sentenceA
stringlengths 2
7.69k
| sentenceB
stringlengths 2
7.69k
| label
float64 0
1
|
|---|---|---|
Let me demonstrate by using an iceberg to paint a clearer picture. The tip of an iceberg above the water is what we observe through banking performance, financial information, and investment portfolios. Although the tip may show good performance records, the larger portion of the iceberg under water is what determines its strength or fragility. Unawareness of small cracks in the iceberg could result in its unforeseeable disintegration. Corporate culture and behaviour is a part of this portion under water and is an influencer of decisions within the organization. Building corporate culture and behaviour that fosters good governance, soundness, and sustainability therefore has to be instilled into the organization. For ASEAN banks, we have learnt our lesson from the Asian Financial Crisis and bankers who had endured through that period are fully aware of the associated risks and their consequences. Going forward, however, with new and younger generations of bankers, these lessons may not be as fully appreciated. Newer generations may be less aware of the costs associated with excessive risk-taking behaviours and the aggressive search for higher yields may be prevalent. In this transitional period, it is therefore even more imperative that the proper culture and behaviour be embedded into every level of the organization, starting from the highest level at the board and cascading down to every level of management and staff. Fourthly, financial institutions need to embrace sustainable banking to ensure sustainable success. The concept of sustainability plays an increasingly important role in our global and regional development. | The widening wealth gap, coupled with lower yields on savings has led to the feeling of less hope of a better future. Amidst this frustration with the status quo, sentiments of anti-present economic establishment such as anti-globalisation, antitrade, and even anti-bankers have become more widespread. We see increases in non-tariff trade barriers and oppositions to trade deals, polarization of views among people, Brexit, and the US Election. Populist and nationalist policies are flourishing among middle and lower income people in many countries. Against this backdrop, we also face fast changes in technology. Not since the industrial age, have we witnessed such rapid adoption of technology and innovation, thanks in part to the digital revolution. Although technology increases economic productivity and improves people’s standard of living, it can be a source of stress for the working-age population. Many, even the highly skilled, such as investment professionals, fear being replaced by robots and artificial intelligence. Current business models are rapidly rendered obsolete by new business models and the sharing economy such as Uber or Airbnb. Owing to changing economic environment, social sentiment, and technological advancement, I see five imperatives for ASEAN’s banking sector going forward. First, innovative technology is fast changing financial business landscape and we have to be proactive in embracing technology. Given the low-growth and low-interest rate environment, banks’ income is facing pressure from declining spread and fees. Consumers’ needs and behaviour have changed and they now demand faster and more convenient services. | 1 |
Confidence in the Swedish banks declined dramatically and they had problems in continuing to finance their short-term loans on the international interbank market. The bank crisis was upon us. To prevent the system from collapsing, the central government was forced to rapidly intervene with a general, overall blanket guarantee that promised that all of the Swedish banks would meet all of their obligations, existing and future, towards all types of lender. All in all, the bad loans for the seven largest banks, when they were finally mapped out, amounted to 12 per cent of GDP. Six of these banks risked falling below the minimum limit for their capital buffers and therefore needed more capital from their owners or from the central government. An important principle in managing this crisis was that banks that were not viable would be closed down and their owners would lose capital. One bank was closed down and its assets were transferred to another bank, while the original bank was declared bankrupt. The effects of the crisis The effects of the crisis were considerable, not only for the banks but also for society as a whole. Growth fell drastically and was negative for three years in a row. Unemployment rose from just under 2 per cent to over 8 per cent between 1990 and 1993. However, the effects were also substantial with regard to the financial system itself. As I see it, there are two reasons why the financial crisis in Sweden developed as it did and was so damaging. | 2 BIS central bankers’ speeches A robust counterparty framework, specifically one that provides reliable execution capacity of sufficient scale and is facilitated by a liquid and smoothly functioning secondary market for Treasury securities, aids the Desk in pursuing our objectives with respect to the implementation of monetary policy and the activities we undertake in support of the Treasury. But these benefits must be balanced against the cost of maintaining counterparty relationships. Staff time and resources are required to monitor and manage these relationships to ensure that we are getting good value not only in terms of trade execution, but also in terms of market monitoring, an important function that the Desk provides for the benefit of the Federal Reserve System and the Treasury. A large, diverse set of counterparties can contribute to competitive trade execution and richer sources of market intelligence, as well as the increased operational coverage and resiliency that support adaptation to changes in market structure or operating directives. But diversity also entails complexity and requires initial and ongoing investment in infrastructure to support a wider range of firm types. Evaluating and onboarding firms, setting up transactional systems and account arrangements, and monitoring and evaluating counterparty performance and risk all take time and resources that must be balanced against the potential benefits of a larger list.7 One final consideration that bears mention is the concept of an imprimatur that some market participants associate with status as a New York Fed counterparty. | 0 |
