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Our special focus is currently on information coming in from regions using our network. Leaders of the Bank of Russia’s regional branches are invited to each of our rate-setting meetings. They update us on the situation in their regions; ultimately, our estimates and outlooks are not solely based on the data provided by Rosstat. Rosstat data should indeed be treated as a reliable source of information, considering that alongside authorities virtually all market participants also use them. So, the more trust in Rosstat’s professionalism and independence the better. There are a variety of options on how we may address this. At the end of the day I believe this is up to the Government. I would rather reserve my judgement here. Thank you. QUESTION from Bloomberg: Two questions, again, please. One, following up on the question from my colleague, we heard both the economic development minister and the finance minister mention that the ruble is stronger than its fundamental values. In this connection, what does the Bank of Russia make of this; is the ruble close to its fundamental values, or is it actually stronger? And my second question, which is in some way related to the first. You mentioned that purchases of foreign currency are a possible means to replenish reserves, provided these purchases do not do damage to inflation targets. All indications are, we are on track to meet the 4% inflation target by mid-year. Can the Central Bank launch foreign currency purchases to replenish its reserves? Thank you. ELVIRA NABIULLINA: Thank you. | Yes, we met on the sidelines of the G20 meeting for finance ministers and central bankers. In our talks we discussed, among other things, prospects for yuan-denominated OFZ to be issued on the Russian market. We not support for this idea in principle, with details to be discussed subsequently. Lenta.ru’s QUESTION: There are concerns in business circles and in the expert community that the ruble is too volatile. What is the Bank of Russia’s view on this matter? What could lead to the Central Bank giving up the floating exchange rate? ELVIRA NABIULLINA: In the foreseeable future, I do not anticipate any factors which would force us to abandon a floating exchange rate regime. I am convinced that the negative repercussions cited by enterprises in the real sector of the economy, namely, volatility, are outweighed by the benefits of this policy. Thus we are saved from any drastic corrections in the exchange rate, which would then hurt the economy overall, including social expenditures, etc. Allow me to stress this point again. We are confident that the arrival of the floating rate regime has in many ways helped the economy adjust to external shocks more quickly than it did in 2008–2009. This is also suggested by the depth of recession. It was the floating regime arrangement that enabled the real sector of the economy, together with the financial sector, to adjust to a drastically different environment. This really is an inbuilt stabiliser, and we see that it does work. | 1 |
Had Continental Illinois been allowed to fail without any intervention, the comptroller of the currency later testified, “we could very well have seen a national, if not an international, financial crisis the dimensions of which were difficult to imagine”.2 The comptroller went on to declare that the largest 11 national, commercial banks were too big to fail. But the problem has become more significant since that time for several reasons. First, the biggest financial institutions have become much larger, both in absolute terms and relative to the overall size of the banking system. This reflects many factors including the end of prohibitions on interstate banking, the repeal of the Glass-Steagall Act restrictions separating investment from commercial banking, the rapid growth of the capital markets, and the globalization of the economy – all of which created intense competitive pressures to expand in order to gain economies of scale and scope. In commercial banking, consolidation occurred at a rapid pace. For example, Bank of America was the outgrowth of over 160 different mergers, which pushed up the size of the original acquirer from $ billion of assets in 1980 to $ trillion today. In the securities 2 Conover, C.T. 1984. “Testimony: Inquiry Into the Continental Illinois Corp. and Continental Illinois National Bank”. Hearings Before the Subcommittee on Financial Institutions Supervision, Regulation, and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, 98th Cong., 2nd Session, September 18, 19 and October 4: 172–391. P. 288. | Columbia University, New York, 11 October 2022 « What monetary policy narrative after Forward Guidance? » Speech by François Villeroy de Galhau, Governor of the Banque de France Page 2 sur 14 Ladies and gentlemen, dear students and professors, I am very grateful to Dr. Patricia Mosser for the invitation to speak at Columbia University. I already had the honour of delivering a speech here in April 2017, and it is great to be back. The current context is obviously quite different from five years ago: today we face too high inflation – compared with too low inflation in 2017 –, and we are navigating through a geopolitical environment that looks unprecedented in its uncertainty. Due to this uncertainty, binding forward guidance from Central Banks appears less relevant, and has rightly been put aside in the recent past. But this is not an argument for returning to the secrecy that characterised central banking until the 1990s. One of the most topical questions for central banks is therefore how to ensure a “new predictability”. i Indeed, not having forward guidance does not mean, cannot mean, not having a narrative and a monetary strategy. Let me elaborate on this today, first laying out the reasons why we have to act in a determined way to deliver our 2% inflation target (I), then proposing some milestones on our normalisation path (II) and finally shedding light on one sensitive coordination issue (III). I. | 0 |
We hope that the next three days will give you an opportunity to enjoy Sri Lanka, as well as to learn more about money laundering and terror financing. I wish you a pleasant stay and a very useful and successful conference. Thank you very much. BIS Review 133/2008 3 | The probability of realization of credit risk would grow particularly in an economic slowdown or a situation less favourable than the one observed in the recent years. Presently, we see growing indications of possible problems and increased uncertainty – globally and in the euro area – which could, through certain channels, bring negative effects domestically. From the perspective of the sector, 2019 will also be dominated by the asset review and stress test in several banks. We are at the stage of finalising the preparations for the practical implementation of these processes. They are under the lead of the European Central Bank, but with the active cooperation of the BNB. The asset review, stress test and synchronization of our supervisory practices with the European Central Bank are a very important, though not the only, element of the efforts associated with Bulgaria’s plans for entry of the Bulgarian Lev in the Exchange Rate Mechanism (ERM II) and Bulgaria’s accession to the Single Supervisory Mechanism. These strategic steps should be made simultaneously, according to the plan and the agreements reached with our European partners. In 2019 we expect the positive trends in the banking sector to continue altogether, however with possible increased challenges associated with the general economic environment banks operate in. Concurrently, in the coming months we will evidence processes of potentially long-term consequences directly impacting the sector, aimed at achieving a qualitatively higher degree of integration of Bulgaria into the European financial and institutional infrastructure. 1/1 BIS central bankers' speeches | 0 |
Relatively high fiscal and current account deficits may weaken the foundation of the building and adjusting them in a smooth manner is a much more sensible thing to do than letting the market forces make an abrupt correction. As regards monetary policy, strict liquidity management represents a step in the right direction. But, of course, monetary policy alone is not enough. Which brings us to the second rule: there is no substitute for a predictable and coherent economic policy mix. Let me stress that it should remain so even when facing the challenges of election years (there are several election rounds in Romania in 2019 and 2020). A significant pace of economic convergence is desired, but the process should unfold sustainably to preserve macroeconomic equilibria and safeguard competitiveness. As I usually put it, to successfully adopt the euro, one should be a marathoner rather than a sprinter. Last, but not least, the third rule might be as follows: when the normalisation wave eventually hits, the magnitude of the impact will depend on how vulnerable emerging economies are to external financing. A contained current account deficit, a long average maturity on public and private foreign currency debt and a coherent mix of countercyclical macroeconomic policies and structural reforms would go a long way in limiting the risks. If proper economic policy actions are not implemented while there is a window of opportunity, the possibility of a forced resort, in a more or less distant future, to sub-optimal measures in the face of adversity cannot be ruled out. | I believe, and certainly hope that, with these latest refinements of the tax regime for CTC activities, we should be able to remove any remaining reservations that your firm may have in considering setting up CTCs in Hong Kong. 25. Coming back to my soccer analogy, setting up a CTC in Hong Kong will offer MNCs a home game advantage. For Mainland corporations, Hong Kong offers unmatched home turf advantage under the “one country, two systems” framework. They are familiar and comfortable with using Hong Kong’s financial platform to advance their global business BIS central bankers’ speeches 3 objectives. For the other global MNCs, Hong Kong is the ideal place for centralizing their treasury operations in Asia, in particular those that are tied to the rising use of the RMB. We are right at the door step of China, the perfect spot for the CTC, the mid-fielder, to support their front line teams to strike deals and score business goals with their Chinese counterparts. 26. Looking at the very comprehensive agenda today, I am sure you will have very fruitful discussion on how to ride on the different industry trends and create cutting-edge, innovative treasury solutions. May I wish this Summit a great success. 27. 4 Thank you. BIS central bankers’ speeches | 0 |
The rate of inflation decrease will depend on further developments and changes in the economic situation. The attempt to reduce the inflation at any cost would obviously be a short-sighted strategy. When taking a decision on the key rate we always consider the balance of risks of inflation acceleration and slowdown in economic growth. This balance changed considerably at the turn of 2014–2015. For most of 2014 the balance of risks was shifted towards inflation acceleration. Economic slowdown was primarily of structural nature and did not have considerable impact on prices. Meanwhile, inflation expectations were growing. BIS central bankers’ speeches 1 The situation aggravated in 2014 Q4, because the fall in oil prices and the need to make large external debt payments amid almost inaccessible international capital markets led to considerable ruble depreciation. This in its turn resulted in higher inflation expectations. Demand of households and businesses for cash and non-cash foreign currency surged up. It threatened to heavily accelerate inflation and destabilise financial sector. It was important to bring these processes to a halt and we decided to raise the key rate dramatically to 17% p.a. The rise of the key rate was followed by the increase in bank deposit rates that managed to stop the outflow of funds from ruble deposits and pegged down their dollarisation. Our foreign currency REPO and lending operations also helped normalise the situation in the foreign exchange market. | At that time the Fed devoted a lot of studies on financial innovations and I remember my participation in a G X Central Bank study group chaired by Sam Y. CROSS on innovation in banking. Financial stability was already at the center of the stage. I would like to stress here how this long standing relationship and mutual trust with the Federal Reserve is of importance nowadays. Allow me now to offer you a French and central banker point of view of the current situation. These last months brought important changes to the world economy. To name a few, growth perspectives in advanced economies have significantly worsened, markets are increasingly volatile, and confidence has shrunk. The downward revision of US growth has certainly played a role. But, most significantly, two other shocks have occurred. In the US, reaching an agreement to raise the debt ceiling has been difficult. And, in Europe, it has been recognized that Greece, a euro and OECD country, would not be able to fully honor its signature, without a voluntary private sector involvement. In the eyes of the market, this has had significant implications for other European sovereigns. A challenging question is now being asked: Over the last 50 years, financial markets have developed on the assumption that public debt was considered risk free. The certainty that debt would be paid in full strongly anchored market views. Now that this certainty is questioned, debt sustainability may rest on a more fragile and volatile basis. | 0 |
Svein Gjedrem: Globalisation and monetary policy Welcome address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Norges Bank Conference on Monetary Policy “Jarle Bergo Colloquium: Globalisation and Monetary Policy”, Oslo, 7 March 2008. * * * It is a great pleasure to welcome you all to Norges Bank’s conference on monetary policy. The bi-annual conference on evaluation and assessment of monetary policy is a tradition at Norges Bank. This year the conference is being held in honour of my dear friend and colleague, Jarle Bergo, who is approaching the end of his twelve-year term as Deputy Governor of Norges Bank. He is now resigning office to take the position of Alternate Executive Director of the Nordic-Baltic Constituency at the IMF. Jarle Bergo started his career as an economist in Norges Bank in the late sixties. Over the years he has made crucial contributions both to the work of the Bank and to its organisation. I am sure that I speak for all of us who have had the pleasure of working closely with him when I say that he has also made a vital contribution to the atmosphere in the Bank through his pleasant manner and good humour. We have titled this conference “Jarle Bergo colloquium: Globalisation and Monetary Policy”. Both globalisation and monetary policy are themes wide enough to fill up numerous conferences by themselves, and only a few questions will be addressed here today. | But growth has a price. This is particularly reflected in increased emissions of greenhouse gases as a result of increased human activity. It is still uncertain how serious the impact of gas emissions will be. But once the impact comes into full evidence, it may be too late to take corrective action. There is also the risk that the concentration of greenhouse gases in the atmosphere reaches such a high level that it exceeds critical values that cannot be reversed. We are very pleased to have Dr John Llewellyn, Senior Economic Policy Advisor at Lehman Brothers, here today to enlighten us on how globalisation affects the environment. Changes BIS Review 27/2008 1 in our environment affect the way we are able to interact: it is important to combine knowledge about nature with knowledge about the functioning of the economy. The last decade or so, we have witnessed increased financial integration and competition across national borders. This is a positive development. Deeper and more mature markets tend to be better equipped to deal with uncertainty and distress. But increased financial integration also raises the potential for more widespread contagion if something goes wrong, as witnessed by the current financial turmoil. Professor Philip Lane, Director of the Institute for International Integration studies at Trinity College Dublin, is one of the foremost experts on financial globalisation, and we are very much looking forward to hearing what he has to say on this subject. | 1 |
Our post-crisis regulatory framework points towards a stronger banking sector, based on a more solid capital foundation that ultimately serves to protect deposits and taxpayers’ money. In this perspective, the Bank of Albania has reinforced banks’ capital position with higher requirements for core capital and is developing new demands for macro-prudential buffers, to build up the lossabsorbing capacity of banks in case of financial crisis. Moreover, the financial safety net already in place was further strengthened with a new mandate for the Bank of Albania as the resolution authority. A transposition of the BRRD, the new resolution law empowers the Bank of Albania with the necessary tools and instruments to resolve failing banks, with no eventual impact on financial stability. Nevertheless, going back to the important lessons of the crisis, these efforts would be insufficient unless undertaken in coordination with all the relevant institutions and players of the crisis management platform. Clearly, effective crisis management requires ongoing communication and coordination among: supervisors and resolution authorities, financial market authorities, deposit insurers and the government. The Financial Stability Advisory Group (FSAG) is assigned with the important role of assisting in safeguarding financial market stability in the Republic of Albania. The FSAG was established in 2006 and comprises the Ministry of Finance and Economy, the Bank of Albania, the Albanian Financial Supervisory Authority and the Albanian Deposit Insurance Agency. | Such examples include: establishing new deposit insurance systems and enhancing existing ones and contributing to safeguarding the stability of financial systems, by promoting international cooperation and encouraging wide international contact among deposit insurers and other interested parties. All these efforts have helped our deposit insurance scheme grow. Since the inception of the ADIA, the Bank of Albania has been strategically committed to creating and maintaining an efficient and effective deposit insurance scheme in Albania. From the beginning, one of the Bank of Albania’s responsibilities has been to develop a stable and safe banking system. Its efforts towards the new architecture of the banking sector – guided by international standards and consumer protection principles, and in coordination with government – have helped in setting up the Albanian Deposit Insurance Agency. The Parliament approved the ADIA law in 2002 to restore public confidence in the nation’s banking system. The Bank of Albania, by law, is the supervisory authority of the ADIA. The role played by deposit insurers is essential in crisis prevention and management, as already proved by the experience during the global financial crisis. This role has proactively evolved towards mitigating financial system vulnerabilities even in the absence of deposit runs or banks in default. It is now a fact that deposit guarantee schemes mitigated the recent financial crisis, using every possible instrument available to them, such as: increasing the deposits coverage limit; expanding the scope of the guarantee scheme; and providing faster deposit pay-outs or even liquidity support. | 1 |
The first reason is associated with cash withdrawals and cash deposits by customers and from bank transfer payments intermediated by the Eurosystem – in its function as the clearing institution of the most important interbank payments system in the euro area. The other reason is that not all banks participate in the Eurosystem liquidity-providing operations, but prefer to cover their needs for reserves primarily in the interbank market. For example, in normal times, of the 1,700 banks that were eligible for Eurosystem monetary policy operations, less than 500 used to participate in liquidity allotments. 3 In a Eurosystem environment, the short-term inter-temporal calculus finds another anchor: the need for banks to fulfil their reserve requirements over a monthly maintenance period. In normal times, this is accomplished smoothly throughout the monthly period, again via an inter-temporal substitution of liquidity balances by each individual bank. 2 BIS central bankers’ speeches of the short-term rates become the driving factor in the pricing of long-dated securities, and monetary policy acquires a potent handle on the economy. In August 2007, a sudden re-pricing in the US sub-prime mortgage market changed this world. The close and predictable relationship between the expected path of policy rates and market rates broke down because the liquidity premia widened and became volatile. The elevation of market premia was especially pronounced in the spread between the three-month EURIBOR and the expected three-month path of the overnight rate (see slide 3). | the overnight interest rate (of which a euro area average, the EONIA, is computed and published every day by the ECB), is influenced by expectations of the cost of Eurosystem credit – the so-called MRO rate – at the next weekly monetary policy operation. A short-term inter-temporal arbitrage calculus anchors the overnight interest rate applied on the credit transaction between banks that need liquidity and banks that have a liquidity surplus. 3 The second dimension of the inter-temporal calculus has a longer horizon and a wider scope of application across asset classes. Banks can borrow short in the money market or from the Eurosystem and decide to engage in term lending to other banks or to their customers. Bank customers, in turn, can use bank liquidity to finance consumption or the acquisition of capital. It is important to note that all of these money transactions in the broader economy involve traders weighing the costs of their borrowing against the return opportunities on their asset acquisition at different points in time, where the horizon is typically longer than a week. But, again, as banks borrowing from the Eurosystem are the source of this liquidity propagation pattern, and banks’ financial calculus is based on their anticipations of the interest rate settings by the Eurosystem in the future, such anticipations anchor the pricing of credit in the broader economy. We call this “the interest rate channel” of monetary policy decisions. | 1 |
At this juncture, the transparency of the process is fundamental through the detailed explanations of the actions and of the context in which the decisions were taken. Following the purposes of the inflation-targeting regime, the timely release of the Monetary Policy Committee minutes provides the public with the Committee’s view on the economy and its prospects, providing the rationale for the policy adopted by the Copom. (At the same time, contact with analysts from several segments of the public was enhanced by the creation, especially for this purpose, of an Institutional Communications Group, which allows a more efficient two-way communication through the use of surveys of expectations and other specific research.) The production of reports and the release of studies and research is also fundamental aiming at increasing the transparency of the Bank's activities to the public. In addition to the monthly bulletins and annual reports, other key reports are the Inflation Report, which deals with the inflation-targeting framework, the Financial Stability Report, which deals with the stability of the Brazilian Financial System, the Banking Economics and Credit Report, development of the Interest Rates and Banking Spread Project, the Working Papers Series and the Technical Notes Series of the Central Bank. Thus, the Central Bank will emphasize not only the improvement of statistics and models, but also its transparency and communication. For instance, the increase of information and data available to the public on the Central Bank website has been outstanding. More than eight thousand statistical series are already available, with increasingly easy access. | Until last August, the MPC had shied away from providing such explicit guidance, lest it be misinterpreted as a promise independent of the state of the economy. Instead we preferred to provide an implicit steer through the medium of the projections contained in our quarterly Inflation Report. Last August, however, the MPC decided that more explicit guidance about our reaction function could be helpful. Rather than aiming to provide more stimulus as in the academic literature, we were merely seeking to ensure that the recovery was not nipped in the bud by a premature rise in market interest rates, despite there still being a significant margin of economic slack. We said then that we would not even countenance a rise in Bank Rate until unemployment had fallen to 7%, subject to overrides relating to excessive upward movements in inflation expectations and to the risks to financial stability, the latter being policed by the Financial Policy Committee. We chose unemployment in part because its behaviour is directly linked to one of the key uncertainties at the current juncture, namely the scope for a recovery in productivity. This has been unusually weak since the onset of the crisis for reasons we do not yet fully understand (Chart 2). If productivity rebounded, then unemployment would fall slowly. But in that case, there would also be more scope to maintain an expansionary policy before inflationary pressures began to rise. | 0 |
Here again, estimates vary from one study to the other, and all agree on the same finding: a huge potential is still there to exploit. This being said, risks in the financial sector are the most varied and most important, especially in terms of money laundering, financing terrorism, cyber security, as well as protecting customers and personal data. Such risks have become major concerns both at the national and international level. For us, central banks in particular, the changes brought by the Fintech challenge us in several aspects, namely in our core functions. Now, even the monopoly of issuing currency is exposed, leading some central banks to consider the option of issuing a digital currency, and therefore reduce the costs related to conventional banknotes’ production and use, and minimize the insecurity risks involved. 6 Among the other fields concerned is financial supervision. This area is now gradually expanding as new actors and financial products have emerged, which can certainly affect monetary policy transmission. Ladies and gentlemen, The digital transformation we are facing today is primarily driven by operators and private companies that continue to invest heavily in this area and seize the opportunities and the potential it offers. Considering the important economic, financial and social implications of such a revolution, public authorities are compelled to set an adequate legal framework and provide an environment conducive to technological innovations and Fintech development. | Our target is not only to adapt our business lines and redesign our processes, but also to play a role in the development and support of our ecosystem, through a participatory approach. Ladies and gentlemen, To conclude, I would say that we may have taken some time to grasp the scale of the digital revolution, but the numerous initiatives and interactions, such as this meeting, leave us with the hope that the backlog will be quickly cleared and that this revolution will effectively contribute to sustainable and inclusive development in our countries. In this respect, we are pleased to note the willingness of international organizations, including the IMF, main interlocutor of central banks, to upgrade their means and human resources with a view to providing support to their member countries. As such, I suggest, if you deem it suitable, that we request the Fund to institutionalize such a meeting in our region, at the frequency most appropriate to us. Hence, we would be able to continue the debates and exchanges, assess the progress made, ultimately unite our efforts, and capitalize on our mutual experiences in order to better address the current and future challenges of digital transformation. Thank you. 10 | 1 |
Determining appropriate capital adequacy standards for the shadow banking system will indeed be a key challenge in an effective redesign of the regulatory system. A related challenge is to ensure that tighter capital standards for banks and other highly regulated entities do not result in their simply shifting activity to less regulated areas, including off-balance-sheet activities such as structured investment vehicles. This would simply encourage more risk taking and raise systemic risk as well, since many off-balancesheet activities could end up being effectively on-balance sheet at times of crises. However, the truth is that we are far from completely figuring out how to control these institutions and types of transactions and it is unlikely that there will be an approach clever enough to provide the same level of systemic protection in regard to shadow banks as there will be for highly regulated entities. Conclusion When scrutinizing the impact of the regulatory changes on the EE’s, there are no doubts that the reform process is an important qualitative step forward for the overall financial industry and its implementation will mean more stable financial sector, lower probability of financial crisis and less “headaches” for the authorities responsible for macroeconomic and financial policies. Yet, apparently, there are many angles within the new regulation which should be further well screened and assessed in terms of their potential adverse impact, especially in emerging markets due to different challenges. | In our region, the recovery of activity and employment has continued, though the data indicate relatively stronger performance in New York State and New York City than in New Jersey, while Puerto Rico has yet to show any meaningful improvement. Our special topic shows a trend toward job polarization both in the nation and the region, which focuses our attention on the ever-growing importance for workers to acquire skills and upgrade their skills on an ongoing basis. I will now ask Jim Orr to present the update of economic conditions in our region. 4 BIS central bankers’ speeches | 0 |
4 BIS Review 51/2002 Secondly, ERM2 provides to the new member states a necessary and useful interim stage between the EU accession and the adoption of the euro. The choice of monetary and exchange rate policies in new member states has been diverse. ERM2 is a suitable and flexible means for the harmonisation of varied monetary policies and applied tools. The post-accession period will most likely be a serious test phase to most member states - definitely Estonia - in elaboration of their economic and fiscal policies and relevant co-operation with the EU institutions. Participation in the development of economic policy guidelines sets relatively high demands both on actual policy formulation and institutional co-operation. Naturally this process will have two parties - the present applicant countries will have joining in the EU processes whereas the “old” member states will have to study the key problems the new members states face in their economic development. The post-accession ERM2 phase is an appropriate time for the establishment of the comprehensive co-operation in the economic policy area on the national as well as the European Union level. The “testing” of the economies’ competitive abilities will also be crucial - not by means of the exchange rates but interest rates. Maastricht criteria For Estonia like for all new member states the only possible way to join the euro system is to do it in full compliance with the letter and spirit of the EU Treaty. | In addition to the unified money market in the euro zone, we should aspire towards the full integration of capital markets. Simplified procedures for the adoption of secondary legislation that regulates the financial services area are an important step forward. The convergence of financial markets calls for a more extensive harmonisation of the legal environment in various countries. But it also requires closer co-operation between various national supervisory authorities and/or better co-ordination of supervision functions on the EU level. In addition, it should be taken into account that capital transfers between the member states would be easier if business laws and regulations of different countries are harmonised. Here I could mention rules governing companies’ mergers and takeovers, bankruptcy procedures, state aid distribution terms and conditions. A flexible labour market is extremely important for the effective common monetary policy purposes. However, it is unlikely that in the near future Europe will see any notable crossborder migration of the labour force - it is not expected to happen before or after the EU enlargement. Therefore, limited flexibility of the labour market should be offset by an efficient internal market, high capital mobility and greater flexibility of the domestic labour market. Fiscal policy - fiscal federalism In addition to the above-mentioned supply-related issues, the EU and its member states’ fiscal policy principles in the context of the common monetary policy have been under special scrutiny. It has been stated that enhanced co-operation within the fiscal policy area will allow to mitigate potential economic difficulties in various countries. | 1 |
We believe these policy actions, as well as those announced by the Minister of Finance in order to promote Chile as a Regional Financial Center, should greatly contribute to a more resilient financial sector, wider cross-border use of the Chilean Peso and a greater participation of non-residents in our FX market. The Strategic Planning 2018-2022 of the CBC includes a thorough review of its FX regulation. Current FX regulations require most FX transactions to be executed through the “Formal Exchange Market” —which is comprised by banks and some stockbrokers— and to be reported to the CBC. These two elements have remained largely unchanged since the capital account was opened 20 years ago. Back then, re-imposing capital controls could not be ruled out, and that rationale underlies the somewhat cumbersome structure of the FX regulation. Currently, while capital controls are still part of the regulatory toolbox, re-imposing them could only be considered during an exceptional situation. Therefore, the CBC has decided to streamline its FX regulations and reduce the burden of compliance to the private sector, whenever possible, without affecting the quality of the statistical information or the capacity to act in an extreme scenario. The first part of this process, eliminating some of the existing reporting requirements, is about to be put out for public consultation. Page 13 of 20 Central Bank of Chile September 2019 Modernizing FX transactions goes beyond a review of existing reporting requirements and the structure of the regulation. | We will return to a further discussion of the resilience of the financial system when the Riksbank’s Financial Stability Report is published at the beginning of December. Does the hedge fund market require further regulation? As the hedge funds have grown, voices have been raised calling for more extensive regulation of the funds’ operations. Ordinary investment funds are regulated by the UCITS directive. UCITS regulates, for instance, the type of assets a fund is allowed to invest in, the information that should be given to 3 investors, and the diversification of risks. Hedge funds, on the other hand, are completely unregulated in many countries. In return, the authorities often require that investments in hedge funds should exceed a certain minimum level. 4 The purpose of this requirement is to limit the hedge funds' investor circle to wealthy and, presumably, well-informed individuals and thereby to protect "ordinary" consumers. Most hedge funds are constructed so that the investor, under unfortunate circumstances, may lose all or at least large parts of his capital. In the United States the Securities and Exchange Commission has long attempted to increase transparency in hedge funds. In February this year they introduced a new regulation that entails a registration requirement for most large hedge funds – even those invested off-shore. However, this regulation was declared invalid by a Federal court in June. | 0 |
