistent with the principles and direction established by the board through the strategic plan.” Apart from reflecting integrity in their management of the institution, the guidelines for this principle require that senior management be appropriately qualified to run the affairs of the institution. The expectation is that people of appropriate qualifications will reflect the professionalism that is required of their respective professions. | Mr. Chairman, the international work that is being done in respect of money laundering and corruption payments or terrorist financing is such that trade and service companies, like banks, are now being held accountable for what they deal in and whom they trade with – as suppliers as well as buyers. The implications of anti-money laundering (AML) are such that they extend to all forms of finance, industry and business. It is thus critical that the principles of integrity and professionalisms are applied in all spheres of institutional activities. Mr Chairman Ladies and gentlemen I thank you for your attention. BIS Review 129/2007 3 | 1 |
BIS central bankers’ speeches depression. 5 And there have been several notable shifts in the nature of employment which may have affected people’s satisfaction with their job. One is in the changing nature of employment. The number of people in self-employment has risen from 3.6 million in 2005 to around 4.7 million today and so, less dramatically, have numbers of workers on temporary contracts. Those on zero-hours contracts have risen from 120,000 to 800,000. Some of this shift in employment practices is likely to have been a voluntary choice by workers to increase their job flexibility – for example, those nearing retirement or returning to work after childcare seeking part-time employment. But this is not the full story. Around 15% of those working part-time would prefer to be in full-time employment. And around a third of those on temporary contracts would prefer to be on permanent contracts. For those individuals, the darkside of labour flexibility – job insecurity – may be being felt. Some measures of job insecurity are consistent with that. For example, job insecurity would tend to lower the likelihood of people moving jobs. 6 As Chart 6 shows, job-to-job flows began rising slowly after 2010 but remain at levels well below their pre-crisis levels. Meanwhile, surveys suggest around a quarter of workers currently are afraid of losing their jobs, the highest level in several decades. 7 Citizens Advice has recently estimated that around 4.5 million workers in England and Wales are in insecure employment. | By slicing and dicing the data in different ways, it is possible to assess how different segments, sectors and regions of the UK have performed during the recovery. That means looking at aggregate metrics of economic health, such as income, employment and wealth. But a different lens is provided by looking at these metrics on a disaggregated basis and at non-standard measures of societal well-being. Taken together, these disaggregated data tell a rather more nuanced story about the UK’s recovery: a recovery which for most has been slow and low, for many partial and patchy and for some invisible and incomplete. This uneven economic surface helps reconcile the macro data and the micro stories from my regional visits – the “recovery puzzle”. It also has implications for what happens next to the economy in the light of the referendum, including monetary policy, on which I will conclude. Why it matters Before turning to the data, it is worth spending a moment on why this matters. Why look at the distributional pattern of activity when monitoring the economy as a whole and when setting monetary policy? This might seem like a strange question. Surely the fortunes of different sectors and segments of society are important? Yet, at least viewed from one angle, the distribution of gains and losses across the economy and across society ought not to much matter, at least when it comes to setting monetary policy. Here is why. The tools available to monetary policymakers, like the Bank of England, are small in number. | 1 |
James McAndrews: Review of the experience of fielding the survey of consumer expectations Remarks by Mr James McAndrews, Executive Vice President and Director of Research of the Federal Reserve Bank of New York, at the Barclays Global Inflation Conference, New York City, 24 June 2014. * * * Accompanying charts can be found at the end of the speech. Good afternoon. It is a pleasure to be here today to talk with you about some of the research being conducted by the New York Fed on the measurement of household expectations, including households’ expectations of inflation. The views expressed are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or of the Federal Reserve System. To begin, I’d like to acknowledge some colleagues of mine who have managed our household survey project and conducted much of the research that I’ll speak about today – namely Olivier Armantier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar. In 2012, my colleague Simon Potter spoke to this conference about the approach that researchers at the New York Fed adopted in rolling out a household survey of expectations. Today, I will report on the survey, which is the result of more than six years of research, including a pilot survey that was conducted for about five years, and the published survey that we ran for a year prior to its first publication in January 2014. | I do understand these concerns. Let me assure you now that I will not bore you with a recollection of past events. I intend my exposé today to be forward-looking, as should the exposé of any central banker. I want to discuss what lessons for the future we can draw from over-optimistic expectations related to so-called regime shifts, such as the supply-side shock of a perceived “new economy”, and the subsequent financial boom and bust cycle in asset prices. How should monetary policy-makers deal with the resulting financial imbalances and reconcile monetary stability with financial stability? In my presentation today, I shall first briefly discuss the challenges that have been presented by the new environment for monetary policy-makers, in particular by the “new economy” and the growing importance of capital markets. Then, I shall look at what I call the excesses of this new environment, which for me are the speculative boom in asset markets and evidence of a corporate culture infatuated by short-term considerations. Finally, I shall look at the financial stability concerns and conclude by presenting some lessons for the future. The paradigm of the “new economy” Without a doubt, the world has experienced overwhelming progress in technology and productivity over the previous century, resulting in enormous growth in economic activity and individual wealth. It has been calculated that the industrialised countries were about 20 times better off at the end of the 1 20th century than they were a hundred years earlier. | 0 |
Finally, banks took large mark-tomarket losses on their trading books and had to increase their loan loss provisions. As the crisis continued into 2008, the squeeze on bank balance sheets intensified. This was driven by several important developments. First, the demise of Bear Stearns increased the pressure on the other broker dealers to deleverage. They did this, of course, by becoming less willing to lend funds to their counterparties, such as hedge funds, and by shrinking their trading books. In the week leading up to Bear’s demise a nasty feedback loop ensued: forced asset sales increased price volatility. This led to higher haircuts by dealers on their counterparties, which led to more forced asset sales and still higher volatility. Second, the failure of Lehman in September accelerated the pace of this deleveraging process. Major bank intermediaries were frightened by what had happened and were unwilling to engage with each other. Prime money market mutual funds suffered large outflows. Investors fled as the news came out that the Reserve Fund had “broken the buck” because of large losses generated by its holdings of Lehman paper. By late September we were in a very bad spot. Banks weren’t willing to lend to each other even at very short term maturities. LIBOR – the London Interbank Offered Rate, which is the rate that banks offer to lend to each other – soared even as the Federal Reserve continued to lower its federal funds rate target and injected extra reserves into the banking system. | Although the terms and conditions of the PPIF have not yet been announced, this facility should help put a floor under the prices of lower-quality assets and provide a means for banks to shed such assets from their balance sheets. Despite all these efforts, I don’t want to give you the impression that all will be well soon – that seems unlikely. It will take time for the deleveraging process to come to an end and, as the recent employment data have underscored, the economy has considerable momentum to the downside. But the Federal Reserve is prepared to do whatever it takes, within the bounds of its legal authority, to keep markets working and credit available and affordable. Finally, what are the lessons to be learned from this crisis? What do we need to fix in order to make our financial system more robust and our economy less vulnerable? Let me offer up a short list of seven areas that we might focus on – recognizing that this list is by no means complete or exhaustive. • We need more transparency and homogeneity in securities. The difficulty in valuing opaque and heterogeneous securities has led to greater illiquidity, price volatility and market risk, bigger haircuts and more forced deleveraging. Opacity has also led to an undue reliance on credit ratings. • We need central counterparties or CCPs for over-the-counter derivatives in order to reduce settlement risk. | 1 |
Here we adopt a somewhat different approach. Specifically, we consider how effective various combinations of regulatory constraints would have had been in identifying banks which subsequently failed during the crisis (the “hit rate”), while at the same time avoiding incorrectly signalling stress among banks which survived (the “false alarm rate”). To do this, we exploit a dataset on the pre-crisis balance sheet characteristics of global banks developed by Aikman et al (2014). The dataset includes almost all global banks which had more than $ billion in assets at end-2006 – 116 banks in total across 25 countries. A range of balance sheet metrics are proxied at consolidated (group) level for each of these banks at end-2006. Restricting attention to those banks for which data are available to compute all of risk-weighted capital ratios, leverage ratios and NSFRs reduces the sample to 76 banks. If we focus on risk-weighted capital ratios, leverage ratios and loan-to-deposit (LTD) ratios (as a simplified proxy for the NSFR which captures the ratio of retail loans to retail deposits) the sample size is 96 banks.20 These banks can be divided into those that ‘survived’ and those that ‘failed’ between 2007 and the end of 2009. | Table 2: Assessment of the relative suitability of Basel III standards to address selected forms of risk Risk Microprudential solvency risk – ‘true’ asset risk Microprudential solvency risk – ‘unknown’ asset risk under Knightian uncertainty First Best Mitigant RWCR: Requires loss absorbing capital to cover solvency risks. If risk can be measured and risk weights can be chosen appropriately, this allows for the greatest level of granularity. LR: Effective when risks are unknowable and cannot pinpoint particular asset classes of concern, especially in the face of limited historical data or fattailed loss distributions. Vulnerability to risk shifting arbitrage RWCR: High degree of granularity reduces the scope for risk-shifting Vulnerability to gaming LR: Lack of granularity and degrees of freedom minimises gaming opportunities. Second Best Mitigant LR: Provides loss absorbing capacity but does not include any risk granularity by design. Less effective Mitigants LCR & NSFR: Neither ratio attempts to mitigate the risk of losses. RWCR: Provides loss absorbing capacity but may perform less well out-of-sample and vulnerable to model risk (IRB approach) or miscalibration of risk weights (standardised approach). LCR & NSFR: standardised assumptions mitigate some scope to shift risk but also allow some scope for distortion if weights are miscalibrated. LCR and NSFR: Small number of modelled assumptions offer some safeguard against gaming. LCR & NSFR: Neither ratio attempts to mitigate the risk of losses. LR: Greatest scope for distortion through risk shifting because of lack of risk sensitivity. | 1 |
[5] Reference rates play an important role, for the impact of monetary policy and in financial contracts. In only a few years’ time, Nibor may be replaced by other reference rates. This may affect the design of a range of financial contracts. Preparing for new reference rates will require ample time and planning. When the working group presents its proposals in 2019, an important first step will also have been taken in Norway. How will consumption be affected by a rise in interest rates? Let me return to today’s situation. There are now prospects for a gradual rise in interest rates in the years ahead. A less expansionary monetary policy aims to prevent the economy from overheating further ahead. Households account for a substantial portion of demand in the economy. Households’ response to higher rates will therefore have a considerable impact on the effectiveness of the interest rate increase. In the Bank’s current assessment of the outlook for the Norwegian economy, it is assumed that the gradual rise in interest rates will curb growth in household consumption somewhat. Many households have likely become accustomed to a low interest rate level over the past few years. In the past ten years, the key policy rate has been reduced as many as 13 times. In the meantime, household debt ratios have increased. Almost one quarter of total debt is now held by households that have never experienced an interest rate increase. With a higher level of debt, an interest rate change will have a more pronounced impact. | Then I will look at monetary and financial conditions and the SNB’s monetary policy. In the third quarter of 2012, global economic growth remained weak, while the volume of international foreign trade actually declined. A mild recession persisted in the euro area, and Japan recorded strongly negative growth figures. In the US, growth was supported by private consumption as well as the improvement in residential construction investment. The situation varied in the emerging economies. In some countries, there was scarcely any improvement in economic momentum, while in others – such as China – a supportive economic policy led to some consolidation. BIS central bankers’ speeches 1 We still expect that the global economy as a whole will gradually recover. However, we have adjusted our forecast for 2013 slightly down from the last monetary policy assessment. This revision mainly affects the short-term outlook for the euro area. We expect that the euro area will only emerge from the recession during the course of 2013. In the US, the moderate recovery is likely to continue, partly as a result of the favourable developments in residential construction. In the emerging economies, growth should continue to gain momentum. The downside risks for the global economy remain high. The crisis in the euro area continues to weigh on the economic outlook. In September, the ECB initiated a new securities purchasing programme, Outright Monetary Transactions. | 0 |
Finally, many central bankers, myself included, were of the opinion that fluctuations in asset prices, especially those in the exchange rates, should be considered not only in relation with their impact on inflation, but also in connection with their effects on the competitiveness of the economy and on balance sheets. In practice this was seen as a heresy and faced severe criticism. The ongoing crisis brought to the fore the liquidity trap that economists have lately analyzed especially in light of the Japanese experience. The Great Moderation had given the impression that shocks capable of pushing inflation down to zero might no longer emerge and therefore the issue saw little debate. The Great Moderation showed that low and stable inflation may induce complacency, which is a prerequisite for expectations to become exuberant. The present crisis has proved, however, that a low inflation level – somewhere below 2% – may not be adequate. At this low level, in the context of larger cyclical fluctuations – such as the ones we have been experiencing recently – inflation can easily enter negative territory, whereas policy rates cannot go below the zero bound. From that point on, monetary policy must resort to quantitative easing in order to boost the economy that runs the risk of recession. This is the reason why Blanchard et al. (2010) proposed a change in the inflation target to more than 2% to, maybe, 4%, to give the central bank enough room for maneuver to lower the interest rate. | Later on, the two mainstreams merged in order to create the dynamic stochastic general equilibrium models based on which monetary policy has been conducted ever since the early 1990s. 10 BIS central bankers’ speeches After practitioners and theoreticians agreed on the above mentioned issue, low and stable inflation became the main, and sometimes the only objective of monetary policy. Blanchard et al. (2010) showed that “this was the result of a coincidence between the reputational need of central bankers to focus on inflation rather than activity (and their desire, at the start of the period, to decrease inflation from the high levels of the 1970s) and the intellectual support for inflation targeting provided by the New Keynesian (NK) model”. According to the NK standard model, low and stable inflation is indeed the best policy to pursue, since the “divine coincidence”, as Blanchard and Gali (2006) called it, is assumed to hold, so that by maintaining a stable inflation, the output gap equals zero. Thus, within this framework, central bankers were able to take care of production without further debating the issue. Moreover, this suited the practitioners since, according to this model, the interest rate was the only instrument resorted to for attaining the inflation target, just like in practice. Nevertheless, preserving stable inflation does not ensure a zero output gap, where the economy also faces other imperfections than the nominal ones. Although both theoreticians and practitioners were aware of this, they maintained their view that low and stable inflation was beneficial for the economy. | 1 |
Wage rigidity may be one such factor. During periods of high unemployment it is not unusual that wages are not increased. On the other hand, it is more unusual that wages are actually reduced, and this in turn has significance for how low price increases will be. 12 BIS central bankers’ speeches States and the United Kingdom, inflation does not appear to fall to levels as low as in, for instance, Sweden and the euro area. Misinterpreted: Rapid technological development leads to falling prices The most common misunderstanding I hear concerns falling international goods prices. For instance, one usually notes that Swedish goods prices have fallen in recent years and perhaps also that the price of technology-intensive goods is falling rapidly.26 But here one confuses relative prices with the general level of inflation. It is no new phenomenon that goods prices are increasing at a slower pace than services prices.27 Nor is it a surprise. While wage increases are roughly the same in both the goods and services industries, productivity increases are higher in the goods industries. This means that unit labour costs are increasing more slowly there, which in turn means that price increases for goods always tend to be lower than those for services. And for the goods industries with the most rapid growth in productivity, the price increases will be even lower. However, these insights do not say anything about average price changes – inflation – only something about how price developments in different goods and services relate to one another. | I’d like to conclude with another quote on the future, this time from Nelson Mandela, more than 150 years after Kierkegaard: “A bright future beckons. The onus is on us, through hard work, 4/5 BIS central bankers' speeches honesty and integrity, to reach for the stars.” I have every confidence that today’s agents have what it takes to thrive in the future, but the hard work of laying the necessary foundations must begin today. With that, I thank you for your time, and wish all of you a productive day ahead. 1 Customer Behavior and Loyalty in Insurance: Global Edition www.bain.com/publications/articles/customer-behavior-loyalty-in-insurance-global-2017.aspx 2017. 2 Insurance Barometer Study survey in 2016 by the Life and Health Insurance Foundation for Education (LIFE) and LIMRA 3 Customer Behavior and Loyalty in Insurance: Global Edition www.bain.com/publications/articles/customer-behavior-loyalty-in-insurance-global-2017.aspx 5/5 2017. BIS central bankers' speeches | 0 |
It reminds us if need be that crisis management is a difficult and potentially long lasting task and that we should always keep in mind that our policies have effects not only the current course of events but also through the expectation of the private sector that they may be repeated in the future. It is therefore timely to reflect upon the past, present and future course of Central Banks’ actions. I – The seeds of financial instability It is paradoxical that the crisis took place after a protracted period of nominal and real stability. In particular, inflation had remained low and remarkably stable for nearly two decades. This unprecedented degree of price stability mostly reflects a combination of central banks’ credibility and the effects of a benign economic environment. This macroeconomic stability has however not prevented deep imbalances – macroeconomic and financial – to grow in parallel, reinforcing one another. The abundance of savings in the world, specifically in emerging economies, prevented real long term interest rates from rising and stimulated the pace of credit expansion, especially in the US. Indeed, when policy rates were raised in 2004 in the US and late 2005 in the euro area, long term rates responded much less than in previous interest rate cycles and the yield curve flattened unexpectedly. Over the same period, financial markets have gone through deep structural changes. Financial innovation and extensive financial engineering fuelled a “search for yield” through increased risk taking. | Also related to the present theme is the Eurosystem monetary transmission mechanism network. Why have we chosen the transformation of the European financial system as our subject on this occasion? The establishment of Economic and Monetary Union (EMU), almost four years ago, and the introduction of the euro banknotes and coins were real milestones. In respect of the Maastricht Treaty, they appear to mark the completion of the process of monetary integration in Europe. But we shouldn't regard Monetary Union as an end in itself. The introduction of the euro will have – and already has had – a powerful influence on the development of financial markets in Europe and their integration, as we will learn and discuss today. The implications of these developments are manifold and profound, in particular for central bankers, but also for other policy-makers. Let me mention a few examples. First and foremost, the transformation of the financial system has an impact on the conduct of monetary policy. For example, the emergence of new financial instruments and changes in the use of existing ones affect the choice, behaviour and interpretation of forward-looking financial indicators of underlying economic variables, such as consumer price inflation and GDP growth. Moreover, the implications for the transmission mechanism of monetary policy are of supreme importance to the BIS Review 60/2002 1 ECB. But I'll say no more on this matter now, as my colleague Otmar Issing will cover it in greater depth in his dinner speech this evening. | 0 |
