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Sir Winston Churchill once said, "There are plenty of good ideas if only they can be backed with the power of action". With that, I wish you a fruitful Conference. Thank you. 6 BIS Review 123/2007 | In the course of the very powerful upturn in the American economy, significant imbalances have built up at the same time. Among other things, the deficit in the current account has never been as great as it is now, and recently consumption has been increasing more rapidly than household incomes, which means that the savings ratio has been at a record low. Sooner or later these imbalances will need to be corrected. However, a discussion of how this might come about lies beyond the bounds of what I intended to talk about this evening. Are there traces of a “new economy” in Sweden? – Since Sweden switched from a fixed exchange rate to an inflation target, monetary policy has been designed so as to reach this target and thereby create credibility. Monetary policy has succeeded in stabilising prices and at the present time long-term inflation expectations approach the Riksbank’s target of 2%. The changes in fiscal policy, which have entailed among other things a reform of budgetary procedures and the imposition of a ceiling on public expenditure, have had positive effects. This is manifested, for example, in the budget surpluses now being produced. Overall, we have made good progress towards achieving macroeconomic stability and therefore appear to fulfil the requirements for “good economic policy”, even if we have fulfilled these for a considerably shorter time than the USA. – If, on the other hand, we look at structural factors, our problems were perhaps also worse from the start. | 0 |
Developments in recent years are similar to those which caused the imbalances in wage formation in the 1970s and 1980s. Wage increases in this year’s settlement were high. Wage settlements in internationally exposed sectors did not set the trend for wages. Wage increases in these sectors were around 5 per cent, while they were appreciably higher in a number of sheltered industries. In the education sector, wage growth is nearing 8 per cent this year. Adjusted for inflation, this is the highest level of wage growth in any single year since the early 1960s. The central and local government sectors, including the education sector, employ 1/3 of all employees in Norway. In 2002, wage growth for these three groups combined was 6.3 per cent. This is close to 1 percentage point higher than the average for the remaining two-thirds. In rural areas, where local government employment is an alternative to working in agriculture, the fisheries, local service production or small-scale industry, the public sector, with its nationwide agreements, is a wage trendsetter. High wage growth in the public sector will thus determine wage growth in other local sheltered enterprises. Many of these industries may pass on higher labour costs to customers. Wage growth in the public sector may therefore be an important source of higher inflation. Public enterprises can only pass on higher labour costs to customers to a limited extent. On the other hand, the rise in costs can intensify pressures to increase central government allocations. | By focussing on a clear set of research priorities, by opening up our datasets, and by creating tighter links between policymakers and researchers, both within the Bank and across the broader research community, we can all help advance the Bank’s mission – promoting the good of the people of the United Kingdom. Thank you. BIS central bankers’ speeches 5 | 0 |
In November, the Leaders will, at their Summit in Singapore, issue a legally-binding blueprint to implement the ASEAN Economic Community. ASEAN will eventually evolve into a single market with free flow of goods, services, investment and talent. For investors, an integrated market of half a billion people will be an attractive investment proposition. For financial institutions, it will mean more projects to finance and more wealth to manage. ASEAN’s combined GDP of $ is larger than most economies. It is, in fact, bigger than India’s $ and more that a third of China’s $ In addition, the ASEAN Economic Community will boost the region’s GDP by 10%. To benefit from the growth of China and India, ASEAN is negotiating FTAs with these two giants. They are targeted for completion by 2010 and 2011 respectively. Besides China and India, ASEAN is also enhancing links with other economic centres. ASEAN signed a regional Trade and Investment Framework Arrangement (TIFA) with the US last August. It is negotiating FTAs with Japan, South Korea and Australia and New Zealand. And in May, ASEAN and the European Union decided to launch FTA talks. Political coalescence At the political level, Asia is also coalescing. However, political coalescence is progressing more slowly than economic integration. And it will be far less defined and institutionalised than what we see in the EU. Compared to Europe, Asia is more diverse politically and culturally. There are complexities and practical difficulties. However, the basic direction has been set. | Deepening economic integration and interdependency Within Asia, economic integration is deepening, and we are becoming more and more interdependent. Intra-Asian trade as a share of the region’s total trade has grown from 34% in 1980 to more than 50% today. Asia is being woven together by trade and investment flows, MNCs spreading their production chains and a growing web of bilateral and multilateral FTAs (Free Trade Agreements) and regional processes. China plays a critical role in quickening the pace of regional integration. China is serving as a production platform for foreign firms. Many manufacture there. Others export intermediate goods to their affiliates in China for assembly and then shipping the finished products to key export markets in the US and Europe. What we are seeing is production sharing and the intensification of an Asian production network. However, both China and other Asian countries also know that due to China’s sheer size and strategic weight, its re-emergence exerts a displacement effect. To use an image, it is like a huge elephant wading into a pond. This will displace the water and reduce the space of others using the pond. What do we do? We cannot live without water. The answer is to enlarge the pond so that there is more space for everybody. China is conscious of its size. It emphasises peaceful development so that while it displaces, it does not threaten. Hence, China is negotiating an FTA with ASEAN so that its growth will translate into more opportunities for ASEAN. | 1 |
New houses take time to construct and there are multiple frictions, not least planning and other regulations. This will affect whether a boom in demand for housing is reflected in new building and increased supply, or in upward pressure on prices. There is, however, variation between countries. The literature bears out the intuition that that the more inelastic the market, the greater the impact of demand side factors on price. The UK scores very poorly on elasticity of housing supply. The IMF estimates that the elasticity of housing supply in the UK is about half the OECD average4 (Chart 3). Chart 3: Estimated Long-Run Housing Supply Elasticity 4 Geng (2018), “The Fundamental Drivers of House Prices in Advanced Economies” 5 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 5 On the demand side, the fundamental drivers of the market are population and income. But credit conditions and expectations clearly play a role, as do non- credit constrained investors who can arbitrage between the rental and the owner occupied market. It is difficult to disentangle these factors. At a fundamental level demand for housing – whether as a renter or as an owner – is determined by the number of households, their incomes, the housing stocks and households’ intrinsic preferences. And so in areas with rapid population and income growth – especially in areas where supply cannot adjust – we’d expect to see an increase in both rents and house prices. | I thank Euromoney once again for organizing this conference. I wish you productive and engaging sessions today. Thank you. 5 | 0 |
For a start, regulation goes hand in hand with supervision. We will continue to ask searching questions about the quality of a firm’s assets, the rigour of its risk management, the experience on its board, the plausibility of its resolution plan and so on. That is the bread and butter of our role. Meanwhile, the reforms will be treated to revisionist history and the calls of counter-revolution. Now, reasonable people can disagree about the right balance of financial regulation in order to achieve our goals. The most celebrated example of this is how to trade off the cost of higher bank lending rates, which dampens investment in the economy, versus the benefit of reducing the probability or severity of future financial crises. Unless some other breed of revolutionary brings an end to capitalism itself, then I think that debate will go on for a long time after we are all dead. But in my view, the post-crisis reform package – taken as a whole – strikes the right balance between the competing interests present within our mixed economy system. Brexit does not affect this judgement. The UK financial system must be robustly regulated and supervised whatever the outcome of the government’s negotiations with the European Union. As my colleagues on the Financial Policy Committee and I put it last month: “the FPC will remain committed to the implementation of robust prudential standards in the UK financial system. | We revised 2023 and 2024 and ultimately to 2.3% [in 2025] which moved by 0.1 from the previous projections [of 2.2%]. I think on the basis of that you can easily conclude that we are not satisfied with the results of that inflation outlook – which is only one of the three components that we look at. That is the reason why we are making the monetary policy decision that we make today, and why we are thinking that, unless there was a material change to the baseline, we would again hike interest rates in July. I don't want to comment about the terminal rate. This is what markets are considering. 5/10 BIS - Central bankers' speeches The terminal rate is something that we will know when we get there because it is not what is driving our analysis and our deliberations. What is driving it is the ultimate destination, which is the 2% inflation. That's what we want and there are lots of components that come in to help us arrive at the 2% target. We spent a lot of time on the labour market. We spent a lot of time because it is becoming one of the major components of the drivers of inflation. It was energy for a long time. To oversimplify: energy played a significant role, then food kicked in, and energy is now fading, has moved now in May and is in slightly negative territory. | 0 |
Like a number of other central banks, we in the Hong Kong Monetary Authority have taken a number of initiatives in this direction in Hong Kong in recent years. We now have a fairly liquid bond market with a sophisticated but user-friendly market infrastructure. We have also taken initiatives in the regional dimension to promote the networking of Asian bond markets through encouraging bilateral linkages of debt clearing systems. BIS Review 55/1997 -2- 7. It is hoped that these efforts could help the expansion of the role of the Asian bond markets and hence facilitate more effective financial intermediation in the domestic, regional and global context. The region’s investment needs over the next decades are huge. The World Bank has estimated that private gross domestic fixed investment will amount to a total of $ 5 trillion over the ten years to the year 2004, a large part of it associated with infrastructural development1. The share of bonds in financing these needs is projected to grow from only 9% to 26% by 2004. 8. I hope this can be realized for this would enable the banks’ role in Asia to consolidate into more prudent proportions at least in the eyes of the regulators. It would help to achieve a more diversified and therefore a more stable framework for financial intermediation. Indeed, on the World Bank’s projections, the share of bank borrowing is expected to decline commensurately from 40% to 30% over the same period. 9. | Mr. Yam looks at Asian banking in a regional and global context Address by the Chief Executive of the Hong Kong Monetary Authority, Mr. Joseph C.K. Yam, at the ADB-IIF Forum on Developing Asian Financial Markets held in Fukuoka, Japan, on 10/5/97. I am pleased to be here this morning to address you on the subject of Asian banking in a regional and global context. I will be speaking particularly about banks in the East Asia region. The importance of banking stability 2. There is increasing international recognition of the importance of a sound banking system in promoting macroeconomic stability, sustainable economic growth and the efficient intermediation between savings and investment. The last few months have seen a series of initiatives by international financial institutions and groupings to devise principles, standards and strategies for the promotion of financial stability. While these initiatives have been directed principally at emerging markets, they also have application to the more developed markets which have been by no means immune from banking problems in recent years. A number of Asian economies, including Hong Kong, have participated in this work. This is a practical recognition that the setting of international regulatory standards must be a broadly-based process, in keeping with the global nature of today’s financial markets. 3. I do not need to belabour the point about the debilitating and disruptive effects which banking problems can have on economic and monetary management. The need to restore the capital of failed banks can impose a heavy fiscal burden. | 1 |
The analysis of external risks contained in this Report reminds us of the importance of the exchange rate being the first buffer of external shocks, causing the economy to respond through changes in relative prices rather than the levels of demand and activity. Additional evidence presented in this Report shows that countries with a floating exchange rate also reduce the volatility of long-term interest rates, which are a determinant of investment. Moreover, developing market instruments to manage foreign exchange risk generates a stronger basis for the development and diversification of exports than an uncertain state insurance through regular intervention or the fixing of the exchange rate. It is important to recall that the attempts to sustain the exchange rate led the country to a recession in 1999, whereas the float significantly reduced the impact of the crises that originated in Argentina and Brazil in 20012003, the financial crisis of 2008-2009 and the end of the commodity boom in 2014. In each of these last three episodes, the exchange rate float has provided enough room for monetary policy to reduce cyclical fluctuations. Monetary policy and its perspectives are also built using as a working assumption a defined trajectory for fiscal policy. The working assumption in this Report is that in 2018 the economy will receive a fiscal impulse in line with the budget announced by the authority. From then on, it is assumed that fiscal spending will follow the path of fiscal consolidation contained in the Medium-Term Financial Projection of the last Public Finance Report. | Or might there be reasons for Sweden and other countries to specially design our own solutions, over and above those imposed by international regulations? Lending and house prices in Sweden relatively unaffected by the crisis One area where Sweden stands out in comparison with many other countries, is the development of house prices and household indebtedness. As I noted earlier, house prices 1 See, for instance, the report “An assessment of the long-term economic impact of stronger capital and liquidity requirements” by the Basel Committee and the Financial Stability Board (http://www.bis.org/publ/bcbs173.htm). BIS central bankers’ speeches 1 in many countries have fallen heavily after being pushed up in a credit-driven boom over a number of years. In Sweden, too, house prices and lending to households have risen substantially. But here we have not experienced any corresponding fall in housing prices in connection with the crisis; we can just distinguish a minor dent in the curve (Figure 1). Lending to households has also continued to increase rapidly. It has been profitable for the banks to fund the increase in Swedish mortgage borrowing in the international capital markets. Funding in foreign currency has shown an increase trend (Figure 2). This has meant that Swedish households have been able to obtain mortgages at a lower cost and probably to a greater extent than would otherwise have been the case. But this method of funding is not entirely without risk. | 0 |
The lesson I want to draw from this is not that the problems in financial markets which began in August 2007 and culminated in the near-meltdown of the global financial system a little over a year later were an inherently unpredictable Act of God. Rather it is that one would need to be endowed with perfect foresight to have been able to predict how the financial crisis would unfold, spilling over from one institution to another, and from one market to another. And who knows what would have happened if, for instance, Lehman Brothers had successfully found a buyer that weekend in September 2008? Moreover, the impact on the real sector, which is what concerns us here, was also extremely difficult to judge. While it was predictable that the availability of credit would tighten as risk aversion rose and financial institutions rushed to de-leverage their balance sheets, it was far harder to know by how much. And much of the contraction in household and business spending appears to have been down to a sharp rise in precautionary saving and the postponement of investment projects and the running down of inventories as uncertainty rose. Again, while such a reduction in spending was plausible, it was nevertheless extremely difficult to judge its likely magnitude. The moral from this is that one should not expect to be able to predict the timing and scale of these sorts of events with any precision. | They are also likely to result in more business bankruptcies and fewer new firms being formed, though here the evidence is rather more positive, with liquidations rising much less during the recession than one would expect (Chart 7). Finally, as we saw in the eighties, high levels of unemployment can become entrenched if the longterm unemployed are allowed to become disconnected from the labour market. But, as Chart 4 shows, the rise in longterm unemployment has so far been modest, while the exit rate from long-term unemployment into jobs has been broadly flat. So, at the current juncture, some indicators seem to suggest a rather large margin of spare capacity, while others point to a much smaller margin. Now it may be possible partly to reconcile these apparently conflicting observations once one allows for the fact that in some businesses, especially in manufacturing, it may be possible to shut down some capacity temporarily, reactivating it at relatively low cost once conditions improve. To the extent that the survey responses relate to the immediately operable capacity, rather than potential capacity, it would be possible to have simultaneously a modest margin of spare capacity in the short run, but rather more in the long run. Even so, the generic point remains that we presently have only an imprecise idea of the margin of unused resources in the economy. | 1 |
BIS Review 21/2009 5 Giving these responsibilities to the Bank is the right choice because they build on the role the Bank already has as LOLR in crisis handling (which nearly always involves a crisis of liquidity). More generally it provides a statutory basis for the Bank’s second core purpose – financial stability – which was not mentioned in the 1998 Act and appeared something of an orphan in the Bank when supervision moved to the FSA. Over the last 18 months of course that has changed and the Bank is now closely involved with the FSA in monitoring and intervening in banks and markets facing stress, as well as reviewing the risks to financial stability more widely and playing a role in forming international policy through bodies like the G20 and the FSF. In effect the Bank has become a second pair of eyes alongside the FSA watching the health of the financial system. The FSA, as the regulator, is informed by “bottom up” knowledge of the position of individual institutions; the Bank is informed by a top down view drawing on its own engagement in many markets and on its analysis of the wider economy. We come together to monitor institutions when they become vulnerable. Some argue that we should go further and move prudential supervision – at least of the main banks - back into the Bank. | But there are a number of strong indications that the ECB is not a relevant institution under the Climate Law. Let me explain why. The Climate Law does not contain many specific obligations. The law sets out a destination: climate neutrality. It does not tell us how to get there. How we do so will depend on environmental and economic policymaking. This is a Union competence the ECB does not have. There are further arguments that support this interpretation. If the ECB is deemed to be a relevant institution, then it would have to submit its policies to the Commission for assessment and the Commission would monitor progress. That would be a fundamental change to the ECB’s accountability framework. Under current law, the ECB is only directly accountable to the European Parliament and the European Court of Auditors. [7] A final reason for this view is institutional. If the ECB were deemed to be a relevant institution within the meaning of the Climate Law, this would be an implicit acceptance that the Council of the EU and the Parliament could set additional objectives for the ECB through the ordinary legislative procedure. However, the ECB’s objectives are laid down in the Treaty on the Functioning of the European Union (TFEU)[8], and their scope cannot be changed by secondary legislation. That would be a violation of the Treaty. Changing the ECB’s objectives requires a special procedure. The ECB is – it seems – not directly bound by the Climate Law. So, can we ignore it? Not at all. | 0 |
It has also been said that it is not self-evident which measure of inflation should be used, that is, that some other index than the CPIF, for instance the CPI, could be appropriate as an operational target variable within the forecast period. Another objection is that monetary policy should also be aimed at maintaining financial stability, which then presumably becomes a separate objective for monetary policy. The objective of price stability and highest sustainable rate of employment could then be neglected for a certain period of time, for instance, to avoid unsustainable financial imbalances building up. A more precise objection is that monetary policy should counteract an unsustainable development in household indebtedness. In this case a sustainable development of household indebtedness will become a separate objective for monetary policy, which can justify neglecting the objective of price stability and the highest sustainable rate of employment. A more concrete variation of these objections assumes that there is a correlation between a low policy rate and the build-up of unsustainable financial imbalances. A normal level of the policy rate then becomes a separate target for monetary policy and can justify neglecting the objective of price stability and the highest sustainable rate of employment. 6 One kind of objection thus concerns the fact that, with regard to price stability, it is not as simple as to merely focus on the CPIF during the forecast period and the CPI in the longer run. It is actually not clear which target variable for inflation should be used. | BIS central bankers’ speeches 13 A higher average unemployment rate by 0.8 percentage points over 15 years is of course a very large cost to the real economy of undershooting the inflation target. At present, a higher unemployment rate of 0.8 percentage points corresponds to around 40,000 jobs. In comparison, it can be mentioned that the government’s own calculations show that the four stages in the earned income tax credit and the changes in unemployment insurance reduce unemployment in the long run by 0.6 and 0.7 percentage points respectively. 17 The respective reforms are thus expected to have a slightly smaller effect on unemployment than the calculated real-economic cost of inflation on average undershooting the target over the past 15 years. Implications for future monetary policy Why average inflation in Sweden has undershot the target over the past 15 years is a separate and important question that requires thorough examination. I do not intend to discuss this here. But a clear conclusion for future monetary policy is that it is important that the Riksbank ensures that average inflation is actually close to 2 per cent over a longer period of time and that it does not fall as low as during the past 15 years. This means that the inflation target must be regarded as symmetrical and that it should constitute a central point for the fluctuations in inflation. One should thus not be more afraid of overshooting the target during a limited period than undershooting it. | 1 |
One of the biggest challenges to supervisors now is to develop more detailed guidance for the implementation of Pillar 2 and to follow that guidance in a consistent and coordinated manner across the supervisory community. Despite work done by the Basel Committee to encourage coordination among supervisors in this area, there remains a significant risk of inconsistent approaches and resulting supervisory arbitrage. While the rollout of the Basel II principles will be extraordinarily demanding, I am heartened to observe that there is momentum gathering among banks and supervisors around the globe to meet the challenge. BIS Review 42/2004 3 Beyond Basel II: what would further installments look like? Even though the ink is still drying on the final version of the new framework, and we are just starting to tackle the implementation issues, it is not too early to think about how Basel II capital framework might evolve in the future. Because we can be sure that Basel II is not the “End of History” as far as regulatory capital requirements for banks are concerned. Greater applicability of risk quantification techniques Beyond Basel II, there may be greater scope for use of quantitative tools in setting minimum regulatory capital requirements. The most promising areas are quantitative tools for interest rate risk in loan portfolios and concentration risk. Three robust pillars I also think, despite my fears about inconsistency and arbitrage, that over time supervisors will develop more consistent approaches to Pillar 2 of the capital framework, and greater harmonisation of supervisory reviews across jurisdictions. | John Palmer: Basel II and beyond Opening address by Mr John Palmer, Deputy Managing Director of the Monetary Authority of Singapore, at the MAS Risk Conference, Singapore, 12 July 2004. * * * Introduction Good morning. Welcome to the MAS Risk Conference, and for visitors to these shores - welcome to Singapore. The Conference is held at an opportune time. It was only two weeks ago that the Basel Committee on Banking Supervision released the Basel II capital framework. This is enough time for all of you to have read the full text, and recent enough for you to remember most of what you have read. Not surprisingly, my remarks this morning will be focused on Basel II. They are drawn from my perspectives as a policy maker who actively supported the development of the Basel II framework, and as a prudential supervisor now faced with the challenge of implementing this new framework. I intend to offer a perspective on Basel II, some of the challenges that remain to be addressed and offer some thoughts on the future evolution of capital adequacy rules for banks. Later in the conference, my colleague, Low Kwok Mun, will discuss MAS’ approach to Basel II implementation, including requirements for local banks and some important home/host supervisory issues. Why Basel II? What is good about it? And what are the implementation challenges? Developing Basel II turned out to be an immense challenge. Implementing it will be no less challenging. | 1 |
There are nonetheless a number of French specificities that could be playing a part in slowing productivity. Let me just cite three: First, failings in our system of initial and lifelong training, as highlighted by the OECD’s PISA and PIAAC surveys [slide]. France stands out as scoring only average overall among OECD countries, and, most importantly, as having high levels of inequality linked to parents’ social background. Second, corporate investment tends to be weighted more towards construction at the expense of equipment machinery and intangible assets. And while we’re on that subject, it is essential that French banks finance intangible assets better than they do today. Lastly, the specific features of the French labour market and the associated policies. A number of studies have highlighted factors such as the shortening of the duration of temporary contracts. Questions have also been raised as to the impact of labour policies. How can we strike the right balance between supporting productivity and supporting jobs? Policies aimed at reducing the cost of low-skilled labour – be they targeted cuts in employers’ social charges or the CICE – all have a positive effect on GDP per capita via an increase in the employment rate; but they can also have a detrimental effect on productivity, especially when targeted at sectors with low productivity. Put another way, these policies make it all the more necessary that we improve our system of initial and lifelong learning – failing this, we risk fuelling a downwards spiral in labour skills and productivity. | François Villeroy de Galhau: Productivity - a collective enigma? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Bank of France - France Stratégie Conference, Paris, 1 February 2017. * * * Welcome to all of you. It gives me great pleasure to be able to open this conference on French productivity, organised in conjunction with France Stratégie. The subject is one that is both topical and of great importance to central banks: productivity is one of the principal drivers of growth, and its dynamics are a strong determinant of potential growth, that which is compatible with price stability. As you can see [ slide], after the major wave of expansion witnessed during Les Trente Glorieuses, which was particularly marked in the case of France, productivity growth in advanced countries has slowed in successive stages since the 1970s. Today, it has fallen back to a pace that is historically weak. What are the common factors behind this slowdown in productivity? And is there anything specific to France? I don’t believe so: if there is one thing that is specific to France, it is the high level of hourly productivity – one of the highest in the world, alongside that of the United States and Germany. So, rather than being a French enigma, the enigma we are looking at this morning seems to me to be more of a collective phenomenon. | 1 |
Yet, in shaping strategies to capture these opportunities, there is also a realization that the business environment has become significantly more challenging after the global financial crisis. 8. The quantitative easing by the G3 economies is causing wide swings in exchange rates, asset and commodity prices which have heightened the need for hedging and risk management. The ultra-low yields of their treasuries (for example, yields of government bonds of Germany and France of maturity less than 6 years and 4 years respectively are in the negative zone) in turn has made cash management and portfolio investment difficult. The BIS central bankers’ speeches 1 alternative of searching for yields in emerging markets has resulted in more risks to manage. The interbank market as a source of liquidity also can no longer be taken for granted. 9. Compounding the challenge of treasury management is the regulatory landscape after the global financial crisis. The capability of banks in providing funding and making market for hedging tools has become more constraint due to deleveraging and implementation of the global regulatory reform, in particular the Basle III requirements on capital and liquidity. The increased market volatility has also made the raising of funds in the capital markets more challenging. 10. | Broad strategies for effective provision of wealth management In recognition of the need to further enhance the regulatory framework supporting the development of the financial advisory sector, the Bank has recommended for further streamlining of the current dual licensing regime for FAs and financial planners (FPs) in the Financial Sector Blueprint 2011–2020. A Joint Working Group with the Securities Commission has been formed to assess the existing legislations and regulatory regime across both jurisdictions, with the aim of further reducing duplications and related costs of compliance for the benefit of industry participants. Some of the measures that have already been introduced include the harmonization of limits on foreign shareholding and streamlining of professional qualifications and requirements on continuing professional development. The Bank will be engaging with the AFA at a later stage as part of the consultative process towards further enhancing the regulatory regime for FAs and FPs. In line with our objective of promoting fair and responsible conduct by financial service providers, the Bank has recently reissued the Guidelines on Proper Advice Practices for Life Insurance and Family Takaful Business. The Guidelines which was previously applicable to the sales force and agents of insurers and takaful operators has now been extended to include all insurance and takaful intermediaries, including financial advisers. The Guidelines outline the minimum standards for proper advice and ethical selling practices of life insurance and family takaful products by insurance and takaful intermediaries, with the aim of ensuring consumers are provided with suitable advice to support informed decision-making. | 0 |