At the beginning of 2009, the severe downturn in the global economy had translated into a very serious threat of deflation in Switzerland. For example, the inflation forecasts produced by the IMF showed inflation in Switzerland to be in negative territory for two years in a row. Price stability was evidently not assured. The substantial increase in the value of the Swiss franc since the beginning of financial crisis represented an inappropriate tightening of monetary conditions. Yet, it was imperative that monetary conditions be kept as loose as possible, a fortiori to avoid a further monetary tightening. Given that the interest rate was effectively at a zero level, the SNB decided to prevent any appreciation in the Swiss franc with respect to the euro from March 2009 on. The SNB achieved this goal by repeatedly intervening in the foreign exchange market during the course of 2009. This policy was maintained until the monetary policy assessment (MPA) of December 2009. By the end of 2009, the economic situation was showing some signs of improvement and the threat of deflation was estimated to have diminished. As a consequence, the SNB decided that a certain appreciation in the Swiss franc could be allowed without price stability being compromised. At the December MPA, the SNB therefore announced that it would act 8 There are, however, twice daily margin calls in case of variations in the collateral market value. 9 Source: IMF (2003), “Deflation: Determinants, Risks, and Policy Options”, April 2003. | Firstly, it is a fact that SMEs present higher credit risk than well-structured corporate entities. SMEs may not have proper accounting records, may have severe governance issues which undermine accountability, have poor access to markets, poor skill levels including financial illiteracy by promoters, lack collateral which the lender can rely on in the event of failure, may not even exist in an appropriate legal form and even the assessment of the viability of a project might be difficult. Lending to SMEs can be a lenders nightmare for bankers. But it is also true that banks which are structured to deal with corporates are risk averse and inflexible when they deal with SMEs. Often when they bring inappropriate risk assessment tools, they may focus too much on collateral rather than project viability. They may even regard SME financing as peripheral to their business. Because of their limited knowledge of SMEs, they experience failure which itself reinforces the notion that SMEs are risky. What we want are financing institutions that are structured to respond to the unique characteristics of SMEs. Specialised SME lending institutions are more likely to handle the risk problem presented by SMEs as a challenge to be overcome with appropriate products and credit risk management strategies and not as a basis for inaction or avoiding the sector altogether. In short, lending strategies which ensure success with corporates do not necessarily ensure similar success with SMEs. Appropriate SME financing institutions must at the very least make lending to SMEs the core business. | 0 |
Bernanke, B., M. Gertler and S. Gilchrist (1999), “The financial accelerator in a quantitative business cycle framework,” in J.B. Taylor and M. Woodford (eds. ), Handbook of Macroeconomics, Vol. 1C. North Holland, Amsterdam: 1341-93. Bordo, M., B. Eichengreen, D. Klingebiel and M.S. Martinez-Peria (2001), “Is the Crisis Problem Growing More Severe,” Economic Policy 16(32): 51-82. Central Bank of Chile (2003), Modelos macroeconómicos y proyecciones del Banco Central de Chile 2003. Christiano L., R. Motto and M. Rostagno (2007), “Shocks, Structures or Monetary Policies? The Euro Area and US after 2001,” NBER Working Paper N°13521. De Gregorio, J. (2009), “Chile frente a la Recesión Mundial del 2009,” Estudios Públicos 113(summer): 5-26. De Gregorio, J. and P. Guidotti (1995), “Financial Development and Economic Growth,” World Development 23(3): 433-48. Eichengreen, B. (1992), Golden fetters: The Gold Standard and the Great Depression, Oxford University Press. Eichengreen, B. and K.H. O’Rourke (2009), “A Tale of Two Depressions,” upcoming summarized updated version in http://www.voxeu.org. Friedman, M. and A. Schwartz (1963), A Monetary History of the United States, 1867-1960, Princeton: Princeton University Press – National Bureau of Economic Research. Galí, J. and M. Gertler, (2007), “Macroeconomic Modeling for Monetary Policy Evaluation,” Journal of Economic Perspectives 21(4): 25-45. Goodfriend, M. and R. King (1997), “The New Neoclassical Synthesis and the Role of Monetary Policy,” NBER Macroeconomics Annual, MIT Press. Harberger, A. (1993), “The Search for Relevance in Economics,” American Economic Review, papers and proceedings 83(2): 1-16. IMF (2009), World Economic Outlook, Box. 3.1, April, Washington D.C.: International Monetary Fund. Keynes, J.M. | By contrast, an environment in which the predictability of interest rate movements and their relation to key macroeconomic developments is well understood supports correct price formation in financial markets, contributes to the efficient allocation of funds, and reduces uncertainty concerning future interest rates. In such an environment, firms can improve their risk management and achieve better incentives to invest. How the ECB addresses its audience Let me turn to how the Governing Council of the ECB explains its monetary policy decisions to the public. Our communications aim to enhance the effectiveness of monetary policy. In this respect, the Governing Council fully subscribes to the basic principles of modern central bank communication described earlier. A high degree of transparency vis-à-vis our monetary policy has helped the public to hold the Governing Council accountable for its policy 2 See Kahnemann, D. (2003), “Maps of Bounded Rationality: Psychology for Behavioural Economics”, American Economic Review, Vol. 93(5), pp. 1449-1475, and Lohmann, S. (2003), “Why do institutions matter? An audience-cost theory of institutional commitment”, Governance, Vol. 16(1), pp. 95-110. 3 See Ehrmann, M. and M. Fratzscher (2007),”Social value of public information: testing the limits to transparency”, ECB Working Paper No. 821, and the literature quoted therein. 2 BIS Review 6/2008 decisions. Communication on monetary policy with a single voice is desirable and has been efficiently applied from the start of monetary union. | 0 |
Throughout the discussions on the current and expected economic developments, the Supervisory Council of the Bank of Albania concluded that the inflationary pressures balance in medium term horizon is in line with the Bank of Albania inflation target, notwithstanding the latest tendencies of consumer prices’ inflation. The assessments regarding the demand slowdown and the increase of negative production gap, the more controlled development of exchange rate and, the equilibrated expectations of economic agents about inflation, are 2 BIS Review 50/2010 factors which shall condition the development of inflation within the target of the Bank of Albania. At the conclusion of discussions, the Supervisory Council decided to leave the key interest rate unchanged, at 5.25 percent. This decision guarantees the appropriate monetary conditions on the preservation of the medium term inflation target. Bank of Albania, regarding the future, remains ready to operate in line with the real and expected performance of the economic indicators. In particular, its decision shall factorise the maintaining of inflationary expectations being anchored around the objective of the Bank of Albania regarding inflation, stability of financial system at home, in terms of maintaining and further consolidating the macroeconomic balances. In this view, Bank of Albania assesses that the recent correcting tendencies of the balance of payment indicators are encouraging developments for the long-terms sustainability of the country financial indicators. | Jaime Caruana: Implementation of Basel II and other key issues relating to banking supervision in Latin America and the Caribbean Opening speech by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the joint meeting of the FSI and ASBA, Miami, 25 April 2006. * * * Introduction First of all, I would like to thank Rich Spillenkothen and Josef Tošovský for inviting me to participate in this joint meeting of the FSI and ASBA, during which we will be able to discuss various key issues for banking supervision in Latin America and the Caribbean over the next few years. Two things are evident from the agenda. The first is that there are a large number of key topics to discuss today and tomorrow, which demonstrates the importance and timeliness of this meeting, which I am sure will be fruitful for all concerned. The second is that Basel II continues to be a central and priority topic for supervisors and the banking industry alike, as evidenced by the presence here today of major banking representatives, whom I would also like to thank for attending. It is well known that the Committee has devoted a large part of its efforts over the past few years to first developing and then implementing the revised Capital Framework. Today, we have the opportunity to debate different aspects relating to its implementation and application. | 0 |
The notable decline in nonperforming loans in the balance sheet of the banking system is the most prominent achievement 1/4 BIS central bankers' speeches in this aspect. The measures taken in mid-2016 have produced a substantial effect, materialised in the reduction of non-performing loans by around 10 percentage points, below the maximum level registered in 2015. It is always a pleasure to note that credit growth has been positive. In particular, the lek credit has grown rapidly, compared to the foreign currency credit, which makes the banking system and the private sector healthier, and enhances the effectiveness of Bank of Albania’s monetary policy. Positive developments in the banking sector and the economy have supported the further improvement of capitalisation, liquidity and profitability indicators. Two months from the end of the year, in our assessment, the banking industry in Albania enjoys full financial soundness, against the backdrop of an optimal liquidity and capitalisation situation, a key prerequisite for financially supporting the economic developments of the country. We have also paid particular attention to legal, institutional, regulatory and supervisory developments, notably the drafting and implementation of the resolution law. Dear participants, This year marked 25 years from the establishment of a two-tier system in Albania, which stipulates the banking system as the provider of financial and banking services in the economy, and the central bank as the administrator of the monetary policy and regulator and supervisor of the banking system. | This framework should be accompanied by added transparency in all the phases of trading, with financial education assuming a special place. Only in this way would we be able to deepen and expand, in real terms, the financial market, and through it a higher efficiency in implementing economic and financial policies, in mobilising and using national savings, in financial inclusion, in economic activity growth, and in enhancing the welfare of the population in the long run. In the hope that the proceedings of this conference will be characterised by a fruitful exchange of ideas and views by the participants in this room, Thank you for your attention! 4/4 BIS central bankers' speeches | 1 |
oil, energy and mortgage interest) 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 Goods Services -3 -3 -4 -4 jan-95 Jan 95 jan-96 jan-00 jan-01 jan-02 jan-05 Jan 96 jan-97 Jan 97 jan-98 Jan 98 jan-99 Jan 99 Jan 00 Jan 01 Jan jan-03 02 Janjan-04 03 Jan 04 Jan 05 Note. 12-month changes in per cent. Inflation measures computed according to Statistics Sweden’s new method. Source: The Riksbank 3. Consumer goods 6 6 4 4 2 2 0 0 -2 -2 Importerade varor Imported goods Inhemska varor Domestic goods -4 -4 jan-95 jan-96 Jan 95 Jan 96 jan-97 Jan 97 jan-98 jan-03 Jan 98 jan-99 Jan 99 jan-00 Jan 00jan-01 Jan 01jan-02 Jan 02 Jan jan-04 03 Janjan-05 04 Jan 05 Note. 12-month changes in per cent. Inflation measures computed according to Statistics Sweden’s new method. Source: The Riksbank 8 BIS Review 25/2005 4. | To me, both types of institutional setup may have one important common weakness, that is, there does not seem to be the notion of a lead supervisor in either model. Allow me to elaborate on this point. In the case of separate authorities, it would be normal for each authority to assume that every authority is doing its job according to its mandate. Therefore, one would tend to focus only on its own mandate. This can be a problem if some authorities fail to do a proper job, others may not be able to take note. Worse still, if there are supervisory gaps, the chance of any one authority identifying potential adverse impact from areas outside of one’s own mandate is even smaller. Take the US as an example, the authorities and investors did not 2 BIS Review 32/2009 realize that credit rating agencies were not doing an adequate job in their rating of complex structured products. If there were a lead supervisor, would the whistle have been blown earlier? I believe that there would have been a better chance if there were a lead supervisor with a clear mandate to take the lead responsibility and who is risk focused. There would have been more dialogues through which weaknesses may have been identified and corrected. The idea of a lead supervisor has gained widespread support in the area of cross-border supervision, as it contributes to better coordination, which in turn could help to prevent or identify problems at an early stage. | 0 |
This is usually a very effective risk management technique during periods when CDS markets function normally. But it is worth emphasizing that the embedded “jump to default” risks in credit products, coupled with liquidity issues during times of extreme stress, can make it very difficult to execute a dynamic hedging strategy in stressed conditions. In addition, and as already noted, CVA hedging is likely to be undertaken by buying CDS from another bank or a hedge fund. In this example we have tail-risk correlation not just with corporate and counterparty risk but with CDS market liquidity. If proper consideration to the correlation structure is not applied, the danger is clearly that the realized outcome in extreme scenarios would look very different from what was expected by senior management, regulators, etc., based on local analysis. A fourth example from the recent crisis was the “super senior” credit exposure from pools of US mortgage loans reinsured with monoline insurance companies (MBIA, FGIC, AMBAC, etc) or other insurers such as AIG. Banks and other originators of leveraged credit risk (either in cash form of CDOs or CLOs, or in its synthetic forms) needed to warehouse excess “super senior” tranches, which were considered virtually risk free, to support the origination business. After the volatility experienced in 2005, banks started to worry about controlling the mark-to-market volatility, even though the fundamental risk initially continued to be considered negligible. The idea came to lay off a significant portion of this negligible economic risk to reduce the short and medium term price volatility. | The perception was that the quality of the underlying assets was so good that the risk of a real loss (as opposed to some shorter-term mark-to-market fluctuations) was negligible, and that the returns accruing to the capital note holders and the asset manager were largely due to the funding arbitrage. Another way of explaining it would be that, because of the difference in liquidity, the “buffers” in the structure, the capital notes and the liquidity back-stop provider were effectively earning a risk premium for absorbing this liquidity mismatch between assets and liabilities. This view of the world made most of the capital note holders believe that the risk of any loss was very limited. We now know all of that changed when sub-prime mortgage assets had become a significant portion of the assets in a typical SIV. The US housing market had started to slide and the lax underwriting standards started to show their impact on recovery rates. Suddenly, investors in the ABCP market came to realize that the risk of actual loss was very real and that a game of “musical chairs” was unfolding in the roll-over process of the short-term debt. At this juncture, one would think that the optimal economic behaviour for the banks with outstanding SIVs, would be to let the SIVs unwind according to the legal construct in place, rather than accept responsibility. In fact, all the banks except one decided to collapse the structures and repurchase the securities10. | 1 |
And they present new challenges for the framework of incentives and constraints that central banks and supervisors set for financial institutions. On balance, we believe these changes in the financial environment are likely to come with substantial benefits in terms of overall market efficiency. In the remainder of my remarks today, I will highlight some of these benefits, but will also consider some of the challenges they present for central banks and governments in determining where on the spectrum of efficiency and vulnerability to crisis the financial system should operate, and in crafting the policies consistent with achieving that objective. 2 BIS Review 85/2006 Changes in financial markets since the late 1990s In the United States and the other major markets, the policies designed to mitigate the risk of financial crises rely primarily on a capital-based system of supervision of the major financial institutions, reinforced by measures to improve market discipline. These policies have evolved to reflect both the fundamentally important role credit markets play in the economy, as well as the reality that these complex markets are susceptible to a range of potential market failures. In thinking about the potential supervisory and regulatory challenges presented by the broad evolution of the financial system over the past decade, it makes sense to first consider how some of these changes may have enhanced market functioning by mitigating at least some of the imperfections that characterize these markets. | That episode was characterized by a widespread reduction in the provision of credit by banks in response to loan losses and the need to raise capital. The resiliency we have observed over the past decade or so is not just good luck. It is the consequence of efforts by regulatory, supervisory and private financial institutions to address previous sources of systemic instability. Risk management has improved significantly, and the major firms have made substantial progress toward more sophisticated measurement and control of concentration to specific risk factors. What seems to have been most critical in preventing financial market turmoil from translating into a significant reduction in credit provision by banks and other financial institutions were the steps taken by regulatory authorities and financial institutions alike to strengthen capital in the core of the financial system, and to measure and manage risk. These efforts have most notably manifested themselves in increased levels of risk-adjusted capital in the core of the system relative to what prevailed in the early 1990s. In the United States, for example, tier-one risk-based capital ratios have stabilized near 8.5 percent, considerably higher than the estimated levels around 6.5 percent for the early 1990s. This is based on a relatively crude measure of risk, but the direction of the improvement is right and the magnitude of the change is significant. | 1 |
The structures were a side-effect of the desire to avoid regulation It is also interesting that the abstruse structures, which led to the current financial turmoil and the bank crisis in the 1990s, were in both cases partly due to so-called regulatory arbitrage. The most recent wave of securitisation of the banks’ credit portfolios was partly propelled by deficiencies in the capital adequacy rules. Through securitisation the banks could easily avoid a lot of expensive capital adequacy. Since 2004 a new capital adequacy regime, Basel II, has applied. This is more finely meshed and does not allow the same possibilities to avoid capital adequacy through securitisation. However, it has not yet been implemented in all countries, such as the United States, for instance. The Swedish finance companies were in their day the result of regulatory arbitrage. Prior to the abolition of credit regulation in Sweden, the finance companies were often used as a means for the banks to get round the credit restrictions. This “grey” credit market was once substantial and an important source of additional income for the banks. Around 25 years ago I myself wrote quite a lot about this. Credit insurances existed then as now One can also observe another similarity, namely the occurrence of so-called credit insurances. A company that sold credit insurances to the Swedish banks in the 1980s and 1990s was Svenska Kredit. Many banks bought insurances against losses from their loans to property companies from this company. | But, there are also other parallels. This includes in particular the arrangements that made the banks’ real risk-taking more abstruse. The banks’ formal and informal promises of loans to special investment vehicles meant that the problems quickly bounced back into the banks' balance sheets. In the Swedish bank crisis one can say that the finance companies in some respects played a corresponding role to the special vehicle. It was the finance companies that primarily financed the expansion in the construction and property markets. The finance companies largely financed themselves in the short term by issuing so-called commercial papers in the BIS Review 30/2008 3 fixed income market. When the property market folded, it was a finance company, Nyckeln, which in September 1990 was the first to throw in the towel when it could not renew its financing. Other finance companies then followed suit. Many of the finance companies were owned by the banks. And the banks were tied by both formal and informal commitments. The losses therefore soon returned to the bank system. In 1991 it became apparent that the banks had substantial problem loans through their exposures to the property branch both directly and indirectly through the finance companies they supported. The bank crisis had become a reality. Perhaps you begin to see a pattern now? | 1 |
Put another way, similar activities that involve identical risk issues should be regulated on an equal basis to avoid tilting the playing field. Failure to do so will result in regulatory arbitrage and cause activities to migrate towards looser controls. In Singapore, the regulators for banking, securities and insurance activities are consolidated in MAS. Specific to the capital market, we have integrated our legislation for the securities and futures industries, and harmonised our regulation of the financial advisory business to support the cross-selling of products. What is critical however, is not how regulatory responsibility is divided or consolidated into one or more agencies. The overriding objective is equitable treatment and consistency in the approach to the measurement and management of risk. Capital requirements illustrate this most clearly. Most regulatory models have moved away from setting fixed minimum capital for regulated activities. In banks as for capital market intermediaries, regulators are adopting and refining the risk based regulatory approach. Where risks take on a similar profile therefore, the capital charges should be aligned based on a consistent principle. This is so even as the risk management regime in the banking, securities and insurance sectors retains some distinctive features that recognises the differences in these businesses. Legislative initiatives in Singapore In Singapore, at the heart of the regulatory framework for the capital markets is the Securities and Futures Act (“SFA”) which was enacted in September last year. The SFA is an omnibus Act that sets out the regulatory framework for the capital market. | • In these cases, the “certainty equivalence principle” (Poole, 1970) calls for policy to respond to the best estimate of variables in the same way that it would to perfectly measured variables, were they to be observable. b. Be cautious • This is an approach popularised by Brainard: “parametric” uncertainty gives grounds for addressing economic disturbances cautiously, supporting a gradualist approach (Brainard, 1967). Furthermore, transmission uncertainty related to the fact that, according to Milton Friedman, “monetary policy works with long and variable lags”, cautions against trying to “fine-tune” the economy through monetary policy intervention. • Moreover, a central bank should not adjust policy simply because the market expects it 1 : - the behaviour of financial markets is mimetic whilst central banks are very cautious; - markets are sensitive to speculative bubbles while central bankers focus on fundamentals; - markets are short-term oriented whereas central banks are medium- to long-term oriented. • However, erroneous decisions may be made in private markets if monetary policy does not match the policy anticipated. This requires the central bank to be intertemporally consistent. A usual policy guideline in this context is to gradually adjust the policy rate. • Thus, from a practical point of view, gradualism has many advantages: - it reduces the risk of having to quickly reverse policy decisions; - it reduces the probability of financial market disruptions; - it is particularly beneficial in the face of major risks. | 0 |
Paul Tucker: A perspective on recent monetary and financial system developments Speech by Mr Paul Tucker, Executive Director and Member of the Monetary Policy Committee of the Bank of England, at Merrill Lynch Conference “A perspective on recent monetary and financial system developments”, London, 26 April 2007. * * * Global monetary and financial stability The past year or so has been marked by resilience in both the global economy and the international financial system. World growth has been robust. On average, headline inflation across the industrialised world has remained contained. Capital markets have, so far, weathered the gradual withdrawal of monetary accommodation in much of the G7, and also a series of specific disturbances, without destabilising spillovers. In short, the world has enjoyed a further period of monetary and financial stability. Against that background, banks and dealers have posted fairly remarkable profits, accumulating more capital resources; and the (risk-unadjusted) returns of the fund sector – and so probably for most of you here today – have been healthy. There are, for sure, wrinkles in this picture, including here in the UK. But overall it is probably not what most commentators would have expected given that oil prices have more than doubled over recent years. For financial markets, it has surely been important that such a large cost shock has not led to a pronounced rise in global inflation, dislodging medium-term inflation expectations, and so prompting industrialised country monetary authorities to slam on the brakes. | But we have to see how this continues and develops, and whether there are some market segments that do not improve sufficiently or remain impaired. FT: But that means it will be weeks or months before you took such steps… CN: We are working on that. We will see what we feel might be necessary. FT: But if there were measures taken, they would be “credit easing” targeted a specific problems, not blanket quantitative easing in the way that the Bank of England is doing it? CN: Well the Bank of England is apparently concerned about the monetary base. But we don’t have the same problems for the time being with the monetary base in the euro area. I don’t know if it has something to do with the fact that banking intermediation in the euro area as a whole plays a bigger role than in the US or even in the UK. FT: Some of your colleagues on the governing council want to make a very clear distinction between fiscal policy and monetary policy – whereas in the UK and US they have become blurred. Does that prevent the ECB from doing QE? Would you have to go to governments first? CN: No, we have the ability to decide on the instruments that we feel we need to use to implement our monetary policy. The only thing is that of course we are attentive to the level of risks that we are taking as a central bank. | 0 |
This is no easy task considering that the stakeholders often pursue differing interests. In addition, there are various potential conflicts, for example between the objective of exploiting economies of scale as much as possible – which might only be possible through cross-border cooperation – and the objective of maintaining independence. BIS Review 123/2006 3 | At the international level, the IAIS work on systemic insurers and the international capital standard (or ICS) has recently made significant strides. As you know, as part of its post-crisis action plan, the IAIS developed in 2013 an identification method for systemic risks, reviewed in 2016. This led to the identification of nine global systemically important insurers, to which specific measures are applied (increased supervision, specific management plans, chiefly for liquidity, recovery and resolution, and a capital add-on measure, currently postponed to 2022). Given the recognised shortcomings of the methodology, including weak factual basis, the FSB asked the IAIS to review it with three key focuses: developing an activities-based approach supplementing the entitybased approach, which itself will be reviewed in order to correct deficiencies. A new framework is hence being developed which will make it possible to reconcile an activitiesbased and an entities-based approach, to better capture relevant risks and systemic undertakings. In the meantime, the list of global systemic insurers will remain frozen for 2019 and could be suspended beyond and until 2022, so that enough experience is gained with the new approach. | 0 |
As with the other denominations, we are once again providing information in print and online, and we have of course updated our ‘Swiss Banknotes’ app. The new 100-franc note will be issued starting next Thursday, 12 September 2019, at our counters in Berne and Zurich and at the SNB’s agencies. For logistical reasons, it will take a few days before the new notes are available country-wide. And now, having unveiled the new 100-franc note, I’d like to show you the entire set. Here it is: the complete ninth series, inspired by ‘The many facets of Switzerland’. The vibrant colours and the aesthetically pleasing and intricate design of the series are particularly striking. Switzerland’s many facets are showcased using core design elements such as the hand, the globe, a Swiss location and an object, which are easily recognisable and recur throughout the banknote series. The theme of each note is illustrated via a hand gesture. On the 50-franc note, the hand is holding a dandelion, whose seeds are carried away on the wind. On the 10-franc note, a conductor’s hand sets the tempo for the orchestra. The shimmering globe reflects how Switzerland sees itself as part of an interconnected world. In the sequence of notes from 1000 francs to 10 francs, the earth rotates once on its axis and passes through one full day. The places depicted on the back of the notes are emblematic of various locations in Switzerland. Together, the six notes illustrate the diversity of our country. | And, as with all the other denominations in the new series, it is narrower and shorter than the previous note. The theme of the 100-franc note is Switzerland’s humanitarian tradition, and the key motif is water. Both are reflected in the note’s core design elements. The hand and the globe are the main images on the front of the note. The hands are scooping up water, and isobars are depicted over the globe. Page 1/3 Berne, 3 September 2019 Fritz Zurbrügg News conference on new banknotes The back of the note shows an irrigation channel, or ‘suone’, feeding glacial meltwater down a cliff face to the fields below. A suone is a method of transporting water from high altitudes to lower-lying areas for irrigation purposes. In the past, such irrigation channels were used for land cultivation, especially in the Valais region. The image of a suone symbolises the treatment and distribution of water – a major component of Switzerland’s humanitarian and development aid effort. The key motif also plays an important role on the security strip, which features a network of waterways over the map of Switzerland, together with a list of the country’s longest rivers. The remaining security features, such as the transparent Swiss cross or the shimmering globe, are the same as those on all denominations of the new series – you will already be familiar with these. | 1 |
The modules of the programmes have been developed with extensive consultation with the industry. The framework also offers flexibility in learning, as participants can complete the modules at their own pace. Important in the offering of these programs is that there needs to be clarity in the qualification that is earned so that it avoids confusion with other qualifications offered by other centres of learning to those practitioners aspiring to gain qualifications in Islamic finance. Our resources for investment in human capital development for the industry must be optimised. This would enhance Malaysia’s potential to become a centre of excellence for education in Islamic finance. BIS central bankers’ speeches 3 | Zdeněk Tůma: The interrelationship between monetary policy, price stability and financial stability Speech by Mr Zdeněk Tůma, Governor of the Czech National Bank, at the European banking and financial forum 2005, Prague, 22 March 2005. * * * Mr. President, Excellencies, Governors, distinguished guests, It is an honour to be opening the central bankers' forum. As the main part of the conference program concerns the financial sector challenges and opportunities in the “New Europe”, the central bankers' panel has to necessarily reflect the close, particularly topical, issue of the financial stability and its relationship to a reasonable monetary policy conduct. While my colleagues will discuss mainly the particular issues of financial stability, I, having the privilege to be the chairman of the panel, would like to frame the discussion using a more general and historical context. Bearing this perspective in mind, I would like to point to the interrelation between the ultimate goal of monetary policy, the price stability, and the financial stability. First of all, let me start with the definition of financial stability, simply assuming that price stability does not need any further explanation. To be as brief as possible, financial stability can be defined as the soundness of the financial system, that is, its resilience against various shocks. | 0 |