Our coverage is comprehensive – banks, merchant banks, finance companies, insurance companies, capital market services licensees, licensed trust companies, financial advisers, insurance brokers, exempt fund managers, moneychangers, and remittance houses. Financial intermediaries are held to rigorous client due diligence requirements. They are required to verify the bona fides of their customers and assess their risk profiles. Where particular customers, business relationships, or transactions present a higher risk of money laundering or terrorism financing, enhanced customer due diligence is required. Singapore’s AML/CFT regime was evaluated three years ago by the Financial Action Task Force or FATF, the global standard setter for AML/CFT. FATF assessed that Singapore operates a strict and rigorous AML/CFT regime, centred on a comprehensive and sound legal, institutional, policy, and supervisory framework. Can we do more? Let me cite three areas. First, MAS is considering a tougher penalty regime for violations of AML/CFT. In a recent announcement, the Attorney General has stated that Singapore will seek tougher penalties for white-collar criminals. MAS is in full alignment with this. We will ensure that financial crime 4 BIS central bankers’ speeches does not pay in Singapore and that those who jeopardise Singapore’s hard-earned reputation as a financial centre of integrity face severe consequences. Second, Singapore intends to make criminal the laundering of proceeds from tax offences. This is a pre-emptive move. In February next year, FATF is expected to take a decision on this matter. | In wealth management, competency standards have been established for the full range of job families – from relationship management to product development to trusts and estate planning. More than 1,500 wealth management professionals have been trained to-date. A key partner is the Wealth Management Institute, set up by GIC and Temasek in 2003, to expand and develop the pool of talent and expertise for the wealth management industry in 2 BIS central bankers’ speeches Singapore. More than half of the wealth management professionals trained under the FICS framework came through WMI’s programmes. A more recent initiative to raise competency levels for the private banking industry is the introduction of the Client Advisor Competency Standards, or CACS. This industry-led initiative provides an independent mode of assessing the private banking professional’s competency before he is allowed to provide financial advice to clients. I am pleased that WMI has given strong support for CACS. The Institute of Banking and Finance (IBF), which administers the CACS, tells me that there is already steady interest by private banks and individuals. The CACS, despite not being a regulated examination, is now being seen as a requirement for those interested in getting into the wealth management industry. This is a good sign. As Chairman of the Institute of Banking and Finance, let me set a target. In three years’ time, let us aim for all new entrants in the wealth management industry to have gone through either the industry-endorsed CACS or some formal certification programme under FICS. | 1 |
Joseph Yam: Fourth Hong Kong Monetary Authority Distinguished Lecture: opening remarks Opening remarks by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at the Fourth Hong Kong Monetary Authority Distinguished Lecture on the theme of Monetary Policy and Financial Stability, Hong Kong, 13 February 2001. * * * It is an honour for me to welcome Mr Andrew Crockett to deliver this Fourth Hong Kong Monetary Authority Distinguished Lecture. I am also delighted to welcome Dato’ Dr Zeti Akhtar Aziz as the Discussant. Both are good friends of the HKMA, and it is a special pleasure to see them here today before this large and diverse audience. I extend to all of you, on behalf of the HKMA, a very warm welcome. The subject matter of this Lecture – monetary policy and financial stability – is at the heart of central banking. Much attention has been given to resolving the apparent conflicts between the two desirable objectives of monetary stability and financial stability, at the policy as well as the operation levels. The recent experience of a number of jurisdictions has indicated problems in achieving both simultaneously. Some have gone as far as to introduce institutional changes to alleviate the tension, or the embarrassment, or the risk of policy credibility being undermined as a result of such conflicts. | As discussant for today’s lecture, we are privileged to have Dato Dr Zeti Akhtar Aziz, who has been Governor of Bank Negara Malaysia since May last year, and who is another one of the ‘classmates’ at BIS. I have known Dr Zeti for some years now and benefited from her wise counsel, particularly during the time when she was Assistant Governor in charge of economic research. Dr Zeti is a career central BIS Review 13/2001 1 banker who joined Bank Negara in 1985 and who has taken up various important positions within Bank Negara. She played a pivotal role in steering, very successfully, Malaysia through the Asian Financial Crisis and in introducing the very important financial sector reforms. Dr Zeti is therefore able to offer a particularly practical perspective on today’s theme, and I look forward to her comments with much interest. Ladies and Gentlemen, I now have great pleasure in calling upon our speaker, Mr Andrew Crockett, to deliver the fourth HKMA Distinguished Lecture. Mr Crockett, please. 2 BIS Review 13/2001 | 1 |
The reaction to the crisis has however shown that central banks learn fast and can take decisive action to protect the economy. Their response is in stark contrast to how they reacted to the Great Depression. On that occasion, monetary policy-makers were largely responsible for causing the crisis, for deepening it and for preventing a quick recovery. We can be more optimistic this time around. 12 BIS Review 45/2010 | Going forward, the strategic location of Thailand and regional trend towards more economic integration provides an opportunity for Thailand in terms of market reach. We are located in the centre of ASEAN, with a combined population of more than 600 million, a large proportion who are of middle income and have potential to spend on goods and services. We are also to enter the ASEAN economic community, a regional agreement to liberalize and integrate trade in 2015 which would further develop trade prospects. Economic integration with CLMV countries will open up the opportunity to tap into a rapidly-growing consumer market as well as the regional workforce. Thailand is well known as a high performance production base in the region, especially for automobiles, food and petrochemicals. Meanwhile, the CLMV countries have a young and abundant labor force. Thus Thailand can benefit from a production supply chain that makes use of the CLMV resources for more efficient production to support businesses at home. Seeing these chances, the government has given priority to infrastructure by endorsing investment plans, especially in railways and roads, to reduce transportation costs, and setting up Special Economic Zones at five locations along our border to reap the benefit from our strategic location as a gateway to other ASEAN countries. On the side of the Bank of Thailand, we facilitate the ease of doing business through the Capital Account Liberalization Master Plan so that businesses can benefit from this opportunity. | 0 |
Without it, we cannot imagine to successfully cope with the challenges ahead of us, especially now, when the European integration is becoming more realistic, which means intensive preparations for the future monetary integration. All of this requires an unconditional consistency in the price stability and the exchange rate of the domestic currency, a supervisory setup that is close to the European one, as well as institutional capacity for a quality dialogue with the European monetary authority. In the end, on behalf of the central bank team and on my behalf, I would like to thank and pay a tribute to the previous governors and managements and to all those who have been part of the central bank in the years behind, the ones that selflessly dedicated themselves and managed to build an institution that is independent, transparent, highly professional and respected in the international community. I would also like to thank the professionals who are a part of our team today – they are the foundation of the values that we constantly build, following the only path to our European future. Even today, 28 years after the monetary independence, we stand firm ahead of new challenges and I assure you that we will succeed by guaranteeing the stability of the denar and price stability, which are the best contributions that a central bank can make for the prosperity of our society. Congratulations on the 28th anniversary of the monetary independence! 2/2 BIS central bankers' speeches | In a liberalised financial market environment, the central bank contributes to the reduction in lending rates by reducing inflation. The Government also contributes by implementing prudent fiscal policy, thus limiting the incidence of crowding out of the private sector by the Government. As a result, yield rates on Government securities fall. As inflation and yield rates on Government securities decline, lending rates are also expected to decline in the medium to long term as the two provide the relevant opportunity cost of lending to the private sector. Another factor that commercial banks take into consideration in determining lending rates is the default risk arising from the poor credit culture in the economy in general. In resolving the problem of poor credit culture, the Central Bank through the Financial Sector Development Plan, facilitated the establishment of a credit reference bureau which collects information on borrowers to be used by credit providers. Furthermore, in order to increase competition in the financial sector the Bank of Zambia has registered a number of commercial banks and other financial institutions to operate in Zambia. In 2009, the number of registered banks increased from 14 to 17. In addition, the Bank of Zambia is developing a framework to migrate from the use of monetary aggregates as the anchor of inflation expectations to the use of interest rates. | 0 |
Following the deepening of the global financial crisis, we focused on policies to contain the adverse effects of the crisis on economic activity and financial stability, while also overseeing price stability. Accordingly, our Bank slashed policy rates and kept them at low levels for quite some time in addition to deploying supportive liquidity measures. 38. In view of the normalization in money and credit markets amid waning effects of the global crisis on financial markets, we announced our exit strategy on April 14, 2010, which encompasses the withdrawal of crisis measures and the normalization process of the monetary policy. Unlike other emerging economies, Turkey entered the global crisis with a strong and well-regulated banking system as well as a flexible and efficient liquidity management tailored to previous crisis experience. Hence, our balance sheet deteriorated only slightly due to anti-crisis measures and we were not forced to adopt radical measures during the crisis. Thus, our exit strategy was simple compared to those of many other central banks. 39. As part of the exit strategy and also considering the favorable developments in credit markets and the recovery in economic activity, the CBRT started to withdraw the temporary liquidity measures introduced during the crisis. Hence, the excess liquidity provided to the market was gradually drained in tandem with the normalization process. Moreover, as the first step of the technical rate adjustment process, the 1-week repo rate was adopted as the key policy rate in May. 40. | Even if we had had perfect foresight at the time, the MPC would have still been faced with the same choice – the adjustment in real wages was unavoidable. Of course if nominal wages start to rise in an attempt to offset that inevitable fall in standards of living, risking a wage-price spiral as the UK had in the seventies, then the MPC would be duty-bound to raise Bank Rate sooner to bring inflation back to target, regardless of any short-run pressures on output. Given the nature and timing of the shocks, I would argue that the best we can do with monetary policy is accept the initial impact and then to gently steer inflation back to target in the medium term. In the remainder of this speech, I want to consider how we come to make our judgments about that, month-by-month, and in particular, discuss the relative role of economic forecasts and human judgment. Monetary policy in practice The Bank has come in for a lot of criticism recently about its forecasting record. For a period now, CPI inflation has been significantly higher than the Bank had been previously expecting. And in 2010 Q4 and 2011 Q1, output growth disappointed relative to our central expectations. In this section, I want to dig a little deeper into the issues around models and forecasts. Step back for a second and consider what an economic model actually is and why it might be useful. | 0 |
The scale of the upside risk (G) has no bearing on the value of waiting and none, therefore, on the optimal timing of the firm’s decision. That’s because we assume it doesn’t take any significant time to implement the investment. The firm can therefore profit from the upside outcome (with a certain probability) whether it’s already invested by the time the event is realised, or instead chooses to wait until the good news actually comes through. The real value of delaying the decision is that you avoid locking yourself in to what could be a bad outcome – and the greater the danger and scale of those downside risks (λ and L respectively) the greater the incentive to wait. Thus, although we talk in general terms about the impact of “uncertainty” on investment this is really a euphemism for downside risks specifically. 7 In the case of Brexit you could spin this “Bad News” principle both ways. It’s worth recognising, for example, that weak investment doesn’t mean there aren’t potential upside outcomes. In principle businesses could well see positive opportunities from all this – it may just be that they have no reason to make the resulting investments until they actually know the final outcome. On the other hand, what you can conclude from weak investment is that, whatever the scale of those upside risks, firms definitely see potential downside risks from Brexit (L > 0). We know that directly, of course, from the various business surveys (Charts 2 and 3 again). | The blue line is a measure of the cost of finance for risky investments: it’s the profits of UK-quoted companies relative to their market value (debt as well as equity). The graph shows that, despite a protracted and significant decline in risk-free interest rates, firms have had to generate significantly more profits than in the past to raise a given amount of finance. The spread between the two lines is a measure of the risk premium on new investments, and it’s gone up significantly in the past few years, including since the EU referendum in 2016. Chart 11 carries a similar message. Here the orange line is a similar measure of that spread, between the rate of profit for private-sector firms11 and the yield on gilts. The blue line is the rate of growth of their investment spending. 10 In the simplified way that macro-economists sometimes use to describe the supply side of the economy, using a so-called “production function”, the elasticity of productivity with respect to the cost of capital – the proportionate response of the first to the second – is the product of two numbers: the share of national income going to capital (as opposed to labour), and something called the “elasticity of substitution” between the two inputs. In the data, the first is around one third; empirical estimates for UK put the second at around one half. Multiply the two and you get a figure of around one sixth. 11 The two charts use slightly different measures of profitability. | 1 |
Nominal wages do not readily fall. With some inflation, relative wages can change without a fall in nominal wages. There may also be rigidities in the pricing of goods and services. Some degree of inflation will thus oil the economic machinery. • In periods, inflation and economic growth will be low. It is then appropriate for real interest rates to be low, or even negative. Nominal interest rates cannot be set below zero. If inflation becomes entrenched at a low level or near zero, the interest rate will be less effective as an instrument. • There are different ways of measuring inflation. The consumer price index tends to overestimate actual inflation. The most important source of measurement errors is probably the difficulty of distinguishing between changes in the quality and price of goods. In other countries, findings show that the consumer price index overestimates actual inflation to the order of ½-1 per cent. The inflation target is a vehicle for, not an obstacle to, monetary policy’s contribution to stabilising output and employment. This objective is also expressed in the Regulation on Monetary Policy. If demand for goods and services is high and there is a shortage of labour, there will normally be prospects of higher inflation. When interest rates are increased, demand falls and inflation is kept at bay. If demand is low and unemployment rises, there will be prospects of lower inflation. The interest rate will then be lowered. | Last year our Agents – Adrian and Ian – drove 30,000 miles to talk faceto-face with you. The rugged scenery is, I suspect, less appealing to them as they wind their way – slowly – through the valleys and mountains. When you talk to them, you are speaking to the Monetary Policy Committee at only one remove before it sets interest rates. On this occasion, I am not in Wales to enjoy the scenery. I am here to listen to your views at first hand. But tonight I want to explain. Over the past year Bank Rate has risen four times to reach 5½%. A year ago, few expected that to happen – markets thought that by now Bank Rate would be only 4¾%. Market expectations of where Bank Rate will be at the end of this year have risen from 5% in the middle of last year to 6% now. So what has happened over the past twelve months? The right place to start is with inflation – that is, after all, the Bank of England’s target. A year ago inflation was bang on the 2% target. The latest figure – for April – is 2.8%. In recent months inflation has been volatile, rising to above 3% in March, when I had to write an open letter to the Chancellor, and subsequently falling back. The number for May, to be published tomorrow, is awaited with interest. Many column inches have been devoted to these short-run movements. | 0 |
17 Smith recognised this too: “though the wages of the workman are commonly paid to him in money, his real revenue, like that of all other men, consists, not in money, but in the money’s worth; not in the metal pieces, but in what can be got for them” Wealth of Nations, I,ii,p295. 4 BIS Review 102/2006 can’t force people to use paper money, although after the French Revolution the Jacobins had a try. They made it a capital offence to use commodities as money! This was a desperate and unsustainable action resulting from the Jacobin policy of debasing their paper money – the Assignat – to make up for a collapse in tax revenues and to finance a war against Prussia. A more sensible solution is to create institutions in which we can have trust. On the front of this Bank of England £ note is written “I promise to pay the bearer on demand the sum of Twenty Pounds”. In essence, the promise is that the “stuff” that you can buy with this note does not change much from one year to the next. In other words, the general purchasing power of the note is broadly stable – we have price stability. Our ability to maintain price stability depends upon an institutional framework which is expected to persist. That depends on all of us acting collectively – the value of a nation’s money is inherently a political choice. Inflation arises when the collective political commitment to maintain price stability weakens. | On the contrary, it’s based very much on emerging best practices in the risk management arena globally, and the objective is to try to encourage the wider spread of these best practices around the banking community worldwide. As regards Hong Kong, embracing the New Accord can only further strengthen our position as one of the world’s leading international financial centres. BIS Review 31/2003 3 | 0 |
From the very moment that a loan is granted, and before any impairment on this specific loan appears, there is a positive default probability (no matter how low it might be) following a statistical distribution with an expected loss. The expected loss is known in a statistical sense but not yet identified in a specific loan operation or borrower. As the risk appears at the beginning of the operation, so does the statistical provision requirement. With this system, provisions run in parallel to revenues and are therefore distributed through the cycle allowing for a better mapping between income and costs in the profit and loss account. The statistical provision that we have established works in practice as an addition to the “old” existing provisions: when “old” provisions are well below expected losses, the “new” dynamic provision is added. In good years the net “specific” provisions are very low (or even negative, if there are substantial recoveries), so the new provision accumulates. But in bad years the “specific” provisions increase sharply, eventually exceeding the gross burden of the statistical provision. The net result is that with this system provisions are distributed over the cycle, providing a better recognition of expected losses. More specifically, the amount of the statistical provision is the difference between the measure of latent risk (i.e. expected losses) and the specific provision (that covering impaired assets). In good times the specific provision is low and the statistical provision is positive. | Ladies and Gentlemen, The global financial crisis that erupted in 2008, or 2007 if you count the U.S. sub-prime crisis as its first incidence, has brought fundamental changes to how central banks approach economic and financial stability. In particular, the crisis has led to a general reorientation of central bank policies in three major directions. The first is the reorientation of monetary policy to take into account financial stability concerns. The second is the shift from “deregulation” to “re-regulation”. And the third is the supplementation of traditional microprudential regulation with macroprudential one. In the realm of monetary policy, the pre-crisis consensus was that the attainment of price stability, or low and stable inflation, was enough to ensure a smooth progress of the economy. While central banks were well aware that financial disruptions could have a serious negative impact on the economy, they were of a view that financial stability was the job of prudential regulation and that monetary policy should focus on inflation and output stabilization. The dichotomy between monetary policy and financial stability policy was well observed across the central banking community. Central banks like the Bank of Thailand, which also looks at financial imbalances when making monetary policy decisions, represented only a small minority before the crisis. The global financial crisis has prompted a fundamental rethinking of central banks’ monetary policy conduct. Now it is recognized that price stability alone does not guarantee economic and financial stability and that there exists an intricate relationship between monetary policy stance and financial stability. | 0 |