This was not the case; inflation expectations in the slightly longer term were fairly well anchored around 2 per cent. At the same time, the Riksbank’s forecasts showed that economic activity would remain strong. This period illustrates how important it is for monetary policy to analyse the driving forces behind inflation and for the policy to be forward-looking. When inflation rose last year, this was also largely due to supply factors, such as the price of oil and other commodities, which could not be checked even in the short term by monetary policy. However, in the background was a long period of high growth and increased tightness in the labour market. At the same time, productivity growth was declining and wages were rising. This entailed increased cost pressures, which justified a higher interest rate. Monetary policy continued to tighten even when signs of weakening in economic activity began to appear. When we look ahead we can see that prices measured in terms of the CPI will fall this year and inflation will thus deviate substantially from the target. The primary cause of this is that mortgage rates and energy prices are falling rapidly when calculated as an annual percentage change. If we exclude the effect of our own interest rate cuts and the effects of falling energy prices, prices are not expected to fall. | In the euro area, the cumulated output loss from the second quarter of 2008 (when growth turned negative) 1 The total potential writedowns on the assets of global financial institutions (including banks pension funds, insurance companies and hedge funds) over the period 2007-2010 have been estimated at USD 4.1 trillion, of which about two thirds (USD 2.8 trillion) are expected to be borne by banks (see International Monetary Fund (2009)). These estimates, which include future potential writedowns until the end of 2010, are based on a number of projections of future economic activity and assumptions about asset market developments, and estimates of the likely impairment charges on loans. They are, therefore, subject to a substantial margin of error. 2 Figures based on S&P European 350 Index. It should be noted, however, that this index has recovered significantly since March 2009; market capitalisation rose from € trillion on 9 March to € trillion by 26 May 2009. BIS Review 65/2009 1 until the first quarter of this year, amounts to 5% of GDP, which is equivalent to about EUR 400 billion. 3 In order to mitigate the effects of the crisis on the financial sector and the real economy, governments and central banks have taken strong and decisive action. Indeed, in many cases they have implemented measures that are extraordinary in size and scope. | 0 |
A big part of that reflects recent success in averting tail risks that were weighing on investor confidence. Europe’s common currency hasn’t fragmented, the U.S. didn’t go over its fiscal cliff, and China hasn’t had a hard landing. But in each of these cases, there is plenty of unfinished business, and important challenges remain. In the euro area, while there are grounds for cautious optimism, much remains to be done to restore confidence and growth. Fiscal adjustment is far from complete and is likely to continue to weigh on growth for some time to come. Financial conditions in the periphery have improved, but remain much less supportive than in the core. Plans to build a banking union and deepen economic, fiscal and political integration remain very much works in progress. And, as the elections in Italy have reminded us, there is an important political counterpart to the economic and financial challenges and risks confronting the region. In the U.S., we are only part way toward addressing our fiscal challenges. Recent measures are chipping away at the deficit, but the approach hardly corresponds to anybody’s ideal of efficiency. While there is little mystery about what ultimately needs to be done, we simply have not yet mustered the political will to make the compromises needed to get there. And, unfortunately, with deadlines coming – and one just having passed for decisions on mandatory spending cuts and spending and borrowing authorizations – we can’t be comfortable that this is going to go smoothly. | However, the corporate sector faces major challenges down the road. Against a backdrop of lower expected cash flows and higher debt, the solvency position of some firms has worsened, especially in the case of those operating in sectors more adversely affected by the pandemic that are still facing some restrictions. Thus, with the crisis stretching out, concern has now shifted from liquidity risk to the deterioration of the solvency position of firms. Therefore, economic policies should now focus on supporting viable businesses whose solvency has worsened as a result of the COVID-19 shock, given that the potential liquidation of these firms would be a drag on economic recovery via different channels. First, due to the loss of employment and capital that follows the closure of any company. Second, firms’ solvency problems may end up affecting the health of lenders if these problems are significant and widespread within the corporate sector. And third, in extreme scenarios, the ability of of some banks to provide new lending could be affected, generating negative financial loops. We should take into account as well that a high level of corporate debt, even if not leading to defaults, can still be a drag on investment in the following years, lowering productivity and economic growth, as the experience from the global financial crisis indeed shows. | 0 |