We have always been diverse, yet connected. I recall how amazed I was when, during my first visit to Portugal, two decades ago, I realised that in two countries located at the two ends of the European Union – Portugal and Romania (which were also the extremities of the Roman Empire) – a saying about the bare necessities of life sounds almost the same in the two languages. The sentence that really shocked me was the following: “In this house with a litre of wine and a kilo of beef, one cannot be dying of hunger or thirst”. This is not an exception, though. In Spanish and Italian, a lot of words are close to the 1/3 BIS central bankers' speeches Romanian ones. A proof in this respect is that many Romanians have chosen to work or to live in those countries as they find it easy to adapt to the local culture and language. It’s like a home away from home. In the very heart of Rome, anybody can see Trajan’s Column, the monument commissioned by the Roman Emperor Trajan, born in Spain. It was completed in the year 113 AD and features a remarkable spiralling, sculpted bas-relief depicting the wars between the Dacians and the Romans. Trajan solved a budgetary crisis by crossing the Danube and entering Transylvania – the land beyond the forests in Latin (trans silvae) – to seize the gold of the Dacians. I wouldn’t say this would qualify as model behaviour nowadays. | And if I add that beautiful and sunny Malta became an increasingly popular holiday destination among Romanian tourists, I think I have touched on each of the 27 current EU Member States besides Romania. Let me conclude by saying that Romania is fully committed to the united Europe and to European values, but this is nothing new and is also the case with the other Member States. The need for unity of Europe is better perceived from its Eastern border, on the Black Sea coast, as we are so close to Crimea. And I want to make a call for unity in Europe and to stress that it is us who, through our decisions, shape its future. As Abraham Lincoln once said, “The best way to predict your future is to create it”. With this in mind, allow me to make a toast for a strong and united Europe. Thank you for your attention! 3/3 BIS central bankers' speeches | 1 |
We are not there yet. Banks’ equity capital accounts for 6 per cent of total assets. This is low from a historical perspective, but not compared with banks in other countries. Banks are procyclical. They amplify business fluctuations. During an expansion, loan losses are low and bank earnings increase due to higher turnover. Capital is readily available. During a downturn, bank losses increase, and earnings and access to equity capital may deteriorate, forcing banks to tighten lending. Norwegian banks need more capital in the period ahead to enable them to absorb expected and any unexpected losses and to satisfy tighter counterparty capital requirements. The government’s offer to supply core capital through the Government Finance Fund will now allow banks to improve their financial strength without rationing credit. There must be no doubt that the banks have the capital they need. The measures I have discussed have been implemented to lessen the effects of the financial crisis. Another question is which lessons we can draw. The authorities in many countries are now working towards increasing the robustness of financial markets. Four points stand out. First, for a given risk assessment, banks must be subject to higher equity capital requirements. Banks calculate their capital requirements based on internal risk models. The models capture historical loan performance. The capital requirements are determined by the degree of credit risk exposure as derived from this historical performance. One drawback is that the historical basis for the models, and hence for the risk assessments, is too limited. | In November, they described the turnaround as a “heart attack”. Government authorities worldwide have taken comprehensive measures designed to improve banks’ liquidity and solidity, boost demand for goods and services and restore the smooth functioning of credit markets. In several countries, central bank benchmark rates have been set at close to zero. In Norway, a series of measures have also been implemented to mitigate the impact of the financial crisis. Norges Bank has supplied more liquidity to banks and eased the collateral requirements for loans. We have provided liquidity at longer maturities, introduced foreign exchange swaps involving both the US dollar and the euro in order to supply Norwegian krone liquidity, and loaned US dollars to Norwegian banks, which we ourselves procured from the Federal Reserve. Norges Bank’s key policy rate has been reduced by 4.25 percentage points to 1.5 per cent since 15 October 2008. To facilitate banks’ access to funding, the government has provided banks with access to liquid government securities in exchange for covered bonds issued by mortgage companies. Moreover, the government has increased loans and guarantees for Norwegian exports and raised state bank lending quotas. At the same time, Folketrygdfondet has increased its bond purchases. In order to bolster banks’ solidity, the government plans to supply risk capital to Norwegian banks through the Norwegian State Finance Fund. To restrain the decline in activity in the Norwegian economy, central government expenditure will be increased by 10 per cent this year. | 1 |
For example, FOMC minutes have a reading grade score of around 17, compared to around 14-15 for MPC minutes. Nonetheless, in common with the Bank, there is a material reading grade gap between central bank and external publications, of around 5 years with mainstream newspapers, 8 years for political speeches generally and 13 years for election campaign speeches by President Trump. They are 11 years ahead of the average Elvis song. If we look at a selection of other central banks’ English language publications, we see the same pattern. Reading scores are around 14, well above the levels of external publications (Chart 16). Taken at face value these scores are interesting, if perhaps not altogether surprising. After all, central banks occupy a technocratic space with its own technical language. Nonetheless, it is worth reflecting on the costs at which this complexity comes. For example, what fraction of the general public are central bank publications excluding because of their language? Given data on the distribution of literacy rates across the population, linguistic complexity metrics allow an estimate of that fraction. Using data from the US national adult literacy survey, we can estimate the penetration rate of various publications, central bank and external (Chart 17). 61 This suggests that a campaign speech by President Trump is accessible to around 70% of the US adult population, an Elvis song around 60%, political speeches a little less than half and the mainstream US press when discussing monetary policy around 20%. | Yet at the moment, rates of inflation in advanced economies are trending downwards. As the recent reduction in the ECB reference rate shows, concerns about deflationary trends are more predominant in the euro area at present. Neither can any inflationary threats be identified for Switzerland. The SNB’s conditional inflation forecast from September (cf. chart 10) shows a very small increase in inflation to 2015, despite the assumption that the three-month Libor remains at zero over the entire period. Explanations for this low level of inflation include the fact that the output gap is still negative in Switzerland, the Swiss franc is strong, and commodity prices are stable or even declining. We are keeping a very close watch on price developments, and we have the necessary instruments to correctly assess any inflation or deflation risks and counter them with appropriate measures. BIS central bankers’ speeches 5 Concluding remarks Is a return to normal on the horizon? Yes, but much more slowly than expected. Overall, financial markets have calmed and risk markets have strengthened considerably. The exceptional measures taken by the central banks made a major contribution to these developments, and in most cases, these measures are still in place. Thus it is clear that monetary policy is still far from returning to normal. The fact that international monetary policy is still very expansionary is not surprising, in view of the slow recovery of the global economy. As far as Switzerland is concerned, the minimum exchange rate will remain a necessary instrument for the foreseeable future. | 0 |
Rather than taking a “check the box” approach, organisations should implement an integrated and cross-discipline effort in order to adopt an enterprise-wide program of cyber risk management that is tailored to business objectives, while also maintaining a tolerable level of risk. By taking an integrated approach to the broad objectives of cybersecurity management, organizations can achieve these business and security-focused goals, while also achieving regulatory compliance in an effective and efficient manner. Ultimately, cyber resilience which is the ability to defend, respond to, and recover from a breach, should be the end goal for organisations. Although compliance is rightly prioritized in the highly regulated financial services industry, being compliant should be viewed as a result of having good security practices rather than as a check-the-box exercise that is expected to guarantee security. The focus should be shifted toward conducting good cyber due diligence and assessments, implementing proper detection controls, having effectively enforced third-party risk and insider risk programs and conducting testing such as red teaming in order to simulate the organisation’s response in the event of a serious attack. If such practices are implemented, organisations can stay ahead of industry regulations and embrace innovation, because their response to any new cybersecurity requirement is less likely to demand a dramatic overhaul of their current program. The world today is remarkably different from the world we were living 20 years ago. The world is fast converging in aspirations and ideals because of globalization and technology, and with that comes different risks. | Mohd Adhari Belal Din: Cybersecurity – safeguarding the future for innovative financial inclusion Remarks by Mr Mohd Adhari Belal Din, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the "Cybersecurity: Safeguarding the Future for Innovative Financial Inclusion", Kuala Lumpur, 1 August 2017. * * * It is my privilege to welcome you to this landmark event – A very important policy forum for policymakers and regulators to discuss on the significance of cybersecurity in safeguarding the future for innovative financial inclusion. Intersection of financial inclusion and cybersecurity As digital financial services expands in reach, scope and scale, cybersecurity matters a great deal for policymakers and regulators with financial inclusion mandates. The fast-changing digital landscape has brought the financially excluded and underserved populations into the formal financial system, bringing about a positive impact on economic growth and stability. However the rapid paced innovation of digital financial services also opens up opportunities and incentives for cyber-attacks, which challenges the fundamental principles of information risk and cybersecurity management. Leaders must understand the risks associated with digital innovation, and balance the imperative to protect their organisations and consumers with the need to adopt innovative technology approaches. The likelihood for cyber-attacks and fraud is exacerbated by those who are inexperienced with formal financial services and unfamiliar with consumer rights. Low financial and technology literacy amongst consumers could translate to greater vulnerabilities and exposures. | 1 |
The combination of a strong exchange rate (still about 25% above its level of August 1996), a 20% fall in dollar oil prices over the past year, and an average fall of 9.5% in other commodity prices, is holding down retail price inflation. Domestically generated inflation is significantly higher than RPIX inflation. As the one-off effects of the rise in sterling wear off over the course of the next year or so - as indeed they will unless sterling appreciates further - inflation will start to rise above the target unless domestically generated inflation declines. In the long run, domestically generated inflation is likely to be close to the rate of increase of unit labour costs. At present unit labour costs are rising at about 3½% a year. The earnings figures released earlier this month - which showed that average earnings in the economy grew by 4.9% and in the private sector by no less than 5.6% - were undoubtedly disappointing. It is too soon to judge how far they reflect the impact of higher bonuses this year than last. In any event, to hit the inflation target those rates of earnings growth will have to fall back. These high levels of earnings growth are not the underlying cause of inflationary pressure; they are a symptom of a tight labour market. Equally, the prospects for earnings growth depend critically on the future path of output and on inflation expectations. | On the other hand, due to its high share in the expenditures of especially low-income households and corresponding purchasing power effects, food prices are given a great importance by policy makers. Meanwhile, the metals, such as iron ore, copper and aluminum, are among the most important raw materials for the industry and construction sector. The reason why commodity prices have been frequently attracting attention is the current fluctuations in commodity prices of a magnitude that has not been seen since 2007. Price of brent crude oil, which was USD 50 per barrel in early 2007, climbed to USD 145 within one and a half year. Then, parallel to the deepening global crisis in late 2008, crude oil prices went back to USD 35; and now it is hovering around USD 125. And the uncertainties about oil prices, resulting from demand and supply-side developments, and their potential effects keep the policymakers interest in commodity prices alive in the current economic outlook. As they are among the risk factors that affect the inflation outlook, we directly referred to commodity prices, mostly to those of crude oil and food, in our latest inflation reports. As a matter of fact, nearly half of the revisions about official inflation forecasts published in our inflation reports in the last couple of years originated from the changes in our assumptions about food and commodity prices. This suggests that the rise in commodity prices may bring about challenges for central banks not only in terms of direct pressures on inflation. | 0 |
An increasing number of countries have put in place or are developing solutions like these. Even in large economies with large payment volumes, round-the-clock settlement of all kinds of payments directly at the central banks is being facilitated. In 2018, the Eurosystem launched TARGET Instant Payment Settlement (TIPS). In autumn, the Federal Reserve announced that a similar system called FedNow! would be established for settlement of real-time payments in US dollars. Iceland already has a similar system The Riksbank is planning a transition to settlement of real-time payments directly at the central bank by linking to the European TIPS system. Settling real-time payments individually and directly at the central bank automatically eliminates the credit risk between system participants. The system is simplified because banks no longer need to take a detour via a clearing house. With fewer steps, the operational risk in the payment system may also be reduced. 2/5 BIS central bankers' speeches The EU Payment Services Directive 2 (PSD2) was implemented in Norwegian law with effect from April 2019. One of the purposes of PSD2 is to facilitate greater competition and innovation. Similar regulations are being implemented elsewhere in the world and may help enable new entrants to gain a foothold in the payments market, whether they are global tech giants like Apple, Google and Facebook or smaller, more local operators. New services and service providers will require adjustments to underlying infrastructure and rules. Equal and transparent competitive terms are crucial. | Prestigious and well respected economists have been pointing to the fact that the Euro is not an optimum currency area. They also underlined that, absent sufficient labor mobility, there was a need for some form of fiscal federalism that current arrangements failed to fulfill by a large measure. Those arguments have been made and discussed for some time and deserve careful consideration. Obviously, recent turbulences and disruptions in the articulation of national fiscal policies have given them a new relevance. I will come back to this debate in a moment. At this stage, I will simply remind you of some responses that have been consistently formulated over the last decade. The benefits of the euro cannot be assessed exclusively through the lenses of the optimum currency theory. The Euro has brought to more than 400 million European citizens unprecedented stability. Price stability, obviously, with inflation averaging 1.97% over the last decade. And also, yes, financial stability. It is always useful to think of counterfactual when assessing a situation. Looking beyond current fiscal turbulences, let us think, for instance, how Europe would have absorbed the crisis with fifteen different currencies, fluctuating internal exchange rates, and, as a consequence, much higher volatility, uncertainty, risk premia and interest rates. This experiment speaks for itself. In addition, numerous studies have shown that economic cycles are becoming more and more synchronized across the euro countries. After a spike in 2009, the standard deviation between national growth rates inside the Euro area has gone down to its lowest historical level ever. | 0 |
The preparatory work is well on track and will allow the ESCB to perform its tasks right from the start of Stage Three in January 1999; moreover, the EMI is often consulted by other European authorities, who pay careful attention to the advice it provides; this was notably the case for the changeover scenario adopted by the Heads of State and of Government in Madrid in December 1995, and for the elaboration of draft regulations concerning the legal framework for the use of the euro. Here again, France and Germany are playing a very active role in these preparations, and as early as tomorrow I will meet President Tietmeyer in Frankfurt, together with our colleagues, to attend the monthly EMI Council meeting. FRANCO-GERMAN MONETARY COOPERATION WILL ULTIMATELY BE CROWNED BY THE CREATION OF A EUROPEAN MONETARY UNION IN 1999 I am personally convinced that the creation of monetary union in 1999 is the logical consequence of economic, monetary and financial developments that have been taking place during the past years. The increasing integration of the European economies - and in particular those of France and Germany - called for a single monetary policy and a single currency. I am also convinced that monetary union will successfully go through, right from 1999 since: - it is a credible process; - it will create an environment of stability. EMU is a credible process Indeed, the case for a European monetary union is based on solid economic grounds, and it will be implemented in a realistic way. | Firms should use the design of the CBES and the underlying NGFS scenarios to inform their own scenario analysis, build their understanding of the climate risks they face, and enhance their climate risk management capabilities. I hope it will act as a catalyst, increasing firms’ knowledge of the risks they face, and incentivising them to take steps to address these risks. In turn, this will require firms’ clients in the real economy to improve their understanding of how climate change and the transition to a net-zero economy could impact their businesses and operations. Lessons learned from the CBES will also be shared with the NGFS as part of the collaborative approach taken by central banks, and on that note, I want to commend the ACPR’s recent publication of its own ambitious scenario exercise for the French financial system. 3 Through both its scenario work in the NGFS, and its internal analysis, the Bank has developed a clearer understanding of where climate knowledge gaps persist and what these might mean for our objectives. For example, there is particular value in the deepening of our understanding of the macroeconomic implications of climate change and the pathways to net-zero. It is for governments to set out a pathway to net-zero and the policy levers that will be used to deliver it. But as central banks, we will need to understand any implications of the transition for the economic outlook and our potential policy responses. | 0 |
In sum, on Eurostat's current population projections, prepared in 2008, the dependency ratio (the over65s as a proportion of the working-age population) might more than double between 2008 and 2050 from 24% to almost 59%. Everybody is aware of the consequences of these population developments for the sustainability of our pay-as-you-go pension system. Growing pressure would build up on pension spending, meaning that the models currently available, including those devised by the Economy and Finance and Labour and Social Security Ministries which incorporate all the legislative amendments approved in recent years, show that this public spending item would double over the time period referred to above. As a result, the system could run a rising deficit as from 2025. It should also be highlighted that the latest demographic developments, in particular the heightened migrant inflows into Spain, do not resolve the problem. At best, the inflow of working-age immigrants holds back the increase in the dependency ratio derived from population ageing and, therefore, delays the emergence of the problems. But the full scale of these problems will persist. How can we tackle the challenge that demographics pose for our pension system? The scale of the problem calls for a three-pronged strategy. First, the strategy should be far-reaching, i.e. blending measures on different fronts. Specifically, the measures should pursue healthy public finances, implement structural reforms in the economy and seek to reform the pension system, as I shall now expand upon. Second, discussion of these measures should not stretch out over time. | Analysis of the Social Security system should not, however, be based on its results in the short term. The signing of the Toledo Pact was but an acknowledgement that the viability of a pay-as-you-go pension system should be analysed from a long-term perspective. Taking this perspective, I should stress that, according to analyses conducted by national and international analysts and institutions, neither the Social Security surpluses of the past decade nor the foreseeable worsening of the financial situation in the coming years will essentially alter the diagnosis. Accordingly, we may assert that the problems relating to the financial sustainability of the current Social Security system were the same ones that led at the time, among other reasons, to the signing of the Pact. BIS Review 51/2009 1 There are essentially two factors at the root of these problems: the sharp reduction in the birth rate and the progressive rise in life expectancy, both of which bear on the current and future structure of the Spanish population pyramid. On one hand, the outcome of the increase in life expectancy will see the over-65 segment progressively gain weight in the population total, while the pyramid base will narrow as a result of the birth rate falling below replacement levels. Consequently, the shape of the population age structure is changing from its current pyramid form to look more like a pillar. This will be so even assuming some pick-up in the birth rate and continuing positive migrant inflows into Spain. | 1 |
The crisis showed that there was ample scope to improve the efficiency and resilience of the global financial system. Through clarity of purpose and resolute implementation Brisbane will mark an important milestone in our efforts. That we have reached this point is a triumph of the optimists. But we must not stop work. There is still much scope to improve. The process of reform is not over. We will continue to learn and adjust. And we must continue to manage the system effectively in the face of new risks. With that we can deliver the open and resilient financial system that can support strong sustainable balanced growth around the world. BIS central bankers’ speeches 5 | While this has become a common practice, ideally more competitive retakaful operators who provide reinsurance in accordance with Shariah principles need to be established so that the takaful industry would not be dependent indefinitely on conventional reinsurance as the conduit to which they can mitigate risk. More importantly, retakaful operators ultimately serve to strengthen and enhance the financial capacity of the takaful industry, and the synergistic by-products emanating from the interactive business alliances would contribute towards the overall betterment and robustness of the Islamic financial system. Indeed, there is much to be gained by the takaful operators in particular, and the Islamic financial industry in general, by having access to an adequate and competitive market of the retakaful facility. It is therefore important to increase the collaborative efforts and examine plausible ways to address this gap in the takaful industry. Our quest to create a dynamic Islamic financial system is to achieve the ultimate objectives of developing an Islamic financial system that will be able to contribute significantly to the overall development of our economy through the intermediation process. Thus, Islamic banking and finance industry needs to extend its agenda towards the development of a comprehensive Islamic financial system. The Islamic banking and finance should strive to add value towards enhancing greater integration to the economy and the financial system. | 0 |
It is not unusual for one to be turned away at customers counters on account of the lack of basic facilities due to for instance power failure or link failure when these can be mitigated where there are proper contingency plans in 2 BIS Review 111/2009 place. The Bank of Zambia will therefore ensure that sound business continuity plans are in place when evaluating new applications. Ladies and Gentlemen, as we develop these well meaning products, I wish to appeal to the service providers to ensure that investment in such infrastructure is complemented by investment in financial literacy. We need to ensure that we are providing individuals and communities with the level of financial education needed to grasp both the benefits and pitfalls of their easier access to financial services. This will in part minimize the risks associated with such innovative products as people will only make better judgments about their financial affairs if they understand the risks and returns associated with the product and services at their disposal. It is also apparent that financial illiteracy is more costly as people who make poor financial decisions will inevitably end up with a far lower standard of living than was otherwise achievable. Mr. Chairman, I wish to conclude by applauding Celpay’s initiative to host the first ever mobile conference in Zambia. The deliberations and recommendations of this conference will be keenly followed as the need to leverage access to financial services through the mobile phone is of paramount importance. | As we embrace mobile banking, the primary objective of Zambia’s mobile banking framework should be to empower the millions of citizens who do not have access to conventional banking. The essential spirit of mobile banking should be financial inclusion. In this regard, facilitating mobile banking will contribute to the distribution of resources to productive activities such as farming as well as directing resources to areas where there are most needed. In addition the policy framework should be flexible enough to allow the industry players to explore various business models. To this end the National Payment Systems Act of 2007 has provided a platform for businesses involved in mobile banking and money transmission to be designated. The need for effective regulation to ensure a stable financial sector and protection of consumers is vital. Nevertheless, regulation should facilitate and not impede development and must create an optimal, dynamic and agile banking environment. As Regulators we must therefore be open minded to new market solutions while the developers need to constantly engage the regulator in their product development. In stressing the need for effective regulation, I must emphasise the need for providers to observe the mandate and requirements of their licences. Mobile services providers must not perform banking services as this is the domain of licensed banks. Finally, I also wish to stress that mobile service providers and mobile banking solutions developers need to have in place robust business continuity plans that will ensure minimum disruption to services in the event of disasters. | 1 |
On the contrary, it was a breach in the approach whereby monetary policy and frequent devaluations had been used to shelter these sectors. The fixed exchange rate was an intermediate target for achieving low and stable inflation. The exchange rate remained stable up to autumn 1996, partly because wage growth was low and overall demand did not generate pressures in the economy. Gradually, the krone began to show wider fluctuations. The experience of the last half of the 1990s demonstrated that monetary policy cannot fine-tune the exchange rate. Developments in international financial markets led to more pronounced fluctuations. And more fundamentally, when labour market pressures rose and incomes policy failed, exchange rate developments were no longer providing signals for wage formation and fiscal policy. High petroleum revenues, fiscal slippage and expectations of increased use of petroleum revenues contributed to this. The exchange rate was therefore no longer suitable as a nominal anchor. Towards the end of the 1990s, increasing emphasis was placed on the fundamental preconditions for exchange rate stability. Monetary policy instruments were oriented in such a way that price and cost inflation was brought down to the price stability objective of the European Central Bank (ECB). BIS Review 25/2004 1 Monetary policy In most countries, price stability, or low and stable inflation, is the objective of monetary policy. Historical experience from Norway and other countries has shown that the absence of price stability has resulted in low and unstable output and employment. | 28.01.2020 Multilateralism and globalisation reforms Presentation of the book Excesos: Amenazas a la prosperidad global, by Emilio Ontiveros Pablo Hernández de Cos Governor Good evening Honourable Minister and Authorities, ladies and gentlemen. It is an honour to be here at the presentation of Professor Emilio Ontiveros’s book Excesos: Amenazas a la prosperidad global (Excesses: Threats to global prosperity), and to share some thoughts with you on the subjects it addresses. As has habitually been the case in his extensive academic and popularised work, Professor Ontiveros hits the nail on the head in his analysis of one of the main challenges posed by the current international landscape: the characterisation of and the risks associated with the economic and financial globalisation witnessed in recent decades. His work is immense, as it requires deep-seated knowledge of the wealth of interrelated factors that shape the highly complex and changing economic, political and social situation at present. As is also habitual for the author, he is successful in his venture: he presents a profound and well-structured analysis of the issue. And one that is, moreover, reader-friendly and comprehensible. Our congratulations, Emilio. 1. The book’s main line of argument As Professor Ontiveros rightly says, the globalisation and growing openness of economies to the flow of trade, finance, persons and knowledge, lauded by many just some years back as the fundamental driver of global economic development, is now questioned by significant economic, political and social agents, at least in its current form. | 0 |
This was demonstrated by the Phillips curve (named after the economist A.W. Phillips), which showed that low unemployment has historically accompanied high wage growth. In the 1960s, Milton Friedman and Edmund Phelps rejected the idea that this empirical relationship could be used to reduce unemployment in the long term. Any attempt to reduce unemployment would over time only result in higher inflation, without affecting employment and output. A more detailed discussion of these developments in macroeconomic history can be found in Snowdon and Vane (2005). 7 See Schreiner (1982). 4 BIS Review 111/2008 that has now been established should, in addition to directly contributing to stabilising the krone exchange rate, also curb price expectations.” 8 In recognition of this fact, Norges Bank gradually gave greater weight to influencing inflation developments as a prerequisite for a more stable krone exchange rate over time. As stated in an article in the Norwegian daily newspaper Aftenposten in May 1999 9 : “In the discretionary assessments on which monetary policy is based, Norges Bank gives weight to fundamental preconditions for exchange-rate stability over time. Price and cost inflation must be brought down towards the level aimed for by the euro area countries. At the same time the situation must be avoided whereby monetary policy in itself contributes to a downturn with deflation.” The division of responsibility in economic policy was even more clearly defined when the government presented new economic policy guidelines in March 2001. | Our monetary policy measures continue to underpin domestic demand. Private consumption is fostered by ongoing employment growth and rising wages. At the same time, business investment is supported by solid domestic demand, favourable financing conditions and corporate profitability. Housing investment remains robust. In addition, the expansion in global activity is expected to continue supporting euro area exports, though at a slower pace. The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. At the same time, risks relating to protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent. 1/2 BIS central bankers' speeches Euro area annual HICP inflation increased to 2.1% in September 2018, from 2.0% in August, reflecting mainly higher energy and food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level over the coming months. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to pick up towards the end of the year and to increase further over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth. Turning to the monetary analysis, broad money (M3) growth stood at 3.5% in September 2018, after 3.4% in August. Apart from some volatility in monthly flows, M3 growth is increasingly supported by bank credit creation. | 0 |