And the other thing to note is this: so far, not a single draft decision made by the Supervisory Board has been challenged by the Governing Council. But I admit that the decision-making process is complex. This, however, does not limit our ability to take decisions. In 2017 alone, we took a total of 2,308 decisions. On average, that amounts to more than six decisions a day, weekends included. So if something needs doing, it gets done. Ladies and gentlemen, the banking union is the place to be. There is a lot to be gained from going there. And if those who come bring along a stable and resilient banking sector as well as a tradition of strong banking supervision, the gains will be mutual. But let’s be honest. As any economist will tell you, there’s no such thing as a free lunch. Surely all this must come at a price? Well, in my view, the price of being a part of the banking union is low compared with the benefits it offers. Is it a free lunch? If you are part of the banking union, you need to share. You need to share control over banking supervision and resolution. That is the price to be paid. Now, I understand that it is often seen as vital to have total control over sensitive policy areas. And I understand that there is a feeling that if 4/7 BIS central bankers' speeches you want something done well, you must do it yourself. | Banks were ailing, some governments were struggling to obtain the funding they needed, markets were in turmoil, and there were fears that the euro area might eventually break apart. Well, it didn’t break apart. In fact, the crisis triggered a chain of reforms, and these reforms have made the euro area more stable. One of the boldest steps was taken at the peak of the crisis. On 28 June 2012, EU leaders decided to move towards a European banking union. And move they did. Two years, four months and six days later, they had turned their political pledge into reality. On a rainy day in November 2014, banking supervision was taken to the European level. Another year later, the same was done for bank resolution. And there is an ongoing debate about whether and how all this should be supplemented with a European deposit insurance scheme. In my view, it should be, and I am certain that, at some point, it will be. From the start, the banking union has covered the entire euro area. But its boundaries are not set in stone. The banking union is not an exclusive club; it is not limited to those countries that share the euro as their common currency. In fact, any EU country can join the banking union through an arrangement known as “close cooperation”. I know that many in Denmark are very much aware of this. But, as I said, I’m not here to talk about Denmark. I am here to talk about the banking union. | 1 |
To generate these, consider a simplified version of (9) which abstracts from discount rates, company-specific risk premia and dividends: (11) Following Wickens (1982), the rational expectation t+N periods ahead are formed on the basis of information available at time t. For each company j, these expectations differ from the realised values by a forecast error ( ) unpredictable at time t: (12) Adding and subtracting the average forecast error across all companies ( ) gives: (13) Actual prices cannot be used in the estimation of (13) as these are not known at time t and . But consistent estimation of are correlated with the error term ( but which are independent of (13) is possible using a set of instruments correlated with the company-specific excess forecasting errors. In the estimation, lagged share prices, lagged dividends per share and lagged earnings per share are used as instruments for future dividends and equity prices. These are known at time t but are uncorrelated with the error term. Five lags of each variable (price, dividends, earnings) are used as instruments. BIS central bankers’ speeches 9 (c) Generating estimates of short-termism Given estimates of company beta and gearing, risk-free rates and the instrumented variables, equation (9) can be estimated to generate estimates of the short-termism parameter, x. This was achieved using non-linear least squares on a set of cross-sectional regressions for each of the years 1985 to 2004.24 Chart 4 shows point estimates of x for each of these years. | Oil prices, which reached historical highs in nominal US dollar terms in the last week of October, are a key factor determining near-term prospects for economic activity and inflation, both globally and in the euro area. As I noted earlier, persistently high and rising oil prices have had a visible direct impact on consumer prices in the euro area, and inflation is likely to remain above the upper limit of our definition of price stability of 2% in the coming months. This is a worrisome development, although there is little indication that medium-term inflationary pressures are building up in the euro area. What would be the potential impact of a sustained rise in oil prices on key macroeconomic variables in quantitative terms? For purely illustrative purposes, and using a variety of macroeconomic models, ECB economists have estimated the potential impact of a hypothetical permanent oil price increase of 50% on both inflation and output. According to these calculations, such an increase would add 0.3 to 0.6 percentage points to overall inflation in the euro area in the first year and 0.1 to 0.4 percentage points in the second year, before petering out in the third year (0.0 to 0.1 percentage points). | 0 |
5 CFTC UBS, 2012, page 12. 6 CFTC UBS, 2012, page 13. 7 CFTC Barclays, 2012, page 13. 4 BIS central bankers’ speeches We have learned as well that compensation and hiring practices also helped to undermine the integrity of the reporting regime. For example, we have seen that compensation and promotion within a bank are often tied to a trader’s market share and profitability. In addition, traders often move between firms so having a network of external contacts and being viewed as a team player could help to support job mobility. Consequently, one can conclude that even the loss of a job is not necessarily a permanent setback, and that market participants with allegations of improper behavior could potentially move on to other firms with the expectation that they would generate revenue and profits for their new employer. These incentives were amplified by the structure of the markets that underlie the setting of LIBOR and those that use LIBOR. The interbank cash borrowing market that LIBOR references is very small relative to the enormous markets that use LIBOR, for example interest rate derivatives. The standardization of settlement dates further concentrated trading activity. In this type of environment, relatively small changes in LIBOR submissions – either because the actual borrowing costs fluctuate or a submitting bank intentionally misreports its submissions – can have substantive effects on a trader’s profitability because the trader can hold large derivatives or futures positions that reference the cash LIBOR rate at the time these contracts settle. | In addition, the severe supply-chain bottlenecks that initially affected this category began to improve last year, which likely contributed to the easing of prices for some durable goods in recent months. However, there are factors that may throw sand in this gear going forward. The economic resiliency of Europe and a rebound in growth in China following the end of COVID restrictions will likely increase global demand for goods. And further improvement in global supply-chain disruptions has stalled over the past few months. For example, the New York Fed's Global Supply Chain Pressure Index remains elevated relative to pre-pandemic levels. The slowest gear to turn is the one that represents non-energy services. It's influenced by the balance of overall supply and demand, and it will take the longest to rotate at the right pace for low and stable inflation. One area where we are seeing signs of this gear turning is in shelter costs. After a sharp rise, we have seen a steep decline in the rate of increase in new lease rents. Assuming this trend continues, we should see a slowing of overall rent inflation during this year. That said, we have yet to see the gears turn for inflation of non-energy services excluding housing, which is still quite elevated, averaging 3-3/4 percent over the most recent six months. Tightening Monetary Policy Taking into account the different speeds the gears are moving, it is clear that overall demand remains well in excess of supply, and inflation is running far above our 2 percent target. | 0 |
Further, retail deposits cover a very significant portion (75%) of the total stable funding needs (60% for European banks as a whole). Assets - The Spanish banking industry’s consolidated assets grew by 2.1% in 2022. Financial instruments in Spain declined by 7.7% and those stemming from business abroad (expressed in euro) increased by 9.6% to 53.7% (up 4.3 pp on a year earlier). - Much of the decline in financial instruments in Spain owed to the reduction in balances held with central banks (-31.9%) and, to a lesser extent, to the drop in loans to the resident private sector (-2.5%). Meanwhile, the increase in financial instruments abroad was due to the growth in lending to the resident private sector in third countries (10.3%) and in debt securities (16%), against the background of a depreciating euro. - Debt securities grew by 11.7% and represented 13.6% of total assets at December 2022.3 3 At consolidated level, more than 80% of debt securities have a general government counterparty. 3 - As for the reduction in the stock of lending to the resident private sector in Spain (down by 0.7% in 2022), the results of the Bank Lending Survey (BLS) indicate that both supply and demand-side factors contributed to these developments. The decline came despite the larger volume of new loans (+8.9%) and the increased drawdown on existing credit lines (+12.9%). - The stock of loans to households was down by 0.2%, essentially due to lending for house purchase, while other lending to households held stable. | This initiative grew out of the recognition of the fact that financial institutions and certain NGOs that were engaged in promoting various financial education activities and programme were operating in isolation. What was clearly missing was a coherent and well-co-ordinated strategy among these organisations for delivering an effective education to enhance financial literacy and inclusion. Consequently the FSDP identified the need to develop a coordinated approach to financial education as a meaningful way of bringing progress to this process. It therefore, started its intervention by commissioning a stock taking study of financial education efforts taking place in Zambia in order to establish its true status. DFID provided financial support in the form of technical assistance which enabled the FSDP to recruit FinMark Trust to carry out the study. Subsequently, a report was produced and presented to various stakeholders in November last year. The recommendations from the stakeholders meeting were then sent to the FSDP Steering Committee in April this year. This Committee endorsed the report and it is this report which is being launched today as the National Strategy on Financial Education for Zambia. Once launched, it will be implemented in earnest. Honourable Ministers, the activities that have been carried out under this programme have been made possible by the very generous financial support extended throughout the different phases of the programme by the IMF, World Bank, DFID, SIDA and the Government of the Republic of Zambia. | 0 |
By repeated substitution, this asset pricing equation can be written as a generalised form of (1): (6) The current share price is a function of future discounted dividend streams and a discounted terminal share price, where we have used: (7) (8) Equation (7) says that the expected company-specific risk premium is constant and pre-determined based on period t information. Equation (8) says that expectations of future risk-free rates are defined by the path of the risk-free forward rate curve observed at time t. Equation (6) can be modified with a myopia coefficient to give a generalised version of (2): (9) The null hypothesis – no short-termism – implies x = 1. Drawing on evidence across time and industrial sectors, it is this restriction we now test. 4. Testing for short-termism The data comprises a panel of 624 firms listed on the UK FTSE and US S&P indices over the period 1980–2009.20 These span a broad range of industrial sectors, as shown in Table 2. Table 2 Number of firm level observations in each industry segment Energy Financials & Utilities Index Consumer S&P 117 65 FTSE 52 14 20 6 Health IT Industrials Materials Total 78 47 73 47 23 450 42 5 34 18 9 174 Data are from Thomson Reuters Datastream. | Haldane, A G (2011), “Capital Discipline”, remarks based on a speech given at the American Economic Association, Denver, available at http://www.bankofengland.co.uk/publications/speeches/2011/speech484.pdf. Haldane, A G (2010), “Patience and Finance”, speech given at the Oxford China Business Forum, Beijing, available at http://www.bankofengland.co.uk/publications/speeches/2010/speech445.pdf. Hicks, J R (1937), “Mr. Keynes and the “Classics”; A Suggested Interpretation”, Econometrica, Vol. 5 (2), pp. 147–159. Jevons, W S (1871), “The Theory of Political Economy”, Macmillan and Company. Keynes, J M (1938), JMK letter to Francis Curzon, 18th March 1938. In Skidelsky, R (2000), “John Maynard Keynes: Vol 3 Fighting for Britain 1937–1946”, Macmillan. King, M A (1972), “Taxation and Investment Incentives in a Vintage Investment Model”, Journal of Public Economics, Vol. 1 (1), pp. 121–148. 14 BIS central bankers’ speeches LeRoy, S F and Porter, R D (1981), “The Present Value Relation: Tests Based on Variance Bounds”, Econometrica, Vol. 49, pp. 555–574. Lintner, J (1965), “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets”, Review of Economics and Statistics, Vol. 47 (1), pp. 13–37. Marshall, A (1890), “Principles of Economics”, Macmillan and Company Ltd. Miles, D (1993), “Testing for Short Termism in the UK Stock Market”, Economic Journal, Vol. 103 (421), pp. 1379–1396. MORI (2004), “NAPF/IMA Short-termism Study Report”. National Economic Development Office (1965), “Investment in Machines Tools”, HMSO. Neild, P R (1964), “Replacement Policy”, National Institute Economic Review. | 1 |
Notes: Data show job-to-job transition rate as a share of employment. Chart 21: Job churn by firm-productivity Percentage of employment in previous period 0.14 0.12 0.1 0.08 0.06 0.04 0.02 2003 2005 2007 2009 Low productivity 2011 2013 2015 0 2017 High productivity Sources: ONS and Bank calculations. Notes: ‘Low productivity’ defined as the average churn rate per decile for those firms in the bottom half of the productivity distribution; ‘high productivity’ defined as the average churn rate per decile those firms in the top half of the productivity distribution. 40 All speeches are available online at www.bankofengland.co.uk/speeches 40 Table 4: Job moves and productivity Decile at t-1 2- 3 4- 5 6 -7 8- 9 2- 3 0.41 0.21 0.20 0.20 Decile at time t 4- 5 6 -7 0.26 0.14 0.29 0.21 0.25 0.25 0.19 0.21 8- 9 0.18 0.30 0.31 0.40 Increasing productivity Increasing productivity Sources: ONS and Bank calculations Notes: Each cell shows the probability of a worker being employed in a given quantile of the firm productivity distribution conditional on where in the distribution that worker was in the previous year, and having moved jobs. | Financial inclusion is supported through a number of strategies amongst which includes increased access to financial services, access to financial information and advisory services and consumer education. Currently, 98% of the adult population in Malaysia have a savings account. Given this greater financial inclusion, banks need to recognise their role and their special relationship with their customers. Customers expect banks to provide relevant financial information to them to ensure that they will be able make informed judgments. Avenues for the public to seek redress is also an important part of the financial safety net. The Financial Mediation Bureau provides an alternative redress mechanism between the service providers and consumers on financial disputes. In addition, with the objective of promoting prudent financial management, the Credit Counselling and Debt Management Agency offers free advisory services. This is to ensure the sustainability and resilience of the household sector. In addition, there is also the BNMLINK and BNMTELELINK at the Central Bank to provide a further interface with the public. The objectives of financial inclusion can also be met with the support of banking institutions as the benefits would justify the effort. Banks and other financial institutions that approach their business strategies responsibly and with the consumer interest in mind will stand to reap long-term gains from enhanced franchise value, a strong reputation and positive association with socially responsible values that will engender public trust and confidence. Public confidence is an important pre-condition for financial stability. | 0 |
While cost will inevitably be an important consideration, this should be weighed against the significant benefits and operational savings from the more accurate allocation of capital to risk. MAS will work closely with the local banks to implement the new Accord. Business and strategic considerations Next, banks have to decide how to grow and position their businesses over the longer term, especially the local banks. Maintaining margins and cutting costs is necessary in the short term, but beyond that, banks need longer term strategies for staying viable and competitive. After a period of domestic consolidation, the local banks have made several regional acquisitions, but they still remain small by international standards. Competition will intensify, within the domestic market because of liberalisation, and internationally because globalisation is continuing. The local banks may well find that in order to hold their own and be viable, they need to grow bigger. Possibilities for domestic growth are limited other than through further consolidation. But the region offers considerable opportunities. Asia is poised for sustained growth, having emerged from the Crisis as one of the most promising regions in the world. Countries have gone through a period of structural reforms and transformed their financial sectors. Now they are progressively opening up their 4 BIS Review 39/2004 economies to greater foreign participation. This is attracting interest from major regional and global players. Our local banks cannot ignore this game. They need to consider their options carefully. | That matters – because our responsibilities for the stability of the financial system mean that we must be satisfied that the new framework can deliver levels of resilience at least as high as those we have become accustomed to, whilst also enabling improved innovation and competition, before it can go live. Working together, I am confident that we can achieve that. 4 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 4 | 0 |
Scope for major differences, despite a common strategy Even if there is agreement on the strategy for monetary policy, there is, of course, considerable scope for differences in assessments of where the interest rate should be in each situation. In the first place, the Executive Board can make different assessments of the most probable price tendency. As we know, economics is not an exact science and forecasts of prices and growth potential always rest on many assessments of an enormous mass of information and correlations. Models can never capture the complexity of the economy and how people’s economic decisions interact and must therefore always be regarded as one of many aids in assessments. The Riksbank uses a lot of different approaches and indicators to make assessments. The focus of the Riksbank’s analysis has been until now on the real economy and how it affects price trends. In many areas, we have come further than other central banks, while we have not come so far as regards the analysis of different financial aggregates and their linkage with inflation and real demand. An endeavour has certainly been made to take into account information provided by the development of the quantity of money and growth of credit. However, we have not for instance developed methods that can give guidance as to the level of indebtedness and the quantity of money that is compatible with the long-term sustainable growth of the economy on the basis of the inflation target. | Different economic policies and policy areas, such as fiscal policy, labor market policy, structural policies to improve competition, etc., can be distinguished according to their objectives, the policy instruments that are suitable for achieving the objectives, and the authority or authorities controlling the instruments and responsible for achieving the objectives. Monetary policy in the form of flexible inflation targeting has the objective of stabilizing both inflation around the inflation target and resource utilization around a normal level. The suitable instruments are under normal circumstances the policy rate and communication, including possibly a published policy-rate path and a forecast of inflation and the real economy. In times of crisis, as we have seen during the current crisis, other more unconventional instruments can be used, such as fixed-rate lending at longer maturities, asset purchases and foreign-exchange intervention to prevent currency appreciation. The authority responsible for monetary policy is typically the central bank. Financial-stability policy has the objective of maintaining or promoting financial stability. The available instruments are under normal circumstances supervision, regulation and financialstability reports with analyses and leading indicators that may provide early warnings of stability threats. In times of crisis, there are instruments such as lending of last resort, variable-rate lending at longer maturities, special resolution regimes for financial firms in trouble, government capital injections and so forth. The responsible authority or authorities vary across countries. In some countries it is the central bank, in other countries there is a separate financial supervisory authority, sometimes the responsibility is shared between different institutions. | 0 |
For example, one might want to set the conversion terms so that the debt holders could expect to get out at or close to whole – at par value. This is important because it would reduce the cost of the contingent instrument, making it a considerably cheaper form of capital than common equity. Consider the advantages that such an instrument would have had during this crisis. Rather than banks clumsily evaluating whether to cut dividends, raise common equity and/or conduct exchanges of common equity for preferred shares and market participants uncertain about the willingness and ability of firms to complete such transactions and successfully raise new capital, contingent capital would have been converted automatically into common equity when market triggers were hit. If these contingent capital buffers were large, which they could be because the cost of these instruments should not differ much from straight debt, then the worst aspects of the banking crisis might have been averted. If shareholders had faced the potential of automatic and substantial dilution, they may have demanded better risk management and disclosure during the boom. If common equity had been automatically bolstered during the early part of crisis, investors would have been much less concerned about the risk of insolvency. Counterparty risk concerns would have been much less significant – potentially short-circuiting one of the important amplifying mechanisms of the crisis. | In the LTCM situation, the 1 The Fed Facility was (and remains) secured by a pledge of a substantial portion of AIG’s assets, including ownership interests in the company’s domestic and foreign insurance subsidiaries. As additional compensation for the Fed Facility, AIG agreed to issue to a trust for the benefit of the Treasury, preferred stock convertible into 79 percent of AIG’s outstanding common stock. 2 BIS Review 73/2010 Federal Reserve called together a private sector consortium made up of LTCM’s major counterparties, who agreed to rescue LTCM by investing about $ billion in new equity, in return for a 90 percent equity stake in LTCM’s portfolio along with operational control. The counterparties made this decision after the Federal Reserve encouraged them to recognize their self-interest in saving LTCM. The consortium invested in LTCM because its members came to believe that the Federal Reserve staff was right. Several years later, when the investors received back all of their capital with interest, they came to see that the Federal Reserve was right. The market conditions in September 2008 presented a very different situation to AIG’s counterparties who, in the aftermath of Lehman’s failure, found themselves facing liquidity concerns that compelled them to maintain cash on their balance sheets rather than lend to AIG. Moreover, the unprecedented size of AIG’s liquidity need – ultimately more than $ billion – could not have been met by the private sector. There is, however, one very important similarity. | 0 |