(Exhibit 5) Of course, the Federal Reserve’s large scale interventions in the Treasury market over this period may also have had an impact on this measure. Turning to corporate bonds, given their heterogeneous nature, liquidity in the corporate bond market depends on the ability and willingness of dealers to hold these securities on their balance sheets while they find buyers. Disaggregated data on dealer balance sheet holdings have only been published since April 2013. While limited in terms of its history, these data indicate no clear reduction in investment grade security holdings over time, but do show a significant reduction in high-yield security holdings since the end of the financial crisis. This might be indicative of deterioration in market liquidity in corporate bonds. To investigate corporate bond market liquidity in more detail, let’s examine three liquidity measures: the average trade size, “effective” bid-ask spreads and price impact. The evidence on the average trade size for investment grade corporate bonds indicates a slight reduction from between $ to $ in the early 2000s to around $ in the last few years. (Exhibit 6) However, price measures of corporate bond liquidity do not substantiate the trend in this quantity measure. The effective bid-ask spread has been trending down since the early 2000s, around the same time that TRACE reporting was introduced. The spread spiked during the financial crisis, but is now lower than its pre-crisis levels. | Even if one were to read the evidence as supporting the notion that liquidity has become somewhat more costly, this does not imply that we should simply unwind recent regulatory requirements. First, as I discussed, there are non-regulatory factors that could be more important factors. Second, even if a connection could be made to regulatory causes, the costs of any reduction in liquidity or increase in liquidity risk might be low relative to the benefits of the regulations. As I noted at the outset of my remarks, recent regulatory changes have been designed to produce a safer and sounder financial system. Higher capital and liquidity requirements have made major financial institutions less prone to failure. This can be seen in the sharp fall in credit default swap spreads for major dealers in recent years. Moreover, other steps have made the financial system more robust to the failure of a systemically important firm. For example, the shift to central clearing of over-the-counter derivatives through central counterparties (CCPs) has reduced bilateral risk exposures, and significant progress is being 2 The Federal Reserve’s large scale asset purchases presumably have also played a role by removing a large volume of Treasury securities from the marketplace. BIS central bankers’ speeches 5 made on how to resolve the failure of a systemically important financial firm in a way that does not threaten the entire financial system. 3 As I see it, the prior regime did not sufficiently foster financial stability, a necessary condition for sustained economic growth. | 1 |
In an open economy, such policy may be ineffective in controlling asset price growth and may even worsen the prospects for financial stability. I will tackle this further in my coming discussion of capital flows. The same criticism applies to the use of regulation to achieve macro stability. It could be possible to use bank capital requirements to control inflation through the supply of credit and real activity, but it would raise the cost of capital and would hit especially hard bankdependent firms and consumers while other borrowers would turn to other sources of financing. Furthermore, the relatively high-frequency changes that managing macro 2 BIS central bankers’ speeches conditions may require may create unnecessary policy-driven volatility in financial markets. All this indicates that it is more appropriate to tackle each goal with its own type of tool. The separation of the instruments does not necessarily mean that the achievement of the goals can be separated operationally. Because of the dual causality of price and financial stability, monetary and financial policies should be explicitly coordinated. How this coordination is achieved varies across countries. At the very least, instances to monitor global risks to financial stability should exist. Central Banks should be involved in these monitoring instances (or should centralize the monitoring and supervision functions) because of their relative advantages in providing a macro view of the economy and their market contacts, due to the implementation of monetary operations. In addition regulation that could have systemic implications should be discussed in these instances. | (2011), “The Effects of the Great Recession on Central Bank Doctrine and Practice”, speech delivered at the Federal Reserve Bank of Boston 56th Economic Conference, Boston, Massachusetts, October 18th. 3 For the case of Chile, see Cowan and De Gregorio (2007), and for a review for a broad set of countries, see Magud et al. (2011). 4 For further discussion on exchange rate intervention in emerging market economies see De Gregorio (2010). BIS central bankers’ speeches 5 Blinder, A., and R. Reis (2005), “Understanding the Greenspan Standard”, in The Greenspan Era: Lessons for the Future, Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. Cowan, K. and J. De Gregorio (2007), “International Borrowing, Capital Controls and the Exchange Rate: Lessons from Chile”, in S. Edwards (ed. ), Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, NBER and The University of Chicago Press. De Gregorio, J. (2010), “Monetary Policy and Financial Stability: An Emerging Markets Perspective”, International Finance, 13:1, pp. 141–156. De Gregorio, J. (2011), “Price and Financial Stability in Modern Central Banking”, speech delivered at LACEA-LAMES Conference, November, Santiago, Chile. Magud, N., C. Reinhart and K. Rogoff (2011), “Capital Controls: Myth and Reality – A Portfolio Balance Approach”, NBER Working Paper N°16805. Ostry, J., A. Ghosh, K. Habermeier, M. Chamon, M. Qureshi and D. Reinhardt (2010), “Capital Inflows: The Role of Controls”, IMF Staff Position Note, SPN/10/04. Tinbergen, J. (1952), On the Theory of Economic Policy, Amsterdam: North-Holland. 6 BIS central bankers’ speeches | 1 |