The report examines the business conditions and credit environment for Latino-owned businesses, and compares Latino firms to non-Latino firms, as well as how their experiences vary across major metro areas. While I don’t want to get ahead of my colleague, Claire Kramer, and our partners from SLEI and Interise who will present the results of the report shortly, there are a couple of themes that caught my attention. First, Latino small business owners face significant financial barriers even after accounting for performance factors, including a disproportionate reliance on high-interest credit products. Those impediments manifest themselves at all stages of the business growth, from start-up to scale-up and beyond. Second, Latino small businesses are more concentrated in a few industries and significantly underrepresented in the professional, scientific and technical services sectors, which also tend to be the most lucrative. Third, the size of the Latino population in a given metro area does not mean that there is a larger share of Latino-owned businesses in the same—which is, to me, somewhat counterintuitive. Digging into and understanding the causes of these issues and identifying possible paths forward is not only an imperative but an opportunity, and of course the focus of much of today’s agenda. It is clear that there is a pressing need for expanding technical support, diversifying sources of financing, especially at the micro level, and, in the case of the geographic conundrum, further collaborating on policy and community advocacy. I very much look forward to today’s discussion and thank you again for your participation. | John C Williams: Restoring balance Remarks (via videoconference) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at New Jersey City University, 18 February 2022. * * * As prepared for delivery Good morning, everyone. I want to thank Sue Henderson for that kind introduction, and New Jersey City University for hosting today’s discussion. I always enjoy speaking with students, and I look forward to the time—hopefully soon—when we can have these types of events in person. Today, our virtual setting is Jersey City, one of the most diverse cities in the world—and one known for terrific pizza. Now, it’s not my place to get into the debate over who has the best pizza, and I know that people have strong views on that subject. As president of the New York Fed, I proudly represent both sides of the Hudson River, and my job is to make the economy stronger and the financial system more stable for all. Before I move on from the topic of pizza to economics, I should give the standard Fed disclaimer that the views I express today are mine alone. They do not necessarily reflect those of the Federal Open Market Committee—what we call the “FOMC"—or others in the Federal Reserve System. As you well know, the economy—like many facets of our lives—continues to be shaped by the unpredictable nature of the coronavirus. As I’ve said before, the pandemic is first and foremost a health crisis. | 0 |
Norges Bank agreed with the Ministry of Finance, referring to the effect on competition. 13 See “Can the authorities manage crises in the financial system?” by the Governor Stefan Ingves, Sveriges Riksbank, www.riksbank.se. 14 In the crisis simulation exercise in autumn 2007, all the Nordic countries participated. In addition, the Baltic central banks were observers. 6 BIS Review 110/2008 demanding. Perhaps above all, the exercises show that we must double our efforts to prevent any further crises in the Nordic banking system. It is also possible that the authorities' hands are tied to a further extent that during the Nordic banking crisis under the EU rules on state aid. It is my impression that the rules are practiced in a way that limits the scope for recovering government funds. If this is the case, government will be more reluctant to intervene in the event of a crisis. Norway has a generous guarantee scheme. Deposits are guaranteed up to NOK 2 million per depositor per bank – an amount that is substantially higher than the statutory minimum of EUR 20 000 in the EU, i.e. about NOK 160 000. Of the other Nordic countries, Denmark has the highest amount at around NOK 325 000. In the UK, the amount has recently been raised to a good NOK 350 000, and a further increase to about NOK 500 000 has been proposed. Other EU countries generally have lower guaranteed amounts. | Rules or practices in Norway that diverge from other countries will influence the competitiveness of Norwegian-owned bank and is in practice hardly feasible. 12 Other countries will be of the same mind. It is therefore easy, particularly in an upturn, to be drawn into a negative spiral that culminates in a least common multiplier for capital requirements. It is my view that it is important to strengthen cooperation in this area, particularly between Nordic finance ministries and supervisory authorities. We must aim at a common approach to preventing systemic risk. 13 Nordic cooperation is already extensive, but primarily focuses on crisis management of a potential crisis in cross-border banks. Crisis simulation exercises with the participation of finance ministries, supervisory authorities and central banks – 15 participants from 5 countries 14 – illustrate that interests may easily conflict and that coordination is very 9 See Ordonez, M.F. “Speech by the Governor. 2008 International Monetary Conference – Central bankers panel, Banco de Espana, 2008. 10 See article in Financial Times, 4 June 2008, “ A party pooper’s guide to financial stability”. 11 See Kashyap, A.K., R. Rajan and J.C. Stein, “Rethinking Capital Regulation”, 2008. www.kansascityfed.org. 12 In 2006, the Financial Supervisory Authority of Norway recommended that the highest loan-to-value ratio for home mortgages with the lowest risk weight using the standardised approach under Basel II be lowered from 80 to 75 per cent of sound mortgage lending value. The Ministry of Finance did not follow the recommendation. | 1 |
In view of the prevailing dynamic and often volatile financial environment, this development is important to meet the differentiated demands of investors for a broader range of financial products at more competitive prices and through more efficient and convenient channels. The listing of the Exchange Traded Fund on Bursa Malaysia will also raise awareness and generate interest of domestic and international investors in our bond market, thus contributing towards the development of a deeper and broader bond market in Malaysia. The launch of the Malaysian Bond Exchange Traded Fund would not have been possible without the close cooperation and support of many parties. In particular, I would like to thank the Securities Commission, Bursa Malaysia, the Association of Stock Broking Companies in Malaysia, AmInvest, the fund manager and the market makers for their contributions and commitment in working with the Central Bank to make the listing of the ABF Malaysian Bond Index Fund a reality. The remarkable and strong partnership between the regulators and the industry has been important in resolving significant regulatory as well as operational challenges in order to make the listing of the ABF Malaysian Bond Index Fund possible. Indeed, it represents a strategic cooperation that contributes to improve the overall growth of the financial market. 1/2 I would also like to thank AmMerchant Bank, CIMB and Maybank for their participation as the participating dealers. I also wish AmInvest, the fund manager, every success in managing and promoting the Fund. 2/2 | The other contributing factor was a rise in the price of beef, following the ban on transportation of cattle from Southern Province, a major supplier, to curb the spread of the cattle disease, Contagious Bovine Pleural Pneumonia (CBPP). Higher non-food inflation was due to increased household energy and transportation costs, following upward adjustments in prices of petrol and diesel in January 2007. During the second quarter of 2007, however, inflation is expected to slow down due largely to improved food supply. Already in April, inflation slowed down to 12.4% from 12.7% in March. What is your assessment of the recent developments in commercial banks lending interest rates? In line with lower inflation and yields on Government securities, commercial banks nominal average lending rate declined to around 28% in December 2006 from about 34% in December 2005. More recently, in April 2007, it declined further to 24%. BIS Review 55/2007 1 How would you describe the recent performance of the external sector? The external sector has continued to score remarkable improvement, as reflected in the overall balance of payments surplus of US $ million in 2006 compared to a deficit of US $ million in 2005. Furthermore, the preliminary assessment is that the current account deficit as a percentage of GDP (excluding grants) reduced to 1.1% from 11.5% in 2005. This improvement has been due to increased export receipts arising from record high copper prices and increased export volumes. | 0 |
Rachel, L and Smith, T (forthcoming), “Secular Drivers of the Global Real Interest Rate”, Bank of England. Rae, G (1885), “The Country Banker: His Clients, Cares, and Work”, London, John Murray. Schumpeter, J R (1942), “Capitalism, Socialism, and Democracy”, Harper & Brothers. Shelton, J P (1965), “The First Printed Share Certificate: An Important Link in Financial History”, Business History Review Vol. 39(3). Shleifer, A and Vishny R (1986), “Large Shareholders and Corporate Control”, Journal of Political Economy, vol 94 pages 461–88. Smith, A (1848), “The Bubble of the Age; Or, the Fallacies of Railway Investment, Railway Accounts, and Railway Dividends”, 3 editions, Sherwood, Gilbert, and Piper. Stout, L (2012), “The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public”, Berrett-Koehler. The Company Law Review Steering Group (1999), Modern company law for a competitive economy: the strategic framework. The Company Law Review Steering Group (2000), Modern company law for a competitive economy: completing the structure. The Company Law Review Steering Group (2001), Modern company law for a competitive economy: final report. Turner, J D (2009), “The last acre and sixpence: views on bank liability regimes in nineteenth-century Britain”, Financial History Review Vol. 16(2). Turner, J D (2014), “Banking in Crisis – the Rise and Fall of British Banking Stability, 1800 to the Present”, Cambridge University Press. Wolf, M (2014), “AstraZeneca is more than investors” call’, Financial Times, available at: http://www.ft.com/cms/s/0/6fe31054-d691–11e3-b251–00144feabdc0.html#axzz3gPwZ57K7. 28 BIS central bankers’ speeches | The other investment component, that linked to construction, has undergone a most significant adjustment in the past decade. This means that, in 2018, following several years 4/7 of recovery, this GDP component was still at around 16% of its pre-crisis level. The downscaling of investment in housing entailed a decline in its weight in GDP to levels close to 5% in 2018, in line with Spain’s peers, compared with 12% pre-crisis. The reduction in housing investment activity came about in parallel with a decline in house prices which, despite the growth observed in recent years, remain in real terms some 32% below the nationwide levels observed in 2007, albeit with some cross-regional dispersion. All these developments better position this sector to support economic growth, as indeed has been the case in 2018. The weight of non-residential construction, for its part, has also diminished considerably, largely reflecting the impact of the reduction in public-sector investment spending. Beyond these improvements, as I stated in my introduction the Spanish economy remains prone to certain vulnerabilities and faces significant challenges, which I shall now set out. First, despite the notable above-mentioned reduction in private debt in recent years, on the latest available data for 2018 Q3 the negative net International Investment Position (IIP) of the Spanish economy stood at 81% of GDP, and that of gross external debt at 168% of GDP, levels that are high in relation to other advanced economies and which mark a factor of vulnerability for the economy as a whole. | 0 |
Since they intended to hold them to maturity, they were able to book them at amortised cost. As interest rates rose and the bonds fell in price, a problem arose. When the bank had to sell the bonds due to the bank run, it realised a large loss, adding to the problem. This raises an important question about how different assets should be booked. Admittedly, the reason for the bank’s problem is that interest rates rose so quickly, but if the bank had been forced to book them at market value, the problems would have been discovered earlier. All this may seem technical, but it has a major impact on banks' capital adequacy, as the starting point for all capital adequacy regulations is the accounting values. I don't have a clear view of what needs to be done here, but when assets that have been booked at amortised cost have to be sold quickly at a large loss, it can affect the viability of the bank and, ultimately, financial stability, and therefore it is a problem. Global rules are important for Sweden I would also like to take this opportunity to emphasise the complexity and interdependence of the global financial system. Banks are exposed to many risks that can be difficult to both understand and monitor. Banks in most countries are also dependent on other banks and other financial institutions. Many of these are located in other countries and are therefore supervised in those countries. | One key driver is the rapid development of Fintech. While the HKMA has done a great deal in the past few years in promoting Fintech, there is still room to further apply new technology in finance in the coming years. This includes, for example, fostering a better ecosystem for Regulatory Technology (or RegTech) and Supervisory Technology (or SupTech). We are also aware that any new risks associated with the increasing use of technology have to be managed. These include for example cyber and data security. We will work with the industry to address these risks. 6. We are also committed to promoting market development opportunities, especially in strengthening the role of Hong Kong as the gateway to the Mainland’s capital markets, in the Greater Bay Area development, and also in green finance. 7. These are rough times. But my colleagues and I will continue to discharge our duties in a professional manner and do our best to serve the people of Hong Kong. 1/1 BIS central bankers' speeches | 0 |
A measure of the real exchange rate is the trade-weighted exchange rate index (TWI) in relation to relative price developments between Norway and its trading partners. The real krone exchange rate has fluctuated around a long-term average level over the past 30 years. The krone exchange rate has a tendency to return relatively quickly to its normal level if there are deviations from the long-term 7 average level. Differences in price inflation between Norway and other countries have gradually been evened out by changes in the krone exchange rate. This relationship has been robust even when there have been considerable changes in economic policy. However, the revision of economic policy in spring 2001, with the introduction of a new fiscal guideline and an inflation target for monetary policy, may still have an impact on how quickly differences in price inflation level out in the years ahead. Purchasing power parity can be illustrated by developments during the last 30 years of the German mark's life as a currency. In 1970, a German mark cost about 2 kroner. In 1986/87, it cost about 4 kroner. The exchange rate remained relatively stable in the following years. On the other hand, prices rose about twice as quickly in Norway as in Germany from 1970 to 1986. However, both the exchange rate and prices relative to Germany were stable from the end of the 1980s until the German mark ceased to be a currency. A year and a half ago, the Government and the Storting adopted new guidelines for economic policy. | Foreign interest rates have been reduced substantially to counter a downturn. High and widening interest rate differentials have probably contributed to the appreciation of the krone. Cyclical divergence is probably also reflected in the substantially higher wage growth in Norway compared with other countries. In our view, the strong krone exchange rate cannot solely be attributed to the change in the fiscal policy guidelines introduced in March 2001, which allowed for a moderate and steady phasing-in of petroleum revenues. The strong krone is also the result of an overheated labour market and relatively 5 high wage growth in Norway combined with a global downturn following a long period of expansion. Results from recent empirical analyses at Norges Bank indicate that the positive and widening interest rate differential is the main reason for the appreciation of the krone from May 2000 and up to late autumn 2002. At the same time, the fall in equity prices and reduced volatility in foreign exchange markets have contributed to the appreciation of the krone. These factors have contributed because the interest rate differential has been positive. Thus they amplify the effect of the interest rate differential. 6 Part of the appreciation in the past year may also be due to higher oil prices. Previous research has shown that changes in the price of oil have an impact on the krone exchange rate particularly when the price falls below USD 14 or exceeds USD 20 per barrel. | 1 |
However, high initial costs combined with the strong position of cards in terms of low costs, extensive networks and a reliable circle of customers at the banks who are used to handling cards present strong barriers to such genuinely new payment services. Remember that M-PESA’s success is based on the fact that only a small part of the population had bank accounts and that cards were unusual. The situation in Sweden is entirely different and as far as Sweden is concerned I do not think that the threat to cash (or cards) comes from a genuinely new product. One alternative to building an entirely new payment service is to further develop an existing service. This could relate to a new way of initiating card payments, for example by using mobile phones. In this way the new service would benefit from the advantages of scale and network effects provided by the existing service. The initial investment would also be lower as the infrastructure is already in place. The barriers to such payment services are lower than for genuinely new payment services and it is probable that development of this type would primarily be pursued by the existing players on the payment market, possibly in cooperation with an external party such as a mobile operator. Swedbank and Payair are currently running a pilot project in Uppsala on the initiation of card payments by mobile phone. Such solutions may reduce card usage in the retail sector if they are perceived to safe and easy to use. | Approximately two-thirds of the payments in the retail sector are made using cards, with some reservation for the fact that it is difficult to measure the number of cash payments in the economy exactly. The situation in Denmark and Finland is roughly the same as in Sweden. In Sweden’s case this means that we have really caught up since the beginning of the millennium when we used cards only half as much as our Nordic neighbours. In a broader international perspective, we use cards to a relatively high extent in Sweden. This particular combination of low cash usage and high card usage is unique to a limited number of countries, including the Nordic countries and Canada.1 Some countries, for example the United States, have high levels of both card usage and cash usage, but we must also bear in mind that a proportion of the United States’ banknotes and coins is in circulation outside the country. This applies to the euro area too, but the level of card usage is much lower there. Why is cash used? Why do people choose to pay in cash? There are several reasons. First, paying in cash is quick and easy for small sums. Handing over the exact sum in cash to buy an evening newspaper, for example, may be quicker than using a card. In a survey commissioned by the Riksbank in the autumn, 59 per cent of the respondents said that they preferred to pay in cash for sums below SEK 100. | 1 |
For example, when we look at how the capital ratio has changed since the financial crisis, we should bear in mind that the comparison is not like-for-like; today this ratio is constructed on the basis of much stricter definitions and criteria than those in 2009. Likewise, when we assess our ability to pre-empt and respond to a crisis, we should consider the European supervisory institutional framework we have today, which did not exist just 10 years back. Resilience of the sector in the face of crisis Though oft-repeated, allow me to reiterate a message: the point of departure of the European and Spanish banking sectors is much sounder than it was when the financial crisis burst, enabling it to be part of the solution instead of part of the problem. Although we should view the results with all due prudence, the recent SSM and Banco de España stress tests evidence, overall, the system’s resilience in the face of a shock such as that we are experiencing, despite the natural dispersion in individual results. 2 In conclusion, we have a stronger and more resilient banking system, subject to more rigorous regulations and to pan-European centralised supervision. Macroprudential framework The elements I have just described give shape to what we know as microprudential supervision, and which, until recently, we simply called supervision. | Coordinated application of these tools will clearly pose a challenge to the new Spanish macroprudential authority (AMCESFI), which published its first annual report on 31 July. I think it may be inferred from what I have said that the definition of macroprudential policy is currently evolving. In the present decade, we are moving from the drawing board to implementation, that is to say from the theoretical framework to practical application, while attempting to learn from experience in other jurisdictions. 4 One of the issues currently under debate is the usability of these buffers and the possible constraints that may limit it. As I have already mentioned, the amendments to the Basel III microprudential framework also include specific capital buffers, for example, to cover the systemic dimension of some institutions or to conserve capital. Clearly these liquidity and capital buffers are helping in the present situation, but banks are reluctant to use them, given the implications that a reduction in the capital ratio would have on the markets and the fact that it could potentially affect the coupon payments on certain issuances. In this respect, the macro and microprudential authorities need to collaborate to coordinate the measures to be adopted in this context. Evidently, many of the actions taken in response to the crisis have implications for both types of supervision. Some examples would include the recommendations on the use of liquidity and capital buffers, supervisory expectations regarding the timeline and conditions for replenishing buffers and, more recently, recommendations on dividend distributions and variable remuneration payments. | 1 |
In practice it is often interpreted as stabilising resource utilisation around its normal level. I think that is a fairly reasonable interpretation and it is not easy to argue for anything entirely different. At the Riksbank we approach the concept of a well-balanced monetary policy by forecasting such things as inflation and resource utilisation for different monetary policy actions. After this we try to select the course of action associated with the best possible forecast outcome; in other words the forecasts where inflation is best stabilised around the inflation target and resource utilisation around a normal level. This may sound simple and obvious but in practice is not that easy. In the first place, the best measure of resource utilisation is far from obvious and we Executive Board members may have slightly different opinions on this. 9 We are constantly working to improve the measures of resource utilisation and this is important. But as I see it Implications, Wiley 2003. Lars Nyberg discusses the balance sheet channel in more detail in the speech “After the crisis – new thoughts on monetary policy” published on 6 December 2010. 9 For a more detailed discussion of how resource utilisation can be measured, see the speech “Potential GDP, resource utilisation and monetary policy” by Svante Öberg held on 7 October 2010, and the article “The driving force behind trends in the economy can be analysed using a production function” in the Monetary Policy Report of October 2010. | David Clementi: Recent developments in securities markets and the implications for financial stability Speech by David Clementi, Deputy Governor of the Bank of England, to the Euromoney International Bond Congress, London, 21 February 2001. * * * Introduction Let me begin by saying how pleased I am to be giving the closing address at this Conference. I know, in previous years, the Governor has done the honours. While he is engaged elsewhere today, I am glad to keep up the association with the Bank. Especially now we have joined the ranks of issuers in the Euro markets in our own name. If you did not have a chance to subscribe to our euronotes in January, the issue - the 4.5% of 2004 - will reopen in April, July and October. But I have not come to plug our paper. Nor have I come to talk about monetary policy. The minutes of the February meeting, published this morning, are designed to set out the MPC's considered view as well as the vote itself. On the voting front, you will find there was a rare outbreak of unanimity in the Committee with a nine to nothing vote for the recent ¼% cut in rates. But there is little on this front that I can add that is not already in the minutes or in the Inflation Report we published last week. I want to talk instead about recent developments in bond markets that impinge on the Bank's role in relation to financial stability. | 0 |
To-date, the CCI has facilitated 239 cross-border financing deals worth over $ billion. In 2022 alone, 27 financing deals worth about $ billion were concluded. The second imperative – green and transition financing – is a new dimension in financial co-operation between China and Singapore as well as ASEAN. Many countries and corporates have made commitments to reach net-zero by 2050. Financing is critical to support these efforts and facilitate the progressive decarbonisation of our economies. McKinsey has estimated that $ trillion a year till 2050 is needed to achieve netzero. One-third of this amount is required in the Asia-Pacific. MAS and the People's Bank of China (PBC) have formed a China-Singapore Green Finance Taskforce. The Taskforce will: facilitate public-private sector exchanges to better mobilise private capital for sustainable development needs; and collaborate on standards, financing solutions, data collection, and technology enablers to enhance green investment opportunities in China and the ASEAN region. The first session of the Taskforce will be held tomorrow in Chongqing. Let me suggest four potential areas of co-operation between Chongqing and Singapore, leveraging on the work of the China-Singapore Green Finance Taskforce. First, we can work together to incubate pilots and test initiatives. 2/3 BIS - Central bankers' speeches Chongqing has a green financial reform and innovation pilot zone. This could serve as a safe space for green finance initiatives to be piloted. As Taskforce discussions progress, we can work closely with Chongqing to assess suitable green projects for incubation. | The good news is that sustained monetary policy tightening by major central banks has begun to break the momentum of rising inflation. The bad news is that inflation remains elevated. The longer inflation remains elevated, the greater the risk that inflation expectations become unhinged. If inflation expectations rise, monetary policy would have to be tightened even more to restore price stability. It is important that monetary policies remain tight. In Singapore, monetary policy remains tight. The MAS has just announced maintaining its current policy stance following five consecutive rounds of policy tightening. 1/3 BIS - Central bankers' speeches Maintaining an appreciating path for the nominal effective exchange rate of the Singapore Dollar means that monetary policy will continue to have a dampening effect on inflation. Imported inflation is already negative and core inflation has peaked and is projected to decline over the second half of 2023, towards 2.5% by year-end. But it is too early to declare victory. MAS will remain vigilant to any signs of a resurgence of inflation. Even as we remain vigilant on our current challenges, let us not ignore our longer-term imperatives. I will highlight two such imperatives for China and Singapore: financial market connectivity and co-operation; and green and transition financing. The CCI Financial Summit has been a key platform for financial co-operation between Chongqing and Singapore. Since its inception in 2015, the CCI Financial Summit has connected more than 2000 policymakers and industry leaders from ASEAN and China, to exchange ideas and to explore new areas for cooperation. | 1 |
Perhaps that is why marriage rates have halved, and divorce rates doubled, in the UK since 1970; why the tenure of global CEOs has halved since 1995; and why holding periods for stocks has more than halved since 1980. For many key decisions, myopia has been mounting. It may also have become self-reinforcing – a myopia trap. For addicts, shortened horizons generate a quest for quick fixes which further shorten horizons in a downward spiral (Coffey et al. (2003)). For gamblers, a sequence of losses shortens horizons and increases risk- BIS central bankers’ speeches 3 taking (Xiu et al. (2011)). For depression-sufferers, low confidence in the future becomes self-fulfilling (Alloy and Ahrens (1987)). Myopia traps affect countries as well as individuals – and their macro-economic costs can be large. For developing countries, they often materialise as “poverty traps” (Sachs (2005)). That trap is self-sustaining because poverty leads to under-investment in the human and financial capital that would allow the country to break free in the future (Banerjee and Duflo (2011)). Low future prospects for growth become self-fulfilling. Advanced economies are not immune to these problems. An information-rich-attention-poor world will generate under-investment in physical and human capital, infrastructure, the environment. That will be self-sustaining if it lowers future prospects or heightens future risks (Davies et al. (2013)). More hurry then assuredly means less speed. This is not a poverty trap. It is a poverty of attention trap. Policymakers have recently begun to focus on shorttermism, perhaps for that reason (G30 (2012), FSB (2013)). | To the extent these advantages can be realized, a centralized utility can reduce the risk of damaging contagion from a failure of a financial institution affecting overall market liquidity. By making some types of losses more predictable, they can reduce the incentive for firms to withdraw liquidity from and reduce exposure to other counterparties that they believe might have credit exposures to the failed institution. Global integration of payments systems The increase in cross-border financial activity, the global reach of the largest financial institutions, and as a consequence the greater transnational scope of many payments systems have provided a compelling rationale for cooperation to set a higher level of international standards for payments and settlement systems. These same dynamics may lead eventually to a more uniform international platform for payments and settlement concentrated on a much smaller number of systems. But we are not there yet. The myriad of different systems that make up the global network means that payments now cross a complicated mix of legal, technological, and supervisory borders. And this means banks are exposed to settlement risk in a remarkably large number of different value transfer systems. One large U.S. internationally active financial institution now operates in 400 separate payments systems around the world. Differences in legal regimes mean different netting arrangements, collateral requirements, close-out procedures, and bankruptcy implications. Differences in operating platforms and communications standards can increase operational risks. | 0 |
Mr. Chairman, in good times, we normally take the stability and integrity of our systems for granted. Perhaps one of the key lessons from the current crisis is that we should never, ever, take stability and integrity as being “given” conditions, in the future. But, let’s remember that memories are short. This global crisis will almost certainly be forgotten in a few years time. It is also likely that if we enjoy a strong run of growth and prosperity for a few years, our minds too will probably dismiss thoughts of destability. Today’s grim discussions would then be relegated to the drab background, and in its place, the glitz and glamour of fast growth, handsome profits, stunning incentives, and fabulous wealth would reign supreme. Unfortunately, Mr. Chairman, if and when that happens, the world would unconsciously drift into the danger zone yet again. Needless to say, if we do not want such an eventuality to take place, the price would be intense vigilance on the part of the regulators, governments, media and the academia. I know that is going to be tough, but in the interest of all stakeholders, I sincerely hope it works and that the academia, governments, media and regulators would face up to that challenge. | The embarrassing summersaults that various governments had to perform by unceremoniously ditching some of their most sacred and fundamental policies, have also been better understood, by many communities. Now, what is needed is to move forward decisively within this new paradigm. To do so effectively, we have to essentially place some barriers to deal with unsustainable risk taking. The freedom of the wild ass that supported unfettered and reckless economic actions to create things out of nothing has to be dealt with. At the same time, we need to revisit some of the fallacies that developed over the last decade or so, including those that indirectly said: “Don’t worry too much about a few bubbles”; “markets are always right”, “innovation should not be discouraged”; “state intervention is dangerous”, etc. In a way, some of these positions perhaps prompted a kind of an unconscious regulatory anarchy! The resulting subdued regulatory reactions were of course exploited by the greedy market and the rest is history! This time round therefore, the wisdom of such concepts and absolute reliance on them, would need to be critically reviewed. What then should we do? Maybe, we could start by making a “Wish-list”, and then moving towards making a “To-do list” to realize such wishes. What could we wish for? First, perhaps we should wish for effective “immunization” mechanisms to safeguard national financial systems from the contagion effects of globalized viruses and cross border toxic elements. | 1 |