And this is why it is so important that the “quick fix” has brought European prudential regulations on this kind of investment much closer to the regulations already in place in the United States and Switzerland. Investments of this kind will enable institutions to face up to any major potential competitors – not necessarily financial institutions – that might venture into the credit market with more guarantees of success. These firms – the big techs – possess an enormous amount of customer data, and they make highly effective use of those data for their own needs. Recent experience shows that these firms have caused disruption in the sectors they have entered, taking over the most profitable business segments and driving out existing firms. Naturally, the solution is not to curb technological progress that may benefit society in many ways, but to ensure that existing banks use these technologies to process the information they hold. In any event, the big techs will always have an information advantage, because their relations with their customers go beyond the financial sphere. This allows them, as large-scale purveyors of financial and non-financial products and services, to take advantage of economies of scope and network economies. Accordingly, and to prevent selection bias that can lead, for example, to the exclusion of certain social profiles, in the medium term comprehensive personal data regulations are needed, similar to those already in place in many countries’ central credit registers. | Specifically, it seeks to ensure that more funds are accumulated at banks to absorb losses, against a background of heightened uncertainty. In general, all Spanish banks that could legally suspend or postpone the dividends payable out of 2019 profits followed these recommendations. This will allow them to add around 50 basis points in 2020 to the capital buffers that they had before the outbreak of the pandemic. The positive effect of this measure supplements and is boosted by other decisions adopted by various economic authorities, which have reduced the capital requirements for banks (specifically, by releasing a large part of the macroprudential buffers, as mentioned above) and mitigated the impact of the pandemic on their income statements. 4 Moreover, the fact that the authorities’ recommendation has been extended to all banks in most jurisdictions, for the duration of the crisis (a measure that is, in any case, reversible through future extraordinary dividends should more benign scenarios materialise than those envisaged in the current circumstances), has limited the collateral effects of this measure on banks’ capacity to issue capital instruments at an appropriate cost. In fact, although banks’ cost of capital rose significantly after the emergence of the pandemic, following the implementation of the broad raft of measures to mitigate its impact, this increase has been fully corrected, without this recommendation having had an apparently significant impact, at least on most European banking systems. The ECB and the European Systemic Risk Board will review this recommendation before the end of the year. | 1 |
The fact that the target has been formulated in this way is because price developments are the only thing that monetary policy can steer in the longer term. Long-term developments in growth and employment are essentially unaffected by changes in the interest rate. They are determined by factors such as productivity and the supply of labour and capital, as well as the way the labour market – and the economy as a whole – functions. It is possible to say that monetary policy can indirectly create good conditions for an efficientlyfunctioning economy by maintaining inflation at a low and stable rate. The pricing and wage-setting systems function more efficiently if changes in general price levels are small and predictable. This makes it easier for companies and consumers to make wise decisions regarding investment, consumption and employment. The development of the Swedish economy during the 1970s and 1980s provides a particular indication of how failed investment and arbitrary distribution of income can result from high and fluctuating inflation. In the short term, monetary policy also affects the economy’s cyclical pattern. When we formulate our monetary policy we therefore try to do so in a way that contributes to the most favourable and stable macroeconomic development possible, without jeopardising the price stability target. In other words, we are not ”inflation nutters”, to use a phrase coined by my British colleague Mervyn King. | For this reason, it is important that deviations from the target should not be allowed to become too prolonged. This is why the Riksbank has chosen to aim under normal circumstances to bring inflation back on target within two years. One can say that this is a restriction we have placed on ourselves to create flexibility in an orderly manner. At the same time, it is not appropriate to set restrictions for monetary policy that would be binding regardless of developments in the economy. There may – exceptionally – be situations where the consequences of bringing inflation back on target within two years may lead to unacceptable fluctuations in economic activity. It has sometimes been claimed that there is currently a risk that inflation could remain subdued over a long period of time, partly as a result of globalisation, and that this may mean that inflation is below target for longer than two years. We have made another assessment, as I mentioned earlier, but this type of situation is an example of when it might be 4 BIS Review 44/2006 appropriate to deviate from our normal target horizon. If we were to make the assessment that this type of situation had arisen, we would make it quite clear in advance. We also make clear how long we expect inflation to deviate from the target, and why we think this will happen, in connection with our monetary policy decisions. Conclusion Let me conclude with a brief summary of what I have just said. | 1 |
Indeed, SARON never fell below the rates we set for the fine-tuning operations of first 0.35% and, 3 days later, 0.38%. Starting on the day of the monetary policy assessment, we also commenced auctions of term repos and SNB Bills. As you can see from Slide 12, we absorbed a sizeable volume of reserves via overnight repos in the first few days after the rate hike. During this initial period, the volume of overnight repo transactions peaked at around 36 billion Swiss francs. The market’s take-up of our term repos and SNB Bills auctions was very strong from the outset, and it continues to be strong. As shown on the slide, by the end of October, the combined stock of repo transactions and SNB Bills used to absorb excess reserves was close to 140 billion Swiss francs. The absorption of reserves was achieved in roughly equal parts by term repos and SNB Bills. We saw substantial demand for SNB Bills right from the very first auction, on 22 September, and demand has increased even further since then. At present, demand is concentrated in SNB Bills with the shortest term of 28 days. As one can see on Slide 13, as of the end of October, the total stock of outstanding SNB Bills stood at almost 70 billion Swiss francs. Of this, SNB Bills with 28-day terms accounted for around 50 billion Swiss francs, or roughly 70% of the total outstanding stock. SNB Bills, as money market debt register claims, are tradeable securities. | Maja Kadievska-Vojnovik: Current trends and future of the financial system in the region Address by Ms Maja Kadievska-Vojnovik, Vice-Governor of the National Bank of the Republic of Macedonia, at the regional summit of governors, bankers and businessmen “Financial systems in the region”, Belgrade, 8 November 2013. * * * Dear Mrs. Jorgovanka Tabakovic Dear Governors Dear guests, First of all, I on behalf of the governor of the NBRM, Mr. Bogov, I would like to apologize for his non attendance today, on this very important event. He was unable to joint this event due to objective reasons, but, let me express my truthfully pleasure that I have opportunity to express my views and the views of the governor regarding to the latest development and future challenges for our country and our banking system. After the double-dip recession, in the first half of 2013 SEE are on the way of recovery. The GDP growth in the RM in the first half of the year is 3.4% and is highly influenced by the positive contribution of reforms’ agenda. The improved business environment (RM is at the list of 10 best reformers according to the Doing Business for 2013), the entrance of FDI's that have lead to export diversification alongside with the positive developments at the labor market, are key growth drivers. | 0 |
109 073 143 108 930 Riksbank Certificates 227 489 Swap agreements with FED and ECB 20 253 Loans through the SNDO 91 186 Repos foreign currency reserve 8 461 12 035 -3 574 Liability to IM F (SDR) 24 912 2 517 22 395 Other liabilities Provisions Revaluation accounts 11 705 257 33 170 4 277 206 20 063 7 428 51 13 107 Capital 64 025 58 247 5 778 Total liabilities 696 529 211 894 484 635 Assets, SEK million 227 489 82 20 171 91 186 Source: The Riksbank. BIS Review 160/2009 17 | Being wholly-owned, the incorporation of the Islamic subsidiary will provide an opportunity to the group to enlarge the Islamic banking market to potential institutional investors, both domestic and foreign, who wish to participate in the Islamic financial activities through direct equity participation. The divestment of shares in the Islamic subsidiary allowable up to 49%, is subject to the condition that the Islamic subsidiary will remain as a subsidiary of the commercial bank. This option will provide the banking group with the opportunities to find a strategic partner for the Islamic subsidiary, thus diversifying the range of players available in the Islamic financial market. Indeed, foreign participation in the Islamic subsidiary would enable the group to tap on the regional and international business opportunities. In going forward, the move to issue new licences and accord legal status to the existing Islamic banking operations of the conventional banks is expected to accelerate the positioning of Malaysia as an attractive Islamic financial hub to the international financial community. In this regard, the Islamic financial players of other banking groups that have achieved the critical mass and strength are encouraged to explore the strategic advantage of the incorporation of an Islamic subsidiary, and in elevating the industry to a more dynamic and advanced phase of development including ventures abroad. There is a large business potential to be tapped in an environment of strong and rapid economic and financial development in the country and the region. | 0 |
Securitizations were structured so that any losses were first borne by lower-rated securities built from the pool of underlying mortgages. Given the structure, the assumption was that lower-valued securities would take all potential losses if borrowers defaulted. Many – but not all, of course2 – assumed that home-price declines and related defaults would have to be very extreme before the highest rated, Triple-A securities were impacted. Under this assumption these securities fully deserved the Triple-A rating given by the rating agencies. I should note that making this assumption about Triple-A rated mortgage backed securities (MBSs) proved less problematic than making this assumption about the recombined lower 2 Boston Fed researchers note some examples of contrary analysis of Subprime ABS structures written in 2005 suggesting vulnerability to even a 5 percent fall in house prices. See “Making Sense of the Subprime Crisis” by Paul Willen with Kristopher S. Gerardi, Andreas Lehnert and Shane Sherlund (Brookings Papers on Economic Activity, Fall 2008). BIS central bankers’ speeches 3 tranches of mortgage-backed securities that were billed as Triple-A rated collateralized debt obligations (CDOs).3 But many investors focused not on the security’s underlying components, merely on the ratings. Figure 8 shows that Triple-A securities remained at par values as the securitization boom gathered steam. However, Figure 9 shows that when the severity of the decline in house prices manifested itself, even the Triple-A rated mortgage securities collapsed in value. | This guideline provided the definition of the features of basic savings and basic current accounts that had to be made available by the commercial banking institutions. This was aimed at ensuring that all segments of society had access to basic deposit and transaction services at a reasonable cost. Further, a framework for microfinance was also formulated to enable the provision of micro financing by financial institutions to micro enterprises. Micro financing rates are not capped to allow for it to be commensurate with the higher administrative costs involved in providing such services to micro borrowers. This is to allow financial institutions to remain viable and to remain sustainable. Third, a diverse set of delivery channels have been introduced to ensure widespread access to financial services. The Central € branching policy has encouraged financial institutions to establish an extensive branch network across the country to ensure widespread physical access to financial services. In 2008, there were 9 bank branches per 1,000 square kilometres and 24 ATMs per 1,000 square kilometres in Malaysia. In comparison, the global median is 7 bank branches per 1,000 square kilometres and 15 ATMs per 1,000 square kilometres respectively. Financial institutions are also encouraged to apply technology to further enhance the delivery of financial services. The increased usage of internet and mobile banking has also accelerated the migration to electronic payments and has widened the access of financial services in the more remote areas. Fourth, is the enhanced financial literacy and consumer protection. | 0 |
During the more extreme periods of the Asian crisis, however, one of the main concerns of market participants was the high level of uncertainty in the market about whether and to what extent lender of last resort support would be forthcoming should it be required. In fact, the liquidity shortages experienced during the more volatile periods may have been in part attributable to this market uncertainty. Arguably, this uncertainty may also have aggravated the credit crunch during the crisis periods. The introduction of the Discount Window in September 1998 has helped to ease this problem. A greater knowledge and awareness of the availability of a lender of last resort facility will, we hope, further help to reduce uncertainty, and will, in turn help to improve overall market liquidity in the event of future crises, should they arise. A formalised policy framework will also help the HKMA itself to ensure speed and consistency in considering whether or not to extend lender of last resort support. A quick response in an uncertain environment could be of vital importance in helping to restore stability and confidence to the banking system. But it must be acknowledged that there are also good arguments for not saying too much on the subject. The HKAB, while expressing general support for clarification, has rightly observed that the HKMA must be able to maintain sufficient flexibility to be able to handle widely differing situations, to deal with abrupt changes, and to take action in a timely way. | The recent competitive environment has actually fostered the gradual transformation of banking activities, with a greater emphasis on the "originate and distribute" business model. With this model, credit institutions arrange financings but quickly offload a substantial portion of their risks, for example through securitisation, and take payment – much more so than in the past – in the form of fees and commissions. But although activity in new products such as LBOs is helping to boost French banks' revenues and earnings, it is also a source of vulnerability. First, in terms of remuneration, fierce competition among credit institutions is not only exerting downward pressure on margins; it is encouraging "covenant-lite" deals – a worrying trend. These complex transactions are also beginning to generate new risks. On this point, there is a tendency towards longer underwriting periods, during which banks bear the bulk of the risk. Banks should also pay attention to the fact that counterparties such as hedge funds are becoming increasingly involved in this type of deals. Allow me two brief asides, if you will. First, with regard to LBOs, let me refer you to the study appended to the Annual Report. On the topic of hedge funds, I would remind you that the Banque de France devoted a special issue of its financial stability review to this subject and that the Commission Bancaire pays close attention to banks' involvement with this type of counterparty. | 0 |
If inflation is more than one percentage point either side of the target, we are required to write to the Chancellor explaining the reasons for the miss and the steps we are taking to bring inflation back to target. There was a flurry of excitement earlier this year when inflation reached 1.8%, and many commentators thought that we might soon have to polish up our letter writing skills. But so far we have not had to put pen to paper. Of course, a number of factors have contributed to the stability in inflation. Monetary policy takes time to affect inflation, so inflation in the early part of this period reflects decisions taken before the MPC was formed. And in the short term at least prices can reflect factors other than monetary policy. But, judged against previous policy regimes in this country, inflation targeting has been successful. Of course, you might expect me to say that. But the growing credibility of the arrangements is also reflected in measures of expected inflation in coming years, most of which remain close to the 2½% target. People often ask if this relative success at targeting inflation has come at a cost in terms of lost output or employment. It is increasingly accepted, I think, that there is no such trade-off in the long run. And, looking at the recent UK data, it is hard to see any trade-off even in the short run. Output has now risen for 36 consecutive quarters, the longest continuous expansion since post-war records began. | All this will make for an interesting November round where, as I indicated earlier, we will look carefully at all the data, making our decision firmly in the light of the inflation target we have been set. Maintaining financial stability Having discussed monetary policy, I now want to turn to the other key role of the Bank of England - that of maintaining stability in the overall financial system. This does not, of course, mean that we BIS Review 87/2001 3 supervise individual banks, building societies and investment firms. Since 1997, that role has been carried out by the FSA. The Bank, by contrast, is responsible for providing analysis of potential threats to the system as whole. We are responsible for financial system infrastructure, in particular payments systems. And, in exceptional circumstances, we would be responsible for undertaking official support operations to prevent difficulties in one institution affecting other parts of the financial system. Of course, we cannot do these jobs in isolation. Co-ordinating our system wide perspective with the FSA's daily supervisory responsibilities and the Treasury's legislative role is essential to the smooth functioning of the arrangements. A Memorandum of Understanding, signed by the Bank, the FSA and the Treasury in October 1997, sets out our respective responsibilities, both in 'normal' times, and in a crisis. And we work hard to foster these relationships, helped by the fact that I am a member of the FSA Board and Howard Davies is a non-executive director of the Bank. | 1 |
The challenge before us is how then should the financial system be developed and regulated so that these pitfalls will be avoided while at the same time remaining dynamic and innovative so that we can push our frontiers and gain the progress that we aspire. While innovation remains essential to economic progress, it needs to be within the context of stronger governance and sound risk management practices. Positive innovation can make enormous contributions to economic performance. The financial system has to deliver the essential financial services that would cater to the financial needs of all sectors of the economy – from households, small and medium enterprises, including to micro enterprises and to the corporate sector. The financial system also has to take into account the fundamental changes taking place in the global economy and the growing participation of emerging economies in the global economy. As we become more interlinked, financial systems also need to become more internationalized to facilitate and reinforce this trend. The role of the financial system is essentially to effectively intermediate and to meaningfully mobilize funds including from across borders to be channeled to productive economic activity. Such intermediation must be firmly anchored and aligned to the objective of generating sustainable and balanced growth, raising the standards of living, creating employment and promoting development. With clarity in the role of the financial system and the importance of its link to the economy, the range of the financial solutions offered needs to meet these highly differentiated and changing requirements. | John C Williams: The joys of spring Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the 21st Annual Bronx Bankers Breakfast, Bronx, New York, 10 May 2019. * * * As prepared for delivery It’s an honor to be kicking off Bronx Week, and I’d like to thank Borough President Ruben Diaz, Jr., for the kind invitation. I first visited the Bronx—and first met Ruben—back in November, when I also spent time with students discussing their plans for the future. I was particularly impressed by their talent, energy, and enthusiasm, which is a true reflection of this vibrant and proud community. Today I’m going to share some brief remarks on the national and global economy. I’ll then discuss what that means for monetary policy today and going forward. For me, the most interesting part of this event is hearing and responding to your questions, so please, don’t be shy when I open the floor for discussion. I’ve warned you that monetary policy is on the agenda, so before I go any further, I have to give the usual Fed disclaimer that everything I say reflects my own views and not necessarily those of the Federal Open Market Committee or anyone else in the Federal Reserve System. The U.S. Economy With that out of the way, let me start by saying the U.S. economy is in a very good place. | 0 |
Mismatch Speech given by Ben Broadbent, Deputy Governor Monetary Policy Bank of England 22 July 2021 I’ve received helpful comments from colleagues at the Bank of England, both those on the MPC and also Matt Corder, Andrew Hauser, Fergal Shortall, and Brad Speigner. As you might expect for something with so many graphs I’ve also had lots of help with data. For that I must thank Nishat Anjum, Justin Beresford, Phil Bunn, Emil Iordanov, Zaar Khan, Hela Mrabet, Douglas Rendle and Brad Speigner, as well as Spencer Hill at Goldman Sachs for the numbers in Chart 12. I also want to give particular thanks to Mette Nielsen, for her fantastic work not just on this speech but throughout her time in the DGMP office. After nearly four years in this job Mette has finally escaped and is moving on to another. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Financial Policy Committee or the Monetary Policy Committee. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice Introduction and summary Good morning. We’re going through a period of very rapid economic growth. On a reasonable estimate GDP in the second quarter of this year was probably around 5% higher than in the first and more than 22% higher than a year earlier. That’s easily the fastest year-on-year rate of growth since quarterly estimates began in the mid-1950s, and probably a long time before that as well. | 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 happened over the past year isn’t a surprise, given the drop in employment (Chart 2 provides the comparison). Whatever their contribution to recent rates of inflation we can at any rate expect the effects of lower participation and the CJRS to fade soon enough. The participation rate is likely to rise again as the labour market recovers and the furlough scheme is being wound down. So today, in the interests of thinking about what might prove more persistent sources of inflation, I want to concentrate on other things, stuff that’s not directly evident from the aggregate data. In doing so I’ll be expanding on a theme – the broad description might be “mismatch” – that I touched on in a talk earlier this year and that my fellow MPC members Michael Saunders and Jonathan Haskel have also developed in their recent speeches3. One of the things I pointed out at that time was that, despite the weakness in aggregate UK consumption, some areas of spending had been pretty strong. Broadly speaking, and for understandable reasons, the pandemic had induced a sizeable shift in UK consumer spending from services to goods. And shifts in spending of this sort, at least until (and unless) they’re met by matching shifts in supply, tend to push up average prices. In part that’s just because retail goods prices tend to be more flexible than those of services. | 1 |