Paul Tucker: Inflation, growth and stability – balancing the Bank of England’s economic priorities Remarks by Mr Paul Tucker, Deputy Governor of the Bank of England, at The Institute of Economic Affairs’ 27th Annual Conference ”The State of the Economy”, London, 23 February 2010. * * * Many thanks for input to Peter Andrews, Roger Clews, Iain de Weymarn, James Proudman, Gareth Ramsay and Victoria Saporta. For background work to Michael Grady and for secretarial support to Sandra Bannister and Cheryl Feeney. It is an understatement that the current macroeconomic conjuncture poses major challenges for policy. There are also major lessons for the overall framework for preserving stability in our economy. I shall talk about both. Both the challenges and the lessons stem from the source of the crisis: a crash in the credit system affecting a domestic and global economy which had become severely imbalanced. Broadly, from the autumn of 2008 onwards, the sharp falls in economic activity were most pronounced in areas heavily dependent on credit and optimism (Chart 1). There was a vicious spiral down in world trade, where supply chains had become longer, with more counterparty risk and so more dependence on credit. Likewise in industrial production (Chart 2). Business investment collapsed (Chart 3). There was sharp destocking, helping to alleviate firms’ financial pressures. Things are better than they were. Capital markets have mostly reopened, but spreads are still higher than before funding markets deteriorated during 2007 and bank lending has been very weak. | Norges Bank is the source for figures from 1996. BIS Review 16/2009 Equity capital in investment banks in the US and Europe was very low, as low as 2-3 per cent of total assets. Many of these banks have now collapsed. The authorities in many countries are working to enhance financial market resilience. For Norway, it would not be appropriate to return to the regulatory regime of the postwar period. Interest rate regulation, credit budgets, a wide range of state banks, regulation of crossborder capital movements and a fixed exchange rate are not the answer. Instead, new and higher capital requirements must be imposed on banks. Banks calculate how much capital they need using their own risk models. The models capture losses and gains previously generated by lending. Equity capital requirements are determined by previous experience of the risk exposure of investments. One drawback is that the historical basis for the models, and hence for the risk assessments, is too limited. With losses now rising, as a result of the abrupt and pronounced turnaround, banks must increase equity capital. Thus the rules governing capital requirements amplify the economic cycle. Three changes are particularly relevant: First, for a given risk assessment, capital requirements must be higher. Second, banks must not be able to reduce capital below a minimum level even if they extend loans that, according to the models, seemingly involve low risk. Third, banks must build up strong capital buffers over and above the minimum requirement in normal times. | 0 |
Finally: as things look today there are, in my opinion, specific circumstances in Sweden, especially structural vulnerabilities, that justify continuing to complement the internationallyagreed requirements with stricter requirements in certain areas. One of the greatest risks I see as far as Sweden is concerned is the mortgage market. The measures needed to come to terms with this have not been in focus here today, but this is certainly an issue I will return to. Today, I have instead talked about international regulations and about Sweden’s need to go further in some respects. Those I have mentioned today are higher capital requirements, LCRs per currency, risk-weight floors for mortgages and the countercyclical capital buffer. In the case of the leverage ratio and the NSFR, we need to examine more closely whether the Riksbank should work for stricter requirements in Sweden than the upcoming international minimum requirements. BIS central bankers’ speeches 7 | The report aims to provide insights to our stakeholders, namely investors, analysts and the business community on the current state and future potential of the Islamic financial sector in Malaysia. In documenting our journey, the report also seeks to present the lessons learned. Its in-depth information, featuring Islamic banking, takaful, Islamic capital market and education; and independent due diligence position the report as a potential beacon for interested investors. While we hope that the strong value propositions of Islamic finance in Malaysia are selfevident, today’s global markets would require accurate, timely and objective information that would enhance the confidence of businesses to use the services offered by this sector. The publication of the five Islamic finance country reports by IRTI would certainly add greater depth to the wealth of information available for the global community. In highlighting the Islamic finance prospects and opportunities across regions, it is my hope that trade and business linkages would further expand in the future. I would like to highlight a specific issue in my remarks today. The need to elevate Islamic finance to another notch; intensifying cross-border linkages among jurisdictions that practise and promote Shariah compliant financial services. An ambitious undertaking; but a necessary initiative that I thought would spearhead the next exponential growth of the industry. There are many prerequisites, but I would like to touch on four of them. Firstly, the global supply of a wide range of high-quality, competitive and innovative Islamic financial products and services that meet the requirements of international businesses. | 0 |