For emerging economies, capital flow volatility is a fact of life and something that policy makers have to deal with; and we have to acknowledge that the size and volatility of capital flows will only intensify. While the transmission of global shocks to the domestic economy through the real economy channel – that is through trade and investment – is something that we have been dealing with for decades, policy makers today are confronted with the increasingly dominant channel of 1/3 BIS central bankers' speeches transmission of shocks through the financial markets, at least in the immediate term. All of us have experienced how spillovers from external developments that were manifested through capital flow volatility have adversely affected domestic financial markets, asset prices, liquidity conditions and importantly, exchange rates. All these challenges make for a complicated policy environment for ASEAN central banks. Gone are the days when keeping our own house in order is enough. Sure, good fundamentals matter as they have no substitute. They are, however, no longer sufficient. As Keynes rightly pointed out a long time ago, “the market can stay irrational longer than you can remain solvent.” Often, we have seen how external developments that are beyond our control, such as the unprecedented quantitative easing by the advanced economies and the subsequent Taper Tantrum, triggered periods of large inflows followed by sharp reversals in emerging economies with severe consequences. For small open economies, these flows can easily overwhelm the domestic financial markets and lead to build-up of vulnerabilities in the economy. | Chart 11 provides an assessment, drawing on IMF analysis, of the evolution of structural deficits and surpluses for two alternative scenarios, with the red dashed line corresponding to an assumption that supply impairment in the advanced economies as a result of the crisis is minimal (and therefore output gaps are correspondingly large), whereas the blue dashed line – which corresponds to the IMF’s central case – assumes a relatively high degree of supply impairment (and therefore substantially smaller output gaps). In the former case, the bulk of the post-crisis narrowing in imbalances is attributed to cyclical factors, whereas in the latter they are attributed to structural factors. Clearly, depending how one reads the data, one can arrive at a different conclusion. An alternative way into this is to look at what has happened to relative prices, rather than quantities. A natural counterpart of a rotation in demand from the advanced to the emerging world should be a fall in the real exchange rates of the former and a rise in those of the latter. By increasing the profitability in deficit countries of producing internationally tradable goods and services relative to that of non-tradables, that should facilitate the necessary shift of resources between sectors. The opposite is true for the emerging economies. Chart 12 shows such a shift has taken place since before the crisis, with both sterling and the dollar depreciating in real terms, and the renminbi appreciating. | 0 |
Dear Ladies and Gentlemen, The financial system and the banking sector at the heart of it play a unique role for economic development and welfare in Albania. This system provides payment instruments, contributing to the free circulation of products and services. It also offers savings and credit instruments for households and enterprises, promoting therefore development and enhancing welfare. The financial system helps households, enterprises and the economy to withstand shocks, by undertaking risks on its balance sheets and offering products to insure life, business activities and against natural disasters. Therefore, the efficiency, stability and sophistication of the financial system are essential preconditions for rapid, stable and comprehensive growth. The development level of an economy is inter-related and inter-dependent on the development level of its financial system. This has been extensively illustrated by the Albanian experience over the last three decades. The progress marked in the first decade of transition was conditioned by, among other things, embryonic developments in the banking and financial sectors. In the second decade, the activity of the banking sector expanded and competitiveness in this sector increased, setting the stage for crediting and economic growth to gather speed. This performance was disrupted by the global financial crisis effects spilled over to Albanian economy. However, unlike in many countries of the region, the crisis did not trigger recession or a proper financial crisis in Albania. Yet, indirect effects were present both in the economy and in the financial system. | Its successful realisation will enable our economy to grow at a fast and steady pace, and will mark a step forward in our journey towards EU integration. On behalf of the Bank of Albania, let me affirm our readiness to rise to the challenge. I am also confident that today’s conference will provide a significant contribution to finding optimal solutions. Hoping that you will find the Conference and your stay in Tirana both valuable and enjoyable, I wish the conference a great success! Thank you for your attention! 4/4 BIS central bankers' speeches | 1 |
Mario Draghi: ECB press conference – introductory statement Introductory statement by Mr Mario Draghi, President of the European Central Bank, Frankfurt am Main, 4 December 2014. * * * Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to the first press conference in our new premises. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis. Based on our regular economic and monetary analyses, and in line with our forward guidance, we decided to keep the key ECB interest rates unchanged. As regards our nonstandard monetary policy measures, we have started purchasing covered bonds and asset-backed securities. These purchase programmes will last for at least two years. Next week, we will conduct the second targeted longer-term refinancing operation, to be followed by six further operations until June 2016. Taken together, our measures will have a sizeable impact on our balance sheet, which is intended to move towards the dimensions it had at the beginning of 2012. In the coming months, our measures will further ease the monetary policy stance more broadly, support our forward guidance on the key ECB interest rates and reinforce the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies. However, the latest euro area macroeconomic projections indicate lower inflation, accompanied by weaker real GDP growth and subdued monetary dynamics. | Out of 48 countries considered in the study, 35 adopted some of the macroprudential policies identified. This amounts to 73%, a significant fraction. However, there is large concentration in few policies. In effect, the most commonly adopted policies are those aimed at reducing the vulnerability of borrowers. For instance, the most widely used measure across countries is caps on Loanto-value. They have been present in 24 out of 48 countries studied in the period that ranges from 2000 to 2010. Two more countries should be added that adopted similar policies (Debtto-income caps). Overall, 54% of countries applied this type of measure. The second most common objective of macroprudential policies adopted is reducing credit growth, with 14 out of 48 advanced and emerging countries (29% of the sample) having used one or more of the instruments in this group. Six countries opted for direct caps on credit growth, five for reserve requirements, nine for dynamic-loan loss provisioning, among which two also applied countercyclical capital requirements. Finally, limiting foreign currency exposure was adopted by eight countries, while restrictions on profit distribution by six. 2 BIS central bankers’ speeches As mentioned before, there have been several studies assessing the impact of macroprudential policies in cross-country settings. 1 For the sake of brevity, I will focus on the results of variables that have been tested in at least five studies. | 0 |
In this case, the additional revenues will not influence the economy, but be invested abroad via the Government Petroleum Fund. On the other hand, if the additional revenues are absorbed in the domestic economy through increased government budget expenditure, total domestic demand is influenced. Increased expenditure requires an increase in the public sector’s use of resources, primarily labour. In this case, 1% of GDP is substantial. If such an increase in oil revenues is used domestically, it corresponds, for example, to around half of average annual growth in the economy. If the private sector of the economy also expands while the economy is nearing capacity limits, such a policy will heighten the pressures on resources in the economy, which in turn fuels inflationary pressures. Unfortunately there was a clear tendency of such a policy in 1996, 1997 and 1998. The non-oil government budget deficit was indeed reduced, but the division of responsibility in economic policy required a more active tightening. Rather than conducting a tight policy and countering the higher 9 BIS Review 20/1999 growth in the business sector, the increase in budget expenditure entailed that the public sector also contributed to fuelling pressures in the labour market. As a result, a small change in oil prices had the effect it was not intended to have: it was accompanied by an increase in public sector demand. Foreign exchange market participants observed that economic policy was not oriented towards containing pressures in the labour market. | 2 Source: “Trade Transformed: The Emerging New Corridors of Trade Power”, Citibank (Oct 2011) & McKinsey. 3 Source: “Under Pressure: Funding in an Uncertain World”, Allen & Overy (Oct 2011). BIS central bankers’ speeches 1 arising from revised Basel capital rules. Nevertheless, we are unlikely to see sudden dislocation in the Asian financing landscape because of the following: 6.1. First, Asian banks remain well-capitalised, and notwithstanding cost/deleveraging pressures, international banks will want to preserve their Asian franchises given Asia’s stronger growth potential relative to other regions. 6.2. Second, bank financing in Asia will adapt. Some banks have already begun to explore certain risk-transfer mechanisms (e.g. credit insurance) to continue extending credit, while complying with stricter capital rules. Other banks have shifted to “originate and distribute” models which allows them to play a role in long-term financing even as they scale back their provision of long-term loans. We expect banks in Asia to continually explore new models to remain relevant and constantly develop its expertise to meet Asia’s financing demands. 6.3. Third, growing role of non-bank capital to complement bank financing: The signs are very promising. From 2007-2011, the proportion of aggregate capital raised by private equity growth funds in Asia Pacific has almost doubled from 32% to 62%. On debt markets, we have seen strong issuance activity in Asia Pacific ex-Japan. | 0 |
The economic distress and the extraordinary uncertainty about the future course of the pandemic have set off a tidal wave of flows of money away from riskier investments to the safety of cash. This sudden shift led to an evaporation of liquidity and breakdowns in the functioning of key 1/4 BIS central bankers' speeches financial markets. This includes the market for U.S. Treasury securities, the cornerstone of the global financial system. These developments, if left unchecked, threaten to starve our economy of the credit that it badly needs during this difficult time. The Response Last month, as the risks posed by the coronavirus became increasingly apparent, the Federal Reserve took swift and decisive action to support the economy and stabilize financial markets. In two unscheduled meetings in the first half of March, the Federal Open Market Committee (FOMC) quickly brought the target range for the federal funds rate to near zero.1 The FOMC also signaled that it expects to keep interest rates at this level until it is confident that the economy has weathered recent events and is on track to achieve the Fed’s maximum employment and price stability goals.2 These monetary policy actions serve two purposes. First, low interest rates make it easier for households and businesses to meet their borrowing needs during this time of economic stress. Second, they foster broader financial conditions that will help promote the rebound in spending and investment needed to return the economy to full strength. | I want to emphasize that this is first and foremost a public health crisis, and a human tragedy. It’s our doctors, nurses, and healthcare professionals who are on the front lines, fighting this disease and caring for those who are suffering. We owe them a great debt of gratitude. My sincere thanks is also with the grocery store workers, those in law enforcement and transportation, and everyone who continues to carry out essential work each day. The Scale of the Challenge The necessary actions taken to slow and contain the spread of the coronavirus are not only changing how we live our lives, but are also having a profound effect on the economy and financial markets, both here and abroad. Although many people have drawn comparisons with the financial crisis of 2008, the current turmoil is fundamentally different from recessions of the past. The challenges before us do not stem from vulnerabilities at banks or the bursting of a bubble—I can only liken them to a natural disaster of global proportions. If we look back to February, the American economy was strong, with unemployment at historical lows. But, now, social distancing and other restrictions imposed in response to the pandemic are causing severe, rapid declines in jobs and income. Unprecedented numbers have filed for unemployment insurance in the past several weeks alone, and we know that more economic pain is still to come. The reality is that the full scale of the economic consequences is still unknown. | 1 |
It is an important reason why the economic recovery and expansion have been weaker than we would like, despite the efforts of the Federal Reserve to stimulate economic activity. It also matters as we look forward. The good news is that, while the current expansion is quite old in chronological terms, it is still relatively young in terms of the health of household finances. Later in my remarks, I will talk a bit about the outlook for consumer spending in 2017 and beyond. It’s worth starting off with some background in order to develop the linkage between housing wealth and retail spending. Household incomes tend to increase as individuals grow older and become more skilled in their work and better matched to their employers. This tends to continue until they approach retirement age. This means that incomes are much higher later in life than when people first enter the workforce. Ideally, households would like to be able to even out their consumption based on their lifetime incomes, raising consumption in their early adulthood years. In general, this would mean that young people would consume a relatively high share of their incomes, while older people would save more. Indeed, young people might even wish to borrow against some of their future income so that they can enjoy some of those benefits earlier in their lifetimes. However, there are limits on the ability to shift consumption to earlier in life through borrowing. One problem is that lenders don’t have a reliable way to compel repayment of such debts. | As it is actually typical for most central banks in the world, through the work of its museum, the National Bank has gradually established itself as an important cultural treasury of the numismatic cultural legacy of civilizations that existed in this region, thus giving its contribution to the enrichment of the Macedonian society with permanent and irreplaceable values; those without which common knowledge is doomed to poverty, without which we would not be able to recognize and understand the universal values of civilization that have been mounting for centuries in the long civilization pace of human existence. The National Bank of the Republic of Macedonia, together with the National Institution Stobi, have decided to approach the Macedonian public exactly on May 18th – the International Museum Day, jointly organizing this important exhibition, where for the first time an extremely valuable cultural heritage is presented to the public. It includes 19 unique fresco-fragments from the inner walls of the Old Episcopal basilica in Stobi, dating from the 4th century BC, which the history of art considers an exclusivity of paramount importance, given that this kind of artistic creation is not present in the wider range of the European mainland. Within the exhibition, the curators from the National Institution Stobi enabled us to closely look at the details of the mosaic floors that decorated this building. In addition, part of the exhibition are also the unique fresco-details that adorned the baptistery, which is located next to the Basilica. | 0 |
The US economist Robert Gordon says that the pace of innovation has slowed down substantially since the 1970s and that today’s innovations do not provide the same productivity gains as the earlier ones, which should dampen the global willingness to invest. Demographic developments affect the composition of the population and can also have consequences for saving and investment. We are now heading towards an 20 For a description of the method, see De Rezende (2017) and De Rezende and Ristiniemi (2018). 17 [24] increasingly ageing population with more old-age pensioners and fewer children. Demographical factors are generally difficult to analyse and there are arguments that global saving can both increase and decrease as a result of demographic developments. Seen in a life cycle perspective, we save the most when we are of working age. This is when most of us earn the most and are motivated to save for our retirement. The majority of household savings and labour supply therefore comes from people of working age. Minors and children have little income and consume from their parents’ incomes and therefore contribute negatively to total savings. Old-age pensioners also contribute negatively as their labour supply is small and they largely live off their savings. Figure 12. | Such reports do not in any way implicate the customers of any unlawful activity or that investigation will commence as soon as the STRs or CTRs are lodged. Let me reiterate that the submission of these reports is to facilitate the gathering of financial intelligence for analysis purposes. Then, it is equally important to establish a range of red flags to enable detection of suspicious transactions. One important area is to be alert on high risk jurisdictions. Bank Negara Malaysia has, from time to time, provided information on this area such as circulars on countries that are deficient in their AML/CFT regime as identified by the FATF. In addition, please do keep yourself updated on sanctions from the United Nations as well as reports from multilateral organisations, such as the UNODC, which report on AML/CFT matters for a number of countries. Information from various sources would support the STRs and CTRs mechanism. The effective implementation of internal AML/CFT programme relies strongly on the capacity and capability of the resources supporting the programme. This is translated into the third 4 BIS Review 99/2010 key aspect of the AML/CFT programme, that is the provision of adequate and applicable resources to the compliance section of your institution. It is the responsibility of your Board and management to ensure that the compliance section is given due consideration and importance in terms of resources. It is within this context that I see the financial institutions corporate social responsibility (CSR) should be undertaken. | 0 |
To put it in another way, the framework in question is intended to establish a balance between flexibility and safety, gradually easing the burden on employment, increasing the firms’ and workers’ capacity to adopt to changes, increasing the quality of workers that are transferred from the agricultural sector, and developing active labor policies to meet labor market’s needs. In the last part of my presentation, I would like to briefly mention the current account deficit problem. As it is known, in line with the high growth rate, an upward trend is observed in the current account deficit. Today, the primary reason of the current account deficit is that investments grow faster than savings. In 2005, the current account deficit was recorded as USD billion 23.1 billion and the ratio of current account deficit to national income was 6.4 percent. In this ratio, the impact of energy prices, which is composed of the prices of crude oil, natural gas and coal, was 1.4 points and the impact of the rise in crude oil prices alone was 1.1 points. By April 2006, the current account deficit increased to USD 26.8 billion. However, the question is not the level itself but its sustainability. When global trends are analyzed, it is observed that countries, which have succeeded in increasing financial and economic integration and reinforced macroeconomic stability, are able to sustain higher current account deficits compared to the past. | The success attained in these three areas, which are interlinked with each other and shape expectations, has activated Turkey’s economic potential. In my opinion, the milestone in attaining enhanced confidence, stability and predictability of economic policies and especially of monetary policies, was the Central Bank of Turkey becoming independent in 2001 with the amendment to Central Bank Law, and its becoming primarily committed to achieving and maintaining price stability. Starting from 2001, when the Central Bank achieved its independence, Turkey has been experiencing a ‘disinflation process’. In the four years to follow, inflation targets were announced, these targets were achieved and a strong and reliable monetary policy history was established. With determined implementation of macroeconomic policies, particularly of fiscal policy, accompanying a large number of significant structural reforms, the strong support of international institutions and the perspective of the European Union, this process, as a whole, has established a more reliable, stable and predictable economic environment. BIS Review 68/2006 1 This environment should definitely be maintained and any kind of efforts and discourses that may raise doubts about the determination of economic policies or worsen expectations should be avoided. The stage Turkish economy has reached is the concrete proof to what extent price stability-centered macroeconomic stability is significant and vital for achieving sustainable growth, an increase in employment and an improvement in welfare, which are the ultimate objectives of economic policies. Within this framework it can be clearly seen that price stability is not a monetary policy cliché. | 1 |
Nocera noted that “in 2007, the chief executives of the Too Big to Fail Banks made, on average, $ million … more than double the compensation of the top nonbank Fortune 500 executives.” A recent survey conducted for the Wall Street Journal of CEO compensation at 350 public companies shows that financial services compensation has been tempered; the rate of increase in compensation for 2010 was just 1 percent.11 The Journal attributed this to higher levels of scrutiny of financial firms as well as pressure from shareholders and regulators. Even so, some financial-sector CEOs enjoyed robust increases in their total compensation, including a 74 percent increase and a 51 percent increase at two of the five largest U.S. banking organizations. Interestingly, the trading revenue of these two firms accounted for almost half of the $ billion in total trading revenue mentioned by Mr. Wilmers. These recent numbers buttress Nocera’s reasonable conclusion that bank CEOs “were being compensated in no small part on their trading profits – which gave them every incentive to keep taking those excessive risks.” I am sympathetic to these concerns. I have no problem with risk takers being rewarded with large compensation packages. I put my own and my partners’ capital at risk for the 20 years I operated in the markets and profited handsomely. But I never was provided with capital that was safeguarded by government guarantees. | Richard W Fisher: Containing (or restraining) systemic risk – the need to not fail on “too big to fail” Remarks by Mr Richard W Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas, before the Market News International Seminar, New York, 6 June 2011. * * * The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System. Thank you for that kind introduction. This discerning audience no doubt noted that despite being overeducated, I am not a formally trained economist. I do not have a Ph.D. in economics; those who do will correctly deduce that I am somewhat “dismal” in comprehending the arcana of “the Dismal Science.” After my undergraduate education in economics and my studies at Oxford, I took a different path. I earned an MBA and then went to Wall Street and into funds management before cashing out and taking to public service. My perspective on monetary policy and regulation is shaped less by theory and more by my experience as a market operator. I confess that in matters of monetary policy and regulation, I am often in the minority. This does not make me the least bit uncomfortable. The majority opinion is not always right; indeed, my experience as an investor has biased me to conclude that more often than not, the consensus view is the wrong view, even among the most erudite. | 1 |
The interest rate decision and our forecast for the interest rate To summarise, one can say that two forces are pulling in opposite directions (slide 13). One is the stronger development here at home, and the other is a slightly weaker demand abroad. But even if we expect that slightly poorer international growth will have a dampening effect on the Swedish economy, this is not sufficient to hold back the increased cost pressures. The interest rate therefore needs to be raised, and this was what we did around two weeks ago (slide 14). With regard to the future repo rate, our forecast remains largely the same as in June, despite the fact that a lot has happened in the world economy since then. So to keep the underlying inflation rate around our target of 2 per cent a couple of years ahead, our assessment is that it is necessary to raise the repo rate slightly further in the future – to around 4.25 per cent during the first half of 2008. This interest rate policy should at the same time contribute to balanced growth in production and employment. A couple of words about uncertainty – a forecast and not a promise There is always considerable uncertainty regarding future economic events. This means there is also considerable uncertainty regarding future repo rate movements. The interest rate path we have published is a forecast. It is not a promise! There are primarily two risk scenarios involved this time. | And by being clear about how we view future monetary policy we can also increase the efficiency of monetary policy (slide 1). It is not merely the current interest rate decision and the current level of the interest rate that are important to future inflation and demand in the economy. Households and companies do not base their financial decisions only on the current interest rates. Expectations of how the repo rate will develop over the coming years are at least as important. But there are also other reasons for the increased openness. As I mentioned earlier, public support and legitimacy are a fundamental requirement for monetary policy to work. We have freedom with responsibility and with this come demands for insight and accountability. Openness is also something that has long imbued Swedish public administration. The principle of free public access which means that public authorities' activities shall as far as possible be carried out openly, was established as early as the late 18th century, a time when few other countries had such ideas. So this is a long tradition we are maintaining. The fact that we are examined closely is also something that affects the efficiency of our work. The more open we are, the easier it is for a member of the Committee on Finance or any other member of society to evaluate how well monetary policy works. Clarity and increased openness outwards lead to a better discussion of monetary policy. | 1 |
BIS Review 113/1999 2 Until a decade ago, one might have been fooled into thinking that there were in fact two separate European identities supported by two distinct economic systems. However, this would be to deny the close ties which still existed, even under the difficult circumstances of the time, between countries both east and west of the Iron Curtain. Events since the fall of the Berlin Wall have now shown that this difficult period did not destroy but merely delayed a process of further European integration – including both East and West – which is a natural consequence of our shared political and economic interests and our common cultural heritage. Ever since the velvet revolutions which swept across central and eastern Europe a decade ago, it has been apparent that, as part of their difficult transition to properly functioning market economies, these countries would become increasingly integrated with the economies of western Europe. Moreover, it was clear that this process, with its ultimate objective of accession to the European Union, could not be achieved instantaneously, but would have to be extended over a period of time, in some cases a considerable period of time. No other scenario could be foreseen, given the largely uncharted path which these countries had to tread in dismantling the old system of central planning and replacing it with the structures necessary to support a properly functioning market economy. | The ceiling, being the average in the last decade of our 22 competitor countries, reflects our determination to be internationally competitive with them for the years to come. Our inflation targeting model, although linear-quadratic, shows the zone or banding features by exhibiting a fan-shaped prediction both for the GDP and inflation. The Inflation Report that we issue at the end of each quarter shows an advanced feature in that it gives a sensitivity analysis around a band of exchange rate and a range of oil prices, something countries more advanced than us have hitherto been unwilling to enter into. But as I have said, we are trying to be transparent and trying to get our people and investors to be able to act as accurately as possible and to form a view as to what the future of the economy might look like. We believe entirely that the better the estimates, the lower will be the costs one puts or has to put for taking the risk of investing in the economy and that, in the long run, the country will be more competitive using less resources to produce the same goods other countries are producing. For this reason, we are constantly trying to improve our techniques. | 0 |
Henrique Meirelles: Regulation and international standards in Brazil, the US, the EU and Switzerland Speech by Mr Henrique Meirelles, Governor of the Central Bank of Brazil, at the First International Conference on Law & Economics, IBMEC São Paulo, in cooperation with the Foundation for Law and Economics at the University St Gallen, Switzerland, held in São Paulo, 2 April 2009. * * * The world is experiencing the most severe economic and financial crisis in 80 years. What started as a deleveraging process in the US banking system has extended to a strong downturn not only in advanced economies, but also in the emerging world. It is emblematic that we are here today in São Paulo discussing regulation at a time the issue is also being discussed at the meeting of heads of states of the G-20 in London. Much of the focus of the meeting relates to the redesign of the international financial system and its regulation, including possibly the outline of a sort of international financial regulator. The current financial turmoil is ultimately a result of the failure of regulators, supervisors and policymakers in the advanced economies to prevent excessive risk-taking and leverage and to account for the interplay between regulated and non-regulated markets, partly due to their fragmented regulatory frameworks, partly due to legal restrictions on information and data sharing. Lax regulatory standards, coupled with poor risk management practices, deleterious incentives for risk-taking and deficient corporate governance structures in financial institutions are costing the global economy a high price. | I believe we need to have this new framework in place by 2010, as the current crisis is left behind, hopefully, and growth and stability are restored. As part of the work program already laid down in the G-20, critical points in the reform include the need to make regulatory capital more neutral over-the-cycle, by integrating the macro prudential framework into the required capital of individual institutions; the need to reach, with prudential regulation and supervision, all quarters of the financial industry; and the need to enhance transparency of financial instruments and markets. Thank you very much. 2 BIS Review 44/2009 | 1 |
The banking system profitability, which is estimated through return on assets and return on equity, is positive but lower than a year earlier, whereas the effectiveness indicator is higher. As at end-2011, the capital adequacy ratio of the banking system was about 15.6%, being higher than in 2010 and significantly higher than the 12 % minimum regulatory requirement. Supervision During 2011, the supervision of banks and non-bank financial institutions was strengthened in accordance with international standards and dynamic requirements that the financial situation in European market has brought about. On-site examinations aimed at a complete evaluation of institutions’ risk profile, followed by examinations initiated from appearance of specific issues at licensed institutions. Overall, the system operated in accordance with the requirements of the legal and regulatory framework. Year 2011 recorded the finalisation of a number of new regulations and amendments to some other banking supervision regulations, aiming at alignment with Basel Committee standards, European Union directives and best practices on banking regulation and supervision. I would highlight here, regulations on: credit risk, liquidity and operational risk management; enhancement of financial institutions’ transparency to their clients; and, expansion, diversification and well functioning of business processes of financial institutions. In order to address the liquidity risk, at end-2011, some regulatory amendments were made, including re-definition of liquid assets, increase in the minimum regulatory threshold liquid assets to short-term liabilities ratio to 25%, and the start of implementation of two separate limits for the indicator in the national currency and in foreign currency at the minimum level of 20%. | It would take too long in this context to analyse what conclusions should be drawn for the future, and it is probably too early to do so yet, but I shall nevertheless share my impressions this far. In conclusion, I shall discuss how monetary policy can complement the more acute financial measures taken, and alleviate the effects of the financial crisis on the real economy. Acute financial crisis… The turn for the worse can be clearly dated to the middle of September when US investment bank Lehman Brothers was forced to file for bankruptcy protection. Money market participants had not expected such a prominent bank to default. When the bank nevertheless defaulted, fears grew that more participants risked the same fate. This was when the confidence crisis broke out in earnest. No one dared to lend money to anyone else because of fears that the other party could become insolvent and the money that had been lent would disappear. Investors preferred to put their money in government securities. One result was that interbank lending around the world more or less ceased. The difficulties the banks had experienced earlier with financing at longer maturities were intensified. The banks’ borrowing costs increased further and companies outside of the financial sector also experienced financing difficulties. At the same time, the large US commercial paper market suffered substantial disruptions. This market is an important source of financing, both for financial companies and ordinary industrial companies. | 0 |