Central Bank of Chile July 2020 “The Chilean Peso as an Eligible CLS Currency: Second Workshop CLS-CBC” Opening remarks by Mario Marcel, Governor of the Central Bank of Chile July 21st, 2020 – Santiago, Chile (via WebEx) I. Welcoming remarks Good morning everybody and welcome to the second joint workshop between CLS and the Central Bank of Chile (CBC) dedicated to the “Nostro” service, a fundamental business in the CLS payment system operation. This event is part of the process of incorporating a new currency into the CLS System. This belongs to the due diligence and analysis phase that CLS and the CBC are respectively finalizing. Then we should move to the implementation phase. This workshop complements the provision of information on CLS and the bilateral meetings that bankers have been holding with CLS and the CBC for some time, to assist banks in assessing the benefits, prospects and opportunities in participating in the system, either as a Settlement Member or Nostro. I am looking forward to the banking sector’s active participation in this workshop that features representatives of the Nostro banks and CLS experts. II. The Chilean Peso incorporation process • The process of incorporating the Chilean Peso in CLS, started last year when we sent the Letter of Intention to CLS to demonstrate our commitment to the process and initiate the engagement stage. | The launch of this scheme has opened up a channel for offshore RMB funds to invest on the Mainland. Market responses to this scheme have been very positive. As I mentioned at the beginning, Mainland China is now the second largest economy and the single largest source of new economic activities in the world. The increasing use of RMB in the international stage – although that will be a gradual process – will have profound implications on the global financial landscape in the years to come. Concluding remarks So, the trends are very clear. Now is a critical time for market players, including banks, financial institutions and asset management companies, to prepare themselves well for the unprecedented opportunities presented by China. Thank you. 4 BIS central bankers’ speeches | 0 |
It is this macro-prudential perspective that I want to discuss today – specifically, to consider how macro-prudential policy will need to adapt, just as our health-care plans adapt, to be fit for the challenges of the future. Since the global financial crisis, the financial system has not been a cause of sustained economic instability. But this is no reason for complacency. The financial system is ever changing. And experience suggests our job may not yet be complete. So today, I will begin by setting out why financial stability is important and the role of macroprudential policy in delivering it. In so doing I hope to set out why it’s as important for the financial system to observe macro-prudential policies as it is for patients to stick to their health-care plans. I will then briefly set out some principles on which good macro-prudential policymaking is based. The rules of thumb that underlie our prescriptions if you like. And I will conclude by raising some challenges that macro-prudential policy is facing now, including my thoughts on the road ahead. Through that, I hope to set out how we need constantly to adapt macro-prudential policies, as we do with our health-care plans as lifestyles evolve. Interactions between financial stability and sustainable growth and the role for macroprudential policy Why is financial stability important? To understand why we place so much emphasis on a well-grounded macro-prudential framework, it’s important to understand why we care about financial stability in the first place. | UK household indebtedness is high (a)(b)(c)(d) by historical standards Household debt to income ratio (of which mortgages) Probability Household debt to income ratio (excluding mortgages) Total household debt to income ratio Per cent of income 160 140 120 100 80 60 Annual GDP Growth 40 20 0 1987 87 Sources: ONS and Bank of England. (a) Distribution in each quarter is derived from quantile regressions of Real GDP growth on composite measures of real economy leverage and asset prices. Methodology follows quite closely that of Adrian et al (2016), ‘Vulnerable Growth’. 91 95 99 03 07 11 15 Sources: ONS and Bank calculations. (a) Total household debt to income ratio is calculated as gross debt as a percentage of a four-quarter moving sum of gross disposable income of the UK household and non-profit sector. Includes all liabilities of the household sector except for unfunded pension liabilities and financial derivatives of the non-profit sector. (b) Mortgage debt to income is calculated as total debt secured on dwellings as a percentage of a four-quarter moving sum of disposable income. (c) Non-mortgage debt is the residual of mortgage debt subtracted from total debt. (d) The household disposable income series is adjusted for FISIM and changes in pension entitlements. 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 Chart 7. UK house price to household income (a)(b) ratio House price to household income Chart 8. | 0 |
The Fund came through the financial crisis without suffering losses. Nevertheless, during and following the crisis we have gained valuable experience. This experience is important as a basis for the management strategy of the Fund ahead. A key part of Norges Bank’s management task is to advise the Fund’s owner on the need for changes in the investment strategy. The Fund’s investment strategy is based on the Fund’s comparative advantage and is formulated in a way that supports the mandate and limits defined by the owner. I would like to highlight the following issues from our strategy plan for 2011–2013: regional allocation composition of the fixed income benchmark increased emphasis on absolute return The purpose of the management of the Fund is to maximise its long-term international purchasing power. The return on the Fund must be used for importing goods and services. A key question for the investment strategy is to what extent international purchasing power is exposed to foreign exchange risk and how this foreign exchange risk can best be managed. Norway’s neighbouring countries are its largest trading partners and may be a natural choice for the investment of the Fund’s capital. This will provide an exchange rate hedge for future imports from these countries. On the other hand, changes in exchange rates will often be counteracted by differences in price developments between countries. | Prices have also risen considerably over the past year as a result of poor crop yields in many parts of the world following storms and drought. Our analyses of the outlook for the world economy and the Norwegian economy are based on the assumption that oil prices will remain at the current level. It is difficult to predict future prices with any assertion. Should oil prices show a marked decline, the oil fund mechanism will to a considerable extent shield the Norwegian economy from the short-term negative consequences of a fall in oil revenues. However, our petroleum wealth will be reduced. On the other hand, should oil prices continue to rise, the Government Pension Fund Global and the fiscal rule provide a sound and robust system for coping with higher revenues. The investment strategy for the Government Pension Fund Global Let me now turn to how the changes in the world’s economic geography influence the investment strategy of the Government Pension Fund Global. Chart: Norway’s terms of trade Norway has profited from globalisation, through both trade and capital markets. As a major commodity exporter we have benefitted from high commodity prices. At the same time, we have had access to cheap imports from emerging economies. Norway’s terms of trade have improved throughout the past decade. Norway’s national income has risen substantially throughout the oil age. Substantial current account surpluses and the buildup of the Government Pension Fund Global have also made Norway a significant exporter of capital. | 1 |
New facilities were introduced that extended liquidity for longer durations against expanded sets of collateral (public and private) to new counterparties (bank and non-bank). This took last-resort lending to a new level. Some central banks went one step further, becoming effective market-makers of last resort in some assets to secure market liquidity. These were new and bold steps. A fourth dimension was transparency. With monetary, regulatory and operational policies all working in overdrive, central banks have had plenty of explaining to do. During the crisis, their actions have shaped the behaviour of pretty much every financial market and institution on the planet. So central banks’ words resonate as never previously. Rarely a day passes without a forensic media and market dissection of some central bank comment. These, too, are significant steps to have climbed. Where does this leave central banks today? We are not in Kansas any more. On monetary policy, we have gone from setting short safe rates to shaping rates of return on longer-term and wider classes of assets. On regulation, central banks have gone from spectator to player, with some granted micro-prudential as well as macro-prudential regulatory responsibilities. On operational matters, central banks have gone from market-watcher to market-shaper and market-maker across a broad class of assets and counterparties. On transparency, we have gone from blushing introvert to blooming extrovert. In short, central banks are essentially unrecognisable from a quarter of a century ago. Up or down? The key question, then, is where next? | The ECB’s asset purchases are being expanded in terms of both size and composition: the monthly purchase volume has been increased from € billion to € billion and the universe of eligible assets now includes non-bank corporate bonds. Purchases are intended to run until the end of March 2017 – or beyond, if necessary – , and in any case until the Governing Council sees a sustained adjustment in the path of inflation to levels close to 2% over the medium term. Taking into account the current outlook for price stability, the Governing Council expects the ECB’s key policy rates to remain at present or lower levels for an extended period of time, well past the horizon of the net asset purchases. We are confident that the very accommodative monetary policy stance will provide further support to the euro area recovery and will accelerate the return of inflation to levels that we consider to be consistent with our objective. The Governing Council has done and, within its mandate, will continue to do whatever is needed to pursue its price stability objective. Our very accommodative monetary policy stance has provided considerable support for the euro area recovery. By supporting growth prospects, our actions have also been beneficial for financial stability. | 0 |
Ambassador, is that Texas is part of the United States and, all told, our economy is on the mend from the frightful shock of the financial and economic implosion of 2007–09. This is the dashboard that we at the Dallas Fed use to track our national economy: BIS central bankers’ speeches 5 The Federal Reserve is mandated by the laws of the United States to manage monetary policy to achieve full employment while maintaining price stability and “moderate interest rates” over time.1 A “Hindu goddess” As you can see from this graphic, unemployment has declined to 6.2 percent, and the dynamics of the labor market are improving. At the Federal Open Market Committee, where we set monetary policy for the nation, we have been working to better understand these employment dynamics. This is no easy task. Bill Gross, one of our country’s preeminent bond managers, made a rather pungent comment about our efforts. | I should note that the Review uses data that was available up to 5 May 2006. In my presentation (some of the slides), I will refer to developments since this cut-off date. In presenting the main findings of the analysis, I will broadly follow the structure of the Review (as outlined on slide 2). 2. Overview of the main risks and vulnerabilities I would like to begin with an overview of some pertinent developments in the euro area financial system and of the main sources of risk and vulnerabilities for euro area financial stability, in comparison to the assessment in the December 2005 Review. Overall, the developments since last December lend support to the view that the euro area financial system is robust and well-capable of withstanding shocks. First, the pace of global economic activity has strengthened and it has become more evenly distributed. Second, the balance sheets of euro area banks and insurance companies have continued to strengthen. At the same time, these positive developments are clouded by the fact that the risks and vulnerabilities we identified in the December 2005 Review remain and some of them have increased. Global imbalances have continued to grow. Moreover, it cannot be excluded that tightening liquidity conditions in the G3 economies could yet expose vulnerabilities in the pricing of assets following a protracted period of hunt for yield in a low interest rate environment. Particularly at risk are leveraged investors, especially hedge funds, and this could accentuate the risks of disorderly market corrections. | 0 |
[6] See, e.g., Brand, C., Ferrante, L., and Hubert, A. (2019), “From Cash- to Securities-Driven Euro Area Repo Markets: The Role of Financial Stress and Safe Asset Scarcity”, ECB Working Paper No. 2232. [7] Regulatory changes have also led to a higher demand for collateral assets. The implications of the increasing role of collateral in financial markets for financial stability and monetary policy are reviewed in Corradin, S., Heider, F. and Hoerova, M. (2017), “On Collateral: Implications for Financial Stability and Monetary Policy”, ECB Discussion Paper No. 2107. [8] For a discussion of the role played by the CCPs in counterparty risk insurance and collateral saving, see, e.g., Biais, B., Heider, F. and Hoerova, M. (2012), “Clearing, Counterparty Risk and Aggregate Risk”, IMF Economic Review, 60(2), pp. 193-222. [9] Excess liquidity refers to central bank liquidity provision in excess of bank minimum reserve requirements and autonomous factors. [10] Eisenschmidt, J., Ma, Y. and Zhang, A. L. (2020), “Monetary Policy Transmission in Segmented Markets”, Working Paper. [11] Duffie, D. and Krishnamurthy, A. (2016), “Passthrough Efficiency in the Fed’s New Monetary Policy Setting”, in Designing Resilient Monetary Policy Frameworks for the Future, Federal Reserve Bank of Kansas City, Jackson Hole Symposium. The index compares deviations of each of the short-term (overnight) money market rates from Chart 2 to the volume-weighted mean rate, and creates a volume-weighted index of these deviations. The index for the euro area shown in Chart 4 is from Corradin et al. (2020), op. cit. | Other drivers of the turmoil included regulation and bank internal risk management limits, as well as concentrated reserve holdings (with a few banks holding large amounts of reserves). Despite the lack of contagion to the euro area in this episode, it is a relevant lesson to consider for future euro area monetary policy normalisation (while bearing in mind that concentration of reserves in the United States is structurally higher than in the euro area). [19] History can provide an interesting perspective and the paper by Anderson, Chang and Copeland (2020) featured in this conference examines the effects of central bank liquidity provision during the 1918 Influenza Pandemic; see Anderson, H., Chang, J.-W. and Copeland, A. (2020), “The Effect of the Central Bank Liquidity Support during Pandemics: Evidence from the 1918 Influenza Pandemic”, Working Paper. [20] For a model in which the distribution of excess liquidity among banks matters for the money market dynamics see Afonso, A., Armenter, R. and Lester, B. (2019), “A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow,” Review of Economic Dynamics 33, pp. 177-204. [21] For an analysis of scarcity effects see Arrata, W., Nguyen, B., Rahmouni-Rousseau, I. and Vari, M. (2019), “The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area”, Journal of Financial Economics, 137(3), pp. 837-856; and Corradin, https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201123~8d9573b1b1.en.html 6/7 24/11/2020 Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic S., and Maddaloni, A. | 1 |
In the UK at least, macroprudential policy has become an operational reality. Now, with the help of research and the latest techniques, we’re looking to the future. That work will help us stay disciplined and agile in keeping up with changes in the economy. It’s guiding us to what needs to be monitored closely in the non-bank system and where new standards of resilience might be needed to keep up as the financial system changes shape. Keep up we must. It’s no use waiting for the tremors. When the economic ground shakes, whenever that may be, we will all want the financial system to be resilient. 20 All speeches are available online at www.bankofengland.co.uk/news/speeches 20 | Payments: A platform for innovation Speech given by Victoria Cleland, Executive Director; Banking, Payments & Innovation SIBOS, London Tuesday 24 September 2019 With thanks to Sara Ward and Emma Playford. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches It is a great pleasure to be speaking today at the ‘UK payments infrastructure – renewing for growth’ event at Sibos. This year’s event is exciting for two reasons. First, it’s National Inclusion week here in the U.K.1 And, it’s a great coincidence that SIBOS has fallen during this week: at the heart of its agenda are discussions around how change and diversification in payments could lead to a more inclusive financial system. Second, this is the first Sibos conference to be held in London – and it is certainly an exciting time for so many global payments experts and innovators to be here. London has a long history at the heart of the global financial system. It continues to build on this expertise and is one of the leading fintech hubs in the world. It is home to an incredible pool of the world’s best and brightest talent, with 44,000 people already working in fintech, more than in Silicon Valley or New York.2 Investment into the UK’s fintech sector continues to grow and reached a record level of $ in the first half of 2019, which was nearly 85% of the 2018 total.3 And we can see that the UK fintech sector is maturing, evidenced by the size of increased investments. | 0 |
For a long time the inflation target was expressed in terms of the Consumer Price Index (the CPI), but since 2017, it has been expressed in terms of the CPI with a fixed interest rate (the CPIF). In the CPIF the direct effects of changes in mortgage rate have been excluded. 1 2 The following description of the concept of inflation can be found on the Riksbank’s website: If prices of some individual goods or services rise, this is not inflation. Prices of individual goods and services can rise because, for instance, it is more difficult to get hold of them. For instance, the price of oil may rise as oil reserves diminish. Such price increases are usually called relative price increases and are thus not inflation. For inflation to exist there should be an increase in the general price level, that is, prices in general should rise. And if one is to call it inflation, the price increase should be lasting. If, for instance, the government raises VAT, this has a one-off effect on the general price level, but does not lead to prices continuing to rise. The CPI is calculated every month by Statistics Sweden (SCB) and is intended to measure the changes in an average Swedish household’s living expenses. The measure is an aggregate of prices of a number of different goods and services. The aggregate is based on how large the proportion of each product or service is in relation to an average household’s total consumption costs. | The Fund therefore purchased a large volume of equities from 2001 to 2003 and is buying a considerable volume now. Of the equities now owned by the Fund, 40 per cent were purchased last year when prices were moving down. 9 Knut Hamsun (1976): August. In Samlede Verker 11, Gyldendal Norsk Forlag, p. 120. (Unofficial translation by Norges Bank’s translators). BIS Review 16/2009 19 As a result, ownership in the business sector in the US, Europe and Asia has increased – in companies’ human capital, in their machinery and equipment, brands and organisation. In the long run, and even though many companies have now folded, it may perhaps be at least as safe as extending loans. Conclusion Let me conclude. At the moment, activity is falling in the Norwegian economy, as elsewhere. The source of the downturn is external. We cannot shield ourselves from its impact, but we can decide how we will address the turnaround. The global financial highway is now being modernised and overhauled. It is essential that traffic again flows smoothly. Rimbereid asks: “In which landscape Will we lay our next lucrative track?” 10 Norway has a credible and robust economic policy, and a business sector that is quick to adapt. This is a good point of departure. Thank you for your attention. 10 20 Øyvind Rimbereid, 2008: Herbarium, p.54. (Unofficial translation by Norges Bank’s translators). BIS Review 16/2009 | 0 |
If monetary policy were to need to be more expansionary we can extend the purchases of government bonds, or cut the repo rate further and lower the repo-rate path. We also have the possibility of introducing a programme of loans aimed at companies similar to the ECB’s TLTRO or the Bank of England’s “Funding for Lending Scheme”. Moreover, we can intervene on the foreign exchange market. How do complementary monetary policy measures work? Regardless of which measure one chooses, the effects of complementary monetary policy can be divided into two main lines; one is that they contribute to reducing interest rates in general and the other that they increase the amount of money in the economy. The purchases of government bonds reduce the supply available in the market, which leads to an increase in the price and a decrease in the yield. When government bond yields fall, investors find it more attractive to seek higher-risk assets, which pushes down interest rates and raises prices there, too. This is usually called the portfolio balance channel. When the price of the assets rises, the wealth of those who own the assets also increases, which contributes to stimulating consumption and investment. More liquidity among the banks may also lead to increased lending. All in all, complementary monetary policy thus functions in roughly the same way as normal repo-rate cuts. | Negative repo rate and bond purchases – to safeguard the credibility of the inflation target The fact that we now have introduced a negative interest rate and begun purchasing government bonds in Sweden is basically because we want to safeguard the role of the inflation target as nominal anchor. I mentioned earlier that monetary policy should give consideration to financial stability. But this is because financial stability is a necessary condition for attaining stable inflation in the long run. Conditions for being able to give 23 For further information, see “Low global interest rates”, article in the Monetary Policy Report, October 2014, Sveriges Riksbank. See also Hamilton, D., Harris, E. S., Hatzius, J. and West, K.D., “The Equilibrium Real Funds Rate: Past, Present, and Future”, University of California at San Diego Working Paper, 2015. BIS central bankers’ speeches 9 consideration to financial stability in monetary policy decisions are that inflation expectations are firmly anchored around the target and that inflation is fairly close to the target. With hindsight, we can see that inflation has been lower than the Riksbank and most other forecasters had expected. And this doesn’t only apply to Sweden; inflation is very low in most developed countries. What happened in Sweden last year, when inflation continued to be lower than expected at the same time as inflation expectations continued to fall, has thus rather dramatically changed the conditions for monetary policy. | 1 |