A common basis of information and analysis may facilitate assessment and comparison of climate risk in individual institutions, and lead to a more correct pricing of risk. International cooperation could be fruitful in this work, including in the NGFS context. Responsible investment at Norges Bank In its role as the GPFG’s owner, the Norwegian Ministry of Finance specifies the investment universe, benchmark index, risk limits, and requirements. Norges Bank shall make investment 1/3 BIS central bankers' speeches decisions and exercise ownership rights independently of the Ministry. Within this framework, Norges Bank works on climate risk across the GPFG’s three asset classes – listed equities, listed bonds, and unlisted real estate – within a general framework of objectives. By end-June 2019, the total market value of the fund was close to USD 1.1 trillion, corresponding to more than three times mainland GDP of Norway. The United States is by far the greatest receiver of funds, amounting to 41 percent of the total. To spread risks and capture global growth, the assets were invested in over 9,000 companies in more than 70 countries. We benefit from free and open markets that enable an efficient global allocation of resources. The objective is to achieve the highest possible return with acceptable risk. Responsible investment supports this in two ways. First, it seeks to improve the long-term economic performance of the investments. Second, it seeks to reduce the financial risks associated with Environmental, Social and Governance (ESG) practices of companies in the portfolio. | As you can probably tell by now, the internationalisation of the RMB poses many unique opportunities for Hong Kong and it is time to do our part. We continue to look to the TMA’s active participation in this journey for Hong Kong. 4/4 BIS central bankers' speeches | 0 |
This position was subsequently formalised in the new Bank of England Act which came into effect in June of last year. That Act now defines the Bank’s objective as “the maintenance of price stability, and, subject to that, to support the Government’s economic policy, including its objectives for growth and employment”. Under the Act the Chancellor tells the Bank what precisely we are to understand by “price stability” and he has done this by setting a target of 2½% for a particular measure of retail price inflation (RPIX – which is the RPI excluding mortgage interest payments); and although the Act provides for the Chancellor to set the target each year, the expectation is that it is in practice set for the medium to longer term. That is the political decision. The task of achieving that target – the technical implementation of monetary policy – is then delegated, transparently and accountably, to the MPC. The Government no longer has the power – as it had under the 1946 Bank of England Act – to issue directions to the Bank in the field of monetary policy, except, in the terms of the new Act, “in extreme economic circumstances”. So the objective of monetary policy these days, in this immediate sense, could hardly be clearer; and that objective is accepted across a broad part of the political spectrum. But it is important to understand that this objective – of permanent effective price stability – is not simply an end in itself. | So it is the outlook for inflation, rather than its current rate, which explains the MPC’s decision to resume asset purchases. Asset purchases work by increasing the amount of money in the economy. When the Bank buys assets, the people who sell the assets to us receive money which can then be used to buy other assets. In turn, the sellers become buyers of other assets, and so on indefinitely as the money is transferred from one account to another. The prices of assets that investors choose to buy go up, raising wealth and pushing down on yields. Those yields are the opposite side of the coin to the borrowing costs of companies. In these ways, the Bank’s purchases of assets increase demand in the economy. Some of you have asked why the MPC has focused largely on purchases of gilts, rather than securities issued by companies. The answer is three-fold. First, gilts are the only asset available in sufficient quantity such that the Bank can rapidly inject large amounts of money into the economy – £ billion in the present case. Second, we have bought, and continue to buy, corporate securities, but this was designed to ensure that the corporate bond market functioned normally with the Bank acting as a temporary market-maker in a dysfunctional but previously liquid market. We were able to achieve that objective without the expenditure of large sums of money – unnecessary given the size of the market. | 0 |
Expansionary monetary policy affecting asset prices in this way is actually a part of the transmission mechanism for monetary policy, that is, the way that monetary policy spreads through the economy. But the effect on asset prices is not the objective of the policy. The objective is that the expansionary policy – through the effects on interest rates, asset prices, exchange rate, access to credit, expectations and so on – will in a couple of years contribute to increasing activity in the economy and bringing up employment and inflation. It is important not to lose this perspective in discussions of the distributional effects of monetary policy, as it broadens the spectrum of effects to more than just those coming through asset prices. Moreover, it points to the difficulties in determining the size of the distributional effects of monetary policy. One such difficulty is assessing what should actually be considered an effect of monetary policy and what is rather an effect of the conditions for monetary policy having changed. In a system like the national economy, it is not an easy task to distinguish between cause and effect. The Riksbank does not operate in a vacuum; it adapts its monetary policy to changing circumstances. 