Since December 2004, key interest rates have risen from 2.25% to 5.25% in the United States, from 4.75% to 5.75% in the United Kingdom and from 2.00% to 4.00% in the euro area. As regards the latter, the seven increases in interest rates implemented since December 2005 have, as mentioned above, been accompanied by strong GDP growth, and during this period monetary policy has ensured price stability at the same time as more than two million jobs were created. The ECB’s monetary policy stance has aimed, in accordance with the Treaty, to maintain price stability over the long term. In sync with the consolidation of growth in the euro area, it has gradually been adjusted upwards, with the Governing Council striving consistently to calibrate interest rates as precisely as possible to allow growth to firm, while ensuring it is not jeopardised by mounting inflationary pressures. Price stability is foremost among the objectives assigned to central banks in all countries. This is not a random choice. It is the fruit of experience. Many countries have attempted, over recent decades – and particularly after the oil shocks at the end of the last century – to stimulate growth via expansive monetary policies. All of these attempts failed. Inflation rose, sometimes to very high levels, without there being any improvement in employment. Two lessons have been learned from this period, which still inform the conduct of monetary policy today. | Documented studies have shown how simply introducing an affordable, safe and accessible avenue for savings resulted in increased spending towards healthcare, education and nutrition. It has empowered women with more decision-making power and enabled children to spend more on school supplies that ultimately led to better test scores. Insurance has also been shown to play an important role in encouraging micro enterprises and low income households to make productive investments without the fear of natural disasters or medical emergencies wiping away their hard-earned assets and savings. By providing opportunities and the foundational knowledge to low income individuals and entrepreneurs to gain access to credit, increase savings and manage their exposures, this would greatly improve the probability of success in business and enhance socioeconomic mobility. This in turn will bring many important benefits to society. These benefits might be difficult to quantify but are obvious and far reaching. This is illustrated in the story of a Malaysian micro-entrepreneur who spent 10 years selling raisins and dates from street corners in and around Kuala Lumpur. He travelled daily to and from night markets and mosques on his motorcycle; his fortunes often at the mercy of unpredictable weather. But opportunity beckoned when a micro loan was obtained in 2011, which enabled him to rent a permanent physical space and invest in a basic logistics system to stock and deliver goods to customers. With the continued support of his bank, business grew, three more stores were opened and sales increased fivefold. | 0 |
They are indispensable to avoid any room that may be used for abusive actions that would impair the institution. I therefore request that you take the necessary measures in terms of financial, human and technological capacities in order to ensure the safety of each banking operation. In pursuing its supervisory function, the Bank of Albania will have this matter under close focus and I assure you that any decision that may have hampered the safety of the activity will be handled with utmost stringency by the law. In a broader context, banking activity, in addition to operational risks, is faced with other financial-related risks. We will therefore increase the regulatory requirements for banks to be engaged in an integrated process of risk evaluation and management proportionate to the level of development and sophistication. In a more practical approach, this implies that banks should have specific functional structures that monitor risks in the main activity areas and endeavour to anticipate their possible evolution and impact on banks’ activity. These structures must be 2 BIS Review 174/2010 in place in the largest banks and their products should be an integral part of the decisionmaking process. Dear participants, We are leaving behind a challenging year but other numerous challenges will follow for banking activity. They provide us the opportunity to put our vision into practice, in order to ensure a stable banking activity as a precondition for conducting an efficient intermediation activity with remarkable contribution to economic development at home. | Weathering the challenges requires courage and professionalism. In addition, banking institutions should provide an environment where accountable and professional human capacities are in the service of the public and the institution. I am confident that you will prioritize the foregoing matters in 2011. I wish you success in your work and many wishes for the New Year! Thank you. BIS Review 174/2010 3 | 1 |
However, experience tells us that increased interest rates are seldom enough to break the trend. Optimism can be such that investors are glad to pay the extra interest costs or to accept a correspondingly lower return on assets, as they are convinced that prices will continue to rise. For example, in Sweden in 1989, the direct yield requirement on the commercial property market lay at around 4 per cent, while a risk-free five-year government bond had a return of up to 12 per cent. So the market preferred an unsecured property asset to a covered bond with a return of 8 per cent more! No monetary policy can defeat that kind of optimism. Furthermore, it could be the case that inflation is low despite the strong economic development. If this is the case, monetary policy may need to become more expansionary to attain the inflation target, which, in turn, may fuel financial imbalances. During the years preceding the current crisis, increasing globalisation resulted in a heavy dampening of import prices, which pushed inflation down and contributed to an expansionary monetary policy in many countries. Monetary policy thus fuelled the bubble, rather than counteracting it. If a crisis becomes really serious, as is the case with the present crisis, the conditions for conducting monetary policy become very difficult. The situation became exacerbated when rising risk premiums increased the interest rates affecting households and companies. Falling inflation and inflationary expectations led real interest rates to increase even more. | The high road to a responsible, open financial system Speech given by Mark Carney, Governor of the Bank of England Thomson Reuters, Canary Wharf Friday 7 April 2017 I am grateful to Lauren Anderson, Phil Evans, Michael Goldby, Clare Macallan and Iain de Weymarn, for their assistance in preparing these remarks. 1 All speeches are available online at www.bankofengland.co.uk/speeches I. Introduction The United Kingdom has been at the heart of the global economy for centuries. Throughout that period, the City has channelled the life blood of the world economy, finance. th London emerged as the world’s leading financial centre at the end of the 18 century, overtaking 1 Amsterdam, as Britain became the dominant economy. Whereas other major financial centres lost their importance as economic power shifted elsewhere, London has retained its pre-eminence even as the UK’s relative economic weight has declined. 2 This staying power reflects London’s inherent strengths: its people, law, language and time zone. And it testifies to the City’s enduring commitments to markets, openness and innovation. Long experience teaches that an open global economy is not predestined. A responsible international financial system requires: - a shared commitment to markets; - common minimum standards; - high degrees of cooperation amongst regulators; and - resilient institutions and markets at the core. Authorities who oversee the largest global financial hubs, like the Bank of England, bear special responsibilities. | 0 |
In other words, their use has been driven by purely economic and commercial motives. 17. The growing concerns over SWFs and various proposals to restrict either the mode of their investments or areas in which they might invest are signs of a worrying trend of rising investment protectionism, and pose a risk to international financial stability. We are 4 BIS Review 51/2008 sympathetic to concerns in recipient countries and acknowledge that these worries, if left unaddressed, would only increase protectionist sentiments. In our last meeting, the IMFC called on the IMF to play a role in identifying best practices for SWFs. We share the view that as a multilateral platform, the Fund could play a useful role in this area, by allowing issues to be discussed in an open and neutral manner. We welcome the inclusive, collaborative, and voluntary approach taken by the Fund. The principles should focus on governance, institutional arrangement, and transparency and be co-written by the SWFs and for the SWFs, hence would help increase ownership of the best practices, which is critical to its successful adoption. We also welcome the parallel work undertaken by the OECD in drawing up a similar set of guidelines for recipient countries to forestall the risk of protectionism. It is highly important that in drafting such guidelines, the standards for SWFs should not be more onerous than for other large institutional investors. Conclusion 18. | As we said in our IMFC statement last October, reform must go beyond quota and voice. The Fund should rethink the areas where it has a comparative advantage and where it does not. We are glad to note that the Managing Director has taken up the suggestion and made this the focus of the refocusing. Thus, we support the shift in focus in the three broad areas: strengthen analysis on macro-financial linkages, integrating multilateral perspectives in bilateral surveillance, and sharpening the work in financial markets. 14. We welcome the use of these same yardsticks in guiding the ambitious expenditure savings that the Managing Director has proposed. When the IMFC asked for significant expenditure reductions last October, we are aware that some of these reductions have been painful, particularly those arising from the difficult decision to reduce staffing levels at the Fund. It is critical that in managing this process, the Fund does not lose the capacity to deal with emerging issues effectively and with the high level of professionalism that we have come to expect. In that regard, we consider the diversity of the Fund’s staff an important asset that ought to be preserved in the restructuring process. As an international organization, we believe that the face of the Fund ought to reflect that of its membership. More importantly, diversity in terms of expertise, experience, linguistic abilities and cultural backgrounds, helps the Fund leverage on a wider base of knowledge, understand country circumstances and navigate the subtleties of dealing with a diverse membership more effectively. 15. | 1 |
Quality data is foundational in our fight against greenwashing and in enabling relevant stakeholders to make effective ESG-investment decisions. Third, it helps to catalyse green and transition finance flows. There is a significant gap between ESG data needs and the ESG data available. We need good data on firms' carbon footprint, historical carbon emission trends, and compliance with their respective transition targets. We also need data on the climate-related risks their physical assets are vulnerable to. But the ESG data acquisition process is often manual, tedious and costly. ESG data verification is at a nascent stage. This impacts the credibility of reporting. FinTech can be a key enabler in addressing these ESG data challenges. 5/8 BIS - Central bankers' speeches Data acquisition. FinTech firms are offering solutions that connect directly via Application Programming Interfaces (APIs) to sustainability projects, such as waste management systems, to retrieve relevant environmental and energy consumption data more efficiently and directly. Data provenance. Distributed ledger technology is being explored to address the issue of verifiability and traceability in data. Data for reporting. FinTech firms are offering automated reporting tools while staying agile to adapt to various reporting standards. For example, Matter Analytics offers reporting solutions that help asset managers and banks automatically generate customised and comprehensive impact reports for their clients. FinTechs are providing financial institutions with good data and analytics to evaluate and compare ESG performance. For example, Intensel uses artificial intelligence to examine and monitor climate data and satellite imagery to identify financial risks related to climate change. | For central banks, less can mean more. Therefore, our strategy in the Czech Republic is "higher for longer", i.e. to maintain interest rates at higher levels for longer. Regarding government debt, I stated that monetary policy is at its tightest in 20 years and is slowing the economy. A problem arises if the government helps the economy with subsidies, supports and contributions at the same time. This counters our fight against inflation and the economy is not dampened as much as it should be. Therefore, the CNB must consider the following: Should we start competing with the government and dampen the economy by, for example, increasing rates? Should we further push down demand, just to have it subsequently fostered by the government with some kind of supports or subsidies? And so on ... it is a vicious circle. It would be better if both policies were anti-inflationary at the same time. Cochrane (2003) describes these 4/6 BIS - Central bankers' speeches considerations, as does the excellent article on the subject presented by Bianchi and Melosi (2022) at the conference in Jackson Hole last year. To add to that, everything is complicated further by the first problem described above, i. e. the CNB's large balance sheet, or the huge liquidity of the banking sector. | 0 |
Sabine Lautenschläger: Interview with Agence France-Presse Interview by Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the European Central Bank, with Agence France-Presse, conducted by Agence France-Presse on 22 November 2018 and published on 26 November 2018. * * * The European economy has slowed down in recent months and external risks are growing. Will the ECB stick to its plan to end net asset purchases next month? The incoming data are somewhat weaker than expected, but economic growth is overall within our projections. I am confident that we will reach our objective of an inflation rate below, but close to, 2.0%. That’s why we should decide to exit the net purchases in December as anticipated. Despite the uncertainties that have increased in the last six months, right now I don’t see anything on the horizon that could change this assessment in the next three weeks. It is time to gradually normalize monetary policy. Will the ECB also be able to raise interest rates before President Mario Draghi leaves next October? Our policy decisions are data driven. Based on the current information I am confident that we will raise key interest rates next year. It might be in the summer or in the autumn, depending on the input we get from incoming data. Isn’t it dangerous to withdraw support from the economy just when the horizon is darkening? The outlook has not changed significantly. | Risks are still broadly balanced and with our monetary policy, in particular with the reinvestment of the maturing assets, we will provide ample support to the economy. Extending the net purchase programme would not bring significant additional benefits, but it would increase negative side effects. The reinvestments will act as a sufficient stimulus. This, in addition to all the other measures we have in place – the targeted longer-term refinancing operations, low key interest rates, the full allotment policy, among others – will ensure that there is still an expansionary, accommodative monetary policy. Will the ECB make changes to its bond-buying criteria in the new year, to maximize the impact of the reinvestments? With regard to the reinvestments, I think we should use well-established, known criteria, such as the capital key and limits on the issuer and the issuance. We should not bind ourselves for a long period of time with regard to the reinvestments, as we cannot exclude the possibility that we will reach our inflation objective earlier than expected or that there will be an increase in negative side effects from our expansionary monetary policy. Is quantitative easing (QE) a tool the ECB could use again in the future, as some current and former Governing Council members have suggested? 1/2 BIS central bankers' speeches In the context of a monetary union with many different sovereigns and no fiscal, genuine economic and political union, QE should not be part of the normal policy toolbox. | 1 |
When this collateral is easily withdrawn, the quality of the loan drops sharply. In cases where the bank’s license is revoked, the bankruptcy estate receives nothing. The rights of depositors and creditors are compromised. In our opinion, collateral should only be taken into account when calculating reserves if the Central Bank has the right to impose a moratorium on operations with it. Similarly, bankruptcy law must undergo improvement allowing honest creditors faster access to collateral acquired under a contract or other assets by court decision. I would like to reiterate that the regulator is of the firm belief that secured lending should not dominate the lending profile. This is precisely how the banking system will contribute to economic development. Lombard loans should not establish themselves as the mainstay of banking business. Banks need to work with clients and examine their business models rather than expect to acquire their assets. I would like to address our priorities in supervision. Over the course of the year, the Bank of Russia reengineered its supervisory activities: it established a risk analysis service (which assesses the quality of loans and the values of securities and derivatives, as well as collateral). We are already seeing certain results. We are now centralising supervision – we have created an ongoing banking supervision service in order to accelerate the use of supervisory response measures and establish a uniform supervisory practice in Russia. We call the model we are pursuing advisory supervision. | It appears, the reforms jointly developed and implemented by regulators in the major countries after the global financial crisis truly bolstered the financial system. The very structure of the global financial markets has undergone dramatic changes over the past decade. The role of global banks and cross-border lending by banks has taken a downward turn. Moreover, capital raising markets (stock markets) saw stagnation and even company delisting. The role of market lending (bond markets) and asset managers, i.e. the markets impacted by regulatory reforms to a lesser extent, has increased. These markets could potentially become more volatile, however. In broad terms, what does all this mean for global growth? In our view, it will not be stable. Average growth rates will be lower than in the early 2000s. The main trend we will see in the coming years will be slow economic recovery and the leading central banks taking a tighter policy stance. This will include increased interest rates and curtailed balances. For financial markets, these dynamics bring about two contradictory trends. On the one hand, economic growth has a positive impact on financial markets and risk appetite. On the other hand, increased interest rates are cooling the markets. Therefore, despite the overall stabilisation, there is a high probability of financial market volatility. What does all this mean for the Russian economy? Our economy will be bolstered by external demand to a lesser extent and will be sensitive to external volatility. | 1 |
The closer a country’s trade relations were with Ukraine and Russia, the stronger are the direct adverse effects now on growth, of course. However, owing to global interconnectedness, the war is also throwing sand in the gears of countries with few trade links in the region. All of this slows the economy, also here in Switzerland. For the current year, we anticipate that Swiss GDP will grow by 2.5%. This is half a percentage point lower than we expected before the war broke out. Inflationary pressure has risen in Switzerland, too, albeit comparatively moderately thus far. Annual average inflation for 2021 was still at 0.6%; in March 2022 it stood at 2.4%. We define price stability as a situation in which inflation lies between 0% and 2% over the medium term. At our most recent monetary policy assessment in March, we decided to leave our policy rate unchanged at −0.75%, and to maintain our willingness to intervene in the foreign exchange market as necessary. However, we had already stressed in December that we would allow the Swiss franc to appreciate to a certain extent. So how do we put our current monetary policy in context? We intervene in the foreign exchange market when strong upward pressure on the Swiss franc would lead to persistently negative inflation and weigh heavily on the economy. However, we do not react mechanically to every instance of upward pressure. | And the trigger for conversion from debt into equity could be at a margin of comfort away from true catastrophe; say, a percentage point or so above the minimum regulatory capital ratio. Of course, this would entail a structural shift over time in investment portfolios. But the system might be able to manage that adjustment. After all, it managed the all together less desirable adjustment to the development of the existing hybrid capital markets. But demand for contingent capital is, inevitably, uncertain at this stage. As are the terms on which it will be provided. We welcome the growing private sector focus on this. 4 King Mervyn A. (2009), “Speech by Mervyn King, Governor” to Scottish Business Organisations, Edinburgh, October 2009. See also Tucker P M W (2009a), “Remarks by Paul Tucker”, Panel session at the Turner Review Conference, London, March 2009 (pp. 5) and Tucker P M W (2009b), “The repertoire of official sector interventions in the financial system: last resort lending, market-making, and capital”, Bank of Japan’s 2009 International Conference, Tokyo, May 2009 (pp. 19). In the academic community, the idea was aired in “An Expedited Resolution Mechanism for Distressed Financial Firms: Regulatory Hybrid Securities”, Squam Lake Working Group on Financial Regulation, April 2009, Council on Foreign Relations. Dudley, William C. (2009) “Remarks by William Dudley” at the Institute of International Bankers Membership Luncheon, New York City, October 2009. | 0 |
[4] At the same time, we know that capital releases implemented by authorities, such as Countercyclical Capital Buffers (CCyB) cuts, did support lending, even for firms that were not close to breaching their nonreleasable buffers. [5] What does this evidence imply for policy? First, let me recap two key concepts: usability and releasability. A regulatory buffer is said to be usable if banks are permitted to operate normally even if their capital ratios decline below it. In some cases, firms may be subject to some consequences such as automatic constraints on capital distributions, although this is not always the case. [6] A regulatory buffer is releasable when the authorities can reduce it – including down to zero if need be – freeing up the capital resources. In the current Basel framework, only the CCyB is releasable. All other buffers that sit above minima are in theory usable but not releasable, as Sam noted in ‘Bufferati’. And the evidence suggests that firms would rather deleverage than use non-releasable buffers. The CCyB represents an effective tool to ensure firms continue to provide credit to households and businesses during times of stress or when particular risks crystallise. Varying the buffer – both up and down – in line with the evolution of economic conditions, underlying vulnerabilities and the overall risk environment allows jurisdictions to match the resilience of the banking system to the changing scale of the risk it faces. The CCyB is set using a range of indicators as well as forward looking judgement. | To that end, several major reforms were implemented, including: Slide 5: Measures were taken • a tax reform which lowered tax rates and expanded the tax base, • abolition of selective support schemes to companies and industries, • an agreement between unions and employers to improve cost competitiveness, and • the establishment of the Goverment Petroleum Fund, Norway’s sovereign wealth fund. Slide 6: Two golden decades A long upturn followed. Norway has not experienced a pronounced economic downturn since the crisis around 1990. The reforms introduced during the 1990s have resulted in a fairly flexible labour market, which has allowed labour supply to adjust to changing conditions. In addition, we have been helped by good fortune in the form of favourable terms of trade. The economy was quite robust when the financial crisis hit in 2008, in sharp contrast to our situation 25 years ago. The policy climate in Norway in the early 1990s may have some characteristics in common with what we see in parts of Europe today. While short-term challenges need to be tackled urgently, a time of crisis may also provide an opportunity to implement structural reforms. In the case of Norway, the commitment and the capacity to implement reform was a critical condition for renewed and sustainable growth. The Fund and fiscal policy The Act relating to the Government Petroleum Fund was passed in 1990. | 0 |
All in all the potential impacts of this new regulatory approach may be profound and wide-ranging. I would like to explore some of these implications that have received some attention. 6. How Basel II will affect the flow of capital across borders. Let me start reflecting on how Basel II will affect the flow of capital across borders. Some observers suggested that the new capital framework’s heightened sensitivity to risk may reduce the flow of foreign investment in developing economies, since exposures to those economies might typically be considered of higher risk. I believe that, in the short run, Basel II will not have a material effect on the flow of capital, whereas in the medium and long term Basel II’s forward-looking elements will probably take over and higher risk efficiency will improve the financing of all kinds of economies. The first part of this comment, the lack of any short-term material effect on capital flows, is based on the notion that Basel II seeks to align capital regulations more closely to banks’ current practices, which today are already risk-sensitive. Therefore, it will not change the way that banks actually evaluate risk to decide whether to invest in emerging market economies. Yet some observers have assumed that a more risk-sensitive approach might drive up not just capital requirements, but also the pricing of credit to emerging market countries. This argument assumes that regulatory capital drives individual loan pricing decisions. | An important principle established by Exter has been that the principal use of OMO was to offset the effects of surpluses and deficits in the balance of payments. Since the surpluses of BOP raises money supply and deficits would do the opposite, it is necessary to counter their effects by an equivalent change in the domestic assets of the Bank. Hence, any OMO to siphon off the additional liquidity created by the Bank by increasing its domestic assets first, i.e., by investing in primary market Treasury bills, is contrary to the wisdom expressed by Exter in his report. Can Exter be faulted for permitting the Central Bank to lend to the government? Though it is completely contrary to the principles of responsible central banking advocated by him elsewhere in the Report, he should be viewed as a pragmatic person. He argued that “if the Government were determined, even in the face of opposition by the Monetary Board to make excessive use of Central Bank credit, legal limitations could be relaxed” by the government. In such a situation, “the Board being a Government agency would have no BIS Review 92/2007 5 alternative but to comply”. Thus, legal provisions are not of any use if governments do not function responsibly and the civil society is weak in resisting such dangerous moves by the governments. | 0 |
3 That made conversion all the more time-consuming, and there were no electronic aids in those days. And although the exclusive right of coinage was really a cantonal prerogative, foreign gold and silver coins actually constituted the bulk of monetary circulation in terms of value. The cantons did not see any reason to mint money which was worth its face value. For everyday use they preferred to produce representative coins whose metal content was worth well below the nominal value. In this way, the cantons used their exclusive right of coinage as an easy source of funds. 4 This resulted in an over-supply of lower-quality representative cantonal coins, which circulated freely between the cantons. Problems relating to the deterioration of coinage were a recurring theme in the legislative assembly. The hopeless confusion resulted in mix-ups, hampered trade and travel, and meant that capital remained idle. 5 Sixty years later, however, in 1890, the Swiss multiple currency period was already past history. Nevertheless, Swiss monetary history had remained eventful. Since 1850, the Swiss franc had been defined in terms of silver, in line with the French franc, and after 1860, it was also defined in gold. 6 At the same time, foreign money was still in use, in the form of coins worth their face value. Unlike the situation in 1830, banknotes played an important role in payments transactions in 1890 (if not, perhaps for buying bread), partly because coins are unpractical for larger transactions. By now, the Federal Banknote Act of 1881 had come into effect. | Almost $ billion of bonds were issued in the first three quarters of this year, establishing a new high when compared to the previous record of about $ billion over the same period in 20114. Over the longer term, emerging Asia’s bond markets are expected to grow 18-fold from $ trillion in 2009 to $ trillion in 20305. 7. There is therefore great scope for financial intermediaries in Asia to play a key role in financing Asia’s future growth, channelling surpluses to meet the region’s needs, and facilitating closer integration of trade and financial markets in the region. DBS, with its extensive network in Asia, is well-poised to be at the forefront of these trends. DBS has done well in this respect - for instance, DBS ranks amongst the top 5 mandated arrangers of Asia Pacific syndicated loans (ex-Australia and Japan). In Singapore, DBS is also part of a bank consortium led by Temasek Holdings to provide long-tenor financing to Singaporebased corporates in infrastructure projects in Asia Pacific. Role of local banks in Singapore’s financial system 8. Even as our local banks like DBS expand into the region to ride on Asia’s growth, it is important that they remain deeply rooted in Singapore, their home market. They have been and will continue to be a crucial part of Singapore’s financial system. Local banks have an important role to play in safeguarding Singapore’s financial stability, particularly in times of crisis. | 0 |
2 We know that financial intermediation as a whole accounted for about 8.5% of UK Gross Value Added in 2005. And a recent estimate 3 of the professional services supporting financial services accounted for a further 3.6% of economic activity in 2005, giving a total of some 12%. That compares with around 14% of GDP for the UK manufacturing sector and the jobs in financial and business services taken together have increasingly outnumbered those in manufacturing. 1 “Sustaining New York’s and the US’ Global Financial Services Leadership”. Report by McKinsey & Company to Mayor Michael Bloomberg of New York and Senator Charles Schumer (pages 14 and 54). 2 Indeed the ONS has announced that it will be revising its estimates of the level and composition of GDP to incorporate changes to the measurement and treatment of value added for banks and to take better account of in-house software development. 3 International Financial Services, London. “International Financial Services in the UK”, November 2006. BIS Review 29/2007 1 And since 1999 financial services and insurance taken together have accounted for over 20% of the UK’s exports of services. So it is clear that the financial sector is an important industry for the UK. But financial intermediation covers a great deal more than the City. Retail banking and insurance, like other retail services from restaurants to hairdressing, is widely dispersed across the country. In general one would expect this part of the industry to reflect the size of the population and their wealth. | These reforms, by promoting registered employment, will also help us overcome problems in our social security system. Unemployment Rates (Percent) 18 15 12 9 6 3 0 2004 2005 Unemployment Rat e 2006 2007 2008 2009 Non-Farm Unemployment Rate Source: TURKSTAT, CBRT. Distinguished Guests, 22. The impact of the global economic crisis on Turkey’s foreign trade has been evident, and the contraction in domestic and foreign demand and the slumps in commodity prices, especially in crude oil as well as iron and steel led imports and exports to shrink rapidly as of the last quarter of 2008. Significant declines have been observed throughout the year in imports and exports, which tended to recover as of the second quarter of 2009 as signs of revival in global economic activity appeared. Total exports of goods fell by 22.1 percent to 109.7 billion USD, while total imports of goods fell by 30.7 percent year-on-year to 134.4 billion USD in 2009. Consequently, the foreign trade deficit, which was 53 billion USD in 2008, dropped to 24.7 billion USD in 2009. 23. The adverse impact of the global crisis on tourism revenues was translated as a decrease in expenditures. In 2009, tourism revenues decreased by 3.2 percent. The said decline is mainly attributable to the fall in average tourism revenues. In fact, the number of visitors increased by 3.3 percent in 2009. Due to the recovery in other services items, the slowdown in the services surplus remained limited at 5.3 percent. | 0 |