Widespread acceptance in over 100 countries of the first Basel Accord as the international “yardstick” has strengthened the capital base and leveled the playing field for banks that compete internationally. As you may know, by the late 1990s, it became clear that the original Accord was becoming outdated. Its broad-brush nature - where required capital generally does not differ by degree of risk - has had a tendency to discourage certain types of bank lending. It has also tended to encourage transactions whose sole benefit is regulatory capital relief. Further, the improvements in risk management tools changed the way that banks monitor and measure risk in a manner that the 1988 Accord could not anticipate or address. Today it is quite clear that the original Accord provides internationally active banks, for which it was intended, with less meaningful measures of the risks they face and of the capital they should hold against them. To respond to these challenges, the Committee began a few years ago to develop a more flexible and forward-looking capital adequacy framework - one that better reflects the risks facing banks and encourages them to make ongoing improvements in their risk assessment capabilities. The Committee believes that all banks should be subject to a capital adequacy framework comprising minimum capital requirements, supervisory review, and market discipline. These are the three pillars of the New Accord. As you may know, the current Accord only has one pillar - minimum capital requirements. | On the other hand, financial globalisation may have reduced the natural rate of interest by increasing global demand for safe assets. With regard to all these factors, it is worth considering whether globalisation affects inflation via structural changes in markets, pricing behaviour or mark-ups. Its impact is ambiguous. On the one hand, as discussed above, trade and participation in global value chains could increase competition and generate strategic complementarities. On the other hand, it has been argued that the interplay between globalisation, digitalisation and the increase in importance of intangible assets may give rise to high-margin firms with considerable market power, lower pass-through of costs to prices 21 and implications for inflation volatility, the transmission of monetary policy and the natural interest rate. 16 Fo rbes, K. (2019). “Inflatio n dynamics: dead, do rmant o r determined abro ad? ”. Bro o kings Papers o n Eco nomic Activity, Fall. 17 In highly interlinked financial markets, lo ng-term interest rates and risky asset prices are expected to be increasingly affected by glo bal facto rs. 18 Geo rgiadis, G. and A. Mehl (2015). “Financial glo balisation and monetary po licy effectiveness”. Jo urnal o f International Eco no mics, 103, pp. 200-212. 19 Fo r example, as the exchange rate depreciates in respo nse to mo netary po licy lo osening, imported inputs used in the pro ductio n o f expo rts beco me mo re expensive, inducing expo rters to raise their ho me currency price. | 0 |
At the end of the day, the question is an empirical one. Here, there is no evidence that Hong Kong’s long term growth has been impeded by our exchange rate regime. Indeed, there is some evidence that Hong Kong has grown more rapidly than would otherwise be expected on the basis of our factor endowments. Perhaps this should not be surprising. It would seem natural that the very flexibility required to respond to short-term shocks under a fixed exchange rate regime would foster a climate of innovation capable of turning challenges into opportunities. Hong Kong’s involvement in the rapid opening and development of the Mainland economy is an excellent example of this. It seems to me, then, that the sustainability of our exchange rate system has been demonstrated through its performance. While the economic logic is important, of course, it is irrelevant unless it is complemented by a high degree of public support — the ultimate test of sustainability is that the public at large recognise and endorse the benefits of the linked exchange rate. The high degree of public support that the linked exchange rate continues to enjoy — in spite of the painful aspects of the current adjustment process — testifies to the strength of the consensus that our system is appropriate. The choices for Asian economies The linked exchange rate system, with its strict currency board arrangements, has served Hong Kong well since 1983. | The only policy rule in common use in developed countries with floating exchange rates is inflation targeting: so far this appears to have been quite successful, although the experience is still limited. The technical requirements are demanding, however, and especially so for developing economies. Policy makers must be able to accurately forecast not only inflation but also the response of inflation to changes in the policy levers. This is a challenging enough task for the highly trained staff in central banks of developed economies, who generally benefit from dealing with a relatively stable economic structure and from considerable experience in BIS Review 53/1999 6 monetary management under floating exchange rates. Needless to say, the success of developing economies in operating such a system is far from assured. An alternative approach would be to proceed along the same path that Europe is pursuing, in the form of a monetary union. There are clear advantages to this approach. One of these is the creation of markets in a single currency that are sufficiently large to make it difficult for individual speculators or groups of speculators to manipulate markets. Another advantage is that trade within the monetary union is fostered by the certainty and ease of transaction in a single currency. Of course, as the EMU experience shows, there are important political issues that must be resolved before monetary union can become a reality. | 1 |
“Investment and Demand Uncertainty.” Quarterly Journal of Economics 114, no. 1 (February): 185–227. Hurd, Michael. 2009. “Subjective Probabilities in Household Surveys.” Annual Review of Economics 1 (September): 543–64. Leiser, David, and Shelly Drori. 2005. “Naıve Understanding of Inflation.” Journal of SocioEconomics 34, no. 2: 179–98. Likert, Rensis. 1932. “A Technique for the Measurement of Attitudes.” Archives of Psychology 22, no. 140: 1–55. Mahajan, Aprajit, Alessandro Tarozzi, Joanne Yoong, and Brian Blackburn. 2008. “Bednets, Information, and Malaria in Orissa.” Mimeo, Stanford University. Mankiw, Gregory, and Ricardo Reis. 2002. “Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve.” Quarterly Journal of Economics 117, no. 4: 1295–328. Manski, Charles. 2002. “Identification of Decision Rules in Experiments on Simple Games of Proposal and Response.” European Economic Review 46, no. 4–5: 880–91. Manski, Charles. 2004. “Measuring Expectations.”Econometrica 72, no. 5 (September): 1329–76. McKenzie, David, John Gibson, and Steven Stillman. 2013. “A Land of Milk and Honey with Streets Paved with Gold: Do Emigrants Have Over-Optimistic Expectations about Incomes Abroad?” Journal of Development Economics 102: 116–27. Potter, Simon. 2011. “Improving Survey Measures of Inflation Expectations.” March 30, 2011, speech at the Forecasters Club of New York. 18 BIS central bankers’ speeches Potter, Simon. 2012. “Improving the Measurement of Inflation Expectations.” June 7, 2012, speech at the Barclays 16th Global Inflation-Linked Conference, New York. Robertson, John C., Ellis W. Tallman, and Charles H. Whiteman. 2005. “Forecasting Using Relative Entropy.” Journal of Money, Credit, and Banking 37, no. 3: 383–401. Stein, Jeremy C. 2013. | Altavilla, Carlo, Raffaella Giacomini, and Riccardo Costantini. 2014. “Bond Returns and Market Expectations.” Journal of Financial Econometrics 12, no. 4: 708–29. Armantier, Olivier, Wändi Bruine de Bruin, Simon Potter, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar. 2013. “Measuring Inflation Expectations.” Annual Review of Economics 5: 273–301. Armantier, Olivier, Wändi Bruine de Bruin, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar. 2015. “Inflation Expectations and Behavior: Do Survey Respondents Act on Their Beliefs?” International Economic Review 56, no. 2 (May): 505–36. Armantier, Olivier, Wilbert van der Klaauw, Scott Nelson, Giorgio Topa, and Basit Zafar. Forthcoming. “The Price Is Right: Updating of Inflation Expectations in a Randomized Price Information Experiment.” Review of Economics and Statistics. Armantier, Olivier, Wilbert van der Klaauw, Giorgio Topa, and Basit Zafar. 2016. “Who Is Driving the Recent Decline in Consumer Inflation Expectations?” Federal Reserve Bank of New York Liberty Street Economics (blog), January 25. Attanasio, Orazio. 2009. “Expectations and Perceptions in Developing Countries: Their Measurement and Their Use.” American Economic Review Papers and Proceedings 99, no. 2: 87–92. Attanasio, Orazio, and Katja Kaufmann. 2009. “Educational Choices, Expectations, and Credit Constraints.” NBER Working Paper no. 15087, July. Subjective Attanasio, Orazio, Costas Meghir, and Marcos Vera-Hernández. 2005. “Elicitation, Validation, and Use of Probability Distributions of Future Income in Developing Countries.” Paper prepared for the 2005 Econometric Society Meeting. Bernanke, Ben S. 2015. The Courage to Act: A Memoir of a Crisis and Its Aftermath. New York: W. W. Norton and Company. | 1 |
The first of these is that size must be determined by the banking system’s size and funding structure. It is therefore inappropriate to confirm a specific figure by law, as it is very difficult to make an accurate forecast of how the banking system and financial markets will develop over the coming decades. My second point concerns whether foreign exchange should be held in advance or borrowed when problems arise. One advantage of having small foreign exchange reserves is that the running costs for them will be very small. If you believe that foreign exchange can always be borrowed when necessary, there is good reason to only have small foreign exchange reserves. But I have been involved in managing a number of banking crises around the world and one lesson I have learned from that work is how rapidly a developing crisis can worsen when foreign exchange reserves are not easily accessible. Neither do I believe that it will be so easy to borrow foreign exchange fast enough in all conceivable scenarios and therefore consider it important that the possibility of holding well-balanced foreign exchange reserves is not restricted. Sufficiently large foreign exchange reserves also send an important signal to the rest of the world that we are ready to manage problems should any arise. Furthermore, it is always the lender who sets the terms, at the same time as lending preferably takes place to those who do not need to borrow. | Now, we’ve all become very familiar with breathless reports on China’s “economic miracle,” so I won’t go over this at length. Still, the startling pace of growth does warrant underlining. In a little over a decade since the year 2000, the Mainland’s nominal GDP increased sixfold from 1.2 to 7.2 trillion US dollars; and its external trade expanded more than sevenfold, from less than 500 billion to over 3.6 trillion US dollars. At the same time, its cross-border direct investments rose fourfold, from just over 40 billion to approaching 180 billion US dollars. These are all impressive indicators of the vast amount of business opportunities present. It is perhaps even more astonishing that, by 2016, the Mainland is expected to contribute over a third of total world economic growth, according to the projections of the International Monetary Fund. Change in the international financial system Such shifts in the global economy have inevitably foreshadowed a change in the international financial system. As the Mainland economy has grown, its currency and financial sector have moved increasingly centre-stage. Over the last decade or so, policymakers, investors and others have shown more interest in using a greater mix of currencies for international trade and financial transactions. This trend has been accelerated by the recent Global Financial Crisis, as the need to reduce reliance on just one or two global currencies has grown. Taken together, these trends imply a greater role for the RMB in the Mainland’s trade and investment with the rest of the world. | 0 |
We can learn valuable lessons from the practices of great Muslim thinkers of the past such as Al-Farabi and Ibn Sina who drew strong influences from the writings of Greek philosophers such as Aristotle, but revolutionised and updated the knowledge into the context of Islam and their contemporary times. The benefits are immense. It allows knowledge to thrive and develop further as it becomes more applicable and easier to grasp. It is therefore wise for us to widen our "peripheral vision" to encompass business considerations in interpreting and applying the principles of Shariah. This is essential, if we aspire to break away from a compliance-based mentality into an outcome-based worldview. The mental shift would position Shariah scholars as not merely the leaders in Shariah knowledge, but also as the catalyst for business innovations. It is in this spirit that Bank Negara Malaysia is enhancing the Shariah Governance Framework for Islamic financial institutions. The new framework calls upon the Shariah Committees to integrate relevant business and risk considerations in Shariah decisions. Our aim is to position these committees as an enabler and catalyst in supporting the board and senior management. One that drives innovation by providing practical, actionable and impactful Shariah advice. By capturing multifaceted challenges faced by the industry, this framework ensures an ongoing support to Shariah advice amid the fast-changing business environment. Second is the pursuit of lifelong learning. It is through the relentless quest for knowledge that the great scholars of the past have left a lasting impact on our world. | Lim Hng Kiang: Singapore’s key role in Asia Opening remarks by Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy Chairman of the Monetary Authority of Singapore, at the 8th Annual Citi Asia Pacific Investor Conference 2011, Singapore, 16 February 2011. * * * Distinguished guests, Ladies and gentlemen, 1. Good morning and a very warm welcome to everyone here today. It is my pleasure to join you here at the 8th Citi Asia Pacific Investor Conference. 2. This conference is taking place at a time when the global economic recovery is picking up pace. Against this backdrop, there will be many opportunities to be explored. I am confident that this conference will provide an excellent platform for participants to share ideas and build networks. 3. The world’s economic landscape has been re-shaped since the recent global financial crisis. The recent crisis was said to be the worst since the Great Depression of the 1930s. Today, the advanced economies which were at the epicenter of the crisis still face headwinds in their recovery. In the United States, economic recovery remains fragile after two rounds of quantitative easing measures. In the Euro-zone, concerns over sovereign debts have yet to subside. There are still uncertainties in the horizon for these advanced economies. 4. This time, Asia is at the forefront of the global recovery. Asia’s resilience, built up over the years since the Asian Financial Crisis, has enabled us to weather this crisis better. | 0 |
Moreover, we assume that electricity tariffs will be adjusted as required by the automatic pricing mechanism. These changes imply upward revisions in our forecasts by 0.9 points for end-2008, and 0.4 points for end-2009. Although weak domestic demand should limit the second round effects of the exchange rate pass-through, the first round impact of the recent depreciation is estimated to be close to 2percentage points at the end of 2008, which implies further upward revision in our forecasts. Within the framework that I have drawn up so far, we now forecast inflation to be around 9.3 percent at the end of 2008. Our medium term forecasts suggest, with 70 percent probability that, under the assumption of a measured and gradual tightening towards mid-2008 and constant policy rates thereafter for the rest of 2008, inflation will be between 4.9 and 8.5 percent (mid point 6.7) at the end of 2009 (Figure 14). Assuming a gradual moderation in food inflation, headline inflation is expected to decelerate to 4.9 percent at the end of 2010 and to 4 percent by mid-2011. We expect non-food inflation to be lower than these figures. | The Bank of Albania expects the situation to improve in the next few months, following the macro prudential measures we have taken to facilitate lending, and banks’ cleaning up of balance sheets and credit restructuring. I did not intend to make a random overview of the situation, but to show the Albanian economic reality at this moment and present the future challenges. It is easily understandable that the weak economic growth calls for innovative solutions from other new sectors. There is room for banks to lend to profitable projects as they continue to collect deposits and maintain sound levels of financial ratios. It is now the responsibility of all policy-makers to help entrepreneurship, in order to get a clear view of the right investments for the future. We have stated in our reports that the new sources of growth should originate from competitive sectors in the domestic and, even further, in the external market, so that the trade balance keeps on showing the improvements of 2013. Export growth is important in the long run to offset the moments of weakness in domestic demand, by diversifying the sources of income. Although the economy benefits from the increase in the exports of mineral products, the latter are often exported without any sort of processing in the domestic market and, consequently, make little contribution to improving productivity and competitiveness of the Albanian economy. Bank of Albania’s research and analyses show that traded goods’ sector has shown increasing productivity compared to the non-traded one. | 0 |
Since last November, the three-month Libor had been held at the desired level of 0.25%. However, from mid-May it began sinking rapidly and is currently well below that level. The fall in the rate is a sign that the banking system is currently holding a very large amount of liquidity. My colleague, Jean-Pierre Danthine, will talk about this in greater detail. Interest rates on the capital market have also fallen. In June, yields on 10-year Swiss Confederation bonds fell to a record level. The low capital market interest rates reflect a higher demand for Swiss government bonds. In addition, long-term inflation expectations continue to be firmly anchored. Private companies are also benefiting from low interest rates on capital markets. Credit risk premia have fallen further and rates of interest on bank loans are also at a very low level. Since the last monetary policy assessment, the Swiss franc has appreciated against the euro. It has simultaneously depreciated against the US dollar. As a result, the trade-weighted external value of the Swiss franc has only slightly increased. The expansionary monetary policy is also reflected in the monetary aggregates. Thus, the monetary base rose to a record CHF 128.6 billion in May, and growth of the monetary aggregates is continuing at a high level. For example, M2 was growing at 10.2% in May and M3 at 7.1%. Credit growth also increased further. After slowing to 2.7% in September 2009, the rate of growth increased to 4.1% in April. | The recent Basel standard, published at the end of 2022, which regulates banks' exposure to crypto-assets is also a very encouraging first step in shielding the banking sector from contagion risks. 2.3 Pursuing regulatory efforts and harmonising supervisory practices [Go to slide 6] Regulatory efforts must therefore be pursued and new initiatives have already been identified: regulations on Artificial Intelligence, open finance data sharing, and electronic identification. It is clear that we are walking a tightrope: we must not restrict financial innovation in order to benefit from the contributions of digital finance and big techs, while anticipating the possible bypasses that these players will no doubt exploit, to the detriment of financial stability. To this end, the community of regulators has a clear guideline: "same activity, same risk, same rules". With this objective and this guideline in mind, what regulatory changes concerning big techs can we hope to see to ensure financial stability and fair competition with other players? First, the strengthening or introduction of a prudential framework and requirements harmonised at the European level regarding payment services and non-bank loans, which are the areas where big techs are developing more specifically. Second, the introduction of a new framework for the non-financial conglomerates that are developing in the financial sector (also known as mixed activity groups). | 0 |
Another issue that may be relevant here is the implication of a firm that has a balance sheet that looks like that of a bank but does not have direct access to the lender-of-last resort. Finally, and especially in light of the issues just raised, I think it is important for me to emphasize that the bank supervisors have expressed a clear willingness to listen to what the banking community has had to say on the issues involving electronic and Internet banking. Regulation E, promulgated by the Board of Governors, implements the Electronic Funds Transfer Act of 1978, and establishes primarily for consumer protection purposes the basic 7 See Royal Bank of Canada, et al., 83 Fed. Res. Bull. _____, (Order approved Dec. 2, 1996). Integrion also stated that it will not function as an Internet service provider, but will provide a secure electronic link to one. 9 See Notification to the Board of Governors Regarding Investment in Marketware International Inc. of Toronto Dominion Bank (Dec. 19, 1996). 10 See OCC Interp. Letter No. 742 (Aug. 19, 1996). 8 BIS Review 17/1997 -5- rights, liabilities, and responsibilities of consumers who use, and financial institutions who offer, retail electronic funds transfer services.11 Among the protections provided are required disclosures, error resolution procedures, and loss protection. | This has not yet become a significant issue because most depository institutions offering on-line services still have brick-and-mortar branches, on to which current definitions of a CRA community are based. Still, for exclusively on-line depository institutions, the CRA issue will become increasingly important as their market share grows. Some early discussions with the relevant compliance supervisors may be in order. I also note that this also raises interesting questions on the definition of the relevant geographic market in the analysis of bank mergers. Furthermore, considering the CRA issue brings forth another, broader issue: what is the role of nonbanks in the realm of Internet financial services, particularly payment services, which are still largely the province of banks and other regulated depository institutions? Because banks have been so intricately involved in the United States payments system, banks today face unique regulatory burdens: CRA, reserve requirements, deposit insurance premiums, and the costs of good supervision and good supervisors. If nonbanks begin to take significant market share away from banks because of an inherently lower cost structure, that raises real questions about a level playing field and whether or not banks can ever fairly compete. If nonbanks begin offering through the Internet many of the payment services, or alternatives to the payment services now offered exclusively by banks, that raises real concerns about the ultimate value of a bank charter, and what it really means to be a “bank.” Or is this “banking”? | 1 |