3 Moreover, if monetary policy were not adapted to new circumstances, this would also have distributional effects. | Given that the recent financial turmoil has highlighted the importance of strong liquidity risk management, an important recent development to assist in the liquidity management of Islamic financial institutions is the establishment of the International Islamic Liquidity Management Corporation (IILM). The IILM has begun its operations in Kuala Lumpur from early February this year, following its official launch in October 2010. The IILM is tasked to issue short-term multi-currency liquidity instruments that would facilitate the cross-border liquidity management between financial centres, and by doing so, would enhance financial inter-linkages. The first issuance of liquidity instruments is expected to take place later during the year and is very much anticipated as it would contribute to more efficient management of financial flows across borders, thereby leading towards more efficient internationalisation of Islamic finance. The Islamic finance industry is at a stage of growth in terms of products and services, which requires innovation to remain as the driving force behind the progress of the industry. In the pursuit of innovation, it is paramount that the Islamic banking and takaful industry achieve full Shariah compliance in the development and application of their products and services. A robust Shariah governance framework is therefore an important foundation for the Islamic financial institutions to ensure that its objectives and operations are in accordance with Shariah principles. In Malaysia, there have been recent enhancements to the Shariah governance that aim to further strengthen the existing Shariah governance process, decision making, accountability and independence of Shariah advisories. | 0 |
As always, my remarks today reflect my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. We live in a globalized economy in which the flows of products, capital, and ideas across borders have led to significant economic gains for literally hundreds of millions of people around the world. Thus, there is a strong public interest in ensuring that this global economic integration is supported by a coherent set of coordinated national macroeconomic policies and a harmonized international regulatory regime. This applies to the policy actions we undertake to reduce economic imbalances as well as to the regulations we develop to address the vulnerabilities in our financial system that were exposed by the crisis. The better we are able to develop cooperative global solutions to these types of issues, the more successful we will be in creating a sounder and more sustainable global economy and financial system. It is clear that there were important imbalances in both economic and financial activity in the years preceding the financial crisis. For example, in the U.S., too much of economic activity was based on an unsustainable housing boom. The turmoil in financial markets that was unleashed when the boom collapsed subsequently forced the U.S. and other countries to undergo significant adjustments. These adjustments were often sudden. They transmitted large shocks across the global economy. These shocks, in turn, necessitated other adjustments in trade, investment, and in financial markets elsewhere. | William C Dudley: What does interconnectedness imply for macroeconomic and financial cooperation? Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Swiss National Bank-International Monetary Fund Conference, Zurich, 8 May 2012. * * * It is a pleasure to have the opportunity to speak here today. As I see it, the complex interconnections that exist between the real and financial sectors of the economy, both within and between countries, have important implications for both macroeconomic and regulatory policy. In particular, cross-border coordination in both realms is warranted. Often, macroeconomic and regulatory policies are too narrow in their focus. At times, policies are designed with the goal of being “best” at the national level. Yet the resulting mix of national policies is distinctly inferior to what a well-coordinated global regime could have produced. Today I will discuss two important challenges that go along with living in an interconnected world. The first is how to define what aspects of macroeconomic policy or regulation require greater international coordination and harmonization. Some issues can be handled effectively at a national level, but the crisis has demonstrated clearly that many can not. The second challenge is how to make international coordination workable so that progress can be made in a timely manner while still preserving sufficient autonomy for countries to fashion policies to suit their particular idiosyncratic structures. | 1 |
That meant the output gap was no longer shrinking at any pace, if at all. Meantime, price pressures had remained weak. External deflationary forces – from energy prices and sterling’s earlier appreciation – have started to wane. But domestic wage growth had not picked up discernibly. Wage inflation had remained in the “2-point-something” zone it had occupied for much of the preceding 5 years. Indeed, this looked increasingly like a new, post-crisis, “going rate”. Given job insecurity, and given slowing employment growth, that new going-rate seemed unlikely quickly to dislodge. This has been an uneven economic recovery, looking across regions, income and age cohorts. Large parts of the UK – many regions, those on lower incomes, the young, renters – have not experienced any meaningful recovery in their incomes or in their wealth. Perhaps it is not so surprising, then, that reflation in spending, prices and wages has been modest over the past few years and interest rates, contrary to financial market expectations, have hence remained on hold. Over the past month, the outcome of the EU referendum has added another important ingredient to this mix. It has increased materially the degree of uncertainty – economic, policy, and political – around the UK’s economic recovery. 