But it was hard to join the two views together. Bringing CHAPS into the Bank meant a single organisation could take a holistic approach to managing risk across the end-to-end CHAPS system. It also meant we could draw on a wide range of skills within the Bank – from supervision to cyber. This change enabled the teams responsible for operation of CHAPS to work closely with colleagues in the PRA, who are responsible for supervising most of our participants, and to access a range of information and tools to effectively challenge risk management practices in our users. Another area of the Bank, responsible to a different Deputy Governor, continues to supervise CHAPS to the same standards as other systemically important FMIs. As a single unified operator for CHAPS, as well as RTGS, the Bank is taking important steps as a standard setter and a thought leader to drive increased resilience and improved recovery capability in payments. Minimising risk Standards As the operator of CHAPS, the Bank is well placed to drive greater resilience in members of CHAPS through the setting of standards. This is complemented by the Bank’s role as prudential regulator of many of these firms. In order to manage risk, a payment system has rules to govern who can join, how participants should behave, and what operational and technical requirements they must meet. The CHAPS Reference Manual (CRM)7 contains the rules and requirements that CHAPS Direct Participants must comply with. | This recent decade has seen the rapid internationalisation of Islamic finance resulting in significant growth in cross border financial flows. The development of Islamic financial markets, in particular, the sukuk market, the progressive financial sector liberalisation, and the establishment of international arrangements and institutions to safeguard financial stability, cumulatively have contributed to enhance the international dimension of the industry. There are now more than 600 Islamic financial institutions operating in more than 75 countries. Given that Islamic financial transactions require an underlying economic transaction, it is a form of financial intermediation that is well anchored to serve the real economy. With its internationalisation, it has become an increasingly more important channel for the efficient allocation of financial resources across borders and for the diversification of risks. This new international dimension of Islamic finance has facilitated stronger financial ties between Asia and the Middle East. The sukuk market in particular has become an important avenue for international fund raising and investment activities that generate significant cross border flows. While the efforts to put in place these pre-conditions will continue, equally important is the role of the private sector in driving the Asian regional financial integration agenda, particularly in building the institutional capability to effectively intermediate funds in the region. While foreign presence throughout our region facilitates this process, it needs to be complemented by strong domestic regional intermediaries whose operations would be more inclusive and thus increase the potential for balanced growth in our region. | 0 |
Euro area (as of 1999) and German (before 1999) recessions are identified, respectively, by the CEPR and the Economic Cycle Research Institute (ECRI), with the exception of the German recession at the beginning of the 1970s identified by the OECD composite leading indicators. Latest observation: October 2019. At the same time, despite the unprecedented low level of the yield curve, the fact that the slope of the euro area yield curve is fairly flat (but slightly positive) is not at all unusual from a historical perspective (see Chart 2). [5] The yield curve is a central element in the transmission of monetary policy. Standard and non-standard monetary policy instruments affect the whole of the term structure, which in turn is a key determinant of the financing conditions of the economy. Some rates in the euro area economy – such as corporate bond rates or mortgage loan rates – are based on longer-term risk-free yields, while others – such as bank loan rates for firms – are mostly priced off shorter maturities. [6] The financing conditions prevailing for firms and households in turn affect the level of economic activity and inflation. While current monetary policy is an important factor affecting the yield curve, beliefs about future monetary policy and risk premia also play a role. In turn, these depend on a host of factors which determine the inflation or growth outlook of market participants and the evolution of risk premia. | Dimitar Radev: The banks entered the current crisis well-prepared thanks to what has been done in recent years Speech by Mr Dimitar Radev, Governor of the Bulgarian National Bank, at the opening of the jubilee academic year at the UNWE, Sofia, 14 September 2020. * * * Dear Colleagues, Dear Guests, Thank you most sincerely for this opportunity to take part in the opening of the new academic year at the University of National and World Economy (UNW E). This academic year coincides with the remarkable 100th anniversary of our university. This is a good opportunity to once again express our gratitude to the generations of professors, students, administrators, and to all those who helped the UNW E become what it is today – the biggest, the oldest and the most respectable business university in Southeast Europe. This year is unique and not for very positive reasons, including the health crisis which turned into an economic one, and the complicated political situation. Due to these developments we are faced with very difficult challenges, the true response to which must be institutional. In this sense, today’s situation is a test of the institutions. When speaking about institutions, I mean the entire spectrum – from politics, the healthcare and educational sectors and the economy, to public finances and banks. The healthier the institutions are, the stronger the response will be. If we are unable to give an adequate institutional response, the effects could be disastrous. | 0 |
The economic and financial situation and prospects are characterised by two features: first, a synchronised decline or deceleration in economic activity in all economies which is associated with a collapse in world trade; and, second, growing signs of an adverse feedback loop between the real economy and the financial sector. Although the sharp drop in the value of toxic assets has weakened many banks’ balance sheets, the weakening of economic activity has been impairing the quality of bank loans, adversely affecting their capital positions and their willingness to extend credit to the private sector. This, in turn, constrains the pace of economic activity and the ability of the private sector to service its debts, entailing a risk of a vicious circle. II. Policies for economic recovery and sustained growth These observations have two general implications for economic policy. First, the economy’s recovery requires the simultaneous implementation of macroeconomic policies to stimulate aggregate demand and of measures that will help repair banks’ balance sheets and encourage the provision of credit to the economy. In this way, a potential vicious circle can be prevented. Second, concerted policy efforts in all economies, especially the large ones, are necessary so that world trade can be revitalised and financial capital flows stabilised. This will help support the emerging market economies and global growth. | There are perhaps two clear lessons from this experience. First, the importance of targeting high-risk, high-infection individuals – the “super-spreaders”. This principle has an impeccable epidemiological pedigree. 30 For randomly distributed networks, targeted treatment has no value. But for networks exhibiting long tails – which is most of them, certainly including finance – targeted vaccination programmes offer a much more effective means of curtailing epidemics. Not for nothing is epidemiology the origin of the 80/20 principle. 31 For a number of diseases, including SARS and measles, the distribution of infection rates suggest 20% of the population is responsible for 80% of the spread. Similar patterns have been found in the transmission of HIV/AIDS, foot and mouth and computer viruses on the internet. In each of these cases, the right response has been shown to be targeted vaccination of the superspreaders. The second lesson concerns the importance of a system-wide approach to the management of network problems. The Australian HIV/AIDS programme was system-wide, tackling both the causes and consequences of the disease and its spread. Fisheries management provides a second revealing case study. Concerns about the collapse of fisheries came to a head during the 1970s and 1980s, leading to the imposition of fishing quotas for various species. The effect of quotas was, at best, mixed. 29 Bowtell (2005, 2007). 30 May and Anderson (1991). 31 May and Anderson (op.cit. ), May (2005). 14 BIS Review 53/2009 Recently, there has been a growing recognition of what went wrong. | 0 |
3/9 Yet irrespective of the different composition of the risk-diversification channels, what needs highlighting is that in the euro area the combined power of all the private risk-sharing channels is much more limited than in more stable monetary unions. Given that the role of the public sector is also virtually non-existent in Europe’s case, the outcome is that more than 56% of the effect of shocks – as opposed to 28% in the United States – is not shared. Moreover, it is important to note that during the most acute phase of the last financial crisis, the main risk-sharing channel in the euro area − the credit channel – virtually disappeared, owing to the process of renationalisation of bank loans. This was due to the climate of mistrust about banks’ financial health, and to the existence of negative feedback loops between public finances and banking solvency. To sum up, in the euro area our risk-sharing channels are weaker and, what is more, they tend to contract precisely when they are most needed. The limited strength of private risk-sharing channels in the euro area reflects both the underdevelopment of capital markets and a highly segmented banking system at the national level. There are practically no banks with a pan-European strategy, and there is little progress in cross-border lending, especially in the retail markets, or in other words, in lending to households and firms. | 4/9 In this respect, an agreement was reached at the Euro Summit in December 2018 to establish a common financial backstop for the SRF. This took the form of a credit line provided by the European Stability Mechanism, to be repaid by the banking system itself through its future contributions. The launch of this financial backstop, currently scheduled for 2024, could be brought forward to 2020 if it is considered that sufficient progress has been made to reduce banking risk. Here it is important to note that the percentage of bad loans on euro area banks’ balance sheets has fallen notably in recent years, down to close to 4% of all loans, albeit still somewhat above the pre-crisis level. Likewise, banks’ capitalisation levels have improved substantially; the total capital ratio for euro area banks overall now stands at 18%. A further key aspect for completion of the design of the euro area is the creation of the common European Deposit Insurance Scheme; this would be the third pillar of Banking Union. In my view, it is difficult to believe that, without this third pillar, the first two will be able to guarantee in a credible manner the same level of protection for all depositors across the euro area, irrespective of where they are located. Sufficient confidence to mitigate the risk of large-scale bank runs and the consequent financial fragmentation in severe crisis situations would thus fail to be generated. | 1 |
Sweden My view, with hindsight, is that monetary policy in Sweden was also too expansionary in the years preceding the financial crisis. The repo rate was gradually reduced to 1.5 per cent in July 2005. I think it was reduced too much and was too low for too long. Both the nominal and the real short-term rates were lower than normal for most of the period leading up to the crisis. In my opinion, a normal level for the nominal short-term rate is around 4 per cent, while a normal level for the real short-term rate is around 2 per cent1 (see Figure 5). Swedish economic growth was high in the years before the crisis. Resource utilisation was also higher than normal. The GDP gap was positive, while unemployment was lower than the average for the preceding years. Inflation was nevertheless low in the period 2004–2006. Measured in terms of the CPIF2 and in terms of the measure used at that time, the CPIX,3 it 1 Sveriges Riksbank, “What is a normal repo rate?”, article in Monetary Policy Report, February 2010. 2 The CPIF is calculated as the CPI with a fixed mortgage rate and is thus not directly affected by changes in mortgage rates. 3 The CPIX excludes households’ mortgage interest expenditure and the direct effects of changes in indirect taxes and subsidies from the CPI. 2 BIS central bankers’ speeches was well below 2 per cent. | Particularly strong reasons are required for setting a repo rate over a long period of time that is considerably lower than what can be regarded as a long-term average. Monetary policy can sometimes be used to stimulate the economy and sometimes be used to tighten the economy, but not to permanently stimulate the economy by means of a low interest rate. Long periods with a very low interest rate can namely lead to financial imbalances. They can, for example, lead to a rapid expansion of credit which in the long term may lead to some households being unable to afford to meet the interest and amortization payments on their mortgages. The households’ interest rate expectations are retrospective and long-term expectations are reduced by the low interest rates that have prevailed for a number of years. Problems arise when interest rates then rise. But this is not just about households and mortgages. As I said in the first part of the speech, a too-expansionary monetary policy can also contribute to other kinds of financial imbalances. I therefore usually also look at what the Taylor rule mentioned above would entail for the repo rate level. The Taylor rule indicates, as I said earlier, that the repo rate should have been higher than it actually was before the crisis, which I think is reasonable. The Taylor rule also indicates that the repo rate should have been reduced more or less as quickly and as much as we actually did when the crisis hit. | 1 |
Further interest rate hikes are expected in the euro area, Sweden and the UK, while interest rates in the US may fall over the next year. In Norway, the interest rate was reduced to a very low level in 2003 and 2004 when inflation fell and approached zero. There is a dynamic inherent in interest-rate setting. Low interest rates stimulated demand and production and eventually led to prospects for higher inflation, to which we are reacting by raising interest rates. Interest rate developments must be seen in the light of actual price developments and inflation, output and employment prospects. 10 BIS Review 47/2007 It normally takes some time for interest rates to have an impact on prices via changes in expectations, exchange rates or capacity utilisation. Consequently, interest rate setting must be based on our expectations of developments ahead. The interest rate was raised in response to the strong increase in capacity utilisation and the associated inflation prospects. The interest rate has thus been increased well ahead of an actual rise in inflation. Growth in capacity utilisation has been stronger than projected one year ago. The interest rate has thus been increased somewhat faster than Norges Bank presented as the most likely path at that time. In the interest of enhancing the transparency surrounding our conduct of monetary policy, we have published our own interest rate forecast over the past year and a half. | Figure 6 Employment by occupational category Wages (*) (annual change, percent) 9 15 8 Self employment (right axis) 6 10 3 5 0 0 -3 -6 12 13 14 15 16 17 7 8 Nominal 7 6 6 5 5 4 4 3 3 Real 2 2 1 1 -10 0 0 -5 Salaried 11 (annual change, percent) 11 12 13 14 15 16 17 (*) Corresponds to the average annual change of wage and cost indices, for both nominal and real wages. | 0 |
18 All speeches are available online at www.bankofengland.co.uk/news/speeches 18 Holston, K., T. Laubach and J.C. Williams (2017), Measuring the natural rate of interest: International trends and determinants, Journal of International Economics, vol. 108(S1), pp. 59-75. International Monetary Fund (2017), Global Financial Stability Report: Is Growth At Risk?, October 2017. King, M. and D. Low (2014), Measuring the “world" real interest rate, NBER Working Paper. Kovacs, A., M. Rostom and P. Bunn (2018), Consumption response to aggregate shocks and the role of leverage, Discussion Paper 1820, Centre for Macroeconomics (CFM). Potter, S., F. Smets et al (2019), Unconventional monetary policy tools: A cross-country analysis, CGFS Paper no. 63, Bank for International Settlements. Rachel, L. and T. D. Smith (2017), Are low real interest rates here to stay?, International Journal of Central Banking, Vol. 13 (3), pp. 1-42. Rule, D. (2019), An annuity is a very serious business: Part Two, Speech at the Westminster and City Bulk Annuities Conference. Schularick, M. and A. Taylor (2012), Credit booms gone bust: Monetary policy, leverage cycles and financial crises, 1870-2008, American Economic Review, Vol. 102(2), pp. 1029-61. Sushko, V. and G. Turner (2018), The implications of passive investing for securities markets, BIS Quarterly Review. Vlieghe, Gertjan (2017), Real interest rates and risk, Speech at the Society of Business Economists' Annual conference, London. Wilkins, C. (2018), Choosing the best monetary policy framework for Canada, Remarks at McGill University Max Bell School of Public Policy. 19 All speeches are available online at www.bankofengland.co.uk/news/speeches 19 | On the one hand, aiming at containing systemic risk might be phrased in too vague terms; on the other hand, the specification of explicit (quantitative) targets might be inappropriate. Some experiences in introducing prudential policy instruments in the past seem to suggest that while these were congruent with micro-prudential policy objectives, the macro-prudential dimension may be missing in their design or calibration. 2. Further consideration also needs to be given to enhancing the understanding of macro-prudential policy transmission channels. The task of understanding transmission channels and assessing the potential impact of measures poses a number of challenges. For instance, it needs to take account of substitutability and competition between institution and market-based sources of credit. As such, the choice of the appropriate policy instruments may depend on country-specific factors such as the structure and features of the financial system. A better understanding of the transmission channels of macro prudential policy is critical, also on account of possible interaction with other policy areas, in particular with monetary policy. 3. Consideration also needs to be given to the potential for regulatory arbitrage. Pursuing macro-prudential policy action is likely to require a great degree of international coordination, in order to keep the scope for cross-border and crosssector arbitrage contained. This aspect is particularly important within the European Union (EU) which is characterised, among other things, by a high degree of policy harmonisation in the financial sector. 4. | 0 |
Consequently, Saudi banking companies were established and became integrated with the global banking system, benefiting from its expertise and training capabilities, and coped with its BIS Review 59/2006 1 developments. Eventually, the Saudi banks compare well with their counterparts in advanced countries. During the 1990s, no new bank licenses were issued. However the year 2000 ushered in a new era of openness when a license was granted to the Gulf International Bank, a Bahraini bank, owned by the GCC countries. This was to implement a decision made by the GCC Heads of States to permit qualifying GCC-owned banks in their home markets. This has been followed by new licenses to 4 more GCC-owned banks, (namely the Emirates Bank International, the National Bank of Kuwait, the National Bank of Bahrain and the Bank Muscat). Licenses were also granted to five other major international and emerging market banks (that include BNP Paribas, Deutsche Bank, JP Morgan, State Bank of India and National Bank of Pakistan). Just during this past week Deutsche Bank has opened its branch in Riyadh and National Bank of Kuwait in Jeddah. The remaining banks are in the process of opening their branches in 2006. On 27/2/1427H, a Royal Decree was issued approving the incorporation of a joint-stock company under the name "the Development Bank", with a capital of Rls 15.0 billion. This would enhance competition and open new horizons for diversified banking services. | Looking ahead, the financial system and the banking sector will benefit from the state’s efforts to diversify the economy and improve the investment environment through regulatory and structural measures taken in the various sectors. A number of new laws and regulatory guidelines have been enacted to enhance economic growth and achieve further opening of domestic markets. The laws included the Foreign Investment Law, the Capital Market and Cooperative Insurance Laws and a new Labour Law. Another important development is the Kingdom's accession to WTO. Turning to the Capital Market, its contribution to the growth of the Saudi economy has been clearly evident. Over the preceding few years, the market has witnessed remarkable development, and its role as a financial intermediary between savors and investors has been boosted. It would be appropriate to indicate that the recent market correction witnessed by the market has had no adverse consequences on the banks and banking system. This is because SAMA, through its supervisory functions, has undertaken measures necessary for safeguarding banks and customers against any unfavorable developments in the market. The measures included tightening prudential limits related to lending for trading in the market, issuing controls for consumer loans and other measures which would protect customers and banks against expansion in consumer loans which may end with trading in the equity market. Consequently, Saudi Banks have managed to do well in the first quarter of 2006. | 1 |
Bank collapses in the USA and Switzerland The bank collapses in the United States and Switzerland in March created uncertainty in the global financial markets. To understand these developments, it is important to analyse the underlying problems. They are largely well known. However, there are also a number of new elements that may exacerbate the wellknown problems and that need to be analysed further. We want to avoid problems in the banking sector in one area spreading to other parts of the financial system or to other countries. At the same time, it must be possible to wind down banks with serious problems in an orderly manner. It is important to learn from crises. What we have now seen means that I think we will have to change some regulations. The financial regulatory framework is governed to a very large extent by global standards, so that is where the analysis must begin. Any future agreements reached at global level will also clearly affect the rules in the EU and thus in Sweden. Let me first focus on the more familiar problems and then return to what I see as new ones. In a sense, you can probably talk about the financial sector before and 2 See, for example, the discussion in Federal Reserve Bank of St. Louis (2022). 4 [30] after the Silicon Valley Bank crash. I think it can be a watershed in the way we think about the design of some financial regulation. | This could risk contributing to an increase in the turmoil on the financial markets, especially in a situation where economic activity is slowing down. However, I consider the risk of this happening in the market for government bonds to be small, but should it be necessary, we will adapt our sales of government bonds to the situation. Conclusion and summary Inflation is currently far too high and our focus is to bring it down to the 2 per cent target as soon as possible. According to our latest assessment, this should be achieved in 2024. The bank collapses in the United States and Switzerland have shown that despite the tighter regulations for banks following the global financial crisis, there are still problems with high risks in the financial system. The global standards for financial regulation therefore need to be amended on several points. Monetary policy, financial stability and fiscal policy are interdependent. I have discussed some policy implications of this: 24 [30] There may be a conflict between price stability and financial stability, which may look different and vary over time, and this can affect the monetary policy stance. Monetary policy can in certain situations prevent the build-up of financial imbalances; that monetary policy takes into account the build-up of risk resulting from low interest rates under a longer period of time may therefore be wise. | 1 |
The main credit needs among people in low growth areas and with low incomes, in particular, women are: • access to small, unsecured, fixed term loans in cash; • quick access to credit without lengthy or intrusive application procedures; • affordable weekly payments with no hidden or extra charges; • automatic repayment arrangements, such as deduction from benefit or home visits by a collector; and • opportunities for making late payments or rescheduling loans without incurring charges when temporary financial problems occur. If anyone of these or a combination of these factors tend to deny access to financial institutions or to products, that is known as financial exclusion, which is often reflected as a symptom of poverty as well as a cause. As much as we are interested in financial inclusion, it is also necessary to reduce financial exclusion to a minimum, which is also a policy challenge. These are two sides of the same coin. | In this context, I am proud that the Bank of Albania has always been and remains frontrunner of change. 3. Bank of Albania, an evolving institution Throughout the transition history, The Bank of Albania has shown able to change and embrace better contemporary and most effective practices. The nature and functions of the institution were fundamentally transformed in 1992, when the Albanian economy started the transition process towards a free market economy. Within a short period of time and in the presence of a shortage of an institutional heritage, the Bank of Albania succeeded to establish the contours of an independent monetary policy, being empowered in the presence of a free-floating exchange rate, regulate and supervise a private banking sector that functions based on the market principles. The qualitative transformation of the Bank of Albania towards a modern central bank evolved further with the approval of the new Law on the Bank of Albania in 1997, which lays down the primary objective “to achieve and maintain price stability”. This Law sets out the decision-making, financial and operational independence of the central bank in the pursuit of its objectives, in line with the best international practices. In addition, it is encouraging that this institutional independence enjoys a broad social consensus. During these years of transition, our monetary policy has marked a notable progress towards: developing a theoretical framework; building up the completion of our knowledge with empirical studies; perfecting the instruments for its implementation; and the transparent communication with the public. | 0 |
BIS Review 158/2009 3 As economic revival gathers pace, the immediate policy priority is to ensure that the domestic foundations for recovery are more firmly entrenched and the medium and longer term growth potential is established. The private sector will need to resume its primary role in driving economic activity. Of particular importance is the growth of private investment. Towards this end, the Central Bank will continue to ensure that access to financing across all segments remains in place. While it is critical for the public sector to play a counter-cyclical role, sustained fiscal stimulus that leads to excessive fiscal burden would be detrimental to longer-term economic prospects. Thus, the Government’s current commitment to fiscal consolidation and enhancing efficiency in public spending reflects a measured and sound approach in budgetary management. As for monetary policy, it is recognised that a prolonged period of low interest rate globally could lead to potential market distortions, particularly in an environment of ample liquidity. While consumer inflation is expected to remain low in the international environment, there is a need to be watchful of developments in asset markets and asset prices. Promoting monetary and financial stability is complicated by the frequency of very large short-term capital flows. Better prospects for recovery and expectation of a head start in the unwinding of policies in the Asian region compared to the rest of the world could lead to strong capital inflows. | In the end, disorderly liquidation looks to have left unsecured creditors in the holding company with a recovery of around 20 cents on the dollar. The last resort, if no white knight can be persuaded to come forward and if the contagion caused by administration was simply too dangerous, was to use public funds to attempt to recapitalise and resurrect a failing bank. Although it was the last resort, it was also probably the most common. For the UK, this proved to be the only option available for what had, before the crisis, been three of largest five UK lenders. Given these banks accounted for some 40% of lending to the UK economy – and scarred by the chaos in the aftermath of Lehman – the government 2 BIS central bankers’ speeches was left with little option but to make a huge £ injection of funds to shore their capital position. The intervention was successful in stabilising the situation but UK taxpayers are still counting the cost. Today, the government’s stake in RBS, equivalent to economic ownership of a little over 80% of the group, is worth around £ a loss of over 25% on the funds injected. The UK was not alone. The US injected over $ of preferred stock into financial institutions, including a number of the largest firms. On the continent, the three Benelux countries injected € in a part-Nationalisation of Fortis; France, Belgium and Luxembourg injected € of capital into Dexia. | 0 |
Our aim in this is to make sure that cash can circulate smoothly and without interruption and we also manage the state’s cash reserves and test the quality of the cash in Estonia every day. Tomorrow Eesti Pank will release ten-euro notes of the second series into circulation, and these are more secure and longer-lasting than the notes of the first series, with better security features. As Governor of Eesti Pank I can confirm that cash is not going anywhere. I personally like to use cash and I am proud of the quality of the euro cash used in Estonia. Access to cash is important, and it is a complicated issue that doesn’t have a quick and easy solution. This is why it needs to be discussed, and Eesti Pank is very pleased that we could be part of the working group set up by Minister of Economic Affairs and Infrastructure Urve Palo to look for solutions. Eesti Pank believes that the issue of access to banking services across Estonia should not be handled under the Emergency Act, but this does not mean that it should be ignored. I will now answer questions about the Emergency Act first, and then questions about access to banking services. Coming to the first question of the interpellation, as Governor of Eesti Pank I have set minimum requirements for the provision of cash and payment services in case of emergency. | Ardo Hansson: Availability of banking services in Estonia Answer by Mr Ardo Hansson, Governor of the Bank of Estonia (Eesti Pank), before the Riigikogu (the unicameral Parliament of Estonia), Tallinn, 22 September 2014. * * * Interpellations raised by members of the Riigikogu concerning the accessibility of banking services 1. Why has Eesti Pank not set minimum requirements for the provision of cash and payment services in a decree alongside the technical requirements, in the context of the Emergency Act? 2. What solutions has Eesti Pank discussed for ensuring the equal accessibility of cash and payment services across Estonia? The principal position of Eesti Pank Banking services are important and they need to be accessible to people and companies across Estonia. It is reasonable for services to be provided efficiently and flexibly. I understand that people are worried about the accessibility of banking services across Estonia. Eesti Pank does not prefer any one means of payment over any other. Cash is an official means of payment and so Eesti Pank believes that it should be available through flexible solutions everywhere in Estonia. Eesti Pank works every day to supply Estonian companies and people with cash. We provide a flexible cash service to the commercial banks, giving cash out and taking it in every working day, and in exceptional circumstances we can be even more flexible. | 1 |
Financial stability Lessons have to be fully drawn from the past experiences about the obvious costs of financial crises. History has shown that price stability is not a sufficient condition to ensure financial stability. Furthermore, low-for-long interest rates, in a context of a decreasing natural rate of interest, can contribute to the build-up of systemic risk and financial vulnerabilities, by encouraging excessive risk-taking and financial misalignments.2This matters for monetary policy. Of course, macroprudential policy is the first and main line of defence, and the toolkit has been considerably enhanced in recent years.3 However, it appears that macroprudential tools, although necessary, are not completely sufficient to address the whole range of financial stability concerns. It is my view that central banks should take financial stability into account while setting the course of monetary policy. There is a need to overcome the strict separation principle between monetary and macroprudential policies, and adopt a coordination principle. What does this mean in practice? Let me first dispel two misunderstandings and say what it is not about. It does not mean that financial stability may become a monetary policy objective in itself. The aim here would be to identify vulnerabilities that represent a threat to the price stability objective, either directly or indirectly by impairing the effective transmission of monetary policy in the medium-long term. Also, it does not imply a systematic (mechanical) reaction to financial stability indicators, and it is very different from the “leaning against the wind” strategy. | I will then turn to financial stability, which is essential for the effectiveness of monetary policy (by preserving its transmission channels). Finally, I will talk about economic stability and the way monetary policy, in combination with fiscal policy, can smooth the business cycle and foster a robust and sustainable recovery from the covid crisis. Clearly, these different aspects are closely intertwined: monetary policy, while pursuing its primary objective of price stability, can affect financial stability; fiscal and monetary policy closely interact with each other, as do monetary and macroprudential policy. But for the sake of clarity I will tackle each concept in turn. I. Price stability To achieve the ECB inflation objective, we are determined to maintain, as long as necessary, a very accommodative monetary stance. We continue to stand ready to adjust all of our instruments, as appropriate, including possibly a lowering of the DFR if needed. And to guarantee the full transmission of this accomodative stance, we pay particular attention to ensuring that both bank and market financing conditions remain favourable for all agents (governments, firms and households). This leads us to monitor a large set of indicators, with a multifaceted and holistic approach. Let me add some comments about the recent increase we have seen in long-term rates, following although to a lesser extent the move in the US. This increase has different causes, and hence calls for different reactions and instruments. | 1 |