We were unable to take in the complexity of the financial system and the contagion that this entailed. Although it was extremely difficult to make forecasts, the Riksbank did not stop making them. However, the forecasts were unusually uncertain and we were prepared to revise them significantly, which is what subsequently happened. The forecast for GDP was revised so much that we ended up far outside the uncertainty bands that surrounded the forecast before the crisis (see Figure 1). At a later stage, we also underestimated the strength of the recovery. 4 For a more detailed discussion of the role of assessments in relation to alternative scenarios see the speech “Flexible inflation targeting in theory and practice” that Stefan Ingves held on 12 May 2011. BIS central bankers’ speeches 5 Figure 1 GDP and forecasts for GDP at different times Annual percentage change, seasonally-adjusted data 8 8 6 6 4 4 2 2 0 0 90% 75% -2 -2 50% Outcome -4 -4 September 2008 September 2009 September 2010 -6 -6 April 2011 -8 -8 06 07 08 09 10 11 12 13 Note: All forecasts entail a degree of uncertainty but to preserve the graphic profile only uncertainty bands for the September 2008 forecast are shown. Sources: Statistics Sweden and the Riksbank. | Importantly, the latest policy decisions remained fully in line with the ECB’s mandate and the principles I mentioned just now. Those who say that we were or still are “behind the curve” should consider all the decisions the ECB has taken since the financial crisis has intensified and broadened. In this respect, let us not forget that a central bank has only one instrument at hand, namely monetary policy. It cannot be held accountable for meeting more than one objective. Any such attempt would 2 BIS Review 139/2008 overburden monetary policy. For this reason, the Treaty provides for a clear and efficient allocation of policy responsibilities, with price stability being exclusively and primarily assigned to an independent ECB as its primary objective. Not surprisingly, our debates yesterday and today have triggered the question of how to safeguard EMU and build on its achievements at a time when the world’s financial landscape is changing dramatically. In fact, the current financial turmoil – the origins and implications of which we discussed in detail – is likely to dampen demand in the euro area and the rest of the world for quite some time. It may well turn out to be a litmus test for the functioning of EMU, both in economic and institutional terms. Having carefully listened to the presentations, I remain confident that monetary union will withstand the test of time. As illustrated during the conference, the euro has already brought real benefits to the 320 million people in the euro area. | 0 |
The Yom Kippur War followed two years later, with the OPEC countries’ oil embargo and the first oil crisis. The sharp increase in oil prices led to a recession in Western economies. At the same time, inflation took root in many countries. In Norway, the welfare state was rapidly developed and transfers to the business sector increased considerably, partly because we were expecting substantial oil revenues in the future. Economic policy sought to build a bridge over what was expected to be a temporary downturn in the global economy. This resulted in a contest for economic resources between the business sector and the public sector and between the internationally exposed and the sheltered sectors. In the 1970s and 1980s, there were wide fluctuations in the Norwegian economy, with high and variable inflation. This also resulted in wide swings in output and employment. The absence of a nominal anchor was one of the main reasons behind the pronounced swings. With a policy of low interest rates and devaluations, inflation took root. Nominal interest rates were kept at a low level even though inflation and the value of tax-deductible interest rose. Frequent devaluations from 1976 were not able to prevent a decline in manufacturing. On the contrary, they proved to be selfreinforcing. The wide fluctuations culminated in a credit boom in the mid-1980s, followed by a deep recession and high unemployment towards the end of the 1980s. History shows that low unemployment cannot be achieved through high inflation. | Today’s flexible inflation targeting regime establishes a firm framework for monetary policy and provides clear guidelines on how monetary policy is to respond in different situations. The fiscal policy authorities can thus internalise the monetary policy response pattern. This is only natural, since the mandate for monetary policy was laid down by the Government and the Storting. In other words, the proper framework is in place for delegating interest rate decisions, but the central bank’s response pattern must be known, so that the fiscal authorities can take this into account. Game situations that may arise with an independent central bank with an inflation target are further discussed in Leitemo (2000) and in Steigum (2000). Norges Bank analyses the inflation outlook three times a year in its Inflation Report. The Executive Board discusses the economic outlook at a separate meeting three weeks before the Inflation Report is presented. The following day, the Executive Board summarises its discussions and assesses the consequences for monetary policy for the next four months. This assessment constitutes an important internal reference when the Executive Board later makes a decision regarding the interest rate. It will also provide the basis for our external communication through speeches and the media. The key rate is assessed by the Executive Board every sixth week. Monetary policy decisions are announced in a press release followed by a press conference. | 1 |
Turning to fiscal policy, the baseline scenario assumes that the trajectory of public spending is consistent with the fiscal rule and with the Administration’s announcements that it will BIS central bankers’ speeches 3 follow a path of fiscal consolidation, which has resulted in an adjustment of expenditures planned for 2016. This is consistent with a lower trend price for copper than was assumed in the formulation of this year’s budget. Risk balance One of the main external risks comes from the international financial markets. New volatility episodes may be repeated like the ones we saw in the early months of this year, because many of the underlying elements are still present. In particular, doubts around the situation in China, and doubts concerning the Fed’s decision on the policy rate. This, because of both its difference with what can be inferred from market prices and the divergences with other developed countries’ monetary policies. Nor can we rule out that the increased appetite for riskier assets observed in the past few weeks could persist. Any outcome will have effects, among others, on external financial conditions and emerging economies’ currencies and, it will thereby have an impact on local output and inflation. Another risk scenario has to do with the outlook for world activity. On the downside, there are doubts about the growth capacity of China, which couples with doubts surrounding the solidity of the US recovery. | 5 The path was not entirely untrodden: in the 1990s, Japan was facing weak growth and the threat of deflation in the wake of its asset price crash, even though the Bank of Japan (BoJ) had slashed rates to zero. The BoJ thus started to experiment with unconventional monetary policy measures. 2 BIS central bankers’ speeches certain period of time. Both of these tools are intended to lower long-term borrowing rates and, through that channel, to stimulate economic activity. The SNB is a bit of a special case. In summer 2011, Switzerland was confronted with an excessive appreciation of the Swiss franc as a result of the euro area crisis, an appreciation that continued to the point where it posed a serious threat to price stability. As a result, we resorted to a range of unconventional tools to increase Swiss franc liquidity and – eventually – introduced an exchange rate floor of 1.20 Swiss franc per euro in September 2011. So, are central banks doing too much in terms of unconventional policy? The answer is – again – “no”, but less categorically than in the case of conventional policies. On the one hand, being the only ones left to react to weak economies and high unemployment forced many central banks to take further action – action that was justified by their mandates. On the other hand, the jury is still out on the overall assessment of unconventional policies. | 0 |
This is the right place to stress that the BNB is aware of its huge responsibility for the financial stability of this country and consistently works in fulfilment of the functions and tasks assigned to it by law. In its work, the Central Bank collaborates with many other international and national institutions, and whenever a need arises, it steps into the role of a constructive opponent. Because, as I have stressed on various occasions, it should not surprise us, nor should we show intolerance to the fact that the political institutions in the democratic countries are very sensitive especially with regard to quick achievements within the context of the electoral cycle. Whereas the tasks of central banks go beyond the horizon of the next parliamentary or presidential elections. We are guided by the understanding that we have to keep our reputation as institutions with national responsibility, holding as our priority the long-term economic interests of the people and of the state. Hence, the fundamental logic of the so very important (and very strictly adhered to throughout the EU) principle of national central bank independence and the need to provide independent analyses and information to the general public. | If, on the other hand, people expect the rise in infection rates (and the associated restrictions) to subside relatively quickly – and if there are also no close substitutes for the sorts of spending that expose people to infection risk – one would expect a more marked effect on aggregate consumption, and less expenditure switching. Charts 5(a)-(c) depict some simulations to get these points across. The model they’re based on is extremely simple and stylised. In particular, it assumes that incomes, current and expected, are held fixed, and that there’s no change in the degree of uncertainty about the economic outlook. The only thing that changes is the path, actual and expected, of the pandemic. This is very obviously unrealistic. Household incomes have clearly been affected by the crisis. And we know from long experience that when uncertainty about people’s future incomes goes up, saving rates tend to rise as well. But as we saw earlier, from Chart 4, household incomes have been significantly protected by the furlough schemes, at least as compared with the huge dip in national income. (While this isn’t a free lunch – higher government debt has to be paid for eventually – it does spread out the cost of that dip.) So the assumption 2 In a more general model than the one used here Krueger et al (2020) also point out that the impact of the pandemic on aggregate spending is lower the closer the degree of substitutability between risky and non-risky consumption. | 0 |
That is well above the trend rate for the past 20 years, of just over 2%. Employment has increased by 1.2 million over this period, while unemployment has fallen almost month by month, on the familiar claimant count measure, from a peak of over 10% in 1993, to some 4.7% now. That is the lowest rate for 18 years. Meanwhile retail price inflation (on the Government’s target measure) has averaged around 2¾% - that’s the lowest for a generation. There’s not much evidence here that low inflation inevitably means low growth and employment. But, of course, we started this period with demand below capacity - with a fair amount of slack in the economy which we were gradually taking up. By last year it had become clear, in the evidence of rising capacity utilisation and of growing tightness in the labour market, that unless we acted to moderate the growth of demand we were at risk of overheating. That’s why we tightened policy over last summer - to slow things down before inflation took off - and to head off a subsequent recession. And although, as I say, you can never be sure - economic forecasting is a very uncertain business - a necessary slowdown rather than a more serious recession is what we think we’re seeing, and, as I understand it, that is what your own General Council thinks too. Our problem in slowing the economy down has been enormously complicated by the increasing imbalance between the domestic and the internationally-exposed sectors of the economy. | And that, of course, is exactly what we do in fact do - using the vast array of official economic statistics and financial market data, all the publicly available and some private surveys and commentaries, as well as a wealth of anecdotal and structured survey evidence that we collect BIS Review 71/1998 -3- ourselves, through our 16 non-executive directors, through the frequent visits which MPC members make around the country, and through meetings in London, and through our network of 12 regional, information-gathering and disseminating, agencies with their 7000 industrial contacts throughout the United Kingdom. And we openly display the facts as they are available to us, as well as our analysis and our conclusions, regularly through the publication of the minutes of our monthly meeting and in the quarterly Inflation Report. So when people say to me that the economy is headed for recession, I’m interested in comparing the evidence on which they base their views with our own evidence, and I want to know whether or not they are also saying that they expect us to undershoot the Government’s inflation target. Let’s just for a moment turn down the noise and look at some of the relevant facts as they relate to the economy as a whole. Since the economy started to recover from recession in the spring of 1992 - some 6½ years ago - overall output has grown at an average rate of about 3%. | 1 |
Given the recent developments in fintech and the evolution of digital banking, we will shortly be consulting the industry and the fintech community on whether and if so how the Guide to Authorization of Virtual Banks promulgated in 2000 should be amended to suit the present day circumstances. (D) Banking Made Easy Another component of the new Smart Banking era is our “Banking Made Easy” initiative. We will set up a new task force within the HKMA and work with the banking industry to identify and, where appropriate, modify or streamline those regulatory requirements or processes that may hinder technological innovations. We will seek to clarify regulatory expectations, review our own guidance and rules to make them more user friendly, thereby facilitating innovations in products and services for better customer experience. Remote onboarding of customers and account maintenance are two such examples in which the use of new technology may lower operating costs and improve customer experience. We will also initiate legislative changes in our antimoney laundering laws and regulations so that a more risk-sensitive approach to remote customer onboarding can be undertaken. We and the Hong Kong Association of Banks are now studying how to use know-your-customer (KYC) utility to conduct customer due diligence processes more efficiently. The HKMA is also considering the introduction of multiple tiers of bank accounts so that the process required for opening accounts for the low risk banking services can be simplified. | Enhanced tax transparency lifts the veil on structures created for illicit purposes, and will help to deter tax criminals from abusing trust structures. This bodes well for the longer term sustained growth of the trust industry. The critical role of industry 24. An AML/CFT regime, no matter how robust, cannot in itself fight against ML/TF activities. We need the commitment and active participation of the industry. Promoting a strong AML/CFT culture within the industry, and deepening manpower capabilities are important elements to maintain a robust regime, and allow us to reap the benefits of business growth while managing risks effectively. 25. Industry has primary responsibility to build a good AML/CFT culture and ensure compliance. I am encouraged that the industry has taken active steps to promote robust controls to strengthen its resilience and prepare for increased transparency on beneficial ownership information and enhanced tax transparency. The private banking industry in Singapore introduced a set of industry sound practices last year to provide guidance to private banks on the development and implementation of robust controls to detect and deter the proceeds of tax crimes. As most of you would know, the Singapore Trustees Association has also issued similar guidelines for trust companies. We commend such industry initiatives and look forward to continue working in meaningful partnership with the industry. 26. Competency building is also imperative in raising AML/CFT standards amongst industry professionals. An effective AML/CFT system cannot be solely the responsibility of compliance professionals or experts, but must be an integral part of the firm’s culture. | 0 |
All the above entails capital gains for banks exposed to these financial and real assets, at the same time as it increases the value of loan collateral. This also favours an improvement in the credit quality of loans and, therefore, smaller losses in the credit portfolio. It is true, in any event, that these capital gains dry up once interest rates stop falling and remain at low levels. Furthermore, there is also evidence that, since the ECB’s deposit 2 See, Banco de España (2018): Annual Report 2017, Chapter 2, “The challenges facing the Spanish banking sector” and Banco de España (2017): Annual Report 2016, Chapter 1, Overview, Box 1.3. 10/13 facility rate has stood below zero, negative surprises in short-term interest rates have been accompanied by declines in European banks’ stock prices.3 Given the endogenous nature of the monetary policy response to projected economic developments, this change in banks’ stock prices due to monetary surprises may reflect, on one hand, the negative impact of less favourable projections for the future macroeconomic setting and, on the other, the market view on the direct negative effect of additional interest rate cuts on the future profitability of banks against the backdrop of protracted negative rates.4 In recent years, Spanish banks have partially cushioned the fall in net interest income by generating other income and, in particular, by increasing fee and commission income. | There are several factors that may explain the decline in net interest margin observed in this period. First, it is the result of the increase in the relative share of non-productive assets, that is, assets that do not earn interest, such as non-performing loans or foreclosed assets. In addition, this period saw a severe contraction in banks’ credit portfolios, a reflection of the sharp correction in the high indebtedness accumulated by Spanish households and firms in the pre-crisis years, and of the loss of share of the banking system in the financing of the economy. Banks cushioned the balance sheet effect of this contraction in their credit portfolios by increasing their exposure to other assets, especially through government debt purchases. As these debt securities provide lower returns than lending to households and firms, in the long run this portfolio rebalancing resulted in a fall in the average return on assets. However, when the sovereign debt crisis came to an end, the increase in value of these debt securities provided a positive, albeit short-lived, boost to profitability. On our estimates, the overall effect of these changes in asset composition – associated with the increase in non-performing loans and the decrease in the relative share of credit on balance sheets – would explain some 70% of the decline in net interest margin in the Spanish banking system between 2007 and 2018. | 1 |
That will allow clear messages to be delivered about whether countries are living up to their commitments. A remit should be set annually. It will play two roles: it will give the IMF a clear mandate to guide its surveillance activities and it will give the shareholders a yardstick against which to hold the IMF staff accountable. Greater independence for staff should be accompanied by greater accountability. (d) What are the constraints of history? The Bretton Woods conference at which the IMF was established was attended by the governments of just 44 countries. Yet even that was fraught. It would be vastly more difficult to agree a complete new treaty with 184 countries. The IMF has much of the infrastructure and expertise that will be needed to do the job I have described – and an annual budget of $ billion to do it. That is why it makes sense to attempt to reform the IMF that we have inherited rather than to build a new institution. But the inherited governance structure of the IMF and other institutions complicates matters. The founders of the post-war settlement encumbered several of the new international institutions with unwieldy full-time resident boards. And the distribution of voting rights no longer reflects the economic and political weight of member countries. The task of agreeing on a new system will be enormously difficult. But if we fail, the influence of the institutions will diminish further, possibly irreparably. Reform of IMF surveillance and voting rights of member countries complement each other. | These observations are calling urgently for structural reforms, in particular all the reforms that would augment the flexibility of all markets – labour, goods and services and financial – in the euro area economy. The need for structural reforms Understanding the reasons of these developments is very important. As also stressed by the OECD 5 , the lack of sufficient structural reform in Europe is a major cause of the gap in economic growth between Europe and the US. I will therefore now turn to structural reforms that have the potential to increase both euro area labour productivity growth and labour utilisation and therefore the long run growth potential. The euro area economy is facing a number of important challenges, including rapid technological change, ageing populations as well as accelerating globalisation. Moreover, the long-term sustainability of public finances in the euro area should be improved pursuing pension as well as health care reforms. These challenges will require major efforts to increase the adjustment capacity of the euro area in general and of workers in particular. The adverse consequences arising from an ageing population could only be solved by an extension of the working life and/or substantial inward migration. Other challenges, such as globalisation and increased competition, are also accompanied by increased opportunities: globalisation provides incentives for firms and workers to excel in what they do best while outsourcing some goods and services at lower costs on a global scale, providing consumers with substantial benefits 6 . | 0 |
Already today we are quite advanced in this regard, as there are 14 Crisis Management Groups for which EU authorities act as coordinators. These groups are truly global, involving authorities of numerous countries, ranging from Japan to Mexico. The issue of private financing is also addressed. The FSB standard states that jurisdictions should have in place privately financed deposit insurance or resolution funds, or a funding mechanism for ex post recovery from the industry of the costs of providing temporary financing to facilitate the resolution of a firm. Bail-in, a form of creditor-financed recapitalisation, is also an important element of the FSB standard. I consider bail-in as an apparently promising resolution tool. However, in many cases, in order to ensure the robust viability of the distressed bank after such a measure and to limit moral hazard, a bail-in mechanism will need to accompanied by a set of other restructuring (such as replacement of management) or resolution measures (like asset transfers, termination stays of contracts, segregation of troubled assets, bridge banks, etc... ) . For cross-border institutions, international cooperation to elaborate resolution plans and implement them, it would help if other measures would be adopted like enforceable 2 BIS central bankers’ speeches netting agreements, segregation of clients positions and, specially, the move of OTC derivatives to central counterparties (CCPs) and to organised markets. | The Fed System is comprised of the Board of Governors in Washington, D.C. – a federal agency currently led by Chairman Ben Bernanke – plus 12 regional Reserve Banks that span the country. For example, the district overseen by the New York Fed includes all of New York, the 12 northern counties of New Jersey; Fairfield County, Connecticut; Puerto Rico and the U.S. Virgin Islands. Each Reserve Bank is distinct, with its own charter and a board of directors drawn from its district, but overseen by the Board of Governors. The law that created the Federal Reserve made the central bank independent so that policymakers could make decisions about monetary policy – such as whether to adjust interest rates – in the national interest, somewhat insulated from political pressure. However, the Fed is accountable to Congress. Congress has set an explicit objective for monetary policy: To pursue the highest level of employment consistent with price stability. This objective is often referred to as our “dual BIS central bankers’ speeches 1 mandate,” because it combines two goals: high employment, and low and stable inflation. In order to promote these objectives, we also pay close attention to financial stability, because without financial stability, it is very hard to achieve our goals for jobs and inflation. The Federal Open Market Committee consists of the Board of Governors plus the presidents of each of the 12 district Banks. | 0 |
This year, we are advancing to a deep dive into the incentive systems of front offices in retail banks. 16. Based on what we have learned from the self-assessment exercise, we noted that banks’ culture effort in the area of incentive systems is still very much an area of “work-inprogress”. And having appropriate incentive system is such an important piece for inducing desirable behaviour that we have decided to intensify our efforts on this theme. 17. Up till now, we have not seen any guidance published on stylised approach to incentive systems, I guess because the design and implementation of such systems are very much dependent upon the characteristics of individual banks. But we have decided to take up this challenge by looking into the incentive systems of front offices in 20 retail banks, and aim to provide some useful guidance, or at least reference points, to the industry. 18. As you can imagine, the Focused Review on this subject is a very large-scale exercise. We are examining the front-office incentive systems, as well as analysing the perception and behaviour of front-line staff, in 20 retail banks in Hong Kong. So far, as a key component of this review, we have completed an industry-wide employee survey to gauge frontline employees’ views on their banks’ incentive systems and culture. We are encouraged to see the active participation of surveyed bank staff, with an overall response rate of around 70%. | In its own way, this symposium sets out to disrupt the ordinary in order to achieve the extraordinary; invoke curiosity to inspire creativity; and challenge the conventional to embrace novelty. With open minds and thoughtful exchanges, the next two days present an excellent opportunity to generate a critical mass of ideas that form the foundation for new strategic partnerships to be built, and existing ones strengthened. The time is now to deliver on the financial inclusion promise to the 2 billion unbanked and vulnerable people who continue to live in the most challenging financial circumstances. With an “eye for innovation”, I am certain we can spot the opportunities that will deliver that promise. 4 BIS central bankers’ speeches | 0 |
In circumstances of permanent changes in the infrastructure of financial markets, the supervisory role of the central bank regarding the payment system contributes to the maintenance of financial stability. Additionally, the systems for large payments contribute to the coordination of the direct participants in the national payment system, such as the Treasury of the Ministry of Finance, banks and clearing institutions, ensuring finality of all payments in the national economy. In this way, the National Bank maintains the vitality of the payment systems as one of the most important components of the financial and economic infrastructure. In terms of achieving the development and catalyst role, allow me to affirm the strategic approach of the National Bank, the Ministry of Finance and the Banking Association in the development of the national payment system of the Republic of Macedonia through the adoption and implementation of the Strategy for the development of the payment system of the Republic of Macedonia for the period 2013–2017. Our shared vision for the development of the payment systems of the Republic of Macedonia until 2017 is the modernization and improvement of the operations of payment systems through the application of high-tech achievements and gradual harmonization with the standards and rules of operation of payment systems in the European Union. In this way, we expect to increase the reliability and efficiency of payments and the acceptance of non-cash payment instruments, simultaneously ensuring gradual compliance with the requirements for integration into the Single European Payment Area – SEPA. | A BIS survey in January 2020 found that more than 80% of central banks, compared to only 70% in a survey the year before, are looking into CBDC, suggesting that there is greater openness to issuing a CBDC than a year ago. The survey also shows that emerging market economies report stronger motivations and a higher likelihood that they will issue CBDCs. Although many central banks are considering CBDCs, they appear to be proceeding cautiously, with only about 10% of central banks say they are likely to issue a general purpose CBDC in the short term and 20% in the medium term. Whether it is for DLT, CBDC or other innovations in financial technology, it is important for central banks to continue cross-border cooperation in order to realise successful digital transition. Harmonisation of standards and data privacy across jurisdictions; information-sharing; and support for cross-border integration through the various international platforms, are some of 2/3 BIS central bankers' speeches the ways for central banks to contribute to this transition. Preserving safety and soundness As we embrace financial innovation, we need to be mindful of the risks of unintended consequences such as cyber threats and spread of illicit finance. These areas, which were already the focus of central banks, have become increasingly important with the advent of the Covid-19 pandemic. An increasing number of cyber criminals are exploiting the current pandemic for their own objectives. | 0 |
In the medium-term, our overall aim is to ensure the stability in the financial sector through identifying emerging vulnerabilities in this sector; adopting Financial system stability is founded on early corrective actions; and the confidence of the public in the implementing a series of measures to financial system and depends on the further strengthen financial institutions, soundness and resilience of principal markets, infrastructure and safety nets. components of the financial system to collectively withstand risks emanating Our medium-term plan is to have a financial system, which offers the full range of financial products and services Central Bank of Sri Lanka – ROAD MAP 2017 18 to all economic sectors, including change, both nationally and agriculture, infrastructure, internationally. Considering the need for manufacturing, particularly small and upgrading of statutes in line with these medium enterprises (SMEs), and trade developments, we expect to initiate to achieve broader economic objectives amendments to the existing Banking of our country. We need to have a well- Act. Accordingly, steps will be initiated planned and an ambitious agenda for to streamline and strengthen the financial sector development and regulatory and supervisory framework reforms ranging across financial sector through the proposed Banking Act policies with a vision of innovative, amendments. We will consider robust and competitive financial provisions for reinforcing the Central systems. | Sirisena, and Honourable Prime Minister Last but not least, let me commend and Ranil Wickremesinghe for their congratulate the Assistant Governors, leadership and guidance, and Heads of Departments, particularly the Honourable Finance Minister Ravi Director of Economic Research and the Karunanayake for his support, as close Staff of the Economic Research coordination between the Ministry of Department for today’s effort in Finance and the Central Bank is essential formulating the policy document, as well for sound economic management. as all Staff of the Central Bank who are I am privileged to have unstinted support and prudent inputs from the Members of the Monetary Board. Therefore, my deep gratitude is due to Secretary to the Treasury, Dr. R H S Samaratunga, Mrs. Manohari Ramanathan, Mr. Chrisantha Perera and Mr. Nihal Fonseka. They have been giving up an enormous amount of their time to address the challenging issues of the day. I am also thankful to Deputy committed to fulfilling the key objectives of the Central Bank with utmost diligence, proficiency and professionalism. On my first day in office, I said that professionalism, technical excellence and integrity are crucial guiding principles for any institution and its staff. I am very pleased to say I have seen plenty of these characteristics among the staff of the Central Bank of Sri Lanka. | 1 |
20 “Under such circumstances, any runs on banks for whatever reason became to some extent self-justifying, whatever the quality of assets held by banks. Banks had to dump their assets on the market, which inevitably caused a decline in the market value of those assets and hence of the remaining assets they held. The impairment in the market value of assets held by banks, specifically their bond portfolios, was the most important source of impairment of capital leading to bank suspensions, rather than the default of specific loans or specific bond issues.” (Friedman and Schwartz (1963)). 21 For example, Laux and Leuz (2009). 22 For example, Wallison (2008). 23 For example, Turner (2010). BIS Review 28/2010 9 Underlying both of these debates is a perceived tension between the needs of different stakeholders, in particular investors and regulators. So what broad principles might frame accounting standards if the demands of these stakeholders are to be met? Using the framework outlined earlier, these principles might include: The importance of a common measuring rod The G20 have committed FASB and the IASB to convergence of international accounting standards by June 2011. This is an ambitious timetable, for it is not just a meeting of two minds. There are perhaps more than 30 different accounting standards operating worldwide. Many minds need to meet if a truly international standard is to emerge. It could be argued that differences in accounting standards do little harm. | Jiří Rusnok: The changing world of central banking Keynote speech by Mr Jiří Rusnok, Governor of the Czech National Bank, at the conference of the Czech Economic Society, Prague, 17 May 2021. * * * Ladies and gentlemen, members of the Czech Economic Society, esteemed guests from the Czech Republic and around the world: Let me start by thanking the organisers for inviting me to this conference. It is an honour and a pleasure to be here today to communicate some thoughts about central banks. I will split my address into two thematic parts. In the first, I will talk about central bank independence, about the central banking paradigm from the historical perspective, and about some of the challenges that central banks face today. In the second, I will try to shed some light on the humdrum reality of our monetary policy decision-making during the Covid crisis. I say that with tongue in cheek, because, as you know, real-life decision-making is fortunately never humdrum. Let’s turn the clock back a few decades and briefly remind ourselves how central banks gained their independence and what consequences it had. This will help us understand the framework in which central banks have long been operating and the it is now facing. How did central banks gain their independence? Central bank independence stands on theoretical and empirical foundations. | 0 |