15 And while some of this uncertainty may dissipate, a good chunk is likely to linger throughout the Bank’s two to three-year policy horizon. This uncertainty is likely to weigh on domestic spending by both companies and households for the foreseeable future. | Those small countries in particular had to accept the new economic reality of lower demand, higher unemployment and forced fiscal consolidation due to a fall in tax income or borrowing difficulties. The other group consists of bigger or more closed economies that were relying on domestic demand. They were able to smooth the initial impact of the crisis with more extensive government support measures. There was also the expectation that the crisis would be temporary. With the benefit of hindsight we know that we were not facing a temporary bump on the road, but a more fundamental need for adjustment. The initial smoothing of the shock may have been even more costly as it resulted in a higher level of public debt. Secondly, the required policy adjustment involves a dimension which we now consider critical: the speed of reacting and the decisiveness of policy actions. The Baltic countries have learned it firsthand through their experience, which of course is the hard way. There are few economists today that would fundamentally question the need for fiscal consolidation and structural reforms in Europe, as the crisis has clearly turned out not to be temporary. However, we all know it is politically difficult to cut government spending and implement reforms fast. The natural tendency for most politicians is to favour gradual adjustment. “Gradualists” say that in case of fast changes the risk of possible policy mistakes is higher, leading to losses in physical and human capital. Opponents of that view, including myself, certainly acknowledge those risks. | 0 |
As Charts 1 and 2 illustrate, however, the distribution of betas is fairly wide, with over a third of US firms and almost a fifth of UK firms having a beta in excess of unity. Table 4 Estimated betas Number of firms Number of observations Mean Median S.D S&P 401 10,140 0.91 0.86 0.49 FTSE 168 3,765 0.63 0.62 0.45 Index 21 Because a firm’s beta ought also to be a function of its business and financing decisions, we also estimate a restricted version of (10): 22 . We exclude observations where the estimated beta is greater than 5 in absolute value, which in practice is only 7 firms. BIS central bankers’ speeches 7 Chart 1 Chart 2 Distribution of betas – US Distribution of betas – UK Sources: Thomson Reuters Datastream and Bank calculations. Notes: Shows estimated betas for the US firms. The chart is drawn for betas lying between –1 and 3 with 400 bins. Sources: Thomson Reuters Datastream and Bank calculations. Notes: As for Chart 1 but for UK firms. The second component of the firm-specific discount factor is company gearing. This was constructed using annual Thomson Reuters Datastream data for book value per share, the number of shares outstanding and debt outstanding. | These projects would fail to receive financing. Investment and, ultimately, growth would be lower 4 BIS central bankers’ speeches than optimal. In fact, the potential capital misallocation problem is greater still. To see that, consider the three projects summarised in Table 1. Table 1 Short-termism and capital planning Project A B C Cash-flows (CF) $ pa in years 6–10 $ pa every year $ pa in years 1–5 Cumulative CF $ $ $ NPV (rational) $ $ $ 1 2 3 $ $ $ 3 2 1 Ranking (rational) NPV (myopia) Ranking (myopia) In the absence of short-termism, project A is selected. Its payouts are back-loaded but significant; it generates a net excess return of 22%.17 Short-termism hits such long duration projects hardest. The impatient investor chooses project C. This project delivers lower cashflows but these are front-loaded. In NPV terms, the project selected is the worst on offer, whereas the rationally optimal project ranks last. Capital allocation is not just sub-optimally low; it is also skewed towards sub-optimally short-duration projects. (b) Asset pricing Consider now a formal model of multi-period equity price determination. Finance theory typically assumes that investors care about both the level and uncertainty of their wealth and are risk averse. In this world, agents require a premium to invest in a company. | 1 |
For example, the industry had previously criticised the differences in the treatment of banks that originate and hold rated securitisation tranches versus banks that invest in the same exposures. The Committee will eliminate this difference. Instead, it will treat all rated exposures to securitisation structures in the same manner, regardless of whether they are held by an investing or an originating bank. This will furthermore streamline the proposals. Likewise, the Committee is introducing an internal-assessment approach for determining capital charges against exposures to certain low-risk unrated securitisation positions. Under the new treatment, banks will be allowed to derive the risk weights for unrated exposures to asset-backed commercial paper conduits (mainly liquidity facilities) by mapping their internal risk assessments to external credit ratings. This simplifies the rules by allowing qualifying banks to rely on existing processes and, at the same time, incorporates best practices into the securitisation framework. Other simplifications and improvements include the introduction of greater flexibility in calculating the capital charges on certain pools of assets that may underlie a securitisation transaction and the review of the calibration of the securitisation RBA risk weights to ensure a closer alignment with the level of risk inherent in the positions. Based on the positive initial reactions that we and our member agencies have received from the industry to date, the Committee is confident that the revisions will help to clarify and simplify the treatment of securitisation exposures. | By linking public investment and growth-enhancing reforms, it will help ensure a stronger and more uniform recovery across the