Imported inflationary pressures remain subdued; inflation in Albania’s trading partners and the rise in commodity prices are at low levels, while the exchange rate is stable. Inflation expectations and the liquidity situation in the economy are in line with the low inflation rates for the period ahead. Indirect available data on economic activity signal for positive growth rates in the first months of the year. Aggregate demand improved, driven by both private domestic and foreign demand, while the consolidating fiscal policy pursued during this period did not contribute to an increase in demand. Incoming data for June have not changed our assessment on the performance of private consumption and investments. While these important components of aggregate demand were upward during the period, their performance remains weak. Their steady recovery continues to be impeded by uncertainties faced by households and businesses and reflected in the greater risk aversion of the real and financial sectors of the economy. The Bank of Albania expects further improvement in private consumption and investments for the rest of the year, reflecting, among others, its easing monetary policy. The pace of recovery of these two indicators will determine the short and medium-term dynamics of the country’s development. Data on public sector performance show a consolidating fiscal policy over the first five months of the year. This policy materialised in a budget deficit of about 68% lower than the previous year. The tightening fiscal policy is evident both on the revenue and expenditure side. | At the end of May, monetary stimulus was strengthened by a further cut in the key interest rate. Available information on financial markets shows that this cut has been fully transmitted to the interbank and government securities markets. It was also reflected in lower financing costs of the banking system, creating, in turn, premises for the transmission of stimulus to the lending interest rates and further to the economy. The Bank of Albania calls on the banking system to comply with this important link of the transmission mechanism. Despite the easing of monetary conditions, the economy’s demand for financial assets remains weak. Monetary indicators for April show a slower annual growth of money supply, to 0.7%. Its performance reflects the weak borrowing demand from the public sector and the contraction of credit to the private sector. In April, credit to the private sector was 2.4% lower than in the previous year, continuing to shrink for all but a year. The poor credit performance reflects mainly the contraction of credit to businesses. The analysis of credit demand and supply factors shows that there are uncertainties on both sides, which are materialised in high risk premiums. As we have previously stated, the steady improvement of crediting will follow the improvement of economic activity in the country. *** At the end of discussions, the Supervisory Council concluded that the incoming available information does not alter our baseline projections. The economy will see a gradual growth during the year, with an improved pace over the second half. | 1 |
The Rt Hon Sir Edward George: Shafts of light amidst the general gloom of the global economy Speech by The Rt Hon Sir Edward George, Governor of the Bank of England, at the Bankers Club/Guild Banquet, London, 4 February 2002. * * * President, My Lord Mayor - locum tenens, Excellencies, My Lords, Aldermen, Sheriff, Ladies and Gentlemen I'm sure you've noticed that time passes more quickly as you get older. I explain it with my own pet theory of relativity based on the fact that each year that passes is a smaller proportion of what's gone before. But I must confess I'm beginning to have my doubts. It seems much more than 12 months ago that we last came together for this great annual gathering. The fact is, it's been a very long, hard, year, not just for policy-makers around the world but also for many of you in the financial services industry - particularly the international financial services industry. We've had to cope with the synchronised global economic slowdown; the extension of the fall in equity prices - with dotcoms spreading to telecoms and beyond - even now to Enron; with increasing credit risks; and then with the vicious terrorist attacks of 11th September and their aftermath, and, finally around the turn of the year with the very sad climax to Argentina's long drawn out crisis. I could easily go on. It really has been a long, hard, year. | But it was evident too in the formation earlier last BIS Review 8/2002 1 year of the Guild of International Bankers, our co-hosts this evening, and of which you, Lord Mayor locum tenens, are the Founding Master. It takes on the mantle - or, perhaps more appropriately, takes over the ledger - from the Bankers Club which has contributed so much to the City's professional esprit de corps over so many years. So it has, as I said, been a long, hard year, President, but it has certainly had its positive moments. And I should like to conclude by paying tribute this evening to the role of the City Corporation and of the Mayoralty, and their contribution to many of the positive developments we have seen - through their own example in promoting community involvement, including their support for the Heart of the City campaign; through their own role in maintaining security and co-ordinating the "public" infrastructure - both vital to all our contingency plans; and through their support for the fundamentally international character of the City, not least in opening the way to the Guild. I am profoundly grateful to them for all the help and support they give to us all. It is in that context that I ask you now to rise and join me in a toast to "the Rt Hon The Lord Mayor, the Corporation of the City of London and the Sheriffs." 2 BIS Review 8/2002 | 1 |
Lower interest rates on average than before To start with, it can be noted that we find ourselves in an environment where interest rates are much lower than before. “You’ve made your bed so you must lie in it”, someone may object – is it not central banks themselves that have created this environment? It is true that policy rates have been cut significantly to support economic activity and return to inflation targets. But the fact that this has caused policy rates to fall to extremely low levels is because central banks needed to adapt to a general downward trend in interest rates around the world, a trend that began a long time before the financial crisis in 2008. Declining trend in real interest rates on a global level Returns and interest expenditure adjusted for inflation are important to households and companies, as they make decisions on saving and investment. In other words, it is real interest rates that matter. By changing the nominal policy rate, the central bank can affect the real interest rate in the near term and thus demand in the economy. This is possible, as it takes time for companies to adapt their prices to the change in the policy rate and other interest rates in the economy. But once prices have been adjusted, the real interest rate is also reset. In the longer term, therefore, monetary policy has no major effect on real interest rates. | Yes, a Page 9 sur 14 big step forward has been made thanks to Next Generation EU. But the real Hamiltonian moment will come when the existence of a permanent common fiscal capacity allows genuine countercyclical action to be taken to counter major asymmetric shocks. Conversely – and not contradictorily –, adequate fiscal discipline is key to cope with economic reversals. Look at Germany, which fixed the roof while the sun was shining, and made appropriate use of its financial leeway during the crisis. There will be a debate, to be concluded most likely next year after the German and French elections, on the Stability and Growth Pact. We should avoid a fruitless confrontation between “illusionists” – who plead for debt cancellation, which is completely out of the question – and “traditionalists” – who want to keep the same old rules as if nothing had changed, including on the level of interest rates. We do still need rules, but revised and simplified ones. Indeed, the current low interest rate environment (with r<g) does not mean that public debt sustainability issues have become irrelevant: it only implies that governments have more time to ensure debt sustainability. These new rules should be based on a medium-term debt trajectory and on a single operational target, namely a ceiling on the growth rate of public expenditure as proposed by the European Fiscal Board (EFB), chaired by the Danish economist Pr. Niels Thygesen. First, we can keep the 60% long-term debt anchor, which is in the Treaty. | 0 |
1 As regards labour utilisation, defined as the total number of annual hours worked divided by total population, the euro area outperformed the United States. Over the period 1995-2007 it increased by 0.5% per year on average in the euro area compared with 0.2% in the United States. With a rise in labour utilisation of 2.0% on average per year over the same period, the Spain’s performance was even more impressive. 1 Source European Commission, AMECO database and OECD for hours worked for the US. Moreover, data for 2007 are partly estimates. The last update of the AMECO database was November 2007. BIS Review 18/2008 1 In the euro area, the improvement in labour utilisation mainly reflects the significant rise in the euro area overall employment rate from 58% in 1995 to 65.6% in 2007, 2 which has been accompanied by a decline in the aggregate unemployment rate from 10.4% in 1995 to 7.2% in December 2007. 3 The latest number is the lowest on record since the early 1990s. In fact, since the beginning of EMU in 1999 the euro area has witnessed an increase of more than 15 million in the number of people employed, while from 1990 to 1998, this number only increased by around 3 million. Spain’s performance, with an increase of more than 5 million in the number of people employed over the period 1999-2007, has been simply remarkable. | We must absolutely avoid the second round effects, namely that these price developments lead to futures increases of prices and wages and thereby prolong the period of high inflation and disanchor inflation expectations. Finally, as regards labour supply, further reforms in income tax and benefit systems would help to increase people’s incentives to work. Reducing disincentives to work, such as high marginal tax rates, high unemployment benefits, and encouraging people to work longer as it has been done in Spain, 8 can stimulate the labour supply and employment of all workers, but particularly those with a generally more tenuous attachment to the labour market, such as women and older workers. Furthermore, facilitating the use of flexible forms of work, such as part-time and temporary arrangements, may also contribute to the incorporation of certain segments (e.g. the young, females) into the labour market, hence increasing labour supply. 9 In this respect, the experience of some EU Member States is telling. For instance, Ireland and the Netherlands – both euro area countries – as well as Denmark, whose currency has been pegged to the euro within the ERM since the beginning – have achieved success in reducing unemployment and stimulating job creation, despite significantly different economic conditions. 10 In December 2007 the unemployment rate in these countries was close or below 4.5%, while their overall employment rate was well above the euro area average. | 1 |
But even if we accept that little can be done to avoid economic cycles, this should not be an excuse for us, central bankers and supervisors. Our responsibility is to develop macro-prudential approaches and the appropriate regulatory measures to help banks reduce the impact of future economic cycles and diminish their procyclical behaviour. This should be achieved for the sake of financial stability with the minimum economic and social costs, which is the main objective of supervisory authorities In fact, banking behaviour can be not only cyclical but procyclical, that is, it can exacerbate the cyclical behaviour of the real economy. As it has been said many times, there is nothing more procyclical than a badly managed bank. In good times it incurs in more risks than it reasonably should through, for example, excessive lending with poor standards. In bad times it changes its lending policies reducing drastically the loans to the economy and exacerbating the downturn. There are several causes that explain this procyclical behaviour but I will focus on the one that affects us most and towards which all of our work should be devoted: banking regulation and supervision. Basel II was seen as a major step towards a better alignment between credit risk incurred by banks and regulatory minimum capital requirements. This link between risk and capital has forced supervisors to better understand the main drivers behind credit risk and the idiosyncrasy of banks’ credit models, their risk pricing and general portfolio management. | In this case, one of the many additional possibilities currently under discussion to reduce the potential undesirable effects of Basel II is to scale the capital requirements obtained through the IRB function by using a countercyclical multiplier. In order to make this multiplier countercyclical, it would be built as a function of a reliable economic activity variable (for instance GDP growth rate). As it happens with other alternatives, its main pros and cons should be carefully assessed. The multiplier is easy to obtain, transparent (as depends on a reliable macro variable), it has a low implementation cost and, finally, it would be of a uniform and wide applicability. Among its drawbacks we found that, first, it implies undertaking an external modification on the capital requirement figure and, second, that the multiplier is built using a domestic variable, which may make international comparison very difficult. No matter what the result of the previous debate is, either the use of counter-cyclical risk estimations or the use of a capital multiplier, we should explore the use of complementary measures to attain our final goal of financial stability and to minimise the social costs of procyclicality; for example, dynamic provisions. As most of you already know, this type of provision uses historical information on credit losses to estimate a general provision for homogenous loan portfolios. It reflects a collective assessment of credit losses at the balance sheet date (i.e. it covers incurred losses not yet identified in specific individual loans). | 1 |
Ultimately, these incidents highlight that not properly taking sustainability risks into consideration could result in serious risks, both financial and non-financial risks, that are large enough to impact the viability of the financial institutions themselves. In other words, sustainability risks have been underpriced or underestimated in business practices of financial institutions. Ladies and gentlemen, Let me highlight on risks, especially credit risks, that financial institutions could face from different ESG dimensions. 4/7 On-going global warming can seriously impact future outputs, productivity, or the business continuity of borrowers, reducing their capabilities to generate income and repay debt. Persistent social issues like widening social gaps can fuel social distrust and trigger public unrest and demonstrations, resulting in economic losses. Malpractices by borrowers that have negative implications on environment and society may result in potential business failures, especially in today’s society where information can be quickly disseminated through online and social media channels. Meanwhile, poor governance by financial institutions themselves can result in misallocation of funds and concentration of risks. All of these are examples of how different ESG dimensions can heighten credit risks for financial institutions. Moreover, financial institutions may be subject to credit and reputational risks coming from their corporate clients if their clients fail to adapt business models to meet heightened standards and changing environment. Fast changes in consumer preference for sustainable products and increasing public demand for corporates to demonstrate social responsibility can negatively impact businesses should their business practices fail to meet public expectations. | These increasingly laxed mortgage lending standards by banks have in part worsened the household debt situation in Thailand, wrongly incentivized speculative activities, fueled real estate bubbles, and exposed banks to higher credit risks when there is correction in the real estate market. As a result, this prompted the Bank of Thailand to step up our macro-prudential regulations on mortgage lending. 3/7 Overall, these are just a few examples of how financial institutions’ own actions can contribute to the worsening of social and environmental problems, impair their credibility, and result in unintended financial losses. If there had been proper internal controls and incentives aligned, Wells Fargo’s customers would not have been subject to fraud. Had financial institutions assessed the potential environmental impacts of companies they were financing, credit decisions may have had a different outcome, limiting the extent of damage on surrounding environment and on public’s air quality in Singapore. With better credit culture and internal controls, Thai financial institutions could help limit the worsening of household debt and lower exposure to credit risks of their mortgage portfolios. While in some adverse incidents financial institutions managed to avoid large financial losses or were able to take swift actions to address them, it is clear that these incidents, if left unattended by financial institutions themselves or regulators, would have resulted in continued deterioration of public trust and in the long-term potentially large financial losses. | 1 |
9 For maturing Treasury securities, the monthly cap is initially $ billion and will increase in steps of $ billion at three-month intervals over twelve months until it reaches $ billion per month. For agency MBS and agency debt, the initial monthly cap is $ billion and will increase in steps of $ billion at three-month intervals over twelve months until it reaches $ billion per month. The Committee anticipates that the caps will remain in place once they reach their respective maximums. 10 See Transcript of Chair Yellen’s Press Conference, September 20, 2017. 11 The gradually rising caps allow market participants to incrementally absorb additional supply and its attendant duration and prepayment risk. Leaving the caps in place over the course of the normalization process helps ensure a gradual pace of the portfolio’s runoff, particularly in light of the lumpiness in the Treasury maturity profile and the risk of an increase in pay-downs on agency MBS. I explore these issues in more detail in “Gradual and Predictable: Reducing the Size of the Federal Reserve’s Balance Sheet,” remarks presented at SUERF, the European Money and Finance Forum, New York City, October 11, 2017. 12 Federal Reserve Board staff estimate paths for the term premium effect associated with different balance sheet scenarios in Brian Bonis, Jane Ihrig, and Min Wei, “Projected Evolution of the SOMA Portfolio and the 10-year Treasury Term Premium Effect,” Board of Governors of the Federal Reserve System FEDS Notes, September 22, 2017. | I think the gradual and predictable approach the FOMC has adopted has been successful so far, but we will learn more as we proceed and as other central banks reach those milestones as well. 1 My discussion here focuses on the Federal Reserve’s actions to adjust the stance and conduct of monetary policy in pursuit of its statutory mandate of full employment and price stability. However, the Fed’s response to the crisis also included numerous temporary programs and facilities aimed at supporting the liquidity of financial institutions and fostering improved conditions in key financial markets. 2 The Fed’s outright purchases of securities did not raise any credit risk exposure. 3 The FOMC also undertook a program to extend the maturity profile of its Treasury holdings. This Maturity Extension Program (MEP) did not affect the portfolio’s overall size, yet still increased the portfolio’s duration risk —an important characteristic of all asset purchase programs. A common metric for communicating about the dollar value of duration risk held in the portfolio is in terms of ten-year Treasury equivalents. 4 9 / 13 BIS central bankers' speeches 4 Even before asset purchases were launched, the reserve-adding effects of the Fed’s crisis-related lending programs highlighted shortcomings of its pre-crisis monetary policy implementation framework. | 1 |
However, in the intervening period, they have continued to play this role. This state of affairs is not without risks. Ultimately, monetary policy alone cannot remedy all economic ills, especially those of a structural nature. It is therefore important that all the powers involved play their part in solving the problems we face. Ladies and gentlemen, today’s topic focused on the challenges for Swiss monetary policy with regard to the euro. Anything that affects the EU or the euro also affects our country. Consequently, it is very much in our interest that solutions for the structural problems in the EU be found and that economic recovery continue. Having said this, Switzerland should not simply stand idly by and rely on Europe. As a small open economy, we must ‘do our homework’ and adapt to a changing landscape. It is important for companies to continue operating with a high degree of flexibility, and for economic policymakers in all fields – in this country, too – to ensure good business conditions. The SNB will continue to make the most of the latitude afforded by its monetary sovereignty to respond pragmatically to the challenges ahead. | In September 2020 we proposed in response two possible and complementary expectations on the level of modelled residential mortgage riskweights: (i) a risk-weight of at least 7% for individual mortgages; and (ii) an exposure-weighted average of at least 10% for the whole portfolio.5 We’ve now received the responses to our consultation, including some very helpful and detailed data submissions. As we speak, the PRA team is forensically considering all this information to assess the likely impact of our proposals against our original assessment – including whether both floors are needed, the exact calibration, and the timing of any implementation. Four points stand out so far. First, there is a strong prudential case for some minimum expectations on model risk-weights. Given the capital held on modelled mortgages that stems from risk-weights has decreased by more than a third in the last decade, you should not be surprised to hear me say this. Second, in addition to the prudential benefits, such floors should in my view benefit competition between larger firms on modelled and smaller firms on nonmodelled approaches, an issue our competition team has been alert to for some time. Third, however, it is not yet clear whether both floors are needed, or what exactly the right calibration is, as it is not the intention of the policy to significantly increase capital across all mortgage providers; the new data we’ve received will help us expand our assessment on this point. | 0 |
Following the deepening of the global financial crisis, we focused on policies to contain the adverse effects of the crisis on economic activity and financial stability, while also overseeing price stability. Accordingly, our Bank slashed policy rates and kept them at low levels for quite some time in addition to deploying supportive liquidity measures. 38. In view of the normalization in money and credit markets amid waning effects of the global crisis on financial markets, we announced our exit strategy on April 14, 2010, which encompasses the withdrawal of crisis measures and the normalization process of the monetary policy. Unlike other emerging economies, Turkey entered the global crisis with a strong and well-regulated banking system as well as a flexible and efficient liquidity management tailored to previous crisis experience. Hence, our balance sheet deteriorated only slightly due to anti-crisis measures and we were not forced to adopt radical measures during the crisis. Thus, our exit strategy was simple compared to those of many other central banks. 39. As part of the exit strategy and also considering the favorable developments in credit markets and the recovery in economic activity, the CBRT started to withdraw the temporary liquidity measures introduced during the crisis. Hence, the excess liquidity provided to the market was gradually drained in tandem with the normalization process. Moreover, as the first step of the technical rate adjustment process, the 1-week repo rate was adopted as the key policy rate in May. 40. | However, what should be highlighted is that despite the volatile course of risk sentiment across emerging economies, Turkey’s risk premium indicators performed better than many other countries and remained below pre-crisis levels. This positive development is attributable to country-specific favorable conditions such as upgrades by credit rating agencies, reduced political uncertainty in the aftermath of the referendum period and the revised Medium Term Program (MTP) signaling further fiscal discipline. BIS central bankers’ speeches 5 19. On the other hand, risk premiums have recently increased due to current unrest in the Middle East. Fear of spillover to peripheral countries and the expectations of persistence in oil price hikes deteriorated the risk sentiment. Accordingly, Turkey’s risk premium has also increased. Esteemed Guests, 20. In 2010, fiscal and monetary policies had growingly expansionary effects on domestic demand. Although the weak recovery in advanced economies continued to curb domestic economic activity, Gross Domestic Product (GDP) registered an 8.9 percent increase amid the rapid recovery in domestic demand. Indeed, the main drivers of the GDP growth in this period were private demand for investment and consumption. 6 BIS central bankers’ speeches 21. The impact of the global financial crisis on the labor market has subsided and nonfarm employment has started to recover rapidly starting from the first quarter of 2009. In 2010, the rise in non-farm employment compensated the crisis driven job losses, and employment in all sectors surpassed the pre-crisis levels. 22. | 1 |