They will help economies to reap the full benefits of belonging to the Single Market and to the Economic and Monetary Union. They will help societies to sustain social models which would otherwise be debased by the permanent output loss caused by the crisis, and the related loss of tax revenues.16 I should add that there is a need for reforms in all euro area countries, including the larger ones, albeit to varying degrees and in different areas. Even if a euro area country doesn’t feel the pressure of financial markets and programme conditionality, its government should take seriously the responsibility to carry out necessary reforms that will ultimately support growth elsewhere in the region. And it is the responsibility of all euro area governments, jointly, to advance the reforms outlined last December by the President of the European Council that will give stable foundations to the single currency. The Single Supervisory Mechanism is an important first step, to be complemented as soon as possible by a Single Resolution Authority and Fund; further steps towards an economic, fiscal and political union should follow, completing our Economic and Monetary Union. If there is a lesson to be learnt for all euro area countries, it will be to make sure that in the future they make the necessary changes pro-actively and not in response to a crisis. Thank you for your attention. 15 A coordinated reduction of mark-ups would lead to a similar impact on GDP growth in the adjusting countries. | 1323; and Angelini E., A. Dieppe, B. Pierluigi (2013), Learning about wage and price mark-ups in euro area countries, ECB Working Paper No 1512. 14 See Gomes S., P. Jacquinot, M. Pisani (2010), The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area. ECB Working Paper No 1195. 6 BIS central bankers’ speeches studies done for other countries.15 The simulations exclude the reforms that enhance total factor productivity, which I mentioned earlier. These would further add to the impact on GDP and employment. To conclude, Portugal can already count on key achievements in labour and product markets that were thought impossible only a few years ago. The support of its European partners has been and will remain instrumental in this process. Structural reforms always take time to have their full beneficial impact on the economy. Having entered the second half of the adjustment programme, these benefits should increasingly become tangible. I do not underestimate the pain that these changes inflict. But they are necessary in order to lay the foundations for robust and sustainable growth. Growth-oriented policies are no substitutes for fiscal and external adjustment: they are mutually reinforcing. If designed in a way that reduces rents and fights vested interests, they will not only improve the efficiency of the adjustment process but also its equity, to the benefit of the poorest, the youngest, and of future generations. They will support medium to long-term growth and therefore employment and fiscal sustainability. | 1 |
Svein Gjedrem: Monetary policy and the economic situation Speech by Mr Svein Gjedrem, Governor of the Central Bank of Norway, at a meeting of the Troms Fish Farming Association, Harstad, 13 March 2003. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 5 March and on previous speeches. Please note that the text below may differ slightly from the actual presentation. The Charts in pdf can be found on the Norges Bank’s website. * * * The operational target of monetary policy as defined by the Government is inflation of close to 2½ per cent over time. Norges Bank sets the interest rate so that future inflation will be equal to the inflation target of 2½ per cent. Interest rates were reduced this winter in response to the change in the inflation outlook. The inflation projections were revised downwards as a result of weaker cyclical developments in the world economy, a sharp drop in interest rates internationally and a strong krone. In addition, the Norwegian business sector is feeling the effects of the high Norwegian cost level. Moreover, growth in domestic demand has slowed. Household purchasing power has been reduced as a result of higher electricity prices. The weak prospects at home and abroad are in turn having an impact on the Norwegian labour market and the outlook for wage growth and inflation in the years ahead. | On that note, I look forward to the discussion and insights that will emerge over the coming days. 4/4 BIS central bankers' speeches | 0 |
Capital flows, net in % of GDP Financial account flows, in % of GDP 15 20.0 10 MK 5 Baltics 5.0 0.0 RS LV 2017 2016 2015 2014 2013 2012 2011 2010 -20 2009 -10.0 2008 BG 2007 -5.0 2006 SI 25 2005 -15 20 2004 -10 15 SEE LT BalticsHR RO AL 2003 CZ CEE 10 CESEE 2002 HU -5 EE 2001 -5 SEE 10.0 EU28 0 PL 5 2000 0 CEE 15.0 Source: Eurostat, IMF and NBRM calculations. With the occurrence of the crisis, investment ratios plunged across the board, and despite the more recent recovery, the level of investment in most of the countries is still below the pre – crisis maximum. The crisis was accompanied by rising uncertainty, increased risk premium, and most importantly, sharp reversal in the external financing. The region has been shielded partially from 2 the sudden stop, given the FDI dominance as a stable financing, and the contained bank deleveraging, amid regional initiatives (Vienna Initiative in particular). Yet, some of the countries were also caught by the crisis in the middle of rising vulnerabilities, excessive leverage in particular, which precluded faster recovery of the investment rates. | Therefore, as infrastructures are becoming increasingly interlinked, more coordination in the implementation of the default rules is vital for further mitigating risks at the systemic level. Finally, the default of Lehman Brothers was a major showcase for the severe implications of “institution-based interdependencies” between two or more infrastructures resulting from the exposures of major financial institutions participating in each of these infrastructures. Therefore, it is crucial for us to continue closely monitoring the interdependencies between individual institutions in order to assess their impact on the stability of the infrastructure. Infrastructures for OTC derivatives Let me now turn to the need to strengthen the infrastructure for OTC derivatives. OTC derivative markets have been very dynamic with a veritable explosion in outstanding contract volumes primarily over the past decade. The basic problem, however, is that this very dynamic evolution of OTC derivatives markets has outstripped development of the underlying clearing and settlement arrangements. Indeed, as the post-trading of OTC derivatives remained predominantly bilateral and non-standardised, the respective arrangements have become increasingly inadequate for coping with the growing volumes and complexity of OTC derivatives trades. This was highlighted in particular during the financial market turmoil, when higher trading activity and market volatility further aggravated the existing tensions. [The resulting processing backlogs and uncertainties about counterparty risk raised strong concerns among policymakers, as highlighted in the Financial Stability Forum’s April 2008 report 1 on the lessons from the financial turmoil.] | 0 |
12.07.2017 Congressional Hearing of the Governor of the Banco de España before the Commission investigating the financial crisis in Spain and the financial assistance programme Luis M. Linde Governor Thank you Madam Chair, Ladies and Gentlemen. I appear before this Commission following the summons received from the President of the Congress of Deputies in connection with the publication drafted and released by the Banco de España on 16 June entitled “Report on the Financial and Banking Crisis in Spain, 20082014”. The plans to draft a report on the economic and financial crisis that first broke in Spain in 2007-2008 were considered some time ago in the Banco de España, justifiably so given that this crisis has been the worst the Spanish economy and financial system has undergone in recent decades. The Parliament’s decision last February to set up this Commission confirmed for us the advisability of drafting the Report, understanding that it could be a suitable contribution by the Banco de España to the Commission’s work. Although some of its effects have continued to the present day, the crisis may be deemed to have ended or been brought under control, in general terms, in 2015. | That hardly characterises the UK in the past five years, where inflation has averaged well above our 2% target and the real interest rate has as a consequence been pretty low. Moreover, it is by no means obvious that the UK’s economic problem is simply one of deficient aggregate demand. The limited disinflationary pressures coupled with consistently weak productivity growth suggest that the financial crisis may have wrought significant damage to the supply side of the economy. Our November Inflation Report discussed a variety of possible explanations for the weakness in productivity, relative to a continuation of its pre-crisis trend. Some of the weakness may unwind naturally as the recovery gathers pace, some may require policy intervention to fix, and some may persist indefinitely. But it seems unwise to assume that all of it will unwind with a recovery. That part of it which is attributable to a supply-side deterioration will instead be absorbed as a higher price level under a nominal income target. Of course, this issue could be addressed by adjusting the target level of nominal income down for the presumed deterioration in supply, but unfortunately we do not presently have a good handle on just how big this is. | 0 |
2 BIS Review14?/2001 Inflation 1990 - 2001 Per cent 5 5 4 4 Norway 3 3 2 2 1 1 Euro area 0 0 1990 1992 1994 1996 1998 2000 Since 1997, inflation has been higher in Norway than in the euro area. The difference partly reflects a period of strong growth in Norway, while the level of activity in Europe has been low. The higher level of inflation in Norway cannot be sustained, however, as this would undermine the basis for stability in the krone exchange rate and confidence in monetary policy. Short-term capital inflows and outflows are probably the most important factor determining movements in the krone exchange rate from day to day, from week to week and from one quarter to the next. They are governed by expectations concerning future returns. Changes in expectations concerning the future value of the krone can trigger extensive capital movements. As a rule, Norges Bank does not intervene in foreign exchange markets with a view to influencing the krone exchange rate. The krone is floating, and the value of the krone fluctuates in periods by the same magnitude as exchange rates in other open economies. Nevertheless, the prevailing stability of the krone is largely a reflection of confidence that inflation in Norway will be kept at a low level. | The asset purchases that are now part of the ordinary monetary policy toolbox involve various kinds of risk being transferred from society at large to the central bank’s balance sheet. 14 This is why the risks have increased on the Riksbank’s balance sheet. But the risk buffer that the Riksbank has in the form of equity and revaluation accounts has not grown at the same rate. This means that we need to take measures to ensure that the Riksbank has enough of a buffer for the risks that exist on the balance sheet. Generally accepted accounting principles indicate that the Riksbank may make provisions for the risk of losses existing on the balance sheet. The Riksbank has 14 A transfer of risk from the public to the central bank’s balance sheet is actually one of the channels through which asset purchases may have an effect on the economy. See CGFS (2019). 10 [13] previously had a relatively small balance sheet, associated with small financial risks, and has therefore not needed to make provisions to complement the existing loss-absorbing buffer. However, risks have increased in recent years as new assets have been purchased and the balance sheet has grown. As from this year, the Executive Board is therefore starting to make provisions to strengthen our buffer, so that it can be used if the Riksbank should make losses. The provisions will thus form a complement to the existing equity and revaluation accounts. | 0 |
On this issue, the draft of the new Bank of Thailand Act has stipulated this condition. Even though there is a need to review the draft in order to make it more effective, the Bank of Thailand strongly endorses the importance of this Act because it will provide for an up to date framework for the development of the Thai monetary system in the future. In data dissemination, the Bank of Thailand has improved the process of data collection and dissemination to ensure that they are complete, correct, and expeditiously published, such as the improvement of the M3 data, the report on buying-selling of foreign currency especially the forms F.T. 3 and F.T. 4, as well as random checks on the correctness of the report. At this point, we would like to note that the purpose of this random check is not to emphasise the use of penalties but to create awareness amongst the financial institutions the importance of data reporting to the Bank of Thailand, so that the Bank of Thailand can have an up to date database for policy decision-making. On the external data, for the first time there has been a survey and announcement of the International Investment Position (IIP), in order to correctly monitor foreign currency exposure of the Thai economic system. Also, Thailand is the 21st country ranking in the world, in compliance with the International Monetary Fund's Special Data Dissemination Standard (SDDS). | Moreover, to ensure that the quality of the assessment of each financial institution is of the same standard and to ensure transparency in the process, the supervision report will be submitted to the Financial Institution Development Committee, which comprises the Heads of all Supervisor Teams. The Bank of Thailand’s management will meet with the Board of Directors of the financial institution to present the findings of the supervision report, and there will be a close monitoring and follow up on the directives given, as well as the points raised in the supervision report. To put in place this new supervision framework, the Court of Directors of the Bank of Thailand has approved the new structure of the Supervision Group due to be effective on the first of January 2001. Under the new organisational structure, there will be a clear separation of the three lines of work, namely supervision, examination, and research and analysis. This will provide for checks and balances within the system as well as serve to develop depth in supervision work. Moreover, a new Department of Risk Supervision and Department of Information Technology Supervision will also be set up, which will help ensure that the supervision process will be more proactive and forward looking, focusing on strategic as well as management risk. It is quite pleasing that the work, which has been undertaken, has begun to bear fruit, and we will have by the end this year a strengthened financial institution system. | 1 |
From a macro point of view, credit risk derivatives are helping diversify and spread risk, under the assumption that buyers of risk will deliberately alter their own risk-return profile. But the ultimate risk remain and as a result, some sectors, such as insurance companies or pensions funds, which hitherto did not feel the direct pressure of a worsening in credit quality, may now find themselves directly impacted, had they sold such derivatives at an earlier stage. Against this background, and beyond the primary objective of achieving price stability over the medium-term, which part should central banks play to improve the functioning of financial markets and promote financial stability? Apart from their operational tasks - such as the management of money market liquidity and the monitoring of large value payment systems - central banks must endeavour unremittingly to create the conditions for the international economy to minimize misalignments in asset prices, excessive volatility, purely speculative phenomena and dangerous herding behaviour. This is the underlying message in central banks' repeated calls for prudence and caution. I would like now to address my third point, that is, the prospects of the European Union enlargement. 3. European Union enlargement At first glance, the link between this topic and the two issues I have been dealing with up to now appears quite tenuous. Yet, while the issues arising from market integration and financial stability are of concern for many Central Banks, managing the EU enlargement is a distinctive concern of the Eurosystem. | The effective implementation of the acquis communautaire is not only a 8 BIS Review 2/2003 legal prerequisite for accession to the EU. It also implies the effective transformation of accession countries’ economic framework, which should facilitate their integration into the EU and, later, the euro area. In this context, it should be ensured that there is no discrepancy between the central banks’ formal status in the legislation and the implementation of that legislation. It is of utmost importance that all present and future Member States respect this economic and institutional ground rule of the European framework. – Sixthly, let us not forget the present and future contribution of Central and Eastern European countries to the economic prosperity of Europe at large. It seems that this contribution might be sometimes underestimated, while the relative influence of the US economy, for instance, might be sometimes overestimated. In fact, transition economies, as a whole, are as important as the US in terms of external demand addressed to the euro area: they both enjoy the same share, i.e. 13% of our exports. And, during the last two years, transition economies contributed for two-thirds to the overall growth of our total external demand, while the US contributed for less than 0.1%. More generally speaking, Central and Eastern Europe countries are already major contributors to the overall growth on the European continent. In 2001, despite the international context, they remained at quite high a level of growth, around 2.8%. | 1 |
In 2019, 6% of Spain’s energy imports (4.5% of total energy consumption) came from Russia, but this figure is much higher for countries such as Germany (17%) and Italy (22%). 2 In 2019, Spain’s exports of goods to Russia and Ukraine accounted for 0.7% and 0.2%, respectively, of its total goods exports, while the figures for the euro area were slightly higher, at 1.6% and 0.3%, respectively. 2 certain production processes could be significant, particularly in the context of trade and financial sanctions. iii. Finance. Although direct financial exposure to Russia and Ukraine is generally very limited among European firms and banks (especially, once again, among Spanish ones), since the beginning of the conflict financial market volatility has increased and financing conditions have tightened. In particular, euro area stock markets have fallen sharply, especially in Germany and Italy which both have greater relative exposure to Russia. Capital market financing costs for financial and non-financial corporations have also risen. And all this, in addition to the notable uncertainty about the possible medium and long-term implications of the exclusion of the Russian economy from international financial channels which could, for example, result in the growth of more opaque alternative financial channels or mechanisms. iv. Confidence. Lastly, the war in Ukraine is doubtless having an adverse effect on economic activity, owing to the difficulties economic agents are having foreseeing future economic developments, in particular the future path of their own incomes. | In any event, the recovery was still influenced by the course of the pandemic, partly as a result of the emergence of new variants of the virus. Another novel feature of economic performance in 2021 was the strong global surge in inflation. This was especially severe in both energy and non-energy commodities, after many years in which their price increases had remained at persistently low levels. The intensity and persistence of the inflation surge – fuelled by both demand and supply factors – systematically surprised on the upside. Notable among the demand factors are the relatively strong recovery in activity following the collapse in 2020 and the changing consumption patterns as a consequence of the pandemic and the measures adopted to contain it. Among the supply factors, global production and supply chain disruptions, as a consequence of the disruptions in the production of certain intermediate goods and in some modes of international goods transport, stand out. Both these aspects – a recovery influenced by the course of the pandemic and continuous upside inflation surprises – continued to determine the pace of the global economy at the start of 2022. Accordingly, before the invasion, analyst consensus forecasts broadly coincided in expecting a first quarter in which economic activity would decelerate somewhat as a consequence of the negative, but relatively limited, impact of the Omicron variant. | 1 |
We believe that the direct contact with various social groups in different geographic regions (that is to each and every family), in addition to the traditional means of communication, press conferences, monetary policy or financial stability reports, is a very efficient tool and frequently determinant. BIS Review 115/2008 1 I would like to dwell today on some matters of interest to the entire audience. First I would like to make a brief outline of the Bank of Albania’s latest analysis of the economic and financial situation in Albania: In brief, three are the main developments of greatest interest to the audience: With regard to the international developments, the economic and financial situation has been very complex in the last months. Inflation has turned into a point of concern in most foreign economies, mainly driven by the high prices of raw materials, oil and food. In addition, economic activity in developed economies has experienced sharp turns. Euro area economy is at present in front of many questions, while the US and some Asian economies have shown slow rates of economic growth. Credit crisis has caused many reputable international institutions to experience large financial losses and its contamination process is still present. Recently, the two US mortgage giants, Freddie Mac and Fannie Mae, which were on the verge of collapse, were subject to an unprecedented and costly rescue plan designed by the US Treasury Department. | How can they be managed more effectively? For a relatively long period of time, they have been vital to our country. According to a Bank of Albania survey on the first quarter of 2008, about 26% of Albanian households living in the territory of the Republic of Albania are recipients of remittances from abroad. Households’ geographical distribution indicates that 59% of recipient families live in the rural areas while the rest in the urban ones, receiving about 66% and 34% of total workers’ remittances, respectively. Remittances represent the most important component of rural families’ monthly income, accounting for about 40%. The largest part of workers’ remittances (about 70%) for the first quarter of 2008 was used for non-productive purposes. About 48% was used for consumption, which entails meeting households’ everyday needs for food, clothes, furniture, etc., 16% for construction and reconstruction and 10% for education and medical purposes. Around 19% of remittances are used for investment and savings, providing evidence for their economic impact on Albania. Despite these figures, their future prospective is yet unclear. The integration of Albanians into their host countries, their economic and financial situation and other similar reasons have a negative impact in the long term. Our analyses and assessments show that the difficult economic situation the developed economies have been experiencing, expressed in the economic slowdown, unemployment growth and increase of inflation, has also provided its impact on the performance of remittances which have grown less this year relative to the previous years. | 1 |
The Swiss franc was overvalued against a broad range of currencies, resulting in a severe deterioration in the economic and inflation outlook for Switzerland, threatening severe consequences for the real economy. To turn this dramatic tide of events, at first the SNB increased its liquidity – in August 2011 alone, liquidity expansion amounted to CHF 170 billion. This measure, however, did not have a sustained effect. Finally, in September 2011, the SNB introduced a minimum exchange rate of CHF 1.20 per euro as a temporary, exceptional measure (cf. chart 9). The SNB was thereby prepared to use its balance sheet to purchase foreign currency in order to stop the spread of panic. While this policy measure corrected the exceptional strength of the Swiss franc, the currency remained substantially overvalued. Nevertheless, the stabilisation of the euro/Swiss franc exchange rate allowed the Swiss economy to adjust to the new currency reality. In addition, the inflation outlook, which had worsened due to the strong Swiss franc, brightened again. The euro crisis impacted not just the economy in Switzerland, but also the economies and exchange rates of the other neighbouring countries under review. They, too, eased their 4 BIS central bankers’ speeches monetary policies. In Sweden, from the end of 2011 to the end of 2013, interest rates were lowered in successive steps to 1%; between 2010 and 2011, they had been raised to 2% on the back of robust economic growth. | Developments since the onset of the financial crisis in 2008, however, have served as a reminder that monetary policy cannot always keep inflation and growth stable within a targeted range. This is true of both large and small currency areas. One reason is that the scale of the disruptions and distortions of recent years has been unusually large. Furthermore, the situation has been exacerbated by the fact that conventional interest rate policy has reached its limits. By introducing unconventional monetary policy measures, central banks have regained a certain room for manoeuvre. However, these unconventional measures cannot be deployed endlessly to achieve desirable monetary conditions. Interest rates, for example, cannot continue to be lowered into negative territory without at some point precipitating a flight to cash. Foreign exchange market interventions and quantitative easing programmes carry with them the increasing risk that a central bank’s ability to conduct monetary policy may be compromised in the long term. Furthermore, our practical experience of calibrating unconventional measures and of gauging their effects is still limited compared to that of the conventional interest rate instrument. In light of these reservations, unconventional measures must be used with caution, and their long-term consequences taken into consideration. They must also be continuously reassessed. Allow me now to illustrate how countries neighbouring the euro area have implemented their monetary policy since the onset of the financial crisis in 2008, using Switzerland, the Czech Republic, Denmark and Sweden as examples. | 1 |
The crisis severely eroded people’s trust in the industry, both here and abroad. Governments and regulators quickly got to work fixing the main deficiencies in the existing regulatory framework. These included requiring much stronger loss-absorbing capital to weather severe economic downturns, demanding greater liquidity cushions to withstand market and funding disruptions, and creating a robust resolution framework to protect both the economy and the taxpayer in the event of a failure of a systemically important firm. These changes were appropriate and necessary. We must not lose sight of their importance in safeguarding the soundness of the financial system and in ensuring that future generations do not have to suffer the economic trauma that we lived through this past decade. Bringing us to the present day, we are in a much, much better place, in terms of both the financial sector and the overall economy. We have a more robust regulatory regime in place, and banks are well positioned to survive future storms. Furthermore, our economy’s in great shape; we’re in the second-longest expansion in history, and economic data from both the United States and countries around the world continue to trend upwards. As a policymaker, solid growth, a strong labor market, and inflation near our target are all exactly what I want to see. Paradoxically, it’s precisely this sense that things have gotten so much better that worries me most. | John C Williams: Now is the time for banking culture reform Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Governance and Culture Reform Conference, Federal Reserve Bank of New York, New York City, 18 June 2018. * * * Introduction It’s a pleasure to speak at today’s conference on this critically important issue, one that Bill Dudley and his colleagues have done tremendous work bringing to the forefront over the past few years. It’s also an honor to be sharing a stage with Bill today, and I’d like to thank him for his outstanding leadership of the New York Fed. I’ve learned a great deal from this conference, especially hearing the diverse perspectives and experiences of regulators from across the globe, industry leaders, and academic experts. The speakers and discussions have already covered a lot of ground, so I’ll keep my remarks brief. This afternoon I’m going to talk about the urgent need to focus our attention on banking culture in supervision and what that means in practice. Before I go any further, I have to give the usual Fed disclaimer that the views I express are my own, and not necessarily those of anyone else in the Federal Reserve System. The Good Times Are When to Get Your House in Order In the wake of the financial crisis and ensuing economic downturn, the world’s attention was trained on financial services. | 1 |
It is, therefore, imperative for developers to adjust their product offerings and consider bringing their costs down. One of the ways would be to seriously explore leveraging on more advanced and cost-efficient construction technology, such as Industrialised Building System (IBS). As cost of construction remains one of the major determinants of house prices, increasing efficiency and lowering costs can lead to a more inclusive housing market. Beyond considerations for price points that reflect greater affordability for the buyer, developers also have the responsibility to build houses that cater to the modern needs of the public. Aspects of quality, sufficient amenities and safety must be considered as critical elements of modern living. Financial institutions also play an important role in the housing market through the provision of financing. The effective intermediation role of financial institutions is equally critical for a wellfunctioning housing market. In the provision of financing, financial institutions need to ensure that they lend responsibly to those who are deserving, capable and able to repay. Financial institutions need to protect the public interest by ensuring that buyers do not borrow beyond their means and fall into financial hardship. To this end, the financial institutions should also continue to provide effective and transformative financial services to ensure that society at large would benefit and thus, improve their quality of life. I take note that there are a few interesting sessions during this conference related to innovations in finance, including one on fintech. | François Villeroy de Galhau: Central banks’ response to the “tragedy on the horizon” Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the SUERF – Online Conference, 14 October 2020. * * * Ladies and Gentlemen, I am very happy to join you today for this discussion that, although virtual, will be very real in terms of the strength of the ideas put forward. I am grateful to Michala Marcussen for offering me the opportunity to give this speech on such a dense topic: central banks’ response to the “tragedy on the horizon”. Faced with an unpredictable shock, the past eight months have driven the global economy into uncharted territory. However, one danger is certainly looming larger at the moment : our lasting addiction to public debt. Let me be clear: in the face of the unprecedented covid-shock, a massive and one-off recourse to public debt financing was both inevitable and desirable. However, we have entered this crisis with public debt levels, which were already very high in most countries, with few notable exceptions. The continuous rise of public debt, along with climate change, represent two of the main long-run challenges that we face today. In his famous 2015 speech, Mark Carney spoke of climate change as the “tragedy of the horizon”. With this, he meant that this tragedy is inevitable if we do not act, but it is in the long term, possibly leading to a “status quo bias”. | 0 |