Zeti Akhtar Aziz: Enhancing financial linkages towards economic prosperity Joint opening remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Joint High Level Conference on Islamic Finance: “Enhancing Financial Linkages Towards Economic Prosperity”, Jakarta, 18 July 2011. * * * Bank Negara Malaysia sangat berbangga kerana dapat bekerjasama dengan Bank Indonesia dalam menganjurkan Persidangan Bersama Peringkat Tinggi Kewangan Islam bertema “Enhancing Financial Linkages Towards Economic Prosperity”. Fokus khusus persidangan ini ke atas kewangan Islam dan perkembangannya di peringkat antarabangsa, telah memperlihatkan perkembangan pesatnya sejak beberapa tahun kebelakangan ini, yang turut menyumbang kepada hubungan ekonomi dan pertumbuhan kewangan antarabangsa. Persidangan hari ini mempertemu peserta industri, penggubal dasar dan pengawal selia, serta ahli akademia dan pakar Shariah dari Malaysia dan Indonesia untuk membincangkan peluang-peluang kerjasama. Pengukuhan jalinan kedua-dua sektor kewangan Islam kita bukan sahaja akan menyumbang dalam membangunkan serta mengukuhkan lagi industri ini, malah ia akan turut memanfaatkan secara optima sumber kewangan serantau dan juga meningkatkan keupayaaan untuk mengurus cabaran semasa dalam persekitaran antarabangsa yang sentiasa berubah. Izinkan saya mengambil kesempatan ini untuk menyampaikan penghargaan kepada Yang Terhormat Bapak Prof. Dr. Boediono, Wakil Presiden Republik Indonesia kerana sudi menyampaikan ucaptama di persidangan pada hari ini, dan merakamkan penghargaan kami kepada Duli Yang Teramat Mulia Raja Nazrin Shah, Raja Muda Perak, Malaysia yang telah mencemar duli untuk menyampaikan titah di persidangan ini. Izinkan saya untuk meneruskan ucapan ini dalam Bahasa Inggeris. | Without that, human and financial resource allocation either side of the ring-fence will become blurred. For example, without separate debt issuance for retail and investment banking, the cost of debt for a big bank will be a blended mix. The implicit subsidy in funding costs would then remain and with it one of the main distortions associated with too-big-to-fail. Only time will tell whether cultural separation can be achieved under the existing structural reform proposals. In the go-go years, will these reforms be sufficient to prevent the grass always appearing greener on the riskier side of the (ring-)fence? This is the acid test of the structural reform agenda. Where next? Progress has been made over the past few years towards eliminating too-big-to-fail, with further progress on implementation planned. But today’s task is even more daunting than before the crisis. The big banks are even bigger. The system itself is more concentrated. And BIS central bankers’ speeches 7 despite reform efforts, the market’s best guess today about tomorrow’s implicit subsidy is farlarger than before the crisis struck, at over $ billion per year (Chart 3). The market believes that illicit state promise is even more likely to be kept. The wrong conclusion to draw would be that existing reforms have failed or are unnecessary – quite the contrary. Rather it is that these reform initiatives, while necessary, may be insufficient to eliminate the too-big-to-fail externality. If so, what are the alternatives? Several have been mooted. Re-sizing the capital surcharge is one possibility. | 0 |
Islamic finance has grown by leaps and bounds, from only one Islamic financial institution three decades ago to over 300 today in more than 75 countries, including non-Islamic countries in Europe and the United States. The total assets of Islamic finance worldwide is estimated to exceed $ billion, and is growing at an estimated annual rate of 15 percent. Islamic finance has been transformed from a "nice to have" into a "must-have" system, evident by the growing number of jurisdictions allowing their financial institutions to offer Islamic financial services and increasing number of global financial players now offering Islamic financial services as part of their spectrum of services. Islamic finance continues to provide tremendous potential for growth and development due to a number of BIS Review 13/2006 1 factors. These factors include the strong demand for Shariah-compliant financial services and transactions , the availability of a wider choice of products that meet consumers' discerning expectations, as well as growing acceptance of Islamic finance as a form of financial intermediation. In Malaysia, the advancement and progress that have been achieved in Islamic finance has demonstrated its potential as an effective form of financial intermediation that supports the needs of the economy. The industry has become a major contributor to the overall economic growth, with assets encompassing nearly 25% of the country's gross national product. This is a significant achievement considering the stiff competition offered by the conventional banking and insurance sectors. 5. The takaful industry in particular has shown remarkable growth. | 6 BIS Review 13/2006 | 1 |
On the prevention side, our primary goal as supervisors should be to reduce the risk of severe problems to the lowest possible level consistent with adequate provision of credit to the economy and a sense of two-way risk for banking institutions. Quite correctly, most of the Core Principles are aimed at the task of reducing the potential for systemic problems. However, it also is vitally important that when problems arise for an individual institution or a group of institutions, supervisors can provide guidance and supervisory action, as necessary, to resolve the situation. Thus, some Core Principles, especially those on supervisory enforcement and the safety net, address the operational role of supervisors and the institutional context in which they carry out that role. All of us have learned a lot about marketplace turmoil and systemic risk in the last year to 18 months. First, I will highlight some issues reflecting the close linkages between credit, liquidity and capital adequacy, both at the financial firm and the market level. Next, I will turn to lessons from earlier experiences with banking problems and show how prompt, but deliberate, BIS Review 86/1998 -2- responses to credit problems can improve the health and liquidity of the banking system. I will conclude by talking about the work of the Basle Committee, both with respect to the immediate problems and the future agenda. II. | Philipp Hildebrand: Financial stability Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Institut des Hautes Etudes Commerciales de Lausanne, Lausanne, 16 September 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * During the period of financial market turbulence, central banks have gone far with their interventions to stabilize the financial system, taking into account the high costs that can be imposed by a banking crisis onto the real economy. Central banks by themselves, however, cannot guarantee financial stability in the long term. In particular, we cannot exclude that their interventions create incentives for banks to be less cautious in the future. The first line of defence therefore consists of banks having sound risk management practices and holding appropriate levels of capital and liquidity. The Financial Stability Forum has made a series of recommendations in this respect. Given the size of the big Swiss banks in relation to our national economy, we should be especially prudent. For this reason, the Swiss National Bank supports the project undertaken by the Swiss Federal Banking Commission (SFBC) to strengthen capital adequacy requirements and to revise the liquidity requirements for the big banks. As the SFBC has pointed out on several occasions, these measures have to be implemented gradually – to ensure that banks have sufficient time to adapt. These measures will contribute to the solidity and credibility of the Swiss financial centre. | 0 |
By contrast with extrinsic drivers of persistence, greater intrinsic inflation persistence is something that monetary policy can – and should – address. Drivers of inflation persistence At this point, I will focus on one specific inflationary shock that we have recently faced, namely the significant rise in imported energy prices stemming from Russia’s invasion of Ukraine and its implications for European wholesale natural gas prices. [12] Once we focus on intrinsic inflation persistence, by nature we have to focus on a specific shock. It is the change of economic responses to that shock – in particular, changes in price and wage setting behaviour – that determine how the intrinsic persistence of headline inflation will evolve. Drawing on a previous talk,[13] let me first establish four relevant features of the shock. (1) It came as a genuine surprise to monetary policy makers, in the sense that it was neither anticipated nor anticipatable at anything other than a short horizon. [14] (2) The resulting rise in European wholesale gas prices was transmitted to UK CPI inflation (via both direct effects on household energy bills and indirect channels through the energy costs of producers of goods and services) in the course of a few months, and thus substantially more quickly than the typical 12-24 month lag in monetary policy transmission. [15] (3) The shock was very large by historical standards. | 1 BIS Review 62/2000 The difficulty we face is that, while some part of sterling’s rise in the past few years probably reflects underlying strengths in the UK economy - the sustained growth in activity in recent years and the more flexible and competitive structure of the economy - it is very likely that sterling at its present levels is unrealistically high, and that this is principally a reflection of the persistent weakness of the euro over the past year or so rather than factors directly related to sterling. To compound the difficulty, it is in fact very hard to see why the euro has remained relatively weak at a time when growth in the euro-area economies as a whole has recovered strongly. For the moment, in judging the appropriate level of interest rates, we take very carefully into account the weakness of the UK’s external sector, and the impact particularly on manufacturing, as an immediate factor off-setting in part the buoyancy of domestic demand. But we also have to take into account the possibility further ahead that, if the exchange rate moves back to more realistic levels, as we expect, the boost that could bring to external demand could only be accommodated, without strain on the supply capacity of the economy as a whole, if domestic demand has moderated. | 0 |
The importance of “push factors” has increased over time as monetary policy and financial stability shocks in advanced economies have become both more prevalent and more potent. And push factors are arguably becoming more important as the fundamental asymmetry at the heart of the global economy deepens. When the IIF was founded, EMEs made up a little more than 1/3 of global GDP. Since the last Fed tightening cycle, their share of global activity has risen from around 45% to 60%. By 2030, it is projected to rise to around three quarters. But while the real global economy is being reordered, the international monetary financial system has barely begun its transition. The dollar represents the currency of choice for at least half of international trade invoices, two-thirds of global securities issuance, it denominates two-thirds of EME foreign currency external debt and acts as the monetary anchor in countries accounting for 70% of global GDP.14 14 Gopinath, Gita, and Jeremy C. Stein. (2018) Banking, Trade, and the Making of a Dominant Currency, Working paper, Harvard University, Cambridge, MA. Gourinchas, P, Rey, H Sauzet, M (2019), The International Monetary and Financial System, NBER Working Paper No. 25782. 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 In fact, the dollar is as dominant today as it was during the Bretton Woods era, and is likely to remain so for some time, as its roles in international payments, as a reserve asset and a funding currency are mutually reinforcing. | Jean-Pierre Roth: SNB commemorative publication “The Swiss National Bank 1907-2007” Remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the launch of the commemorative publication “The Swiss National Bank 1907–2007”, Zurich, 21 June 2007. * * * Ladies and Gentlemen It is with pleasure and some pride that I present our commemorative publication today or – as the German language puts it so well – our festschrift, or celebratory work. There is indeed good reason to celebrate. One hundred years of doing business, crowned for the most part with success, certainly warrants celebration. The publication of a festschrift is one of the events being held to mark this anniversary. It is the fourth such work to be published, following on from those of 1932, 1957 and 1982. It is somewhat different, however, insofar as it commemorates an entire century of the National Bank’s existence. We wanted this commemorative publication to be a learned work, which at the same time is accessible to a very broad readership. We wanted it to be both unpretentious and modern, yet in keeping with the tradition of the previous works. I make no secret of the fact that significant resources were deployed to prepare the book. Work first started over three years ago and some fifty or so bank employees were involved in the project. | 0 |
That would enhance the abilities of the members to exert peer pressure, which may in turn help reduce “inaction bias”. When it comes to identifying, analysing and monitoring financial stability risks at EU level, many pieces of information are necessary. The processes for handling all the diverse inputs as well as our assessment tools have developed more or less of necessity. To really get the big picture we must understand how the individual pieces connect to each other and we must be able to put them all |4 together. All in all, I think the ESRB nowadays makes good use of the broad scope of inputs from members with different expertise, connecting all the dots and their inherent dynamics from a truly system-wide point of view. A new supervisory and regulatory landscape for the EU… Of course, the ESRB was not the only response to the structural flaws in the supervisory framework which were exposed by the financial crisis. A whole new financial supervisory and regulatory landscape has by now at least roughly found its shape and form in the EU, although there are still some pieces of the puzzle that have not yet fallen into place. I should also say that I do not think that the landscape will ever be completely finalized. That would be a bad idea. These frameworks need to evolve and adjust as we move ahead, as we learn from our experiences and as the financial system which they target is constantly evolving. | Gazi Erçel: Focus on inflation targeting Opening remarks by Mr Gazi Erçel, Governor of the Central Bank of the Republic of Turkey, made at the Conference on Inflation Targeting which was organized by the Central Bank of the Republic of Turkey in Ankara on 19 October 2000. * * * I am very honored to present the opening remarks at this conference on Inflation Targeting (IT) Framework. First I would like to extend our appreciation to the lecturers of the Conference who came a long way geographically, and considering the state of the economy they reach. The issues that are going to be addressed will be of great interest, particularly for developing and dis-inflating countries. The attendance of so many speakers from the Central Banks and international institutions is particularly motivating. This Conference will review the country experiences on inflation targeting, particularly touching on the best ways to design policy objectives, responses, and implementation issues. Some papers will consider not only inflation targeting framework, but also the case of economies during the shift to low inflation. Let me begin my remarks by focusing on a framework that has been widely validated among academics and policymakers during the last 10 years. Inflation targeting is an innovative approach to monetary policy being applied by a growing number of central banks of not only industrial but also emerging market countries of the world. Now, more than ever, businesses are operating in a rapidly changing world. Even the marginal uncertainties have become important. | 0 |
In the case of mining production, although its impact on GDP of the first quarter is significant as it is determined mostly by supply-side factors, it is deleted from the Other GDP calculation that the Bank uses in its models to measure the activity gap and the medium-term inflation outlook. Thus, the change in the projected range for 2017—of half of one percentage point— responds to two major factors. On the one hand, about half is explained by Escondida mining downtime and other incidents during the first quarter. On the other hand, the greater weakness we saw in the course of 2016 gives a lower starting point for the economy this year. In particular, because this weakness has been observed in sectors that tend to be more persistent in their dynamics, such as construction and associated areas. We must not forget that this sector received a significant boost in 2015, which lasted into early 2016, as a result of the new VAT that would be charged to the sector under the tax reform. Such reduced strength responds largely to the end of this boost. There is also the effect that the lending standards of mortgage loans have tightened too, given the higher down payment demanded by the banks. Another important issue worth looking into are the changes in inventories over recent years. The year 2016 completed three years of inventory depletion, which is quite uncommon. In general, inventory movements reflect how companies predict the future: if they are optimistic about it, they accumulate, and vice-versa. | And that would have meant eventually having to tighten policy more abruptly, which would much more certainly have plunged the economy into serious recession, a bit further down the road. The harsh reality is that monetary policy can only target the economy as a whole - it cannot realistically seek to shelter particular businesses or particular sectors or particular regions, however much we might all wish it were otherwise. And, in relation to the economy as a whole, the effective choice in the situation we faced was not whether or not to tighten, but whether to tighten sooner, and by less, or later, by more. So we raised interest rates through the second half of last year - and again in June - trying, as best we could through our tactics, to minimise any further unwanted upward pressure on sterling. But things have now clearly moved on. The outlook for the world economy deteriorated further through the summer under the impact of a series of new shocks. Japan, the world’s second largest economy, slipped further into recession. Russia - which had only weeks earlier embarked on an IMF program - saw the collapse of the rouble and default on its debt. And acute nervousness spread through many of the world’s financial markets. Although there has been some improvement in sentiment over the past month or two, and although the US and European economies continue to expand, the likelihood remains that world economic growth will be significantly slower than had been expected earlier in the summer. | 0 |
Changes in production methods, including an altered pattern for adapting stocks and new technology, may have enabled the demand and supply for both goods and capital to be matched more quickly than before, which contributes to the milder downturns and longer upswings. A further factor that could have contributed is that the percentage of services in GDP has increased and the production of services has shorter lead times. Expansive economic policy - good years for the Swedish economy A low inflation rate and tidy public finances have provided room for manoeuvre when facing a downturn in economic activity. A changeover towards a more expansionary economic policy in a large number of industrial nations has laid the foundation for the recovery this year. In the USA there was a substantial change in monetary policy at the beginning of 2001. On top of this came considerable fiscal policy stimulation. Monetary policy in Europe and Sweden has also been expansionary. However, many large countries in Europe are still struggling with large budget deficits, which have limited their fiscal policy scope for action. Last year Sweden had one of the largest surpluses on public savings in the EU. This has enabled an expansionary fiscal policy. This year households’ disposable incomes are expected to increase by almost 5 per cent, almost 80 per cent of which comes from increased transfers and lower taxes and charges. Such a large increase in income has only happened on a few occasions over the past decades. | It is not mumbo jumbo that a productivity level of around 1.5 per cent and an inflation target of 2 per cent are incompatible with wage rises of 4 per cent. The scope for wage rises is a maximum of 3.5 per cent at normal profit levels. Our assessment of wage developments in the coming two years is around 4 per cent, i.e. a level that is not compatible with the inflation target, unless productivity develops better than expected. Higher wage increases than expected were one of the causes behind the Riksbank’s two interest rate hikes in March and April. However, wage increases differ between the different sectors and different professional categories. Particularly high wage rises can be noted in the service industries. In some parts of these industries the wages for white-collar workers have increased more rapidly than those for blue-collar workers. This, together with considerable problems in attracting qualified personnel to certain parts of the public sector, entails a risk of a greater wage drift, particularly in a situation where economic activity has improved. Relative wage changes are a normal element in a dynamic economy, but the Swedish labour market has previously shown that large relative changes often lead to a compensatory wage drift. Some large groups have had wage rises of around 5 per cent - this applies to the service industries, the construction sector and white-collar workers in industry - but no large group has received less than the 3.5 per cent that would be necessary to achieve the inflation target. | 1 |
They responded positively to the Bank’s recommendations, and there was no question that credit growth slowed substantially. However, there are now many indications of a return to the earlier situation, so the Bank must reiterate its words of warning. At the same time as the Central Bank announced its interest rate decision yesterday, it published Monetary Bulletin. This outlines the main assumptions behind the Bank’s decision along with indications about its policy in the near future and the viewpoints it considers important to bear in mind for economic policy. In the current edition, major changes were made to the assumptions behind the baseline forecast, which enhance both the credibility of the forecast and monetary policy transparency. By doing so, the Central Bank of Iceland joined the vanguard of the inflation-targeting central banks. Monetary Bulletin reveals that inflation developments have turned rather more favourable than the Bank’s previous forecast had indicated, and although underlying inflation was somewhat higher in February and March than was hoped, the Bank expects both headline and underlying inflation to decrease rapidly in the next months. By both measures, inflation will be close to target from the middle of 2008. There is no doubt that this outcome is largely thanks to the tight monetary stance, which included raising the policy rate by 3.75 percentage points last year. As usual it should be pointed out – and especially in the current climate – that exchange rate uncertainties can complicate this picture. | The same may undoubtedly be said about the Central Bank. After all, useful and supportive as these institutions may be, they neither can nor should play a leading role. That role can only be performed by the financial companies themselves. Because they rely so heavily on open access to credit markets, it is crucial for them to enjoy the confidence of their creditors. In this respect like many others, credibility is a fragile thing and a very high price can be paid for losing it. Turbulence in global markets is sure to continue. Naturally people try to read the signs and foresee the most important parameters, in order to adapt to them in good time or respond sensibly. Important as it is to keep a close watch on developments and changes in global markets, what matters most of all is to be strong and well-positioned enough to withstand the most unexpected shocks. Global liquidity has been exceptionally abundant in recent years, and has been widely tapped on good terms. The benefits of resourcefulness and bold, quick action can be realised to the full in such circumstances. It is impossible to rule out that such a climate will persist for a long while, but this is by no means certain. And when a change does take place, it may be caused by unexpected circumstances and strike quickly. It is then that caution and prudence prove most effective. | 1 |
Benefits range from a consistent and standardised application of rules and processes, to seamlessly harnessing the individual institution’s respective infrastructure and promotional activities to realise cost savings arising from the sharing of scarce capital. In the quest for efficiency in the payment systems of the nation, an essential task for the banking industry is thus to strengthen the focus on meeting the specific demands of the consumers, and at the same time, forging alliances in common infrastructure building. The FPX is a right step forward in this direction. The efficiency of the financial system will be further enhanced with the FPX that reduces transaction costs and contributes to the overall functioning of the economy. This advancement forward can only be successfully achieved when there is active participation by the banking institutions, individuals as well as businesses, in utilising and promoting the system nation-wide. Bank Negara Malaysia strongly encourages all banking institutions and users to participate in the FPX to exploit its full potential, a process that would contribute towards the competitive positioning of the Malaysian economy. Ladies and Gentlemen, Economic expansion hinges on the effective intermediation function of the financial system, and the efficiency of funds flow is integral to the overall functioning of the system. To gain significance as a trading nation, the strengthening of commercial facilities, including e-commerce, is pivotal to the process. | More than 90% of the non-cash retail payments in Malaysia are made by way of issuing cheques, albeit at a slower average annual growth rate of 2% in the recent two years, compared to the use of the Inter-Bank Giro which has increased at the rate of 197%. In most developed countries, the use of cheques has declined to negligible levels compared to electronic payments. These trends underpin the need for the banking institutions to further intensify efforts to encourage consumers and businesses to use the electronic payments systems. Promotional programmes and greater consumer education activities also have to be escalated to promote confidence in Internet transactions and the use of electronic means of payments. The need to build up consumer awareness is essential in an environment that is becoming increasingly challenging and complex. Consumers need to be informed and convinced that the payment infrastructure is safe, efficient and reliable, and that there is an adequate consumer protection mechanism for consumers to be able to confidently use and enjoy the advantages of a low cost and effective payment system. One of the main challenges is to combat fraud. The rising incidences of Internet-based identity theft and phishing scams globally require the banks to remain vigilant about the possible security risks and employ effective security measures and internal procedures to protect their customers. Banks should remain one step ahead in this endeavour. | 1 |
Plosser, Charles (2018), “The risks of a Fed balance sheet unconstrained by monetary policy”, in M. Bordo, J. Cochrane, and A. Seru: The Structural Foundations of Monetary Policy, Hoover Institution 10 [16] Rachel, Lukasz and Thomas Smith (2015), “Secular drivers of the global real interest rate”, Bank of England Working Paper No 571 Sims, Christopher (2016), “Fiscal policy, monetary policy and central bank independence”, Jackson Hole Symposium, Federal Reserve Bank of Kansas City Sveriges Riksbank (2009), “The monetary base – the Riksbank changes statistical definition”, memorandum, 16 April Sveriges Riksbank (2012), “Securities portfolio in Swedish kronor”, press release, 10 May Sveriges Riksbank (2014), “The Riksbank’s operational framework for the implementation of Monetary Policy – a review”, Riksbank Studies Sveriges Riksbank (2017a), “The long-term repo rate”, article in Monetary Policy Report, February Sveriges Riksbank (2017b), “The Riksbank’s experiences of publishing repo rate forecasts”, Riksbank studies, June Walsh, Carl (2017), Monetary Theory and Policy, fourth edition, MIT Press Woodford, Mark (2000), “Monetary policy in a world without money”, International Finance 3, 229-260. Yu, Edison (2016), “Did quantitative easing work?”, Economic Insights, First Quarter 2016, Federal Reserve Bank of Philadelphia 11 [16] Figures Figure 1. | The interest rate differential reflects high demand growth and high wage growth. There is a clear relationship between wage growth, interest rate expectations and the krone exchange rate. The appreciation of the krone dampens inflation, and at the same time weakens profitability, employment and the capacity to cover labour costs in the internationally exposed sector. The krone can move in both directions. It will not appreciate indefinitely. Sustained lower wage growth will be accompanied by a narrower interest rate differential and it may reverse movements in the exchange rate. A declining level of wage growth would provide a strong impetus to the internationally exposed sector. The interest rate could be reduced. This would lead to a depreciation of the krone, with a further improvement in earnings and employment. Over the last thirty years, manufacturing has been scaled back in waves. There was substantial downscaling in the years from 1977 to 1984 and 1987 to 1992 in particular. In the years leading up to the periods of contraction, profitability deteriorated in the manufacturing sector. It can take time before such a deterioration translates into lower output and employment. But when the turnaround does occur, it tends to be swift and hard-hitting. It now appears that a new period of downscaling is under way. Several factors point to this: First, productivity growth is higher in manufacturing than in other industries. This has resulted in a trend decline in the numbers employed in manufacturing in Norway, as it has in other OECD countries. | 0 |
Heng Swee Keat: The first Shariah-compliant ETF in Singapore Congratulatory remarks by Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, at the Launch of Daiwa FTSE Shariah Japan 100 ETF at SGX Centre, Singapore, 27 May 2008. * * * President and CEO, Daiwa Asset Management, Mr Michihito Higuchi Vice-President and Head of Listings, Singapore Exchange, Mr Lawrence Wong Distinguished guests Ladies and gentlemen, good morning. I am pleased to join you at this ceremony to mark the debut of the Daiwa FTSE Shariah Japan 100 Exchange Traded Fund (ETF), the first Shariah-compliant exchange traded fund to be launched in Singapore. The Daiwa FTSE Shariah Japan 100 ETF will provide retail and institutional investors the opportunity to access the Japanese capital markets via a Shariah-compliant product traded on the Singapore Exchange (SGX). ETFs are one of the fastest growing asset classes in the investment funds industry. They aim to track the performance of indices and provide access to a wide variety of markets. As at the end of 2007, global assets managed via ETFs are estimated to have increased by 41% over the previous year to reach about $ billion while the total number of primary listings has increased by 64% to 1,171. There are currently 18 ETFs listed on SGX covering regional markets such as the AsiaPacific and ASEAN, and individual markets such as China, India, South Korea, Taiwan and Japan, as well as alternative investments such as gold and commodities. | These provide investors with the opportunity to access key Asian markets, to diversify their investment portfolios and to execute their investment strategies. Daiwa’s FTSE Shariah Japan 100 ETF marks a key development for our Islamic finance industry. To facilitate the development of this growing industry, over the past few years, we have reviewed and refined our regulatory framework and tax structures. In February this year, the Finance Minister announced in the Budget that a 5% concessionary tax rate would be granted for income derived from Shariah-compliant fund management, lending, and insurance & reinsurance. The tax exemption on income from Sukuks that are Qualifying Debt Securities will also be extended to all investors. A few weeks ago, MAS announced that it will be developing a facility for the issuance of Singapore Dollar, sovereign-rated Sukuks to meet the needs of financial institutions conducting Shariahcompliant activities in Singapore. These Sukuks will be issued on a reverse enquiry basis, and will initially be priced off the Singapore Government securities market. These initiatives are catalysed by feedback from the industry, which has taken an active interest in the development of Islamic Finance in Singapore. I would like to thank the industry for your feedback. We have seen promising growth. A dozen Middle Eastern banks are operating in Singapore, adding Islamic financing activities to their conventional financing. Singapore's first Islamic Bank, Islamic Bank of Asia has just opened its first overseas office in Bahrain. International banks are structuring Islamic financial products in Singapore. | 1 |
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