Several entities have been charged in court and some of these had been convicted. While we will sustain these efforts to continue to raise standards of compliance in the industry, the primary responsibility for ensuring compliance rests with the industry itself. It starts with every company having clear processes, well-trained and informed staff, and effective systems and records that assist in complying with regulatory requirements. The industry has made some progress, and we are encouraged by the efforts that are being made at individual companies and at the industry level. Some of you have made more progress than others. For those that continue to wait, time is running out and it is very important that plans be developed immediately and implemented aggressively to establish the necessary systems to improve compliance with the law. Overall, while the industry has done a commendable job, a lot more can be accomplished and it is in the industry’s interest to show improvements, as we enter into the next round of compliance assessment of individual companies. Expectations on MAMSB We have high hopes and expectations for the association. The establishment of this association is very timely for it to play a central role for the benefit of the industry. The Association should spearhead and drive capacity building efforts that will support the objectives of promoting modernisation and elevating the standards of compliance and professionalism in the industry. Firstly, the association is expected to take on an important role in instilling professional conduct and good business practices amongst the industry players. | In relation to this, the association should leverage on its nationwide network to increase awareness among the public of their responsibility to deal only with authorised money services. Part of this should also include explaining the relevant regulatory requirements to the public, such as the need to produce identification documents for large transactions. Over the last 4 months, I am encouraged by the numerous initiatives undertaken by the Association and the fruitful engagements and consultations with the Bank. I understand that the Association has embarked on a series of nationwide training to help its members implement effective corporate governance practices, develop internal policies and procedures and put in place AML/CFT compliance programmes. It has also helped to resolve a number of industry issues, including assisting members to obtain business insurance coverage at reasonable rates, and liaising with system vendors to ensure the provision of suitable and reliable management information systems. These are admirable progress and demonstrate the tremendous value that the association can bring to its membership. On this note, let me take the opportunity to congratulate the Council members and the industry on this official launch. Bank Negara Malaysia fully supports the Malaysian Association of Money Services Business in its important endeavour, and we are confident of the significant impact that this Association can make in taking the money services business industry to the next level of development. It now gives me great pleasure to officiate the launch of the Malaysian Association of Money Services Business. BIS central bankers’ speeches 3 | 1 |
23 See Robert C. Hockett & Saule T. Omarova, "Private Wealth and Public Goods: A Case for a National Investment Authority," 43 J. Corp. L. 437 (2018). 24 Martin Wolf, "Monetary financing demands careful and sober management," Financial Times (Apr. 9, 2020). 25 See Financial Crimes Enforcement Network ("FinCEN"), "The Financial Crimes Enforcement Network Provides Further Information to Financial Institutions in Response to the Coronavirus Disease 2019 (COVID-19) Pandemic," Press release (Apr. 3, 2020) ("Compliance with the Bank Secrecy Act (BSA) remains crucial to protecting our national security by combating money laundering and related crimes, including terrorism and its financing. FinCEN expects financial institutions to continue following a riskbased approach, and to diligently adhere to their BSA obligations."). 26 See, e.g., FinCEN, "FinCEN Issues Advisory on Medical Scams Related to COVID-19 and Companion Notice Providing Filing Instructions for Financial Institutions," Press release (May 18, 2020); Financial Institution Regulatory Authority ("FINRA"), "FINRA Reminds Firms to Beware of Fraud During the Coronavirus (COVID-19) Pandemic," Regulatory Notice 20-13 (May 5, 2020); U.S. Securities and Exchange Commission ("SEC"), "SEC Charges Microcap Fraud Scheme Participants Attempting to Capitalize on the COVID-19 Pandemic," Press release (June 11, 2020). See also Jennifer Achilles and Alejo Cabranes, "Banks May Need to Update Policies to Fight COVID-19 Fraud," Law360.com (June 16, 2020) (discussing the role of banks in identifying medical fraud in light of FinCEN advisory). 27 See Randall K. Quarles, Letter to G20 Finance Ministers and Central Bank Governors (Apr. | "2 The Federal Open Market Committee lowered the target range for the federal funds rate to 0 to ¼ percent3 and increased purchases of Treasury securities and agency mortgage-backed securities. The Board of Governors created new dollar liquidity arrangements with central banks, reflecting the global nature of the pandemic and its economic disruption.4 Together with other Federal banking agencies, the Board issued regulatory relief and guidance to banks encouraging them to meet the changing needs of customers,5 to use their capital and liquidity buffers to facilitate lending,6 and to access the discount window.7 Perhaps most prominently, the Fed has used its emergency powers in Section 13 of the Federal Reserve Act to establish programs and facilities to keep the economy running.8 The Board of Governors created the Primary Dealer Credit Facility,9 the Commercial Paper Funding Facility,10 and the Money Market Liquidity Facility to provide relief for critical wholesale markets.11 Another facility supports lending to small businesses via the Small Business Administration's Paycheck Protection Program.12 Two commercial credit facilities provide liquidity for corporate bonds.13 The Term Asset-Backed Securities Loan Facility supports the markets for student loans, auto loans, and credit card loans.14 The Municipal Liquidity Facility helps state and local governments and agencies close revenue gaps.15 And facilities specifically targeting "Main Street"16 help sustain retail businesses and may expand to assist nonprofit institutions.17 For the last several months, implementing the Board of Governors' relief initiatives has been the priority of the New York Fed and our sister Reserve Banks. | 1 |
6 The outflows of deposits and central bank money generated by account holders’ payment transactions are – just like the inflows – spread over time and normally represent only a fraction of total deposits. Accordingly, it is neither necessary nor legally required that a bank hold one franc in central bank money for each franc it holds in customer deposits. A part of the inflows of central bank money can be used for the granting of loans. This is what is known as a fractional reserve system, as only a fraction of customer deposits have to be covered by central bank money. The Swiss sovereign money initiative, which I will speak about later, aims to abolish this fractional reserve system. What limits the banking system’s credit and money creation? As we have seen, the banking system can increase the volume of customer deposits by granting loans. This certainly does not mean that banks are free to create unlimited amounts of credit and money, however. The reasons are to be found in the banks’ risk/return calculations and the SNB’s monetary policy. 6 There are a number of other transactions that change the volume of customer deposits at banks. When a bank purchases securities from a customer, the customer’s deposits at this bank increase. Customer deposits also rise whenever the SNB acquires foreign exchange or Swiss franc denominated securities from a non-bank seller. | The deposits created by the banking system belongs to the banks’ customers. It is the customers who can use it to procure goods or services, or to meet financial obligations, not the banks. 8 What also needs to be pointed out is that the impetus for credit and money creation comes not from the banks, but from their customers. A bank sets the conditions and must be able to transact the payments that its customers want to make with their deposits. But it is the customers who decide whether or not they want to take up the bank’s offer. The idea of ‘creating money out of thin air’ is more applicable to central banks. Since the demise of the gold standard, central bank money can no longer be exchanged for gold. This means that central banks really are in a position to simply ‘print money’, as the expression goes, which enables them to meet their obligations in their own currency anywhere and at any time. But even central banks face certain restrictions. Their tasks are defined by law, which in most countries requires them to ensure price stability. The instruments that allow them to create money thus serve the sole purpose of fulfilling a central bank’s legal mandate. Calls for broader access to central bank money In the second part of my speech I would like to address two proposals calling for broader access to central bank money. The first calls for the introduction of so-called ‘sovereign money’. | 1 |
Policy implementation in 2011 Looking back at 2011, the BOT implemented our monetary policy to ensure stability against the backdrop of robust economic expansion in the first three quarters of the year. Thus, we continued to normalize the policy rate, as I had stated in last year’s policy statement. After the economy was hit hard by the flood crisis amid the stagnating global economy in the final quarter, the BOT policy was adapted to the changing circumstances, evidenced by the Monetary Policy Committee’s (MPC) decision to lower the policy rate in the last meeting of the year. Throughout last year, the BOT also paid particular attention to policies that facilitate businesses in normal times and in crisis times. These included policies that ensure the exchange rate movements consistent with the underlying economic fundamentals and that its volatility remained manageable by Thai businesses. Moreover, our policy on financial sector regulation and supervision has ensured that Thai financial institutions maintain their status as a credible and efficient financial intermediary and able to meet private sector demands. These efforts included encouraging financial institutions to rationalize their transaction fees structure, introducing digital cheque-imaging system, and relaxing certain measures related to financial institutions to alleviate financial burdens of flood-affected victims. Economic conditions and challenges for 2012 The path towards the future is not a smooth one. Ongoing challenges from the past and new challenges will increase obstacles for the Thai economy. Domestic issues still remain an important hurdle while emerging external issues have created new challenges. | These challenges are inherent parts of the mega trends, which include the crisis facing western economies and advancing regional economic integration. Currently, Thailand appears to be at a transitional gateway of these mega-trends, where the future looks blurry. The persistent economic slowdown plaguing the advanced economies of BIS central bankers’ speeches 1 United States and Europe leading up to sovereign debt crisis and continued financial system stresses do not yet have a clear resolution in place. Many observers, however, view that after this transitional gateway, Asia will be under the spotlight with China as the new leader, leading the economic expansion for other countries in the region. Despite this optimism, countries in Asia cannot afford to relax, sit back, and enjoy the ride, as economic volatility could arise intermittently via trade and financial channels from western economies. The degree of such impact depends on how well each economy is prepared for the potential disruption. Another aspect of the transitional gateway is the ASEAN Economic Community (AEC) in 2015. This regional integration will bring not only changes in the regional investment and trade landscape, but also changes in people’s attitude as an ASEAN citizen where travel and contact will become more frequent. Nonetheless, we should not view AEC as the final destination, but rather a stepping stone towards enhancing economic resiliency in the region by creating a single ASEAN market and production base. | 1 |
These strains have increased drastically in 2022 with the invasion of Ukraine by Russia and have spread to food. 7 Third, the recovery of supply has also been delayed by the emergence of bottlenecks. The speed with which demand has recovered, and higher goods consumption as a result of the pandemic, have put excessive strains on global production chains, which were still affected in 2021 by the pandemic restrictions. This has led to input supply problems in industries such as semi-conductors, plastics, wood and industrial metals, which have been compounded by serious disruptions in goods transport. In any event, despite the importance of global factors, the impact of the current inflationary episode on the main world economies has been uneven. The variation in the extent of the rise in inflation reflects various idiosyncratic factors that differ in nature, such as the differing speed of the recovery in demand in each region. It also reflects other factors related to the composition of the consumption basket, productive specialisation, positioning in global and regional production chains, labour market slack, the anchoring of expectations and exchange rate fluctuations. Indeed, demand has been particularly vigorous in the United States, which has resulted in more intense and earlier underlying inflationary pressures there. At the end of 2021 private consumption stood more than 4% above its end-2019 level, with a very significant contribution to this rise coming from consumer durables. In the euro area, meanwhile, it stood around 3% lower. | The headway made in the vaccination process allowed for a gradual easing of social distancing measures and for a recovery in demand, underpinned by the powerful economic policy response. However, the recovery was partially hampered by three factors. The first of these factors was the various waves of the pandemic, although the ensuing disruptions to economic activity became progressively less severe. Conversely, the other two – namely the sharp rises in the prices of certain goods and the global supply chain disruptions (bottlenecks) – have gradually become increasingly important constraining factors. These have proven more persistent and severe than expected and have become even more acute following the outbreak of war in Ukraine and the measures adopted in China to counter the latest outbreak of the pandemic. Although these three factors are global in nature, their impact has been very asymmetrical across countries, given the differences in productive systems, access to vaccines, economic policy response and degree of energy dependence. As a result, the recovery was particularly strong in the United States, where activity in 2021 H1 already exceeded its pre-pandemic levels. This higher buoyancy also led to inflationary pressures emerging sooner and more forcefully. By contrast, the euro area did not return to its pre-pandemic level of activity until late 2021. In 2022 Q1, GDP in the United States and the euro area stood 2.8 and 0.5 percentage points (pp), respectively, above their 2019 Q4 levels. | 1 |
Eddie Yue: Developing local-currency bond markets in Asia Statement by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority and Head of the Delegation of Hong Kong, at the 45th Asian Development Bank Annual Meeting, Manila, 4 May 2012. * * * I would like to thank the Government of the Philippines for hosting the 45th Annual Meeting of the Asian Development Bank (ADB). I would also like to congratulate ADB on the successful conclusion of the Tenth Replenishment of the Asian Development Fund (ADF XI), which would provide critical resources to ADB to further its work in poverty reduction in Asia. The global economy has shown signs of improvement in 2012 following a marked slowdown amid the intensification of the euro zone debt crisis in the latter part of last year. Nevertheless, significant downside risks remain, with the euro zone debt crisis yet to be fully resolved and rising oil prices adding further uncertainty to the recovery outlook. Asia has remained resilient so far, in large part attributable to the reforms taken by regional economies over the years to strengthen economic fundamentals, improve fiscal discipline and enhance the resilience of their financial systems since the Asia financial crisis. Nevertheless, the region is not immune from the lingering fragility in the global environment. To date, the deleveraging by European banks has not caused significant short-term credit tightening in Asia, with banks in the region and elsewhere having stepped in to fill the gap left by European banks. | Under the Initiative, a Credit Guarantee and Investment Facility has been set up as a Trust Fund of ADB to provide credit guarantee to allow investment-rated issuers to issue local currency bonds in ASEAN+3 markets. Another good example is the Asian Bond Fund project of the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP). The launch of the ABF funds introduced to the region’s bond markets a new low-cost and efficient product in the form of passively-managed index bond funds and helped catalyse infrastructure, tax and regulatory reforms at both the regional and domestic levels. The Hong Kong Monetary Authority took an active part in the design and implementation of the project. These efforts, along with the rapid economic growth and improved investment climate, have contributed to considerable growth in the local currency bond markets. According to ADB, the BIS central bankers’ speeches 1 amount of local currency bonds outstanding in emerging East Asia increased by more than ten folds from $ billion prior to the Asian financial crisis in 1996 to $ billion in 2011. We have also seen the interesting development of offshore bond markets. In Hong Kong, the RMB bond market has grown substantially since the first issuance in 2007, with total issuance increased to over RMB 100 billion in 2011 from RMB 10 billion in 2007. The range of issuers has also diversified, from predominantly the sovereign and banks in China to multinational companies and international financial institutions. | 1 |
Much like a “rising tide that lifts all boats”, the actions and choices that we make within the financial system do not just affect the provision of financial services, but have important implications for the well being of society and our economic prospects as a nation. We owe this not only to ourselves and others at this point in time, but especially to our future generations. With that in mind, this event provides a valuable opportunity for us to reflect on a broad range of issues that can help us move forward with greater confidence. Let me leave you with three questions to ponder as you do so: First, what are the barriers preventing the industry from working together more closely to unlock the true potential of finance? Second, have firms in the industry achieved the right balance in their adoption of technology in finance and capacity to manage the attendant risks? Third, how can we scale financial innovation to create greater value for society, including 4/5 BIS central bankers' speeches advancing inclusive and responsible finance as well as the sustainability agenda? On that note, it gives me great pleasure to formally launch MyFintech Week and the Financial Industry Conference. I wish all of you an informative and productive week ahead. 5/5 BIS central bankers' speeches | And such a system is not sustainable for future bad times. I believe this is a concern shared by policy-makers not only in our country, but also in other EU countries (such as here in Poland) and I hope that the coalition of like-minded states has the potential to grow over time. So let me repeat: until we have a full-fledged EU federation we should not build a half-baked one in the area of EU banking. And I strongly advise paying attention to the rules being prepared by the European Commission (for instance the Crisis and Resolution Mechanisms), which have the potential to be out of line with this proposed approach. 2 BIS central bankers’ speeches | 0 |
Perhaps most important, the normal cyclical dynamic in which housing, consumer durable goods purchases and investment spending rebound in response to monetary easing is unlikely to be as powerful in this episode as during a typical economic recovery. The financial system is still in the middle of a prolonged adjustment process. Banks and other financial institutions are working their way through large credit losses and the securitization markets are recovering only slowly. This means that credit availability will be constrained for some time to come and this will serve to limit the pace of recovery. If the recovery does, in fact, turn out to be lackluster, the unemployment rate is likely to remain elevated and capacity utilization rates unusually low for some time to come. This suggests that inflation will be quiescent. For all these reasons, concern about “when” the Fed will exit from its current accommodative monetary policy stance is, in my view, very premature. In contrast, I think it is important to address today the issue of “how” the Fed can exit from the current stance of policy when the time comes, even if its numerous special facilities and purchase programs continue to keep the size of its balance sheet at an expanded level. Why do I believe it is so important to explain the issue of “how” having just argued that “when” is not yet a pressing issue? | The reason is that if people believe – correctly or incorrectly – that the Federal Reserve could have a problem managing a smooth exit from its accommodative policy stance, this belief alone could have the adverse effect of causing inflation expectations to become less well anchored and risk premia on long-dated debt securities and loans to rise. These effects could conceivably make it more difficult to generate a sustainable economic recovery. This risk seems significant. For example, just last week a major bank published a survey of a broad array of 1800 investors. Of those surveyed, 20 percent thought that inflation might average more than 2.5 percentage points per year above their assessment of the Federal Reserve’s target. This outcome presumably reflects two factors – the balance-sheet expansion of the Fed and the large fiscal deficit. With this in mind, let me spend the remainder of my time discussing the sources of growth in the Federal Reserve’s balance sheet over the past year and a half or so, and explain why I am confident that the exit from our accommodative policy stance, as well as from our various lending facilities and purchase programs, can be handled smoothly. As you are aware, the Federal Reserve has been engaged in a wide array of unprecedented activities over the past two years in response to the financial crisis. These include: • Liquidity facilities designed to improve market function. | 1 |
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