Obtaining and retaining the staff resources capable of dealing with Year 2000 issues will be another increasingly difficult problem. There is a limited pool of skilled technical staff to make needed changes, and demands on this pool are growing as the time draws closer. In the short run, the ability to add to this pool significantly through training is limited. Qualified outside consultants already are heavily committed and will become even more scarce over time. Obtaining equipment on which to conduct tests also often requires significant lead time. All of this suggests that controlling the cost of Year 2000 projects will be a problem for many institutions as resource prices are bid up. Already, we have seen many institutions increase their Year 2000 budgets several times, and by significant amounts, as they develop their detailed plans. Security also is likely to be of increasing concern as we move forward. As time pressures mount, there is a risk that shortcuts will be taken. The checking of credentials for new staff or outside contractors or consultants may be rushed and less rigorous. Date-dependent security applications may be turned off to facilitate testing. In an industry like ours, with so much interconnectivity, any compromise of security simply cannot be tolerated. BIS Review 87/1997 -3- Every financial institution needs its own comprehensive project plan to address the Year 2000 problem. In the United States, bank supervisors have suggested an approach that includes a number of phases. | All of us need to make sure we are paying sufficient attention and applying appropriate resources to the Year 2000 issue. Only in that way will we be able to insure that the millennium changeover is an occasion for joy and optimism. BIS Review 87/1997 | 1 |
It’s a world that presents us with enormous new possibilities, but also enormous new challenges.” 2 In my presentation here today I will, not surprisingly, take a central banker’s view and ponder the challenges this new world might raise for a central bank trying to achieve both financial and nominal stability. Financial stability The last decade or so, we have witnessed increased financial integration and competition across national borders. The unleashing of international competition in financial markets is a positive development. By spreading and diversifying risk, financial markets have become more efficient and stable. Deeper and more mature markets tend to be better equipped to deal with uncertainty and distress. We have also witnessed the forging of new and ever more complex financial instruments. Increasing the set of available financial instruments creates more complete markets. It enhances the opportunities for households and enterprises to decouple consumption and investment from current income. Investors can take on or load off risks in a more tailored fashion than before and actively manage their exposures and relocate risks to those best equipped to bear them. Yet, the flip side of increased financial integration and diversification is the potential for more widespread contagion if something goes wrong. Furthermore, rapid innovation and increased complexity can make it difficult to assess the real underlying risks of the new instruments. It takes time for borrowers and lenders to learn the true characteristics of new instruments. | When no trading takes place, no updated prices are quoted. This represents a challenge for institutions, auditors and regulators trying to mark assets and liabilities to the market. This has amplified the impact on the financial sector of the defaults on subprime mortgages. In the absence of pricing, the balance sheets of financial institutions holding such instruments became opaque. Uncertainty about the potential loss of other banks and about their own future liquidity needs has made banks reluctant to lend to each other. To the surprise and dismay of many, the extremely efficient and well-functioning money market ground to halt. Central banks had to step in and provide liquidity to the banking system. When money markets go into gridlock, it is appropriate for central banks to ease banks’ liquidity problems, but they should do so at a price that maintains the incentive to restore the smooth functioning of the market. Losses and evaporating liquidity then hit the capital base of many financial institutions. So far, the most severe problems have been local or national, like the British bank Northern Rock and the Norwegian brokerage house Terra Securities. These problems were resolved by means of national remedies. But with increased integration and the emergence of crossborder banks, sooner or later we are bound to encounter a problem in a bank or financial institution that may be systemically important in several countries (but not necessarily in the home country). | 1 |
Figure 7 Foreign credit flows to residents (billions of dollars) 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 -1.5 -1.5 -2.0 Jan.07 Jul.07 Jan.08 New credits to banks Jul.08 Jan.09 -2.0 Jul.09 New credits to non-banks Net flow (*) (*) Discounting bank and non-bank amortizations from total new credits. Source: Central Bank of Chile. BIS Review 145/2009 9 Figure 8 World growth (1) (annual change, percentage) 15 12 9 6 3 0 -3 -6 -9 -12 80 84 88 92 96 00 04 World at market exchange rate 15 12 9 6 3 0 -3 -6 -9 -12 08 Chile (2) (1) Gray area shows projections as from 2009. (2) Figures for growth in 2009 and 2010 stand for the midpoint of the range of projections shown in the Monetary Policy Report. Sources: Central Bank of Chile, International Monetary Fund and World Bank. | This is done both because we recognize the lags with which monetary policy operates, and because of our concern about the costs in terms of output loss and employment of adjusting inflation to the target. If we do not do this, the adjustment would take much less time to complete. All this is common knowledge. But I feel it needs to be stressed in order to clear, yet one more time, the mistaken argument that the CBC does not consider the level of economic activity when making its decisions. Additionally it serves to insist on the issue that the current global financial crisis was not caused – as some argue – by monetary policy’s orientation to price stability, but by a tremendous failure in the financial systems of the developed world. Neither the private sector nor policymakers were able to foresee the danger of the imbalances that were accumulating during this decade. Today, the monetary and fiscal stimulus packages are precisely what have allowed the world economy, which suffered an initial shock similar to that of the Great Depression, to show a substantially better performance. This is particularly true in the case of Chile. The evolution of the economy and monetary policy from 2007 onwards In just three years, the Chilean economy has gone through two radically different episodes, although related to one another. | 1 |
Ardian Fullani: Albania’s Financial Sector Development Program Opening remarks by Mr Ardian Fullani, Governor of the Bank of Albania, at the inaugural reception of the Financial Sector Development Program, Tirana, 9 February 2012. * * * Dear Mr. Spindler, Dear Mr. Williams, Dear Ms. Timofeeva, Dear participants, It is a special pleasure for me to be here in this ceremony, which marks the commencement of a new phase of cooperation with the Financial Services Volunteers Corps (FSVC). This is evidence of the successful existing cooperation and our commitment to take it further in the future. The Bank of Albania has benefited largely from the cooperation with the FSVC. In concrete terms, this cooperation has focused primarily on strengthening the institution’s oversight function. The assistance from the FSVC has addressed specific training needs for the Bank of Albania’s supervision staff and has complemented with concrete activities other development projects we have had with the International Monetary Fund and the World Bank. More specifically during this period, we have been assisted to draft and implement the Supervision Development Plan in 2004–07, in the framework of the cooperation with the World Bank. Later, cooperation challenges and needs became more concrete and specific against the background of the proliferation of the international financial crisis, re-conceptualization of international banking supervision standards and re-assessment of the role of other public authorities working to maintain the financial system’s stability. | The expertise has proven rather useful for many of our staff and, at times, was provided as on- BIS central bankers’ speeches 1 the-job training, for example, FSVC experts joined the Bank of Albania’s Supervision Department inspectors in their on-site examinations. I am confident that these qualities of FSVC’s assistance will be maintained in the future. A result of this fruitful cooperation is our shared commitment to extend it to the medium run. The parties have been in constant contact to identify the fields for future cooperation and I reckon that this process is being finalized in terms of project design and relevant details on development methodology and expected results. A preliminary assessment reveals that the scope of our future cooperation has expanded. Projects will continue to serve the objective for ongoing supervision capacity building in the fields of improvement of contingency plans, implementation of latest amendments to international banking supervision standards, risk assessment and improvement of regulatory requirements for responsible management by banking and financial institutions. The assistance may be expanded to include underlying standards for payment systems and use of e-money, thus laying the grounds for the adoption of relevant requirements arising from EU directives. The cooperation of the FSVC with ADIA will focus on the implementation of the Strategic Development Plan 2012–14 and will address, more concretely, the modernization of the IT infrastructure and reporting system as well as other ancillary processes. | 1 |
An ongoing active exchange of supervisory information will be established between us and the ECB concerning the other banks that will remain under BNB’s direct supervision. Countries like Hungary, Poland and especially the Czech Republic are markedly against joining the eurozone at this point. Is the currency board the main difference between them and Bulgaria which explains this discrepancy between policies, or are there other factors at play? 1/3 BIS central bankers' speeches This is a political decision, above all. What’s positive in our case is that this decision is based on strategic and not conjunctural considerations. Practically, there isn’t a serious political factor in our country that does not support this decision. On the technical level, the monetary regime in Bulgaria allows for its implementation to happen quicker and seamlessly. You said in an interview for Market News this spring that the downturn in Europe could turn out to be temporary, but that would remain to be seen. How would you comment the developments in recent months? Uncertainty is on the rise and a lot of current data indicates a continuing economic downturn in the eurozone. This motivates the ECB to make decisions for an even more stimulating monetary policy. The technical details and the degree to which the ECB decided to step up its policy are a subject of debate, but the basic macroeconomic motivation behind these decisions is clear, in principle. | The last time this was done was back in 2003. There are expectations that the new ECB leadership will initiate such a review. What effect do the low interest rates have on the Bulgarian economy? The immediate effect is positive. The increased credit activity is one of the indicators for this. Such a development, however, is connected with some serious challenges, for Instance the profitability of the banks as a result of the diminishing interest margins. I should say that so far the Bulgarian banks manage to deal with this challenge. Cyclical risks are also accumulating, due to which BNB activated and subsequently increased the level of the countercyclical capital buffer for banks. In recent years we have seen a few large deals in the Bulgarian banking system. Do you expect the consolidation to continue in the future? Is it a completely positive phenomenon? Consolidation is one of the possible responses to the challenges facing the banks. I expect this process to continue. 3/3 BIS central bankers' speeches | 1 |
It is therefore of course desirable that the extended repo-rate path is perceived as credible. As I mentioned earlier, it is possible that the extended repo-rate path with an unchanged repo rate further ahead would be perceived as less credible than a lower repo-rate path with a reduced repo rate now. In this case the effects are shown by the curves marked “Unexpected”. However, as the extended repo-rate path can be justified by the fact that it provides better outcomes for inflation and resource utilisation than the main scenario it may perhaps be perceived as being more credible, in which case the effects are shown by the curves marked “Expected”. 4 4 The effects of deviations from the repo-rate path of the main scenario on inflation, output and hours worked are calculated using the Riksbank's model Ramses with the methods described in Laséen and Svensson (2009) for expected deviations and Leeper and Zha (2003) for unexpected deviations. They are discussed in more detail in Svensson (2010c). The lower repo-rate path gives as an expected deviation (unexpected deviation in parenthesis) a largest increase in CPIF inflation of 0.42 (0.22) percentage points, in output of 0.33 (0.21) per cent and in hours worked of 0.35 (0.22) per cent. The extended repo-rate path gives as an expected deviation (unexpected in parenthesis) a largest increase in CPIF inflation of 0.48 (0.25) percentage BIS Review 60/2010 5 Figure 2. | There should be a continuing place in the market for many transactions that do not qualify for the STC designation, including synthetic transactions, managed portfolios and pools that do not meet the granularity requirements. Turning to capital requirements, looking at historical losses on securitisation tranches, we think the calibration of bank capital requirements that the Basel Committee published in December is broadly right. But there is a case for some lowering of capital requirements for STC transactions on the grounds of lower structure risk. A stronger argument can be made that Solvency 2 standardised capital requirements for EU insurers are still too high, especially at longer maturities – although it should be noted that these will not apply to insurers using internal models. For banks and insurers, part of the issue with securitisation capital requirements is the comparison with covered bonds, which tend to be treated favourably in EU regulation. Issuers looking to raise secured funding may therefore see covered bonds as a more cost effective alternative to securitisation. Covered bonds have a legitimate role in the market as a source of stable long-term funding. But securitisation has the advantages of risk transfer and lower encumbrance of underlying assets. We would support moves to put securitisation and covered bonds on a more level playing field. To conclude, we support the European Commission’s current work on an EU framework for securitisation as part of the longer-term objective of growth in stable, market-based financing markets alongside bank lending. | 0 |
At the same time, it remains our priority to reinforce the stability of financial institutions by strengthening capital base and improving risk management, to cushion against potential shocks under adverse circumstances. This year, we will establish a licensing framework for foreign commercial bank subsidiaries, with a view to enhancing the competitiveness of the banking industry as envisaged in the Financial Sector Master Plan Phase 2. Meanwhile, a guideline will be laid out allowing domestic commercial banks to expand and integrate into the Qualified ASEAN Banks (QABs) network under the AEC. This integration offers an opportunity for Thai banks to step up their efforts to fortify their strategic strengths and prepare for a fiercer competitive environment. Stronger institutions could seize the opportunity to expand internationally and diversify their risks. A balance must be struck between the three objectives of increasing financial service efficiency and access, safeguarding financial system’s integrity, and strengthening consumer financial protection. Payment systems policy The priority this year will be to expand the coverage of the ICAS across the country, to speed up the provincial cheque collection from 3–5 business days to 1 business day. The initiative will help promote a more efficient payment system, enabling fast, safe, and secure economic transactions as well as promoting a substitution of electronic for cash payments. | 18 Kohn (2006, 2008) specifies three conditions that should be fulfilled for central banks to take “extra action” to deal with a possible asset-price bubble: “First, policymakers must be able to identify bubbles in a timely fashion with reasonable confidence. Second, a somewhat tighter monetary policy must have a high probability that it will help to check at least some of the speculative activity. And third, the expected improvement in future economic performance that would result from the curtailment of the bubble must be sufficiently great.” He concludes, also in 2008 and after thorough considerations, that those conditions would rarely be met. See also Kohn (2009). 6 BIS Review 16/2010 In particular, if there is evidence of rapidly-rising house prices and mortgage loans, and these developments are deemed to be unsustainable and a possible bubble, there are much more effective instruments than policy rates. Restrictions on loan-to-value ratios and minimum mortgages and requirements of realistic cash-flow calculations for house buyers with realistic interest rates are much more effective in putting a break on possible unsustainable developments than a rise in the policy rates. In particular, more transparency about future policy rates, in the form a policy-rate path published by the central bank, may help in providing realistic information about future interest rates. | 0 |
Finally, I will mention a number of issues concerning the role of the Riksbank in the event of entry into monetary union and the implications for our operations. But before I go into these issues I would like to emphasise a number of points. This is not a campaign speech. In 1994 and 1997, the Riksbank adopted a position in favour of Sweden joining monetary union from its inception. The General Council of the Riksbank was then of the opinion that the advantages of participation outweighed the disadvantages. However, the Executive Board of the Riksbank has decided against taking a position on the issue. We have interpreted our role as being a provider of factual information to make it easier for the Swedish people to form their own opinion on the matter. Having said that, there is nothing to prevent individual members of the Executive Board from expressing their personal opinion on the issue. We have all done that. I myself am in favour of Swedish participation in monetary union. The preparations Should a majority of the Swedish vote “yes” to the euro, work will begin to pave the way for Swedish entry into monetary union. The Riksdag is then expected during the autumn to make a formal decision that will enable Sweden in practice to become a member of monetary union. | Although developments in Iceland showed many of the same characteristics as those in some of the other Nordic Countries during the post-liberalisation rapid expansion, such as credit expansion, current account deficit, exchange rate depreciation and so on, Iceland escaped the difficulties suffered by banking systems in some of the other countries. Icelandic bank credit grew very rapidly in the late 1990’s and into the year 2000 and a sizable portion of the credit expansion was financed with credit from abroad. The capital adequacy ratios of banks fell for a while but nevertheless remained comfortably above the minimum required and internationally recognised levels. The year 2001 also turned out to be quite favourable for the banks, a development which continued by and large into the current year. Consequently, the capital position of the banks has improved and all the major banking institutions have relatively strong capital adequacy ratios at present. Loan losses have increased, as was to be expected in the wake of the credit expansion, but nowhere on the scale experienced in some of the other Nordic Countries a decade ago and very much less than they did during the downturn in the Icelandic economy around and after 1990. The conclusion to be drawn is, therefore, that the Icelandic banking system weathered the relatively turbulent post-liberalization boom period of 2000 and 2001 pretty well and is well poised to meet new challenges, including continued rationalisation and intensified competition from foreign banking institutions. In the most recent decades, the Icelandic economy has also seen structural shifts. | 0 |
My response is that you do not need to see the words “financial stability” in the Federal Reserve Act for that to be a key part of our mandate. The Federal Reserve’s financial stability mandate is seen in the penumbra of the Federal Reserve Act, and that is legally sufficient. Without trying to cover this important topic exhaustively as in a formal legal opinion or a brief filed with a court, let me outline here the essence of the analysis. The starting point in every discussion of the Federal Reserve’s mandate is Section 2A of the Federal Reserve Act, known to many as the dual mandate. It directs the Federal Reserve “to promote effectively the goals of maximum employment, stable prices, and moderate longterm interest rates.”3 While there are actually three discrete objectives in the dual mandate, most economists would say that moderate long-term interest rates are a tool to produce maximum employment and price stability. Such economic reasoning also involves some clever and simple arithmetic – it reduces a tripartite mandate to a dual mandate. With respect to financial stability, leading economic thinkers would now say, and the financial crisis seems to offer us the perfect illustration, that price stability and maximum employment are possible only in a context of financial stability. | In this context, structural reforms, if properly designed, lead to greater prosperity in each country and, at the same time, ensure greater resilience of EMU as a whole, thereby contributing to economic and social stability. Growth and stability are therefore mutually reinforcing. The convergence process should consist of two legs: on the one hand, it should underpin the convergence of economic policies and structures at the national level. On the other hand, it should facilitate joint action. At the national level, convergence implies that euro area governments need to step up structural reforms, in particular those which have the greatest efficiency gains given the relative distance to best practices. And policy-makers should pay due attention to ensure that the burden of the adjustment effort is shared fairly. BIS central bankers’ speeches 1 The convergence in national structures could be complemented by joint action at the European level to increase investment and by the transfer of certain budgetary responsibilities to the European level with a view to strengthening risk-sharing within the currency union. But joint action can only occur once trust has been restored across countries and within countries, and the convergence process has advanced successfully. The level and the form of budgetary responsibilities, and how they are matched by appropriate democratic arrangements, should emanate from the political process. The biggest threat to the Single Market is not euro area integration: it would be euro area stagnation. The challenge of making the EMU work is far from over. | 0 |
The spread between the rate of return on risky investments and the risk-free rate of interest has been historically high since the financial crisis. I think this has probably contributed to lacklustre investment and weak productivity growth over that period. But the risk premium seems to have taken another leg up since the EU referendum in 2016. And if you believe the surveys, the perceived downside risk in this case – the thing the firms seem to view most negatively – is a no-deal, no-transition outcome to Brexit. The economics also tells you that the value of waiting for relevant news – and therefore the disincentive to invest in the meantime – is higher if you think that news is going to arrive relatively soon. This helps to explain why the impact of Brexit uncertainty on investment seemed to intensify as we got closer to the assumed exit date of March 2019. It also explains why the firms most reluctant to invest have tended to be those that expect an early resolution to the Brexit process. It would be wrong to conclude from this that the best thing for investment is to resolve this uncertainty as soon as you can, by any means necessary. Deliberately choosing the outcome firms say they view most negatively is more likely to mean that capital projects that have so far been deferred are then simply cancelled. And however long the process actually lasts, investment is likely to perform better if firms don’t continually expect an early resolution in the meantime. | The blue bars in Chart 3 plot what firms expect to happen to their own output and employment in that case. And, over time, the impact of that nervousness has started to come through in the official data. It didn’t to begin with, in the first year or so after the referendum. The series is quite volatile, and prone to revision, so one should be careful not to over-interpret shorter-term movements. But on current estimates, business investment was 3% higher at the end of 2017 than in mid-2016. Chart 1: Businesses invest less when Chart 2: Brexit is an important source of risk for uncertainty is high UK businesses Sources: ONS, Bloomberg Finance L.P., CBI, Consensus Economics, Dow Jones Factiva, Eikon from Refinitiv, GfK (research on behalf of the European Commission) and Bank calculations. Growth in business investment is one quarter ahead. Sources: Decision Maker Panel and Bank calculations. 1 See Bloom et al (2019) for more information on the Decision Maker Panel. 2 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 2 Chart 3: Firms say output and employment Chart 4: Investment has been weaker than in would fall in a no-deal, no-transition Brexit previous expansions Sources: Bank of England and Bank calculations. See Bank of England (2018, 2019). Sources: ONS and Bank calculations. | 1 |
A long term of office may also be advantageous from the standpoint of accumulation of experience, and may determine the capacity of influence in the different international fora in which the senior officials of supervisory bodies take part. In this respect, the term of office of the Governor (and of the Deputy Governor and Council Members) of the Banco de España – currently six years, nonrenewable in the case of the Governor and the Deputy Governor – although longer than a Parliamentary term, is relatively short by international standards (see Annex 4).8 A good benchmark for the future could be the term of office of the members of the ECB’s Executive Board which is set at eight years and is non-renewable (as is the case at the Bank of England). The explicit prohibition of renewable terms of office is, in my opinion, a key element that should be preserved. While few of our central bank peers share this characteristic, non-renewable terms of office are warranted because they nullify the incentives for the incumbents in the highest positions of authority at those institutions to ingratiate themselves with those who decide on their possible re-election. In the case of the Banco de España, as I have mentioned already, the Governor and the Deputy Governor have non-renewable terms, but the members of the Governing Council do not, since their term is renewable once. Non-renewable terms could therefore also be considered for members of the Governing Council. | In addition, the UK Commissioner for Public Appointments, who is responsible for reviewing the appointments of senior officials of more than 300 public agencies, approves the other appointments on the central bank’s Court of Directors. 7 According to Issues in the Governance of Central Banks, a study published by the Bank for International Settlements (BIS) in 2009, the power to appoint the Governor of most central banks lies with the Head of State or the Prime Minister (60% of the 47 institutions surveyed), while in 23% it lies with the Government or the Minister for the Economy and in just 11% with Parliament. In turn, according to the OECD (2016), “Being an independent regulator”, in most cases (more than 60%) it is the executive that nominates and appoints the members of senior management of regulators in the countries analysed. 7 I believe it would also be desirable to unify to some extent procedures for appointment of the senior officials of the various independent agencies existing in Spain. These procedures are currently highly disparate. The possible introduction of improvements in the appointment of institutions’ senior officials could also be accompanied by a reflection on their terms of office. Terms that extend beyond the electoral cycle are crucial to reinforcing the independence of individuals and, ultimately, of the institutions themselves. | 1 |
In particular, we needed to bear in mind that the euro area’s financial system is predominantly bank-based. Take the structures of private credit outstanding as an example: recourse to banks makes up more than 70% of non-equity external finance in the euro area. By comparison, in the US the equivalent proportion is only around 30%. This reflects the fact that the US financial system is primarily market-based. In the euro area, guaranteeing steady access to credit for households and companies largely means preserving the viability of the banking system. Banks play such a dominant role in our economy that it was appropriate to focus our non-standard measures on the banking sector. This profound contrast in financial and economic structures explains the different responses by central banks to the crisis as exemplified by the approaches of the ECB and the Federal Reserve System of the US. We rely on different channels as regards the transmission of our policy action. But these variations do not reflect conflicting views on fundamental principles or objectives. On the contrary: given the different structures, the approaches need to be different to achieve the same objective. Thus, I would strongly argue that central banks around the world are united in purpose. As I indicated before, the remarks I just made on the ECB’s response to the crisis did not contain any message concerning future monetary policy, and should not be interpreted as containing any such message. | In this context, I would like to underline that since the introduction of the euro in 1999, the ECB’s quantitative definition of price stability – an inflation rate of below, but close to, 2% in the euro area, over the medium term – has proved to be an invaluable asset. It has guarded against undesirably high inflation and against deflation. Long-term inflation expectations in the euro area, whether based on surveys or extracted from financial indicators, have been and continue to be firmly anchored at levels consistent with our definition of price stability. Inflation expectations have been exceptionally resistant to sudden upward short-term price changes, and we have ensured that is also the case with sharply falling inflation. Non-standard measures In addition to reducing interest rates, we have taken exceptional policy actions in response to the crisis – “non-standard” measures related to liquidity management. At the very start of the money market stress in August 2007, the ECB reacted within a few hours and temporarily provided additional liquidity to banks with immediate liquidity needs. We were in fact the first central bank to take non-standard measures. When in mid-September 2008 the crisis intensified and interbank trading came to a virtual halt, the ECB engaged in a new mode of liquidity provision. We started to provide refinancing well above the levels that banks had absorbed to fulfil their reserve requirements in normal times. Our approach comprises three main “building blocks”. • We significantly adapted our regular refinancing operations. | 1 |
In many countries or economic areas, the institutional framework for financial stability is being strengthened in the light of the lessons learnt from the crisis, and incorporates new supervisory tasks and bodies responsible for the macroprudential regulation of systemic risk and Zambia is no exception. Overall, the current crisis has revealed that microprudential supervision in many cases proved inadequate to identify, in a timely manner, the nature and size of accumulating risks and to impose appropriate 4 BIS Review 63/2010 remedial action; and that there is therefore, a need to strengthen both the macroprudential and microprudential supervision of the financial system. The Bank of Zambia with the help of the World Bank is currently conducting pilot tests of the World Bank developed Financial Projection Model (FPM) on a number of financial institutions. Among many other things, the FPM is a tool designed to simulate the effect of internal and external events upon financial institutions’ solvency and profitability to implement stress scenarios in a dynamic fashion. The Bank of Zambia is also developing a financial sector contingency plan to address problems of a systemic nature and enhance practical tools for effectively managing financial distress and potential systemic crisis. Chairperson, let me conclude by stating that in the wake of the global financial crisis, Governments around the world and the international community acting together, have an important opportunity to address some of the structural weaknesses in our domestic economies and in the global financial system that were laid bare by the crisis. | In order to ensure timely and credible information for the effective supervision of banks and other financial institutions, the Bank of Zambia has been playing a key role in developing the Bank Supervision Application System (BSA), which is a Southern African Development Community (SADC) region initiative. The BSA is a standardized tool designed for capturing supervisory information, financial and risk analysis and provides a workflow mechanism for communicating the different aspects of the supervisory process. Distinguished delegates, the legal and regulatory framework governing the supervision of the financial sector must provide for a fast and flexible way of adapting the banking system to the constantly changing financial landscape. The legal and regulatory frameworks in Zambia 2 BIS Review 63/2010 comprise of the Banking and Financial Services Act, Chapter 387 of the Laws of Zambia; the Bank of Zambia Act, Chapter 360 of the Laws of Zambia; the National Payment Systems Act; the Prohibition and Prevention of Money Laundering Act; the Bank of Zambia Anti-Money Laundering Directives; and the Bank of Zambia Corporate Governance Guidelines. The speed at which changes to these regulatory frameworks can be made is a crucial element of the reform process in regulatory and supervisory arrangements as it improves policy responsiveness. A number of challenges exist in this area including the need to update some of the Statutory Instruments (SIs) in order to reflect the dynamics presently characterizing the financial markets. | 1 |
Mario Draghi: IMFC Statement Statement by Mr Mario Draghi, President of the European Central Bank, at the thirty-sixth meeting of the International Monetary and Financial Committee, Washington DC, 13 October 2017. * * * The euro area’s economic expansion, supported by the ECB’s monetary policy measures, continues to be firm and broad-based across countries and sectors. The economy has now expanded for 17 consecutive quarters, and at a faster than expected pace in the first half of this year. Over this period, employment in the euro area has increased by almost seven million. Youth unemployment has declined from its peak above 24% in 2013 to just above 19% recently, but still remains above its pre-crisis level, and especially high in some member countries. The ongoing recovery is being largely driven by domestic forces, with both consumption and investment contributing to growth. Private consumption is fostered by employment gains and increasing household wealth. Investment continues to benefit from very favourable financing conditions and improvements in corporate profitability. Also, the broad-based global recovery is increasingly supporting euro area exports. The latest ECB staff projections foresee annual real GDP increasing by 2.2% in 2017, 1.8% in 2018 and 1.7% in 2019. Risks to the growth outlook are broadly balanced, with downside risks stemming predominantly from external sources. In this context, preserving openness underpinned by multilateral cooperation and effective financial regulation will decisively contribute to fostering a favourable external environment. While headline inflation has increased markedly over the past year, this is largely reflecting energy and food inflation. | Within its macroprudential mandate, the ECB will contribute to this end. Despite the potential for monetary policy to influence economic growth in the short term, strong, sustainable and balanced growth requires other policymakers to assume their responsibilities. From a global perspective, one of the key ingredients for raising potential growth and productivity is openness. Open trade, investment and sustainable financial flows play a key role in the crossborder diffusion of new technologies that drive forward efficiency improvements. Preserving openness is thus key to strengthening global growth potential. It should be underpinned by effective multilateral cooperation, including in the field of financial regulation and supervision. As regards the euro area, strengthening its long-term growth potential calls for decisive action to address the remaining structural issues. Reform implementation needs to be substantially stepped up, with further actions to improve the business and regulatory environment aimed at boosting investment and increasing productivity. Labour market rigidities need to be reduced further to enhance job creation and reduce unemployment, especially for young people. To foster reform implementation at country level, a full and consistent application of the EU’s policy framework is required, including the European Semester and the macroeconomic imbalance procedure. Likewise, full and consistent implementation of the Stability and Growth Pact remains crucial to ensure confidence in the EU’s fiscal framework and to safeguard public debt sustainability. In the current environment, a broadly neutral euro area fiscal stance strikes an appropriate balance between aggregate stabilisation and sustainability needs. | 1 |
Mugur Isărescu: Opening speech - Annual EBRD EU-11 Meeting Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the Annual EBRD EU-11 Meeting, Bucharest, 13 April 2018. * * * Vice President Heilbronn, Minister Teodorovici, Your Excellences, Ladies and gentlemen, You are most welcome here, at the National Bank of Romania. Together with the Board of the Bank we are privileged to greet you here, today, for the Annual European Bank for Reconstruction and Development EU-11 Meeting. Let me begin by saying that the National Bank of Romania has always had a consistent and reliable cooperation with the European Bank for Reconstruction and Development. Several high ranking officials from the EBRD have visited the National Bank of Romania, Jacques de Larosière being one of them, in order to discuss topics of mutual interest and, of course, the EBRD activity in Romania (especially EBRD’s contribution to the reform of the banking sector in Romania). I would like to recall that the National Bank of Romania has hosted, over the years, more than a few official presentations of the EBRD Transition Report, including the 2014 edition, ”Innovation in Transition”. On a more personal note, I confess I am among those who signed the Agreement establishing the Bank in 1991, as the representative of Romania to that historical moment. I will take this opportunity to acknowledge the role that the European Bank for Reconstruction and Development had in mitigating the global financial crisis. | This provision builds up a buffer during the benign part of the cycle, which starts to be released when recession comes knocking on banks’ doors. Counter-cyclicality is intrinsic to dynamic provisions and part of its usefulness can be seen in the resilience shown so far by Spanish banks in the current crisis. Furthermore, its direct impact on the profit and loss account (reflecting losses at a time when these losses are really being built up in balance sheets) constitutes a way to make banks more aware of how credit must be priced, reducing the underestimation of loans risk premia and, to some extent, compensating the relaxation of credit granting standards in good times. It also delivers the right information to investors about the financial position of the bank. In all, dynamic provisioning allows a proper recognition of credit risk. I must also admit that there are voices raised by some institutions that do not agree with this view, and particularly, accounting standard setters. In this respect, we should call for further dialogue between accounting rule setters and supervisors as well as a clarification regarding roles and objectives of each of them. I really think that our objectives are compatible and that delivering the relevant information to investors should not be an impediment for supervisors to ensure the stability of the banking sector by promoting the most adequate measures that experience and results have proved to be useful. Very much in line with dynamic provisions, the buildup of capital buffers also deserves room in our discussions. | 0 |
By requiring prime MMFs to adopt a system of gates and fees, the reform made them less money-like; floating NAVs reduced the money-likeness of the institutional subsegment even further.16,17 The differential impact of the SEC’s MMF reforms—which made prime MMFs less money-like yet not riskier—can be used to distinguish between investors’ preferences for money-likeness and safety in normal states of the world. Figure 2 shows the industry’s aggregate assets around the implementation of the new rules. In anticipation of implementation, more than $ trillion flowed from the prime MMF sector into the government MMF sector.18 3 / 10 BIS central bankers' speeches Moreover, the absence of other changes in investors’ behavior suggests that MMF investors were driven by a narrow desire to preserve the money-likeness of their investments. When moving from prime to government MMFs, investors largely remained in the same fund family. Figure 3 illustrates this observation using a scatter plot of outflows from prime funds versus inflows into government funds at the family level. Additionally, investors shifted into funds that invest primarily in agency debt, the sub-segment of the government MMF industry with a riskreturn profile most similar to that of prime MMFs. 4 / 10 BIS central bankers' speeches This response to MMF reform differs significantly from what happened in 2008. | 31 Reverse repos with the Federal Reserve use Treasury securities held in the Federal Reserve’s System Open Market Account as collateral, but they do not directly increase the amount of Treasury collateral available for use in the financial system. This is because nearly all of the counterparties in the Federal Reserve’s reverse repo transactions are unable to rehypothecate the collateral. However, by reducing these counterparties’ demand for collateral in the private market, the Federal Reserve’s reverse repos increase the amount of collateral available to other market participants. Primary dealers, who have access to both the ON RRP facility and securities lending facility of the Federal Reserve, do rehypothecate collateral and thus can directly add to collateral available in the private market. 10 / 10 BIS central bankers' speeches | 1 |
Over the course of the program, our purchases ran at about the same pace as the total net Treasury supply coming to the market. Moreover, with the completion of the program, the SOMA portfolio holds about 18 percent of the outstanding stock of Treasury securities. Our share of the market is even higher at intermediate maturities, where our purchases were concentrated. Part of the challenge to the Desk was to structure our operations in a manner that would allow the market to absorb such a large volume of purchases. Several features of the program’s design may have helped to promote robust participation by market participants, including the decisions to relax the 35 percent limit on SOMA holdings of individual issues and to include recently issued securities in the range of eligible issues in nearly every operation. These features allowed our counterparties to offer us a wide range of securities at each operation. In the end, dealers participated aggressively, with an average offer-to-cover ratio of over 3.5. Moreover, we managed to execute these purchases at prices that were, on average, at or very near the indicative quotes on these securities that we collect as a pricing reference. In addition to focusing on the performance of our operations, we have also monitored measures of liquidity in the Treasury market. The market seems to be functioning well despite our sizable presence. Measures such as bid-ask spreads, quote depth, and trading volumes have held relatively steady at favorable levels over the life of the program. | In terms of shortages in the supply of individual Treasury securities, our securities lending program appears to have generally relieved any such shortages that have resulted from our holdings. 4 BIS central bankers’ speeches financial conditions presumably depends on the period of time for which the assets are expected to be held. Alternatively, economic developments could instead lead to a policy change in the direction of normalization. The FOMC minutes released last week provided valuable information on the sequence of steps that might be followed in that case. The minutes indicated that the removal of policy accommodation was expected to begin with a decision to stop reinvesting some or all of the principal payments on assets held in the SOMA. If all asset classes in the SOMA were allowed to run off, the portfolio would decline by about $ billion per year on average over the first several years. Under the interpretation of the policy stance noted earlier, this shrinkage of the balance sheet would amount to a tightening of policy. 9 However, one should realize that this step represents a relatively gradual and limited policy tightening. Indeed, using the mapping that has been discussed by Chairman Bernanke, this path for the balance sheet would, in terms of its effects on the economy, be roughly equivalent to raising the federal funds rate by just over 25 basis point per year over the course of several years. | 1 |
Many of the positions were equity financed – so, while significant wealth was lost, financial institutions and financial markets did not suffer severe repercussions. That loss in wealth helped ignite the 2001 recession, but it was a much more mild downturn than the one we have experienced of late. With the financial infrastructure not significantly damaged, the impact was much less severe than if individuals and firms had taken highly leveraged positions. 2 BIS central bankers’ speeches Financial myths in the recent crisis Now I’d like to describe, and present some charts that illustrate, four financial myths that played a role in the recent crisis. Myth 1 – Diversification eliminated the risk of declines in residential real estate holdings Despite the experience of Japan’s real estate in the 1990s, and substantial declines in real estate prices in many regions of the United States throughout history, many commentators argued that a significant, widespread housing-price decline in a country as large and varied as the United States had not happened historically and was very unlikely to occur. That logic was based on what you see in Figure 5, which highlights that there had been significant declines in some regions of the country – but the declines were coincident with increases elsewhere. As Figure 6 shows, there had not been recent, sustained declines in national real estate prices. | Mugur Isărescu: The macroeconomic perspective in Romania Welcome speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the Romanian-Czech Business Forum, Bucharest, 20 May 2014. * * * Your Excellency, President Zeman, you are most welcome here, at the National Bank of Romania, a place that holds within its walls countless pieces of history, tails of how Romania has grown into a modern state. We are privileged to greet here, today. Distinguished guests, Ladies and gentlemen, Allow me to extend a very warm welcome and thank you all for gracing us with your presence at the Romanian-Czech Business Forum. It is a great pleasure for the National Bank of Romania, and an honor for me and for the members of the board, to host what will be a substantial discussion about the challenges currently facing Europe, in particular the development of economic relations between the Czech Republic and Romania. Here, at the National Bank of Romania, we take pride in having always been a forum for debating, in an open and profound manner, the themes and trends defining our age. A few weeks ago we celebrated the 134-th anniversary of the Romanian National Bank, a central bank ranking 16-th in the world. During the break, after the working sessions, you are kindly invited to visit/walk the outstanding halls of the Old Palace of our national bank. | 0 |
Fiscal domination remains a constant risk to price stability, as it came out of the experience presented here by Mr. Baschi (Turkey). We hope that the commitment of the government for developing a better coordination of monetary and fiscal policies will continue in the future, as the Minister of Finance, Mr. Malaj stated in his speech. This idea was further elaborated on in the presentation authored by Mr. Hida and Mr. Haderi. Dollarisation or FX may constitute another obstacle that places financial stability and monetary policy independence at risk, as argued by Mr. Driessen. Therefore, it is a problem that needs attention. What inflation rate should be targeted remains a subject of debate. This concern was presented by Mr. Olters. The Bank of Albania is closely addressing this issue in a very prudential manner, so that it does not become an obstacle for economic growth. In light of the above difficulties for passing to a new regime, as stressed by Mr. Mayes, it is important to implement a robust strategy so as to avoid large mistakes. Price stability, as stressed some times during the conference, helps economic growth. On the other hand, the second pillar of the Bank of Albania, the financial stability, is likely to play a more important role for economic extension. But, as Mr. Blejer stressed in his speech, stability should not be turned into an end in itself. A good regulated but undeveloped financial sector may be as ineffective as a deregulated sector. | For instance, a central bank cannot prevent oil prices rising in the wake of the concern over a possible war in the Middle East. On the other hand, a central bank could of course try to quickly tighten demand in the country to push down prices in other areas and thus ensure the average rate of price increase remains in line with the target level. The focus on inflation 1-2 years ahead, entails monetary policy being conducted gradually, little by little, rather than a constant acceleration and braking, which would risk creating unnecessary variations in demand and which could in turn have a negative effect on production and employment. The focus on the coming 1-2 year period thus means that temporary rises or falls in the inflation rate can be tolerated. However, it is important that the Riksbank is clear in its communication of whether it considers the rise to be temporary and when it expects it to subside. One-off shifts in price levels can have a more lasting effect on future inflation if, for instance, those involved do not believe that the rise is temporary, assessing that it will be lasting and thus wishing to compensate for the upturn. If this occurs, monetary policy must be used to intervene, even if the economic situation in itself does not provide cause for concern with regard to inflation, to prevent inflation taking a hold through expectations. | 0 |
In the area of financial stability at least, there appears to be some merit in Sam Goldwyn's admonition that one should 'never make forecasts, particularly about the future'. So whilst we may be able to ensure that the banking system is protected against the normal ups and downs of a developed economy, more extreme events will continue to require tailored solutions. Changing composition of bond markets I have speculated on the possible long-term effect of the new Basel framework on securities markets. I want briefly to touch on a third topic and that is the significant change that the markets seem likely to face in the composition of the bonds being issued. A recent BIS report on trends in collateral in wholesale financial markets shows that the share of US government bonds within the dollar bond markets decreased from over 44% to under 29% between March 1994 and September 2000, with the increase mainly in bonds issued by financial institutions and government sponsored agencies. Worldwide, the share of government bonds decline from 53% to under 45%. Of the G10 countries, only in Japan is the share of government bonds on the increase. In the US, the Congressional Budget Office recently projected that the government debt might be repaid as early as 2006. From a macro-economic perspective, sound government finances are clearly desirable. Smaller government borrowing requirements can also encourage private sector issuance or "crowding in" to revert to the terminology of a similar debate from the early 1980s. | Ladies and gentlemen, these findings must be an important ingredient in the design and implementation of the framework for collecting and analyzing sex –disaggregated data. As I conclude, I wish to thank you all for attending this workshop and hope that you will use this opportunity to delve into the survey findings, the reasons behind the findings, and recommend appropriate response measures that will shape the framework to facilitate information based policies for bridging the financial inclusion gender gap. It is now my honor and privilege to officially open the workshop and I wish you fruitful deliberations. I thank you and God bless! 3/3 BIS central bankers' speeches | 0 |
But we are interested in having one or more independent checks that the combination of actual capital held by firms and the shape of their balance sheets and business models adds up to a sector that we can be confident is resilient to plausible shocks. We anticipate that the results of stress tests will allow firms and supervisors to better understand whether risk management systems are firing on all cylinders, and if there are any gaps in resilience which need to be plugged, for example by upgrading models5. We intend to consult on any potential changes needed to our approach early next year, alongside the broader Solvency II review consultation. Conclusion Tackling a building project presents a wide range of challenges. But it comes with a unique prize – to create a genuinely bespoke building, one which perfectly meets your needs. The Solvency II review presents a great opportunity. Working with the government, we need to get the foundations right, to make sure policyholders continue to be appropriately protected. And to make sure we get the building we all want, we need detailed, reliable measurements which the QIS will provide for us. With these solid footings, the structure the Solvency II review builds will be one that meets the needs of all stakeholders, and stands tall for years to come. I am grateful to Anthony Brown, Alan Sheppard, Ruth Hendon, Graeme Alexander and Zachary Morris-Dyer for their assistance in preparing these remarks. 1 HMT (2020), Review of Solvency II: Call for EvidenceOpens in a new window. | As with our monetary policy tools, we are closely monitoring the situation and we will review our approach on a regular basis. Independent of the ECB’s actions, banks need to perform proper risk management, acknowledge the recognition of impairments, and book an appropriate level of provisions. I would now like to turn briefly to the subject of central bank digital currencies (CBDCs) and how the pandemic has had an impact on them. The arguments in favour of CBDCs have intensified during the pandemic; one of them is reaffirming the role of central banks as the sole issuers of money. Although these arguments are legitimate, they do not necessarily tip the scales in favour of immediate action in favour of CBDC issuance. This is due to the many legal, operational and policy issues around CBDCs which remain unresolved, standing in the way of a transition from traditional cash to CBDCs. I have touched on those issues in some of my previous speeches. Suffice to say that the issues in question will continue to provide food for thought for the ECB, euro area NCBs and central banks throughout the world as they further explore the costs and benefits of CBDCs. Conclusion Let me conclude. In the blink of an eye, the coronavirus pandemic and the response to it placed the global economy in an induced coma. The ECB has acted forcefully and well within its mandate. Our crisis response shows that our legal framework is flexible, but only up to a certain point. | 0 |
Something worked: the IMF, G20 and WTO The IMF is an organisation for international cooperation based on a system of mutual assistance among member countries. The IMF provides loans to countries experiencing balance of payments problems. The loans are financed by member countries. If the problems stem from economic policy mismanagement, the loan will be subject to specific requirements such as measures to correct policy. When the crisis occurred, the IMF reacted swiftly to accommodate the increased need for IMF services. The IMF’s role as lender and interlocutor with the authorities in crisis-hit countries probably helped to limit the crisis. The IMF provided support and assistance to countries that were directly affected by the crisis and countries that were innocent bystanders. The sharp increase in IMF lending reduced the financial resources of the organization. Member countries have now increased their contributions to the IMF. During the financial crisis, the G20 has played a prominent role in the international coordination of economic policy. The group launched several important initiatives during the crisis, which were subsequently placed under the responsibility of the IMF. All countries stand to benefit from the establishment of international meeting places that the major economies consider to be of interest. However, unlike the IMF, the G20 is not a representative body for all countries. Even if the G20 account for a large share of global output, most countries are not included, such as low-income countries and regions like most of Africa, the Middle East and the Nordic countries. | This non-internationalisation policy, supported by our strong macroeconomic fundamentals and substantial foreign reserves, has helped us to maintain a stable Singapore dollar, and to avoid large swings in our exchange rate which would have severely damaged our economy. The trade-off was less vibrant capital markets. Indeed in some cases, the tight domestic restrictions fostered the growth of offshore markets in these restricted activities, undermining our purpose. Recognizing this, we have over the past four years progressively relaxed the $ restrictions. Our approach has been a cautious one: weighing the trade-off between development and the risk to exchange rate management, and feeling our way forward step by step. Our efforts have yielded encouraging results. The outstanding volume of Singapore Government Securities (SGS) has doubled since 1998 and average daily turnover volume increased about threetimes. SGS outstanding volume in 2001 was $ billion and average daily turnover was $ billion. New corporate debt issuance has continued to grow strongly, with $ and $ corporate bond issuance totalling a record $ billion in 2001. This was an almost 8-fold growth over issuance volumes in 1998, spurred by exceptional merger and acquisition activities, but significant nevertheless. Outstanding corporate bonds have also more than doubled to $ billion. Besides higher volumes of issuance, we are also seeing a greater diversity of corporate bonds in the market. The tenors issued range evenly across a spectrum of maturity up to 15 years. The average size of $ issues has also increased. | 0 |
On the other hand, if a country is to benefit fully from adopting the single currency, then its economic structures must be compatible with those of the countries that are already using that currency. It is for this reason that the EU Treaty sets a series of eligibility tests, known as the Maastricht criteria. These include convergence of inflation and interest rates, sustainable fiscal positions and exchange rate stability. The exchange rate criterion requires participation in ERM II for a minimum period of two years prior to the adoption of the euro. This is an arrangement whereby the European Central Bank (ECB) and participating national central banks would not allow any currency to fluctuate beyond a given margin from its central euro rate. This margin at present can be as wide as 15%, but significantly narrower margins are being contemplated, with an often-cited reference value of 2.25%. Thus, participation in ERM II does not necessarily imply increased currency volatility. Indeed the rationale of this mechanism is to test the stability of a currency. As you know, the Maltese lira is pegged to a weighted average of three currencies, whose individual exchange rates against the lira can vary. In this regard, it is noteworthy that the fluctuations in the Maltese lira/euro rate over the past few years on average have not exceeded 3.5%. As for the inflation and interest rate criteria, Malta is well within the reference values. | Expenditure on welfare, including on health, is already absorbing close to one-fifth of the economy’s annual income, or about Lm300 million, and almost two-fifths of government revenue. Retirement pensions alone account for more than one-fourth of this, and are the cost item which is likely to register the strongest growth in the years ahead. Over the next twenty-five years it is expected that the number of workers supporting one pensioner will drop from the present 4 to just over 2, partly reflecting the fact that the proportion of pensionable age persons in the population will rise from 16.7% today to over 28%. An ageing society will also further aggravate existing national saving and investment trends. The impact on private consumption and savings patterns is a result of the ‘life cycle hypothesis’, which holds that a rise in the proportion of the elderly in the population tends to be accompanied by a decline in national savings. Indeed, the effect of population ageing on public finances is nothing but a reflection of a wider economic problem involving a reduced productive capacity. Reforms to pre-empt this impact must, therefore, be implemented without delay. Here again, Malta need not re-invent the wheel. The World Bank model involving funded pension schemes is being applied successfully in many countries. Equally interesting is the Open Method of Co-ordination of Pension Reform operated by the European Commission with the aim of promoting sustainability of pension systems across the EU without imposing uniformity. | 1 |
Global investments have suffered from weakening business confidence. In Q1 this year, G3 investment growth moderated to 3.4% on a year-on-year basis, from 3.7% last year. In the ASEAN-4 economies, year-on-year growth in fixed investment spending has pulled back sharply, to 3.1% in Q1 this year. This is half the pace seen in 2018. There are three factors driving the current weakness in manufacturing, trade, and investment. a downturn in the global electronics cycle; the lagged effects of deleveraging in China; and the trade conflict between the US and China. 1 / 11 BIS central bankers' speeches Of the three factors, the trade conflict poses the biggest risk to global growth outcomes. Cycles in electronics production are a common feature and structural trends in digitalisation and the Internet-of-Things should support a recovery eventually in chip production in the next few years. As for deleveraging in China, there has clearly been an easing of the policy stance in recent months in response to the slowing economy. If the trade impasse between the US and China drags on and further tariff measures are imposed, growth in the second half of 2019 is likely to be weaker than earlier envisaged. MAS’ estimates suggest that the direct impact of the tariffs that have been introduced to-date would already shave off a cumulative 0.3% points from global GDP growth over 2019– 2020. The indirect effects on business and consumer sentiments and financial markets are difficult to estimate. | This is probably the biggest risk to Asia, given the region’s exposure to the corporate investment cycle. 2 / 11 BIS central bankers' speeches Beyond the tariff war, there is a new and unknown risk on the horizon – the broadening of the trade dispute to the technology front. With global value chains, production is distributed and technology dispersed over several countries, industries, and products. Moves to restrict the supply of critical technologies could potentially lead to significant disruptions in these value chains. Some of these technologies are deeply embedded across multiple products and there may be mutual dependencies across these products. We do not fully understand the dynamics of these value chains and technology dependencies. But it is not difficult to imagine how restrictions on the use of key technologies – like advanced semiconductors – can potentially disrupt activities ranging from data centres to communications between network devices. The disruptions to supply chains and economic activity could potentially be even larger than from tariffs. A prolonged technology conflict could lead to a bifurcation of technology infrastructures globally. While downside risks have clearly increased, we should not over-react. The engines of manufacturing, trade, and investment have stalled, but the global economy is not headed for a crash. Two other engines are providing support: easier monetary policies in the major economies; and resilience in services and consumption. Monetary policy in the US has turned more accommodative against the backdrop of benign inflation. | 1 |
We have the same monetary policy as all the rest; our income is taxed at the same federal tax rate; and we are equally impacted by Washington’s tax, spending and regulatory policies. But we have better fiscal policy at the state level. We have no state income tax; we are a right-to-work state; we have state and local governments that, under both Democratic and Republican leadership, have for decades assiduously courted job creators – so much so that we have even outperformed the job creation of most every other major industrialized economy worldwide, as shown by the previous slide. Whither monetary policy? Now, back to the hue and cry of financial markets, and the question of further monetary accommodation. Interest rates are at record lows. Trillions of dollars are sitting on the sidelines, not being used for job creation. We know that in areas of the country where fiscal and regulatory policy incents businesses to expand – Texas is the most prominent of those places – easy money is more likely to be put to work than in places where government policy retards job creation. During the next few weeks as I contemplate the future course of monetary policy, I will be asking myself what good would it do to buy more mortgage-backed securities or more Treasuries when we have so much money sitting on the sidelines and yet have no sense of direction for the future of the federal government’s tax and spending policy. | In addition, the introduction of the Payment System Act in 2003 provided Bank Negara Malaysia with a broader scope on the oversight function over payment systems and instruments that are operated or issued by banks or non-banks, given that advances in ICT have increased the participation of nonbanking institutions in the payments system. The Bank has therefore put in place a specific legislative authority to institute more comprehensive and effective mechanisms for achieving effective oversight of the payments system in a networked environment. Bank Negara Malaysia also maintains very close contacts with its counterparts in other jurisdictions to keep abreast of developments in the financial markets. Strengthened surveillance and information sharing on a real-time basis has become key. Cooperation among the Asian central banks is very strong, and there are various avenues for increased interface for collaboration at all levels in the regional central banks. To maintain effective surveillance, importance is also placed on regular engagement with the financial market participants, the industry and the public. An emerging dimension in the changing environment is to strengthen Central Bank communications. The aim is to enhance market understanding and awareness of the benefits as well as the potential risks and the policy initiatives in a network economy. The regular publication of the Bank's Monetary Policy Statement is to appraise markets of the direction of monetary policy. Other measures include outreach programmes on investor and consumer education to enhance financial literacy. | 0 |
The joke in the American camp at the beginning of the 1980s was that macro is just bad micro, meaning that the models had become dominated by the idea that agents make optimal economic decisions over infinite horizons into the future and that markets therefore tend to be selfequilibrating towards a single steady state. Central banks’ standard models – DGSE [Dynamic General Stochastic Equilibrium] models – have been transformed in many ways, but the 1980s view has still not fully disappeared. This has to change. Economic agents clearly have finite horizons, which impact on their consumption decisions. People do not optimise and plan their lives up to their death. Nor does the financial sector play as important a part in models as it should. The possibility of multiple equilibria has also to be introduced; there are fallacies of composition, there are coordination failures. All these elements have to become part and parcel of macroeconomics; macroeconomics is not just the aggregation of individual decisions by optimising agents, we should not just assume everything moves towards a general equilibrium of competitive markets. The absolute minimum that has to happen is to rid macroeconomics of the imperialism of a certain type of microeconomic foundations; a new core model for macroeconomics has to emerge. If agents act in different ways, we also have to address the question of income distribution. And fortunately there are already models, so-called HANK models, Heterogeneous Agents New Keynesian models, that consider this. | Yet although the decline in residential demand has been very abrupt, lower interest rates and the fall in house prices have placed affordability indicators at more moderate levels, which is helping to stabilise real estate purchases in recent months. In the case of lending to the private sector, we have witnessed increasingly negligible and even negative growth rates, and this pattern will probably prevail over the coming quarters. These developments in lending have a most significant cyclical component, accentuated by 2 BIS Review 151/2009 the tension on international financial markets. After the strong increase in household and corporate debt ratios in the previous upturn, it was inevitable these ratios would fall to improve the financial position of households and firms, and to assist in the resumption of a sustainable path of spending. The strong adjustment in spending is also bringing about a sharp reduction in the external deficit which, after posting a figure close to 10% of GDP in 2007, may be below 5% of GDP in 2009. The adjustment is based, above all, on the decline in imports and on lower commodities prices; accordingly, for this correction to firm when demand picks up, a more substantial contribution by exports will be needed and, in this connection, our export base and the productivity of our companies must continue to be strengthened. In terms of inflation, we are also seeing a significant correction, as there has been a negative inflation differential with the euro area for almost a year. | 0 |
Howard Davies: Is the global regulatory system fit for purpose in the 21st century? Address by Mr Howard Davies, Chairman of the Financial Services Authority, UK at the Monetary Authority of Singapore Lecture 2003, Singapore, 20 May 2003. * * * I am greatly honoured to have been invited by the Monetary Authority of Singapore to deliver their 2003 Lecture. Over the eight years for which I have had responsibility for banking supervision in the UK I have come greatly to respect the Authority’s skill and dedication, through some difficult times in the region. Your Chairman, Deputy Prime Minister Lee, and your Managing Director Koh Yong Guan, have both been wise advisers to me over the years, and we have shared many useful discussions here and in London. In 1995, when I was still at the Bank of England, we were handling the aftermath of the Baring’s collapse. Since then, we have worked on many issues together in many places, particularly in the informed international group of integrated regulators, which is proving to be a valuable forum for the exchange of ideas and experience. I shall be leaving the FSA at the end of September to move to the London School of Economics. But that will not break my links with Singapore: there are very many LSE alumni in the MAS, and in Singapore more generally, so I will continue to have a sound excuse to visit. You were kind enough to give me the freedom to choose my subject today. | The digital revolution creates many opportunities for financial players, as for consumers: an increasing number of more accessible financial services, more complete customer satisfaction. But it also requires examining ways of adapting business models: diversifying services and adjusting their pricing, on the income side; anticipating changes in employment and skills, in the social dialogue. The Banque de France and the ACPR are mobilised to support innovation: creation of the “FinTech Forum” and a dedicated FinTech unit with the AMF; appointment of a “Chief Digital Officer". The Banque de France is also changing. Pursue efforts to combat money laundering and the financing of terrorism. Further progress will be made in 2017 with the full implementation of the Urvoas Act of June 2016 (including its anti-money laundering and financing of terrorism component) and the transposition of the 4th European Directive. I urge you to pay close attention to their effective implementation. With all these prospects, challenges and promises in mind, I renew to each and every one of you my best wishes for 2017. Thank you for your attention. 3/3 BIS central bankers' speeches | 0 |
Bullard, J., (2013), “The Global Battle Over Central Bank Independence”, presentation at the NABE Panel Discussion: “Federal Reserve Independence in the Aftermath of the Financial Crisis: Should We Be Worried?”, AEA/ASSA Annual Meeting, San Diego, California, 4 January. Da Costa, P., (2013), “Central bank independence is a bit like marriage: Israel’s Fischer”, blog post, MacroScope Reuters, 18 April, 2013, http://blogs.reuters.com/macroscope/ 2013/04/18/central-bank-independence-is-a-bit-like-marriage-israels-fischer/ De Carvalho Filho, I.E., (2011), “28 Months Later: How Inflation Targeters Outperformed Their Peers in the Great Recession”, The B.E. Journal of Macroeconomics 11(1). Frankel. J., (2012), “The death of inflation targeting”, column in Vox, 19 June, http://www.voxeu.org/article/inflation-targeting-dead-long-live-nominal-gdp-targeting Gerlach, S., (2013) “Is inflation targeting passé?” in Reichlin, L. and R. Baldwin, (ed. ), “Is Inflation Targeting Dead? Central Banking After the Crisis”, Centre for Economic Policy Research. Goodhart, C.A.E., M. Baker and J. Ashworth, (2013), “Monetary targetry: Might Carney make a difference?”, in Reichlin, L. and R. Baldwin, (ed. ), “Is Inflation Targeting Dead? Central Banking After the Crisis”, Centre for Economic Policy Research. IMF (2013), “The dog that didn’t bark: Has inflation been muzzled or was it just sleeping?” Chapter 3, in the IMF World Economic Outlook, April 2013. King, M., (2013), “Monetary policy: Many targets, many instruments. Where do we stand?” speech at the IMF conference “Rethinking Macro Policy II: First Steps and Early Lessons”, Washington DC, 16 April. Krugman, P., (2013), “Missing Deflation”, blog post in the New York Times, 13 April, http://krugman.blogs.nytimes.com/2013/04/13/missing-deflation/ Posen, A.S., (2013), “Cheap talk is no alternative to inflation targeting” in Reichlin, L. and R. Baldwin, (ed. | By placing value-based and sustainability consideration at the core of the economic recovery plan, enormous opportunities lie for Islamic finance to support sustainable solutions towards postpandemic recovery. With deeper materialisation of these principles nurtured into modern financial context, it could create a seismic change in mainstreaming value-based consideration as an anchor to any business and commercial decisions. This encourages the embedment of Shariah values in financial offerings to deliver positive outcomes. The wisdom, diligence, and inquisitive mind of Shariah scholars are thus undoubtedly the integral component within a 1/4 BIS central bankers' speeches financial system in providing impactful and practical Shariah advice amid the fast-changing business environment. More so, during the time of crisis. We see this transpiring. Through an industry-driven initiative, Islamic banking institutions in Malaysia are committed to adopt “Value-based Intermediation” (VBI) which advocates for positive and sustainable impact through the practices, offerings, and conduct of institutions. Guidance is also provided in incorporating SDG-oriented risk considerations in financing and investment decision making process, through the Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF). Similar importance has also been recognised in the takaful industry, with the recent introduction of VBI for Takaful Framework. The framework focuses on integrating VBI principles into the underwriting and investment decisions, as well as business operations of takaful and retakaful operators that will reshape and sharpen practices of the industry towards delivering economic and societal outcomes more sustainably. | 0 |
Christian Noyer: The size of Central Bank balance sheet – how relevant (important) is it? Speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the GIC (Global Interdependence Center)/Bank of France annual seminar “New Policies for the Post Crisis Era”, Session I “Putting a Context on Monetary Policy – On Both Sides of the Pond”, Paris, 23 March 2015. * 1. * * A widespread increase in CB balance sheet In all major economies, Central Banks’ balance sheets have dramatically increased in size and as a percentage of GDP. That movement was temporarily reversed in the euro area, but our balance sheet is set to increase again following the recently decided -and implemented – asset purchase programs, most notably the Public Sector Purchase Programme (PSPP). Since 2007, the aggregate size of central banks’ balance sheets over the world has tripled, reaching the amount of 22 trillion dollars at the end of 2014. Interestingly, this increase has been almost equally split between advanced and emerging economies. In advanced countries, Central Banks have acquired domestic assets. On average, their balance sheets have grown from 10 to 20% of GDP over the last seven years. In emerging economies, accumulation of foreign exchange reserves accounts for most of the expansion. | It is also important to note that unwanted side effects can be minimized if different public authorities operate in a well-defined and respected framework. We have such a framework in BIS central bankers’ speeches 3 the Eurozone. It is based on fiscal discipline leading to debt reduction. If those disciplines are not respected or implemented with insufficient vigilance, then monetary policy through public sector debt securities purchases may be perceived as creating strong moral hazard, thereby weakening the necessary consensus and compromising its efficiency. When fiscal transfers take place between countries of the Eurozone, they are implemented through mutually agreed and conditional programs. There are permanent temptations to blur the distinction between those fiscal programs and the monetary and liquidity operations of the Central Bank. Those temptations should be resisted. This is the reason why the Eurosystem has been extremely rigorous in implementing its collateral rules in a transparent and neutral way. Let me conclude. Unconventional monetary policies are necessary but complex. They create more interference with markets than policies conducted in ordinary times. As a consequence, it becomes more difficult to avoid unintended spillovers of stabilization policies on the allocation and distribution of resources. This reality should not prevent Central Banks from acting decisively when there are risks for price stability. But such actions demand rigor and precision in their implementation. For Central Banks, their balance sheet has become the main tool of monetary policy for the foreseeable future. It has proven effective. | 1 |
As woe became the popular narrative, depressed expectations may have become selffulfilling. In their recent book, Animal Spirits, George Akerlof and Robert Shiller emphasise the role of popular psychology – “stories” – in shaping people’s perceptions and actions. Depression is a psychological state as well as an economic one. Perhaps the best explanation we have about events following the Lehman crisis is that these two states merged. Adroit communications by the authorities, like counselling, might help head-off future bouts of clinical depression in the financial system. This is undoubtedly an ambitious agenda. But experience after the Great Depression suggests grounds for optimism. That crisis brought about a revolution in thinking about macroeconomic theory and macroeconomic policy. In many respects, it marked the birth of modern macroeconomic models – in the form of IS/LM analysis – and modern macroeconomic policy – in the form of activist monetary and fiscal policy. 27 Newman (2002). 28 Haldane (2009). BIS Review 53/2009 13 Though less heralded, it also resulted in a revolution in macroeconomic data. Despite attempts in the 1920s and 1930s, it was from the 1940s onwards that national accounts data emerged for the main developed economies. This was largely a response to the evolution in macroeconomic thinking and policy-making following the Great Depression. Crisis experience led theory which in turn led data. That is the evolutionary path finance now needs to be on. | There are perhaps three key robustness results from this literature which are relevant to the financial system. Perhaps the key one concerns the “robust-yet-fragile” property of connected networks. 6 The intuition behind this result is beguilingly simple, but its implications profound. In a nutshell, interconnected networks exhibit a knife-edge, or tipping point, property. Within a certain range, connections serve as a shock-absorber. The system acts as a mutual insurance device with disturbances dispersed and dissipated. Connectivity engenders robustness. Risk-sharing – diversification – prevails. But beyond a certain range, the system can flip the wrong side of the knife-edge. Interconnections serve as shock-amplifiers, not dampeners, as losses cascade. The system acts not as a mutual insurance device but as a mutual incendiary device. Risk-spreading – fragility – prevails. The extent of the systemic dislocation is often disproportionate to the size of the initial shock. Even a modest piece of news might be sufficient to take the system beyond its tipping point. This same basic logic has latterly been applied to financial systems, using mathematical models and simulated data. 7 These knife-edge dynamics match closely the behaviour of the financial system in the recent past. A lengthy period of seeming robustness (the Golden Decade from 1997 to 2007) was punctuated by an acute period of financial fragility (the period since). The shock causing this tipping point to be reached – the sub-prime crisis – was by global financial standards rather modest. The robust-yet-fragile property of networks helps make sense of these non-linear financial dynamics. | 1 |
Benoît Cœuré: Interview with Europe 1 Interview with Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, and Europe 1, conducted by Mr Jean-Pierre Elkabbach on 9 December 2016. * * * So, the ECB has extended its large-scale purchases of private and public debt. A sum of € billion was being injected per month, and it will be € billion per month until December 2017, i.e. an extra nine months. The ECB is changing the amount and the pace. Does that mean it’s a warning to Member States to get ready to fend for themselves? First of all, it’s a sign of confidence in the euro area economy. The fact that we can reduce the quantity of purchases also shows our confidence in growth and in the ability of inflation to return towards 2%, which is what we are aiming for. And how high will inflation be? It’s rising very slowly but it’s not at 2%. It’s going to increase very slowly and we think it will reach around 1.7% by the end of our projection period, so it will be approaching 2%. One way to sum up simply what the ECB’s Governing Council decided yesterday is to say that the euro area is recovering, it’s getting better but it still needs its medicine – an accommodative monetary policy with low rates. So we are reducing the dose because things are improving but we are extending the prescription for longer. | The euro area is not cured, but... It’s not cured. But it’s doing less badly. It’s doing less badly. But it can’t take care of itself. It’s doing less badly but it’s not doing well enough and that’s why the prescription has been extended, and there is indeed, as you say, a kind of “warning” or let’s say... An alert. An alert, a message, which is as follows: all this won’t last forever, it can’t last forever, sources of growth have to be found that don’t depend on monetary policy. Long-term interest rates are going to rise and economic actors must prepare themselves – governments in particular, which have benefited greatly from the decline in rates. They must prepare for an environment in which monetary policy will be less necessary and where growth will have to come from elsewhere. That’s why you are making no commitment for 2018. We already have a commitment until the end of 2017, which isn’t bad, as this makes it possible to cover a whole year, when there will be many economic risks inside and outside the euro area, as we well know. But it was noted that Mario Draghi said yesterday that, if necessary, the policy would be eased and liquidity would continue to be provided so as to improve the economy and growth. | 1 |
Firstly, monetary policy is not able to precisely fine-tune the output gap or employment. As I said earlier, it takes times for monetary policy to have an impact on inflation, which is why the Riksbank’s monetary policy decisions are based on a forecast of expected price developments in the future. Furthermore, our knowledge of the output gap even now is not exact, and even less so for the coming years. In reality, shocks to supply and demand are occurring all the time, which influence both actual and potential output. As a result, the output gap is almost never zero. In addition, each forecasting period has its events and political decisions that not only are difficult, but impossible, to foresee, a good example being the terrorist attacks on 11 September 2001. For that reason all forecasts will be more or less inaccurate, and the output gap will be positive or negative for long periods. The important thing is that the Riksbank, in attempting to stabilise inflation, strives to achieve as small and as short-term deviations from the inflation target as possible. With a symmetric inflation target like the Riksbank’s, the incentives and our efforts to avoid missing the target on the upside and the downside are equally strong. Short-term deviations from the inflation target thus will even themselves out over time and will not result in any permanent gains or losses in terms of growth or jobs. | Likewise, cheques declined at a faster pace of 9.8% or 10 million cheques for the first half of 2014 compared to 2% or 2 million cheques for the same period last year. While the data suggests some improvements, more need to be done. A particular area that requires huge efforts is the distortions in the debit card usage in Malaysia. Despite a seemingly high debit card penetration of about 19.2 million “active” debit cards in contrast with 5.5 million “active” credit cards, the per capita debit card transaction is only 1.7 compared to 11.3 for credit card in 2013, indicating a ratio of 1 debit card transaction to about 6 credit card transactions. Acquirers charge merchants the same merchant discount rate (MDR) for the acceptance of debit and credit cards despite their differing cost structure, which makes debit cards just as expensive as credit cards. It is difficult to comprehend the charges imposed on debit cards, which have ready cash in them, is similar to the charges on credit cards. There has also been a slowdown in the growth rate of POS terminals in Malaysia since 2012, which indicates a potential saturation of POS terminals at those merchants who can afford the MDR. This is further compounded by increases in interchange fees which are likely to cause the MDR to be raised to even higher levels on a system-wide basis, thus hindering the wider expansion of the POS network and depriving society from the convenience of using costeffective payment cards. | 0 |
As we all know very well, Estonia does not have oil fields at the expense of which we could become rich. Innovation and willingness to develop should become a pervasive way of thinking for us, there should be a change in our values. • The world economy is currently going through changes in its fundamental paradigm and turning into a knowledge- and innovation-based economy, founded on creating, introducing, and applying knowledge. And the focus is on the latter, application of knowledge, i.e. innovation. • Innovation can be defined as a novel and successful application of knowledge and technology in order to achieve a competitive advantage. The competitiveness of companies in knowledge-based free market economy essentially narrows down to their innovation, i.e. their ability to find and sustain their originality and thus a market position enabling high returns. It is international competition between companies that ultimately creates an opportunity for economic growth and thus for the increase in the society's welfare. BIS Review 26/2004 7 • Innovation requires at least three factors: firstly, educated and competent people; secondly, a well-functioning financial system covering the whole chain of innovation; and thirdly, a culture favouring innovation and entrepreneurship. • Is Estonian labour really competitive? Do we want to be price or quality leaders? If the goal is to be price leaders, our salaries should be as low as possible. If we want to be quality leaders, the situation is vice versa. | For example, of all the bonds issued in foreign currencies by world governments and the private sector, bonds denominated in euros accounted for more than 30% in 2003 (prior to launching the euro the overall amount of the bonds denominated in the national currencies of the current euro zone totalled 20%). The share of the euro in the currency reserves of the world amounted to some 19% in 2003. • The larger the common currency zone is, the smaller the transaction costs, and the more it will support economic development, increase stability and future security. • Whether joining the monetary union is useful depends on the ratio of the costs of the lost monetary policy independence to the gains arising from the accession. Since the exchange rate is not an adaptation tool in the monetary union, prices and salaries must be flexible and factors of production (capital and labour) have to move freely. In general terms, open economies (and Estonia is a very open economy) and countries with similar economic cycles gain more from the monetary union. • Why coordinated economic policy? Coordinated economic policy must contribute to creating a favourable environment for stable and sustainable economic growth. • The most closely coordinated area between the EMU member states and institutions is the budgetary policy. | 1 |
First, I will review trend developments in financial intermediation and single out a recurring theme in the evolution of the financial markets over the last 30 years: the rise of securitisation and collateralised finance. I will then consider the consequences of this innovation for the transmission of monetary policy in the post-crisis world. I will start by looking at the money markets and turn to the wider financial system, including the shadow banking sector. Looking forward, the main sources of collateralisation will be an issue to consider if the present trend towards downscaling the creation of private asset-backed securities continues. Public debt instruments are likely to play an important role. This will lead us to reflect on the role of central banking at a time of high public debt. 1. The rise of collateral The financial system has undergone profound changes over the past few decades. Markets have grown significantly; competition has intensified. These are well-known phenomena. I would like to focus on the consequence of this, namely that the core of financial intermediation has moved from depository institutions – commercial banks – to a hybrid aggregate of institutions and functions, which is broadly referred to as the shadow banking system. The rise of the shadow banks, their ups and their downs, are inseparably connected with a key financial innovation of the last 30 years: securitisation. The emergence of a shadow banking system is not a new phenomenon. | First, the larger the intermediation offered by the central bank, the smaller, ceteris paribus, the incentives are for banks to reduce liquidity risk (for example, to reduce the maturity mismatch of assets and liabilities). After all, they can turn to the central bank if they need to. Of course, while central bank intermediation increases the incentives for banks to take liquidity risk, it also increases the liquidity insurance available to banks. That is, as long as a bank does not adjust its balance sheet when the central bank offers more intermediation, its net liquidity risk exposure may in fact decrease due to the increased liquidity risk insurance provided by the central bank. But which effect is stronger: the incentive or the insurance effect? Second, larger central bank intermediation can crowd out market activities. This might be perceived as a cost-reducing development by private banks. If the central bank lends larger volumes in longer-term operations, this might provide a boost to private lending at the same maturities: some banks might consider offering funds in the term money market only if they themselves can refinance such activities by participating in longer-term central bank operations. This may make term money markets more liquid in the end. However, this is not what the Japanese authorities observed in the first half of this decade. | 1 |
It is not possible to see the road ahead clearly and nor is it possible to know exactly what will happen if one puts one’s foot down on the accelerator pedal – only that the effect will come after a fairly long period of time. Why haven’t we cut the interest rate? Let me now return to the present situation and the question of whether it is reasonable to lower the interest rate in order to rapidly bring the present low inflation rate back in line with the target. The Executive Board’s reasoning at its most recent monetary policy meetings has been roughly as follows. Firstly, as I mentioned at the beginning, the Swedish economy has developed at an increasingly strong rate in recent years, and our analyses during the winter and spring have come to an assessment that this will continue. We have thus seen a rise in inflationary pressure at the end of the forecast horizon. If our assessment during this period had been that demand was declining, I believe the situation would have been different. Secondly, the present low inflation rate can be largely explained by what is known as positive supply shocks, such as increased competition, lower import prices and surprisingly rapid productivity growth. These factors benefit economic developments. To attempt to push up prices for domestic goods and services to counteract a decline in prices for imported goods is not necessarily a wise choice. Thirdly, monetary policy’s impact comes through influencing demand, primarily corporate investment and household consumption. | Investment has begun to rise, albeit at a slightly later stage than we had assumed. However, it is unlikely that the problem of a low investment rate now is connected to interest rates being too high. Given the low interest rates we see now and the good access to credit in the financial system, financing costs can hardly be regarded as a factor holding back investment. With regard to households, it is possible that even lower interest rates could make them increase their debt burden and borrow in order to increase consumption, but to me this is not an obvious conclusion. In addition, there are risks here. This brings me onto the question of how households have reacted to the low inflation and low interest rates, and this issue deserves more detailed discussion. Households’ growing debt burden and rising house prices In recent years, households’ debt burden has increased gradually and now amounts on average to 125 per cent of their annual disposable income, which is almost as high as immediately prior to the property crisis in 1992. However, interest payments are now less than half what they were then, approximately 4 per cent of disposable income. The fact that households are loaning at an increasing rate, both in Sweden and many other countries, can be regarded partly as an adjustment to lower inflation, which is also expected to be permanent. | 1 |
The jury is still out concerning the final verdict as to which of the two views is right. In my opinion, however, one general conclusion is valid: a monetary policy strategy which carefully monitors money and credit developments is likely to contribute to the detection of potentially destabilising financial imbalances is likely to help detect potentially destabilising financial imbalances at an early stage. V. Conclusions Our discussion on how to manage globalisation comes at a difficult moment in time, a challenging period for financial markets and institutions worldwide, and a period of heightened uncertainty about the potential impact of the ongoing reappraisal of risk on the real economy. This makes this joint intellectual effort to understand the underlying mechanisms and forces of globalisation even more topical, and our joint quest to identify ways to manage globalisation even more valuable. In my contribution, focusing on the central banker’s perspective, I argued, first, that globalisation does not fundamentally undermine the effectiveness of monetary policy in preserving price stability. Although the channels through which monetary policy affects economic variables are certainly influenced by globalisation, the respective effects are 22 See Borio and Lowe (2002). 23 See ECB (2007a), Box 9 for an elaboration of the measurement of financial market liquidity. 24 See Rajan (2005, 2006). 25 Adalid and Detken (2007). BIS Review 9/2008 11 estimated to be small. | [see Chart 3] The counteracting effects of these global price pressures on euro area inflation can be observed more clearly if we take a look at the development of the overall Harmonised Index of Consumer Prices (HICP) and selected components (energy and non-energy industrial goods). [see Chart 4] The prices paid by consumers for energy products, which account for approximately 9% of euro area private consumption, surged at an average rate of 5.4% per annum following the series of sharp oil price increases over the period 1999-2007. But, the prices of other consumer goods, such as non-energy industrial goods, which account for over 30% of total private consumption, increased at a more moderate rate of 0.7% per annum on average during the same period. In an environment of significant and persistent changes in the relative prices of energy goods and agricultural products, the price increases of these goods, which are comparatively more visible to consumers than the relatively more stable prices of many other consumer goods, may, therefore, adversely affect inflation expectations. Consequently, it is crucial for monetary policy to anchor inflation expectations to price stability, and to ensure that secondround effects of increases in energy prices and other commodity prices on price and wagesetting do not materialise. All in all, the empirical evidence on how globalisation has directly affected consumer price inflation in the advanced economies reveals a rather muted impact. | 1 |
Nonetheless, whether these judgements on the output gap come to pass depends, ultimately, on the pace at which demand in the economy returns and the accompanying response of the economy’s supply potential. Let me discuss those two issues in turn. 14 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 14 Chart 12: Output gap – Global Financial and Covid Crises Compared per cent 1 0 -1 -2 -3 -4 -5 t=0 t+5 t+10 t+15 Quarters GFC Covid (forecast) Source: Bank of England. (b) Money and Money Spending I will discuss in some detail the components of private demand, consumption and investment, at a future event. But as after the global financial crisis, some useful insights into possible future paths for aggregate demand and aggregate money spending is provided by looking at developments in the banking system. Exceptional amounts of central bank money have once again been created during the Covid crisis to maintain borrowing costs at low levels. This additional QE is running at around $ ½ trillion so far and rising.15 Globally, the amount of QE undertaken during the crisis is already rapidly catching-up with the amount undertaken during the prior ten-year period. And in the UK, QE so far announced by the MPC, at £ billion, is already more than was carried out in the 10-year aftermath of the global financial crisis. 15 Based on Federal Reserve, ECB, Bank of England, Bank of Japan and Swiss National Bank. | Measures of broad (commercial bank) money globally rose by only around 85% in the decade following the global financial crisis and by even less 11 Global figures are based on data on OECD M1, while UK figures based on central bank reserves plus notes and coins in circulation. 9 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 9 in the UK. Put differently, the money multiplier in the UK – the ratio of broad money to central bank money – fell by around two-thirds following the global financial crisis (Chart 9). Chart 9: Ratio of Broad Money to Narrow M4ex/(Reserves+ Notes and Coins) 35 30 25 20 15 10 5 0 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Bank of England and Bank calculations. This should come as no surprise. The global financial crisis impaired financial intermediation, slowed the growth in bank credit and money and thus contributed to the sluggish growth in money spending. Interestingly, the relationship between broad money growth and money spending growth – the velocity of circulation of broad money – remained relatively stable following the global financial crisis (Chart 10). The velocity of circulation of narrow money, by contrast, fell dramatically. The Covid crisis has added to these long-standing disinflationary pressures. | 1 |
Although such fiscal measures are politically needed, they should remain temporary, in addition to being targeted more precisely at consumers who need them the most, and targeted in keeping a "price signal" that provides an incentive to decrease energy consumption, in order to help minimise the risk of energy shortages. They should also be further coordinated at the European level. B.Monetary policy will be efficient to bring inflation back towards 2% Let me clarify something fundamental: in the medium term, the real answer to inflation is not fiscal, it is monetary. In the euro area and elsewhere, although it retains a strong external component (around half of headline figures in the euro), inflation is becoming more "domestic" and broad-based. In October, core inflation (which excludes energy and food) stood at 5.0% in the euro area. Monetary policy has a more direct impact on core inflation, and central banks cannot not let it get out of hand and persist. This our mandate, and our responsibility. Therefore a normalisation in our stance has been clearly warranted over the last year. The ECB Governing Council decided on 27 October to raise its key rates by another 75 basis points, the third significant increase in a row, bringing the deposit facility rate to 1.5 %. In doing so, we have removed a substantial part of our accommodative policy, and are clearly approaching the "normalisation range" which can be estimated at around 2% in the euro area. We should reach this level by December. | This allowed for a significant carry-over: according to Commission's forecasts published last Friday, euro area economy should grow by 3.2 % in 2022 as a whole(ii), more than the forecast for the United States. As for 2023, while slowing down, growth could remain positive at 0.3 %, and it should rebound to 1.5 % in 2024. All economic forecasts are nevertheless surrounded with high uncertainty at present times, in light in particular of the latest of an unprecedented series of shocks. By the way, this is why we need to regulate strongly and quickly crypto assets internationally: the last episodes show us that we cannot allow for a second "crypto winter" to still add to uncertainty and financial instability. The Russian war in Ukraine is feeding a further surge in energy prices and other commodities, hence a negative shock on terms of trade. This geopolitical and economic environment weighs on the confidence of businesses and consumers. In particular, inflation has become the prime concern of our European citizens. The rise in consumer prices has amplified in recent months, reaching 10.7% in October – France displays the lowest rate in the euro area with 7.1 %, thanks in particular to its "tariff 1/4 BIS - Central bankers' speeches shield" which protects households from increases in energy prices. | 1 |
31 The model assumes a linear relationship between bank capital and GDP-at-risk. This assumption should be treated as a local approximation and is unlikely to be realistic over wide ranges of capital ratios. In particular, increases in systemwide capital levels from current high levels will ameliorate tail risk by less than similarly-sized increases when capital levels are relatively low, as they were in the immediate aftermath of the crisis. 27 All speeches are available online at www.bankofengland.co.uk/news/speeches 27 𝑇 min ℒ𝑡 ≡ 𝐸𝑡 {∑ 𝛽 𝑖 [𝑓(𝐺@𝑅𝒕+𝒊 ) − 𝜙𝑦𝑡+𝑖 ]} 𝜌𝑡 𝑖=0 However, globally more than $ trillion of assets are now held in open-ended funds that offer short-term redemptions while investing in longer-dated and potentially illiquid assets.32 And funds with these structural mismatches are growing rapidly. This liquidity mismatch creates an advantage to investors who redeem ahead of others, particularly in stress. This “first mover advantage” could prompt a destabilising rush for the exits, not only in the market where problems first occur, but also across markets with analogous risks. Fund suspensions, a widely available tool, exacerbate the issue. Charts 19 and 20 illustrate that outflows from open-ended funds are indeed more sensitive to fund performance when funds hold more illiquid assets, and when market conditions are worse. Although risks have, so far, only crystallised within some niche managers and smaller markets, and their impact has been contained, these risks have the potential to become systemic if funds’ holdings of less liquid assets continue to grow. | The FPC’s responsibilities are encoded in the Bank of England Act and the Chancellor’s annual FPC remit letter.7 The FPC’s primary objective is to identify, monitor and take action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK’s financial system.8 Subject to meeting their primary objective, the FPC has a secondary objective to “support the economic policy of Her Majesty’s Government, including its objectives for growth and employment”. The emphasis on supporting economic growth over the medium to long term is underpinned by the so-called “stability of the graveyard clause” in the Bank of England Act, which does not “required or authorised the Committee to exercise its functions in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term”. The FPC’s actions support its secondary objective in several ways. The FPC minimises the negative impact of financial stability policies on growth including in the near-term by implementing financial stability policies gradually, and by choosing targeted policy tools. The FPC’s remit letter also tasks the FPC with taking actions to promote actively productive finance and growth as long as these actions do not compromise the primary objective of financial stability. These actions 7 The Chancellor’s annual “Remit and Recommendations” letters to the FPC, alongside the FPC’s responses, are available here. | 1 |
The existing money market infrastructure managed by SIX has many advantages: for instance, it has a wide range of participants, including the SNB, who make up a homogeneous market and interact on a shared platform. Moreover, that infrastructure is highly automated and standardised. It is in the process of being upgraded, to better respond to the changing needs of participants. A new repo trading platform, CO:RE, was launched in 2016. Moreover, a new triparty agent is being set up which will offer market participants a wide range of services and will enable a more efficient management of collateral through closer integration with pure trading activities. Page 7/9 Finally, a resilient and modern repo market infrastructure is essential to allow the SNB to deploy its entire monetary policy toolkit effectively and at any time. Indeed, the SNB uses the same SIX platform as private participants to implement its monetary policy, by auctioning/exchanging repos or reverse repos or even issuing SNB Bills. As you will recall, the latter were issued at the beginning of the crisis. They proved to be an efficient and flexible way to absorb liquidity. I will now turn to the second point: the replacement of the Libor as the reference money market interest rate. It should be noted that the decline in transaction volumes for the unsecured segment of the money market involves not just the Swiss franc but all currencies. | Although economic developments are favourable, inflationary pressures remain low. Moreover, the Swiss franc remains highly valued and the situation on the foreign exchange market is still fragile. Against this backdrop, the contours of a ‘new normal’ are emerging for central banks. While there are still many significant unknowns in the political, geopolitical and economic arenas, one thing is certain: the environment in which the central banks operate has evolved considerably, mainly due to structural changes. Some of these changes had already begun well before the crisis, but they have accelerated in the intervening period. I am thinking here of the digitalisation of the economy, for example, as well as the emergence of new technologies on the financial markets. In this speech, I would like to outline how the SNB has had to adapt – and continues to adapt – to make sure it is always in a position to fulfil its mandate. | 1 |
Page 6 In the UK at least, such ‘taming’ of the challenges we face in achieving price stability has yielded a quarter of a century of improved macroeconomic performance, with inflation much lower and more stable on average than in the decades prior to the introduction of inflation targeting. There is much to admire in that. Moreover, the unacceptably high inflation we now face as a result of geo-political developments and their impact on commodity prices should not detract from what has been achieved over the entire span of the inflation targeting era. Indeed, the anchor provided by the inflation target for both the formulation and communication of monetary policy is all the more valuable when price stability is being challenged by adverse external shocks. But we also need to be wary that ‘taming’ of the problem does not lead us astray. In particular, we need to recognise that solving the inflation targeting ‘puzzle’ by returning CPI inflation to 2% at a specific point in time does not, of itself, represent a comprehensive or complete solution to the underlying problem of achieving price stability. [10] It is not ‘job done, we can now move on’ to other issues. On the contrary, to paraphrase Thomas Jefferson: the price of achieving meaningful price stability is eternal vigilance. For one of the characteristics of a ‘wicked problem’ is that it does not a have a ‘stopping rule’. In other words, it is not possible to say that a ‘wicked problem’ has been definitively solved, once and for all. | The ratio of vacancies to unemployment – which we consider one of the more reliable summary indicators of labour market tightness in recent years – fell to 0.9, from a peak of 1.1 back in August. That chimes with recent intelligence from our network of Agents and their corporate contacts across the country, which points to some easing in recruitment difficulties. Nonetheless, while pointing to some easing in recent months, these indicators suggest the labour market remains tight in an absolute sense relative to historical experience. In turn, this is consistent with continued strength in UK wage growth. Annual private sector regular pay growth[6] was 7.3% in the latest report, 0.1pp higher than expected in the MPR, even if the momentum of wage growth may now be slowing. Turning to yesterday’s CPI data, inflation fell to 10.1% in January, from 10.5% in December. On the month, this mainly owed to an easing in services and fuel price inflation, although developments in historically very volatile components such as airfares counted for a large part of the former. Both the March and May MPC meetings represent points at which the Committee can again assess the implications of incoming data for the monetary policy stance, with the latter having the advantage of an updated comprehensive assessment in the form of the MPC forecasts. | 1 |
Alongside this, changes to the incapacity benefits regime may well also have had the effect of bringing more workers into the market. The number of people under the age of 65 who are inactive because of incapacity is down by around 200,000 since mid-2008. For much of the post-war period, there has been in the UK a steady decline in the hours people have wanted to work. As income grew, the trend was to reduce hours and maintain income rather than to maintain hours and increase income. Not surprisingly, the largest fall in real pay since records began has reversed that trend; the evidence suggests that, as the economy has recovered, with lower real pay, many have sought to increase hours to maintain – or recover – income. That of course may well be a temporary effect and as and when real pay rises the pre-crisis trend may reassert itself. But it may be that this effect will last for some time yet. Another explanation for the weakness of pay despite the fall in unemployment might be that the pressure to catch up lost income is much weaker post recession than it has been in the past. Based on previous episodes in the UK, we might have expected a reduction in real incomes to result in increased inflationary pressure from the labour market. | 7 The major UK banks on average now have total loss absorbency of around a quarter of their risk-weighted assets (RWAs) compared to an average end-state requirement of around 28% (including buffers). 8 While no measure is perfect, a range of market-based estimates suggest the implicit ‘too big to fail’ subsidy has fallen sharply since the crisis. Estimates suggest that the value of the implicit subsidy has fallen from around £ in 2010 to less than £ now – down around 90% http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/capital-andresolution/written/69208.pdf 11 All speeches are available online at www.bankofengland.co.uk/speeches 11 If counterparties have confidence that resolution will stabilise a bank so that it can continue to meet its obligations, they will not accelerate actions that could frustrate a resolution to the detriment of all parties. And the public needs to have confidence that we have learned the lessons of the crisis: that we have acted to ensure that we have an alternative to the previous crisis where we had privatisation of bank profits in good times and the socialization of bank losses when things go wrong. 9 For that reason, the Bank committed to Parliament in April 2017 and in the Purple Book last October that from 2019 we would implement public reporting of banks’ resolution plans and our assessment of their effectiveness. This marks an important transition in the implementation of full resolvability in the UK. | 0 |
Speech Embargo 26 April 2019, 10.00 am Monetary policy in the interests of the country as a whole 111th Ordinary General Meeting of Shareholders of the Swiss National Bank Thomas J. Jordan Chairman of the Governing Board Swiss National Bank Berne, 26 April 2019 © Swiss National Bank (speech given in German) Page 1/8 Mr President of the Bank Council Dear Shareholders Dear Guests A warm welcome to you all to our Annual General Meeting. Engaging with the general public across Switzerland is very important for us. It therefore gives me great pleasure to speak before you here today, and I hope I will have the opportunity to talk with as many of our shareholders as possible over refreshments afterwards. In my position as Chairman of the Swiss National Bank’s Governing Board, I receive a lot of correspondence from people throughout our country. In one such letter, the owner of a family business in northwestern Switzerland described how she had struggled for years to hold on to customers, only to have to now close down anyway as the strength of the franc has made competition from neighbouring countries simply too great. In another letter someone wrote that despite his having had to pay ever higher pension fund contributions over the past 15 years, there has been no increase in his projected retirement savings. In fact, they have even declined. He attributes this to what he refers to as ‘minus interest’. | Having interest rates slightly below zero does not mean the world has been turned on its head, nor does it run contrary to economic logic. Introducing the negative interest rate has on the one hand influenced the financing conditions in the economy. This has been to the benefit of companies, households and the public sector alike. Meanwhile, it also has an effect via the exchange rate, and this is particularly important for us as a small open economy. Charging negative interest reduces the appeal of Swiss franc investments compared with investments in other currencies, and thus plays a significant role in keeping the appreciation pressure on our currency in check. This in turn supports economic activity and is essential for price stability in the current situation. Exchange rates are, of course, also influenced by other factors. However, the comparison between yields on Swiss franc investments and those in other currencies is always an important criterion for investors when deciding which currency to invest in. Knock-on effects of low interest rates That being said, the low level of interest rates does also pose challenges and there are knockon effects. Savers in Switzerland are worried about their savings which are yielding barely any interest. Pension funds and life insurers are facing difficulties in meeting their contractually agreed obligations owing to the low level of capital market interest rates. And banks are concerned about their profitability since they are generating less interest income from their lending business. | 1 |
In itself, a difference in the weight of a small state and a large state may make sense; but if certain EU member states have a much bigger informal impact than others on the positions that the EU takes in international political or economic forums, the big-impact states may be tempted to “nationalise” the voice of the EU. Many attempts at nationalisation of EU positions are due to what might be called the “French complex”: Some leaders of bigger countries still have not fully absorbed the fact that their country is no longer the superpower it used to be and no longer leads the world, so they often try to abuse their EU-wide voice to support their national interests, positions and agenda. When they call for Europe to speak with “one voice”, they often seem to expect that the single voice of 500 million EU citizens will be the voice of their national leaders, articulating their national tastes and priorities. Of course, the agent, the European Commission as an executive arm of the EU, also sometimes has this temptation to define or steal the voice of the EU. Needless to say, the risk that proper integration will be derailed is particularly high when the two effects mentioned above are combined – when the EU administration ceases to behave as an agent of the less powerful principals but remains under the spell of a few very strong principals. | Mojmír Hampl: European integration – a critical economist’s view Speech by Mr Mojmír Hampl, Vice-Governor of the Czech National Bank, at the Europe at Sixty: 1949–2009, Metropolitan University, Prague, 20 November 2009. * * * Ladies and gentlemen, Let me first express my deep gratitude to the organisers for inviting me to give this keynote speech today. And do not take it as a standard, politically correct opening sentence. I really mean it. For me it is quite a rare opportunity to speak frankly and openly on such an important topic, which the process of European integration certainly is, and to speak more as a scholar than a policy-maker. So I will try to do my best and to be outspoken enough to provoke questions and comments after I finish. Therefore, the usual disclaimer is more relevant than ever this time: my opinions are not necessarily the opinions of my employer. I think European integration is a process that provides a lot of food for thought for many social scientists. I will try to approach the topic from the point of view of an economist, but also a citizen and a mere mortal, sharing with you some of my concerns as to how the process of European integration has been evolving so far and where it is most likely heading. | 1 |
I shall now describe these tools distinguishing, for the purpose of my address, between those that affect the capital requirements on credit institutions and those that fall on borrowers. Macroprudential tools that affect the capital requirements on credit institutions The banking regulations in force require banks to have sufficient capital set aside to cover unexpected losses and to maintain their solvency in the event of a crisis. The amount of capital required depends on the risk linked to a specific bank’s assets and, in fact, is expressed as a percentage of risk-weighted assets. The concept of risk-weighted assets basically means that a lower capital allocation is attributed to the safest assets, while the riskiest assets are assigned a greater risk weighting. In other words, the riskier assets are, the more capital the bank will have to hold in reserve. In parallel, specific grades are assigned to capital, depending on its quality and on risk.4 First among the macroprudential tools made available to the authorities is the possibility of directly influencing credit institutions’ capital by means of requirements additional to the traditional microprudential capital requirements. This greater requirement of capital increases banks’ loss-absorption capacity and, moreover, influences their appetite for risk, given that the losses that shareholders must bear in the event of difficulty (“skin in the game”) increase as a result. If they are to function correctly, these additional capital requirements must be activated when banks begin to build up risks, and they must be drawn down when risks abate or when they materialise. | With the agreement of the region’s regulatory authorities, this can be achieved through the formation of a regional dealers’ network for the primary and secondary market. Such regional dealers will help to distribute securities around the region and more importantly create the market to facilitate cross-border transactions. In doing so, it creates liquidity in the fixed income market, attracting greater foreign investors’ participation and lowers the cost of funding. ASEAN corporates are thus able to tap into new markets and investors and widen their sources of financing. This contributes to greater depth and breadth of the regional fixed income market. Secondly, as intra-regional trade within ASEAN is becoming more significant with further potential in intra-regional investments, another untapped area is the cross currency foreign exchange market, that could support regional settlement for trade and investment. ASEAN is well positioned to advocate the greater use of regional currencies that will further enhance and deepen regional financial integration via use of regional currencies for trade settlement. The cost of hedging the exchange rate risk will be lower thus it promotes efficiency in trade BIS central bankers’ speeches 3 and enhances export competitiveness of our businesses. We should therefore, work together and double our effort to promote and enhance the use of regional currencies for trade and investment settlement. Sovereign funds managers could also give a timely boost to this effort by investing a fraction of their funds into domestic currencies of regional bond markets. | 0 |
In fact, two areas that we recently reviewed that require attention include basic IT asset management and strengthening patch and vulnerability management practices. These are necessary hygiene steps and should be a fundamental for a sound cyber security defense program. As part of good risk management, firms also need to start considering how to assess the costs of cyber and connect the pricing of cyber risk to the businesses. You must ask yourself “what is my cyber exposure?” And, you need to think about how you should price it, because until cyber is priced, it may not get the attention it needs. 3. It’s not just the banks Cyber isn’t just about the banks – it’s about the entire financial sector, as well as the connections between the financial sector and other sectors like the utilities, retail, and others. We know that every area of the industry is interconnected; and it’s not just financial firms. As the old saying goes, we are only as strong as the weakest link. In the financial system, that weak link could be a weak firm, a weak vendor, a weak point of vulnerability in a payments or clearing system, etc. A weakness in any of these areas exposes the entire system, because the interconnections mean that you are all linked to each other, to non-financial firms, and to every system that supports the operations and structure of the industry. | The additional risk to keep in mind here is the growing number of unregulated firms operating in and competing in this arena. As the industry moves to overcome the risks associated with cybersecurity, you have to consider the additional vulnerabilities you are exposed to through non-regulated entities that will not be subject to the same guidance and standards. The big question lies in how you, as an industry, ensure that the ‘industry as a whole’ is safe, not just regulated entities. 4. One size does not fit all Just as firms are diverse in size, complexity and product offerings, so too are technologies, processes and systems. While some firms house all technology work internally, others outsource the entire function or a significant part of it to third-party vendors. In addition to the variety of systems used and approaches to information security within firms, as I said earlier, we have an entire subsystem that supports the financial sector and ultimately connects every firm to some extent. In response to this, we are working under the 4 BIS central bankers’ speeches assumption that there will not be a one-size-fits-all solution and the approach taken will need to be comprehensive and flexible enough to be adopted by all types of firms. 5. We are in this together Cybersecurity is an area where I believe our interests are aligned and our shared goal is twofold. | 1 |
Birgir Ísleifur Gunnarsson: Update on Iceland’s economy Address by Birgir Ísleifur Gunnarsson, Chairman of the Board of Governors of the Central Bank of Iceland, at its Annual General Meeting, Reykjavík, 27 March 2001. * * * On behalf of the Board of Governors of the Central Bank of Iceland I welcome you all to the Bank's 40th annual meeting. This year marks the Bank's fortieth anniversary after it was made completely separate from Landsbanki and transformed into an independent institution. The Bank's financial statements for the year 2000 have been ratified today by the Prime Minister. The Bank's annual report has also been published. As usual it includes a survey of the Bank's activities and performance, along with a detailed report on the Bank's monetary policy and actions, the financial system and financial markets, and the main features of economic developments in the course of last year. I shall now address several aspects of economic issues and the present prospects, in particular those most closely connected with the Central Bank's field of activities. Overheating of the economy Iceland has distinguished itself from most other industrialised countries in recent years by the strong economic growth it has enjoyed, or 4-5% per year. The closest comparison in this respect is with the USA, where growth is in fact on a downward path now. | Foreign demand continued to provide a positive contribution to the aggregate demand. Nevertheless, as expected, its positive impact was lower than a year earlier. During the first five months of the year, Albanian exports increased by 23.3% y-o-y, which is lower compared with 2010. On the other hand, deterioration of trade terms and internal demand performance triggered the increase of imports in the first half of the year. Value of imports increased 14.1% y-o-y during January–May, thus, leading to higher trade deficit. Following its narrowing in 2010, this deficit expanded by approximately 8.8% y-o-y during this period. Trade deficit expansion, negative foreign currency flows in the services account and lower remittances are reflected in the expansion of the current account deficit in the first quarter, at the end of which, this deficit was at 11.8% of the GDP, illustrating the fragile position of the external sector of the economy. The performance of the four demand components led to positive, but below potential, economic growth during 2011 H1. Unutilised capacities in the economy controlled production costs and generated controlled inflation pressures. Monetary indicator analysis confirms our assessments for contained inflation pressures suggesting that money supply growth rates are moderate and in line with the economy’s demand for real money. In average terms, M3 annual growth was 11.3% in January–May triggered by a steady growth of deposits in the banking system. Demand for money is dominated by public sector demand for funding, while the private sector’s demand was more moderate. | 0 |
The criticism lived on for quite a long time, but it was probably quite essential to demonstrate at that time that the inflation target was taken seriously. This was until now the only time I can remember that the Riksbank was urged not to do its best to maintain confidence in the inflation target. The criticism then was largely due to the inflation-targeting policy being so new – as I said, the inflation target had not yet even come into force. It is less easy today, after twenty years of positive economic developments, in which the inflation target has been a cornerstone, to see why the Riksbank is being urged to lower its ambitions. Perhaps it is because developments have been so positive for so long that one feels the existence of a credible nominal anchor is no longer as important. If so, I am convinced that this is a mistake. Difficult to see reasonable alternatives to the policy conducted But what about developments in household debt and housing prices? Don't they give a reason for changing monetary policy? The Riksbank has previously used the repo rate to try to subdue the upturn in debt and housing prices. But this was on a fairly modest scale and – above all – during a period when confidence in the inflation target appeared firmly rooted. 9 In recent years, on the other hand, there have been signs that this confidence has begun to be undermined, which has changed conditions rather drastically. | That is why today’s conference is conceived to bring together academic research and central bank practice. The conference structure reflects an understanding that the global financial cycle affects the euro area and its monetary policy, which in turn affects the financial cycle in Europe beyond the euro area. Therefore, the first session of the conference is on the current phase of the global financial cycle which is to a large extent driven by the US monetary policy. We recall from the 2007/2008 crisis how the financial disruptions originated and triggered a full-scale global crisis. The second session is focused on the euro area financial cycle, as influenced by the global financial cycle, and its implications for asset prices and financial stability. Since the ECB policies also shape the financial cycle in Europe outside the euro area through economic and financial channels, although divergences do exist, our third session is devoted to the financial cycle in the non-euro area EU member states. By way of example from Bulgaria, the BNB recent research and relevant estimates for the local financial cycle indeed show that we are currently in the upward phase of accumulation of cyclical risk. We have, correspondingly, decided to activate and then raised the rate of our countercyclical capital buffer. Turning to actual policy reactions in dealing with financial cycles, our conference ends with a panel where Governors will share with us their views. Dear colleagues and guests, In conclusion, let me sum up my main points. | 0 |
2 Much earlier, Minsky had already stated the same type of acid test “...for an economic theory to be relevant, what happens in the world must be a possible event in the theory”. 3 Under the ideal imagined conditions of prevailing thinking before the crisis, the market mechanism operates smoothly and since financial frictions are disregarded, financial intermediaries were generally absent from macro models and without leveraged financial intermediaries, financial instability is not an issue. It is true that there some frictions linked to the credit channel had been included in macro models, basically related to the Financial Accelerator developed by Bernanke and Gertler and Gilchrist. 4 This is, however, only a 1 Caballero, R (2010) “Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome” NBER WP n. 16429. 2 Buiter, W. (2009) “The irrelevance of most ‘state of the art’ academic monetary policy”, available at www.voxeu.org. 3 Minsky, H. (1986) “Stabilizing and unstable economy” in Chapter 12 “Introduction to policy”, McGraw-Hill Professional, new edition, 2008. 4 Bernanke, Ben, Mark Gertler, and Simon Gilchrist, 1999, “The Financial Accelerator in a Quantitative Business Cycle Framework,” Handbook of Macroeconomics, John Taylor and Michael Woodford editors. 2 BIS central bankers’ speeches mechanism that could aggravate an on-going crisis, but was not strong enough to trigger one. Recently, Adrian, Colla and Shin examined which frictions should, at a minimum, be included to be relevant. | Centralising decision-making would bypass many of the current obstacles to effective resolution such as the need for cooperation and coordination between multiple authorities. This would in turn lead to quicker decisions and reduce resolution costs, as early action would help to maintain the economic value of the bank in question. Second, an ERA would be more effective in minimising the cost for taxpayers of bank failures. A bank may be “too expensive”, “too complex”, or even “too well-connected” to resolve at the national level, making bail-out the preferred strategy. An ERA, on the other hand, would have the financial, legal and administrative capability as well as the necessary independence to carry out effective resolution. By imposing burden-sharing on shareholders and creditors and by financing residual costs through a European Resolution Fund financed ex ante by all the banks, the ERA could ensure that the private sector bears the primary burden of bank resolution costs. European resolution, similar to what the FDIC does in the US, is not about bail-out of banks by state recapitalisation efforts, but the use of wide bail-in powers to resolve banks with little use of tax-payers money. Third, an ERA is a necessary complement to the single supervisory mechanism. A system where supervision is European but resolution is national creates frictions. The single supervisor may assess that a bank needs to be resolved, but the relevant Member State may be unable to bear the resolution costs or unwilling to resolve a favoured national firm. | 1 |
In performing their intermediation function of channelling funds between the savers and investors, depositors need to be assured of the safety of their deposits and the efficiency in the manner in which the funds are mobilised and channelled to productive investment. Through their extensive branch network, and now through internet banking, banking institutions are able to efficiently reach an extensive customer base nationwide. As a custodian of public funds, maintaining integrity and confidence in the banking sector is vital towards ensuring the stability and soundness of our financial system. The trust of the public in banking institutions is inspired by the confidence in the safety and security of deposits, and that these funds will be professionally managed. Banking business involves risks and these risks need to be rigorously managed if public confidence in the banking system is to be secured. These risks involves credit risks, market risks, sovereign risks and foreign exchange risks, to name a few. There is therefore no room for negligence. This emphasize that the business of banking is too important to be left to self regulation. The regulatory framework put in place by Central Banks are aimed to ensure the soundness and efficiency of the system and the protection of the interest of depositors and investors. Before proceeding further, I would like to touch some aspects of the regulatory framework instituted for the Islamic banking industry in Malaysia. In Malaysia, we have embarked on the concept of dual banking where the Islamic banking system operates in parallel with the conventional banking system. | The Syariah advisory council serves as a check and balance to ensure that the management and operations of the Islamic banking institutions does not deviate from the Islamic principles in the formulation of the policies. Towards this end, Bank Negara Malaysia is currently drawing up the guidelines to strengthen further the existing Syariah advisory committees at Islamic banking institutions. Amongst others, the guidelines will outline the role and responsibilities of the Syariah advisory committee of the Islamic banking institutions with the view to ensuring that the decision-making process that require Syariah inputs have undergone the necessary thorough and rigorous process. Ladies and Gentlemen, With the establishment of the Islamic Financial Services Board (IFSB), it is envisaged that the level of transparency and quality of corporate governance of Islamic banking institutions will be further enhanced. The IFSB is expected to play a prominent role in promoting prudent, transparent and the robust development of the Islamic financial services industry through the promulgation of international prudential standards that are consistent with the Syariah principles. We are honoured that Malaysia has been chosen to be the IFSB secretariat and hope that the IFSB will achieve its noble objectives as an effective prudential standard setting body for Islamic financial institutions. Ladies and Gentlemen, While significant progress has been achieved in Islamic banking there remains much to be undertaken both by the regulators as well as the industry if the true potential is to be realised. | 1 |
Thirdly, the financial and asset markets on the Mainland should be wide, deep and liquid enough to allow the Exchange Fund of Hong Kong – the backing for our Linked Exchange Rate System – to hold substantial amounts of RMB assets to support the Hong Kong dollar, preserve capital, grow in value and meet contingent needs. 36. Obviously these fundamental conditions are not met, and the Hong Kong dollar Link to the US dollar remains the most appropriate policy for Hong Kong. So, let me take this opportunity to reiterate that we have no plan to change the Linked Exchange Rate System. It has served Hong Kong well since 1983 and is the pillar for the monetary and financial stability in Hong Kong. 37. Thank you. BIS Review 153/2010 5 | If that is indeed how things turn out, we will have weathered the international storm as well as anyone could reasonably have expected. 4 BIS Review 19/2002 | 0 |
François Villeroy de Galhau: The sustainability of European Monetary Union and institutional reform Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at The ECB and Its Watchers XIX Conference, organised by the Institute for Monetary and Financial Stability, Frankfurt am Main, 14 March 2018. * * * Accompanying slides. Ladies and Gentlemen, In order to make the European Monetary Union sustainable in the medium term, we have to make it more resilient to future crises. The current economic cycle is admittedly in a very robust phase today, but this will come to an end at some point. If we do not want to overburden monetary policy during the next recession, we need to strengthen our Economic Union. These objectives should be, including here in Germany, two sides of the same coin. To ensure monetary policy does not remain “the only game in town”, we have to arm ourselves with stronger economic instruments at the European level. There is a serious risk, however, of missed opportunities as the present debate over the future of the euro area seems to be getting bogged down in neverending arguments such as on the European Deposit Insurance Scheme (EDIS) or sovereign debt restructuring. We should rather focus our efforts on the many other proposals that are more consensual. In my remarks today, I will elaborate on the three old clichés that are paralysing the debate and that we must put behind us to move forward in the euro area. | To work well, our Union needs both: risk reduction mechanisms and risk sharing. As I just said, for crisis prevention to be credible, we should implement fiscal discipline – including the present rules of the Stability and Growth Pact – but we should also have the instruments needed to cushion the effects of asymmetric shocks that may arise suddenly, regardless of all the efforts a Member State can make. It is time to forget about ideological trench warfare. Let me share with you four areas where practical progress is needed: First, bolstering private risk sharing. The simple and obvious way to achieve this is to build the Capital Markets Union within the Financing Union that I mentioned earlier. We are still lagging far behind the United States where capital markets are capable of absorbing around 40% of a state-specific shock. What is more, a genuine Financing Union would further 2/3 BIS central bankers' speeches increase the efficiency of monetary policy by ensuring better circulation of liquidity in the euro area. Second, EDIS. We have made significant strides with the first two pillars of the Banking Union, the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). We still need – and it should be our priority – to strengthen the SRM with a sovereign backstop to the Single Resolution Fund and a simplified decision-making process tailored for emergency cases of resolution. Now, there needs to be some form of compromise to move forward on the third pillar, EDIS, as well. | 1 |
I am pleased to note that private-sector jobs have continued to grow moderately across much of the region in the past few months, just as they have in the nation. Growth in private-sector jobs – which is not affected directly by hires and layoffs from the decennial census – signals that, on balance, firms are expanding their workforces to meet their business needs. While state and local government job cuts have also reduced total employment, the fact that the private sector is creating jobs is a good sign and necessary for a sustainable recovery. The number of private-sector jobs has increased in and around New York City, in northern New Jersey and in some parts of Upstate New York. The latest job market report for New York shows a continuation of the generally rising trend of employment in the state at a pace that roughly matches the nationwide growth rate. In New York City, employment has expanded at rates substantially above the nation. Since we last met, employment in New Jersey has expanded, and while that growth has been quite modest, it is an encouraging sign. In Puerto Rico, employment reports continue to give mixed signals, showing a see-saw pattern that has yet to add up to a strong rebound. Despite these employment gains, unemployment in the region remains painfully high. In August, New York City’s and New Jersey’s rates were very close to the national jobless rate of 9.6 percent. | The earlier spike in inflation largely reflects the effects of the rapid reopening of the economy, which pushed supply and demand in extreme ways. In fact, we are now seeing some of the pandemic-related spikes retrace, including prices for lumber, used vehicles, and rental cars. This process of adjustment may take another year or so to complete as the pandemic-related swings in supply and demand gradually recede. As the economy gets through these highly unusual dynamics, I expect inflation to come back down to around 2 percent next year. One reason I expect inflation to moderate is that measures of underlying inflation and longer-term inflation expectations have been relatively stable during this period of otherwise volatile inflation readings. There are two important aspects of longer-term inflation expectations: their level and their sensitivity to economic conditions and, in particular, to inflation. In terms of the level of inflation expectations, survey- and market-based measures of longer-term inflation expectations have reversed the declines of the past several years and are now around levels seen seven or eight years ago. They currently appear to be well aligned with our 2 percent long-run inflation goal. A second issue is how well anchored inflation expectations truly are, and whether there is a risk that they could drift higher in response to the elevated rates of inflation we have been experiencing. A group of economists at the New York Fed took a closer look at recent behavior of 2/4 BIS central bankers' speeches inflation expectations from the Survey of Consumer Expectations. | 0 |
So our duty, as policymakers, is to return their trust and to address the areas of our union that we all know are incomplete. 1 Figures include recapitalisation measures, guarantees, asset relief interventions, and liquidity measures other than guarantees. See Financial Crisis Aid amounts for a more detailed breakdown. 2 This calculation assumes all exposures had been subject to fair valuation, and applies to bonds of Cyprus, Greece, Ireland, Italy, Portugal, Slovenia and Spain. 3 Based on end-2010 Core Tier 1 capital. 4 A significant share of government bonds were held by banks at amortised cost. 5 In fact, internal ECB analysis finds that the relationship between sovereign and corporate CDSs in this period was as strong as that between sovereign and bank CDSs. And banks that had larger sovereign exposures had a similar correlation with sovereign CDSs as banks with smaller exposures. 6 See Mundell, R. (1961), “A Theory of Optimum Currency Areas”, American Economic Review, 51 (4), pp. 657– 7/9 BIS central bankers' speeches 665; McKinnon, R. (1963), “Optimum Currency Areas,” American Economic Review, 53, pp. 717–724; Kenen, P. (1969), “The Theory of Optimum Currency Areas: An Eclectic View,” in Mundell, R.A. and Swoboda, A.K. (eds), Monetary Problems of the International Economy, Chicago University Press. 7 European Commission estimates. See Nikolov, P. (2016), “Cross-border risk sharing after asymmetric shocks: evidence from the euro area and the United States”, Quarterly Report on the Euro Area, Vol. 15, No 2. | It is becoming increasingly evident, for example, that a proper analysis of the system’s robustness requires detailed statistics about entities for which data are currently either not available or are fragmented. This is particularly the case of the non-bank financial sector, and also of the corporate and household sectors, although in this latter area some progress is being made through the joint efforts of the Bank, the Authority and the National Statistics Office. BIS Review 50/2004 3 Another aspect warranting particular attention is that of financial crisis management. While the current institutional and regulatory framework has been successful in keeping at bay any major systemic disturbance, further progress is required, for example by defining the specific roles and responsibilities of the Bank, the Authority and the Government. In this respect, the Joint Contingency Plan for systemically important banks drawn-up by the Bank and the Authority already takes into account the involvement of the Ministry of Finance with respect to the possible use of public funds and the Bank’s lender of last resort function. This framework is currently in the process of being refined further. | 0 |
Trends in consumption and the conditions in the labour market will provide signs of potential second round effects following rising costs and the extent to which a generalised price increases are occurring. In such an environment, SMEs need to consider repositioning of business strategies and to find new markets and avenues of growth. Reengineering of processes would also be required to better manage the higher cost conditions. The key is for the SMEs to use their inherent flexibility and agility to create new products and reorient the business. Given that the current inflationary pressures is a global phenomenon, with many of our trading partners and neighbors having similar or higher inflation rates, the inflation is unlikely to erode Malaysia's comparative advantage. In this more challenging economic environment, sustaining growth will also require concerted efforts by the public and private sectors to reduce costs and become more efficient and more productive. To assist SME businesses in this environment, the Government has recently established a Special Committee to recommend potential measures to reduce the impact of rising costs on SMEs. The measures to be announced later this month are aimed at enhancing efficiency and productivity of SMEs, reducing the cost of doing business and ensuring that SMEs have sustainable access to financing. The SME development agenda In view of the important role of SMEs in the economy, the Government has accorded significant emphasis on the development and strengthening the SME sector. | The Standing Facilities which had played this role were re-launched as the Operational Standing Facilities (OSFs), more clearly intended to cope with operational disruptions and short-term market volatility. More recently, in June 2010, the Bank replaced the temporary eLTRs with permanent Indexed Long-Term Repo (ILTRs) operations that regularly offer the system 3 and 6 month liquidity, against a wide pool of eligible collateral. In designing its permanent liquidity insurance operations, the Bank was very mindful of the need to balance the benefits to systemic stability, the incentives for banks to manage liquidity risk prudently, and the need to minimise the risk taken onto the Bank’s balance sheet. In particular, the aim of the Bank has been to leave the credit and market risks associated with collateral with the counterparty, so that we only provide the intended liquidity insurance and not any official underwriting of the underlying risks. Underpinning these objectives are some additional underlying principles: (a) the Bank does not accept any collateral that it feels it cannot value and then riskmanage effectively; (b) the Bank’s prices for lending in its liquidity insurance operations can vary with the liquidity of the collateral delivered and the amount lent, so that use of these facilities only becomes attractive in stressed conditions. These principles ensure that the Bank can manage its own risks prudently and that counterparties are encouraged to manage their risks similarly. Eligibility The Bank’s risk preferences are very different from those in commercial financial institutions. | 0 |
(b) In-sample performance is measured by deviance and out-of-sample performance by the mean squared prediction error. For both statistics, a lower number implies better performance. (c) The data set excludes outlier banks with very large risk-based capital and leverage ratios. Excluded observations account for approximately 0.5% of the entire sample. 30 BIS central bankers’ speeches Chart 9: In- and out-of-sample performance of different models of bank risk (1000 (a)(b)(c) observations) Source: FDIC and Bank calculations. (a) Different models estimated using 10,000 random samples of 1,000 observations each. Samples are rejected if there are no observations of bank failure. The different models are used to predict bank failure for approximately 4,300 banks out-of-sample. (b) In-sample performance is measured by deviance and out-of-sample performance by the mean squared prediction error. For both statistics, a lower number implies better performance. (c) The data set excludes outlier banks with very large risk-based capital and leverage ratios. Excluded observations account for approximately 0.5% of the entire sample. BIS central bankers’ speeches 31 Chart 10: Summary of out-of-sample model (a)(b) performance Chart 11: Distribution of daily stock price (a) returns, 1928–2012 Source: FDIC and Bank calculations. Source: Bloomberg and Bank calculations. (a) Different models estimated using 10,000 random samples of different size. Samples are rejected if there are no observations of bank failure. The different models are used to predict bank failure for approximately 4,500 banks out-of-sample. | Financial reform needs to go beyond the banking sector on which so much attention has been focused. We also have to look very closely at non-bank financial institutions and at the set-up and functioning of financial markets. Leverage cycles, for example, have been a constant source of instability for centuries. If left to their own devices, their ultimate outcome has regularly been financial disruption, wealth destruction and economic hardship for our people. Let me start by elaborating first on risk before and after the crisis and then turn to monetary policy. I want to share with you the European Central Bank’s approach to dealing with the balancing act, in which we have sought a combination of bold action as regards nonstandard measures, while entirely preserving our clear focus on medium and long term price stability. Risk before and after the crisis Risk is inherent in economic activities because economic pay-offs are uncertain. Even the prototype model of finance – the competitive economy studied by Gérard Debreu and Ken Arrow – is subject to stochastic shocks. Therefore, economic returns are risky, because they are not known with precision ex ante. But the type of risk that we faced in the crisis was of a different nature. It was not triggered by stochastic variation in the real economy – by shocks to “endowments, technologies and tastes” as theory would predict. At source, it was financial risk. | 0 |
2 The capital requirements and liquidity requirements the state makes of the banks are aimed at making them safe by requiring they hold buffers so they can cope with loan losses and an outflow of liquidity. The capital requirements also set a limit as to how much commercial bank money the banks can create. Commercial bank money the most common The money that is use the most in society is commercial bank money. The banks’ socalled deposits repayable on demand, that is, deposits with a high level of liquidity that can be used for payments, amounts to around SEK 2,200 billion, which is around half of Sweden’s GDP, compared with around SEK 130 billion in central bank money, where cash comprises just over SEK 60 billion. 3 4 In Sweden, we have long had a trend towards a decline in the use of cash. The trend is seen clearly if you relate the value of cash in circulation to GDP. This is the red line in 2 This was what happened to Stockholms Banco around 350 years ago. Their customers wanted to exchange their commercial bank money for precious metals. Some of Stockholms Banco's assets were, because of the over-issuing of banknotes, in the form of personal loans that could not be quickly cashed in or where the borrower lacked liquid assets. Even if we cannot go the banks now and demand precious metals, the underlying problem remains the same. 3 In addition to cash, there is electronic central bank money. | The Riksbank is one of the central banks that will need to take an active stance on whether or not to issue a digital currency first. We cannot wait any longer, and I shall now tell you what we intend to do in the coming years. We will need to work within three different areas at once. Firstly, we need to identify what technologies can be used. This includes investigating both decentralised and centralised alternatives. It is important not to exclude alternatives in advance and thus limit the room for manoeuvre. Perhaps what we need is a combination of centralisation and decentralisation? We also need to study what technical competence we have, and what we need. We need to investigate in what way payments in e-krona can be initiated: with smartphones, plastic cards or in other ways. The second area is what I call policy issues, where we study the potential effects on the Riksbank, the payment market, monetary policy, financial stability and so on. Here, we ask ourselves what properties an e-krona should have to best meet the needs we see in the economy. I discussed examples of these questions earlier. The third area concerns legal issues. Examples here are what opportunities and what flexibility the Riksbank’s current mandate allows us, how different laws affect the requirements we should make of an e-krona system and so on. Even if we intend to work within these different areas in parallel, there will be interdependencies that we must take into account. | 1 |
And changes in the competitive structure of labour and product markets can influence the impact of slack on wage and price pressures, causing the Phillips curve to change slope over time. 2 See the Governor’s Open Letter to the Chancellor (Bank of England, 2015b). 3 Bank of England (2015b). 4 Google Scholar lists more than 3000 citations for Phillips’ original article (Phillips (1958)). BIS central bankers’ speeches 5 Chart 10 plots the historical relationship between wage growth and unemployment in the UK over the period since 1856. Although noisy, it suggests a negative relationship between the two, with an average slope of just under ½. In others words, a 1 percentage point increase in the unemployment rate has, on average in the past, lowered wage growth by around half a percentage point. A somewhat clearer window on this long-run Phillips curve relationship is provided by looking at distinct monetary regimes: exchange rate targeting regimes under the Gold and dollar standards (1856–1970); discretionary monetary policy regimes without central bank independence (1970–1997); and inflation-targeting regimes with independently-set monetary policies (1997 onwards). Chart 11 plots the Phillips curve relationship over these windows. The introduction of discretionary monetary policy regimes, without independence, caused an outward shift in the Phillips curve and a shift up in wage and inflation expectations. That is consistent with a loss of monetary credibility. | BIS central bankers’ speeches 13 Table 1: Estimated wage Phillips curves including measures of expected inflation Nominal wage growth(a) (1) (2) Wage growth (t-1)(a) Productivity growth(a) Unemployment gap Labour share (t-1) 2-year household inflation expectations (t-1)(b) -0.31*** (0.09) 0.36*** (0.11) -2.22*** (0.36) -0.52*** (0.14) 1.13*** (0.35) 5-year breakeven inflation rate (t-1)(c) Interaction with inflation targeting dummy Constant Observations R-squared -0.35*** (0.09) 0.31*** (0.10) -2.23*** (0.36) -0.33** (0.17) -0.14 (0.29) 0.02 (0.02) 1.02*** (0.28) -0.04 (0.29) 0.03* (0.02) 105 0.50 101 0.50 Sources: Barclays Basix; Bloomberg; Bank calculations. Notes: Estimated using quarterly data between 1987 Q1 and 2014 Q4. (a) Annualised quarter-on-quarter growth. (b) Excludes the period between 2012 Q2 and 2013 Q1 due to effects of the CPAC review on RPI-linked financial instruments. (c) Barclays Basix 2-year head household expectations. It is possible to simulate the effects of lower inflation expectations on the MPC’s February Inflation Report projections using the estimated wage relationships from Table 1, together with the Bank’s general equilibrium forecasting model. Chart 25 shows the effect on wages and inflation. Wage growth ends up around 0.3 percentage points lower at the twoyear horizon, while inflation is around 0.4 percentage points lower, than in the MPC’s central projections. Taking seriously recent falls in inflation expectations would add to the scale and duration of potential downside risks to UK inflation in the period ahead. | 1 |
In this way, the guidelines reconcile the need for a flexible approach 6 BIS central bankers’ speeches to macroeconomic management with the gains brought by a commitment to more long-term operational objectives. Lessons from the financial crisis Even though Norway has fared well through the financial crisis, helped by a sound economic policy framework, some concerns related to financial stability remain. In particular, there is one area in which Norway differs from other countries in a manner we perhaps do not like: Norwegian households are among the most heavily indebted in Europe. As activity in the Norwegian economy is gathering momentum, pressures are mounting in the housing market. Consumer confidence has improved and house prices have risen in recent months. Housing starts are moving up, although from moderate levels. BIS central bankers’ speeches 7 So far, the low interest rate level has not led to a pronounced increase in household borrowing. However, the household debt burden is at a historically high level and is expected to increase further. Rising debt and property prices are mutually reinforcing phenomena. Higher asset prices lead to higher collateral values for loans and increased borrowing opportunities for buyers. This increases the overall risk of the financial system. While monetary policy and fiscal policy have been anchored within a long-term, operational framework over the past ten years, there has been no coherent regulatory system for financial markets. Requirements are currently imposed on individual banks, but without adequate regard to overall risk in the financial system. | Øystein Olsen: The economic outlook Address by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), to invited foreign embassy representatives, Oslo, 29 March 2011. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 16 March, Monetary Policy Report 1/11 and previous speeches. Please note that the text below may differ slightly from the actual presentation. * * * Excellencies, Ladies and Gentlemen, I am happy to continue the tradition of my predecessor by inviting you to Norges Bank to discuss economic developments in Norway. Economic trends During the past few weeks, the world’s attention has been focused on the sufferings caused by the earthquake in Japan, as well as escalating political unrest in Middle East countries. The economic impact of these events is still uncertain. Apart from these, the economic and financial news of the past year has, on balance, been positive. The global recovery has gained strength, even though uncertainties persist. A common feature of the countries that fared well through the financial crisis was that they had kept their house in order. Norway falls into this group, although our abundant natural resource wealth puts us in a unique and favourable position. Against this backdrop, I would like to comment on our experience with implementing the prevailing frameworks for monetary and fiscal policy. Today we can look back at ten years of inflation targeting and the fiscal rule. | 1 |
In 2022, when the oil price exceeds the cut-off level, the current account balance will return to positive territory and the accumulation of reserves will be resumed via fiscal rule-based foreign currency purchases. We do not expect a noticeable change in the private sector financial account balance over the forecast horizon. According to our estimates, the private sector financial account deficit will reduce from USD 18 billion in 2019 to USD 15 billion this year. This is linked to decline in GDP, decrease in economic revenues, as well as less possibilities for borrowing in foreign markets at the end of the first quarter — the start of the second quarter amid intensified volatility and uncertainty. Further ahead, as global markets stabilise, the potential for external bollowings will recover and this will pass through to a reduction in the private sector financial account deficit to USD 10 billion in 2021–2022. This baseline scenario, without doubt, has many uncertainty factors. They concern both the duration of the restrictions in Russia and worldwide, and the pace of recovery of the global and Russian economies. Besides, new spikes of volatility may occur in global financial and commodity markets. Therefore, in our discussions of the key rate decision and its path, we have a proper regard to the objective of sustaining financial stability. As I noted, the baseline forecast incorporates only the fiscal decisions already made by the Government. We assume that further on the situation may require additional decisions to support the economy. | Elvira Nabiullina: Review of recent inflation developments in Russia and economic outlook Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, in the follow-up to the Board of Directors meeting, Moscow, 24 April 2020. * * * Today, the Board of Directors has decided to cut the key rate by 50 bp to 5.50% per annum. This implies that we have switched to accommodative monetary policy. Moreover, we hold open the prospect of further key rate reduction if the situation develops in line with the updated baseline forecast of the Bank of Russia. Our today’s decision is based on the profound revision of our view of economic development and inflation trends in the next three years. Since the last Board of Directors’ revision of the key rate, three events have happened which have defined our view of the situation. They are primarily associated with the spread of the coronavirus pandemic. Firstly, this is a drastic decline in the global economy. Secondly, there has been another round of a slump in oil prices, despite the new OPEC+ deal. Thirdly, the Government has introduced nation-wide restrictions. As a result, a large number of businesses have suspended their operations or switched to the remote work mode. A lot of citizens are currently in self-isolation. As to positive factors, I would focus on a slight stabilisation in global financial markets as compared to March, which was largely driven by measures being implemented by the central banks of reserve-currency countries. | 1 |
As regards the Federal Reserve, although it is true to say that under the present regime chosen for our monetary policy – namely a currency board with the US dollar as anchor currency – the Fed's monetary policy has a major and direct influence on monetary conditions in Hong Kong, it was certainly not the Fed which determined that Hong Kong should operate a monetary policy of this nature. It was Hong Kong's choice, and we do not require any permission from Washington or New York to continue or discontinue it. With regard to the Legislative Council, while members of LegCo take a keen interest in monetary policy and related issues, and although the HKMA maintains a dialogue with LegCo, more particularly with its Financial Affairs Panel, over matters of common interest, LegCo has no locus under existing laws to determine monetary policy. With regard to the three note-issuing banks, that particular status confers no ability to affect monetary policy. The banks issue notes in response to the public's wishes to exchange deposits into currency, and are required to pay over backing to the Exchange Fund in such manner as the Financial Secretary specifies - which has since 1983 been the equivalent value in US dollars calculated at the fixed rate of 7.80. Within this framework the volume of note issuance itself is neutral in terms of monetary policy. | Although the Hong Kong arrangement, and in particular the status of our Monetary Authority, is unusual internationally and may possibly be unique when compared to the more typical set-up of a central bank established as a distinct corporate entity, the process of monetary policy may not in practice be greatly different from that in other jurisdictions – with the broad framework being set by the government and with the central bank executing the policy in a transparent and accountable fashion. However, we do not have such a precisely defined framework of autonomy for the central bank as exists in some other jurisdictions, which is sometimes regarded as a necessary formal safeguard to monetary stability. The distinction may be less important under our firmly rule-based currency board system than it might be in other circumstances. Legal parameters Let's turn now to the "what" question. Although, as noted already, the Basic Law clearly states that the Hong Kong government shall determine its own monetary policy, it also sets some very important parameters within which that freedom can be exercised. Thus:"The Hong Kong dollar, as the legal tender in the Hong Kong Special Administrative Region, shall continue to circulate." (Article 111) "No foreign exchange control policies shall be applied in the Hong Kong Special Administrative Region. The Hong Kong dollar shall be freely convertible. …….The Government of the Hong Kong Special Administrative Region shall safeguard the free flow of capital within, into and out of the Region." | 1 |
Bank of England Staff Working Paper No. 624, available at https://www.bankofengland.co.uk/working-paper/2016/qe-the-story-so-far. The debate about the precise effects of QE continues; for two recent contributions by my MPC colleagues, see Vlieghe, J. (2018), “The yield curve and QE”, speech at Imperial College Business School available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/the-yield-curve-and-qe-speech-by-gertjanvlieghe.pdf, and Broadbent, B. (2018), “The history and future of QE”, speech at the Society of Professional Economists available at https://www.bankofengland.co.uk/speech/2018/ben-broadbent-society-of-professional-economists. 9 For more on the TFS see the information on the Bank’s website at https://www.bankofengland.co.uk/markets/quantitative-easing-andthe-asset-purchase-facility. The Bank also lent directly to banks via the Funding for Lending Scheme (FLS) in 2012, a scheme designed to incentivise banks to lend to the real economy at a time when bank lending growth had been persistently very weak, not least because of spillovers from the euro area crisis. But this was a fully collateralised scheme, classified as off balance sheet under a collateral swap arrangement. For more on the FLS see Churm, R. et al (2012), “The Funding for Lending Scheme”, Bank of England Quarterly Bulletin 2012Q4, available at https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2012/the-funding-for-lending-scheme.pdf. 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 10 in wholesale markets. The latter is typically at a shorter term than the former, so this activity exposes banks to funding liquidity risk. Banks need to be able to take on this risk to execute their economic function. But it remains a risk nonetheless. Under ordinary circumstances, banks should largely be able to self-insure against this risk; indeed, that is a core part of effective bank risk management. | I would add that an excessive focus on price competition also inherently increases the risk profile of MSB companies which companies must carefully consider. It can lead to a loss of focus on longer term competitive positioning which remains key to any successful business, compromise service quality standards and heighten compliance risks. The insights gained from a deeper understanding of customer needs and priorities should serve to focus competitive strategies on how to improve the customer experience. We firmly believe this needs to be an important part of the conversation in pursuing the goals of more inclusive and efficient remittance solutions. We are encouraged by the efforts of some MSB companies that have responded to greater competition through a focus on innovation and investing in building a trusted company brand that consumers can be confident in. As an example, today, there are 17 remittance service providers that have introduced digital remittance services, almost double the number only 2 years ago. The requirement for employers to pay foreign workers’ salaries through their local bank accounts starting next year will provide further impetus for the digitalisation of remittance services. With a high level of smartphone penetration among migrants in Johor Bahru at 74% and internet access at 90%, significant opportunities exist to promote e-remittances. Currently, outward remittances conducted through mobile phones or the internet represents less than 10% of total outward remittances recorded by MSB companies. | 0 |
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