euro area and accelerate the green and digital transitions. Euro area banking sector developments and financial stability issues The improving economic environment has contributed to a decline in near-term financial stability risks. Continued fiscal support helped the corporate sector recover from the pandemic, although the situation continues to vary across industries and firms. With corporate insolvencies remaining subdued, bank loan performance turned out to be more resilient than initially feared, although it is still too early to assess the full impact of the pandemic. Positive asset quality and financial market developments supported the return of bank profitability to pre-pandemic levels, and the ECB’s stress test results published in July showed that the euro area banking system would be resilient to adverse economic developments. Amid reduced uncertainty, the Supervisory Board of the ECB decided not to extend its systemwide recommendation on banks’ capital distributions. Instead, it returned to the previous supervisory practice of discussing capital trajectories and dividend or share buy-back plans with each bank in the context of the normal supervisory cycle. The ECB reminded banks to remain prudent when deciding on distributions and not to underestimate the risk that additional losses may later have an impact on their capital trajectories. As the economic recovery takes hold, financial vulnerabilities associated with an upswing are building up. | 0 |
25 The supply of credit increases, at the same time as interest rates are 24 For an overview of how complementary monetary policy functions, see De Graeve, F. and Lindé, J., “Effects of unconventional monetary policy: theory and evidence”, Economic Review 2015:1, Sveriges Riksbank or the article “The Riksbank’s complementary monetary policy measures”, Monetary Policy Report, February 2015, Sveriges Riksbank. 25 Some studies of the effects of complementary monetary policy in other countries include, for instance, Weale, M. and Wieladek, T. “What are the macroeconomic effects of asset Purchases”, External MPC Unit Discussion Paper No. 42, 2014, Bank of England, Gertler, M. and Karadi, P. “QE 1 vs. 2 vs. 3. . . : A Framework for Analyzing Large-Scale Asset Purchases as a Monetary Policy Tool”, International Journal of Central Banking, 10 BIS central bankers’ speeches pushed down and the exchange rate weakens – aggregate demand in the economy increases. When the economy is stimulated, inflation gradually rises, as companies can charge higher prices and the lower unemployment pushes up wages. A weaker exchange rate also leads directly to higher inflation, as prices of imported consumer goods rise faster. Let me give an example of how the increase in the Riksbank’s balance sheet in the form of government bond purchases can spread throughout the economy. When we buy government bonds, those who sell them receive liquid funds in the form of their bank account balance instead of the bonds they previously held. | 11. According to a market knowledge study called the ‘FinScope Demand – Side Survey’ which was conducted in 2005 to review the inclusiveness of the Zambian financial system, two thirds (or 66.3%) of the Zambian adult population do not have access to financial services and only one third (or 33.7%) use banks, other formal and informal financial services and products (such as those offered by microfinance and savings clubs). Furthermore, only 15% of the adult population access commercial bank services. A huge market therefore exists to tap if transaction costs are reduced. 12. Finally, Honourable Guest of Honour, let me congratulate NATSAVE for its participation in addressing the issue of increased access to financial services for the people of Lukulu despite the challenges of physical access and resultant higher transaction costs. I thank you. 2 BIS Review 69/2009 | 0 |
And I learned with time that the former got more from the bank because I and it knew more about them and what they needed – whether a savings product or a loan. The bank got more from them in terms of revenue and reliability (helpful given that two small banks had recently failed). Indeed, as my province was in a deep recession at the time, loyalty and understanding mattered. It could mean the difference between a restructured loan that could be repaid and a foreclosure that would bring liquidation. In short, I was at the front line of a banking value chain – one that is now being impacted across its components by FinTech. Traditional universal banks combine the customer relationship, retail and commercial deposits and lending, and a wide range of activities in wholesale money and capital markets. 2 The FSB defines FinTech as technologically-enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 Diagram A: Financial Services Value Chain Payment services traditionally relied on cash, debit and credit cards, and wire transfers. Now FinTech companies are providing domestic and cross-border payment services on significant scale through “digital wallets” or pre-funded “eMoney”. Tech firms take a slice of payment revenues and, in many cases, the totality of customer transaction data. | Recent examples include the USD500 million Islamic Infrastructure Fund established in 2009 by the Asian Development Bank (ADB) and Islamic Development Bank (IDB) to meet the Shariah-compliant financing needs in the member countries. In addition, the advancements achieved in the sukuk market also provide evidence on the ability of Islamic finance in meeting the requirements of the differentiated demands of the modern economy. The recent issuance of the world’s first offshore RMB sukuk by Khazanah Nasional in Malaysia reflects the growing trend of multi currency sukuk issuances in Asia. Growing at an average annual rate of 40 percent, the global sukuk market has demonstrated its ability to effectively intermediate funds across borders, allocating funds efficiently in the international financial system and fast becoming an important financing and capital raising option. Islamic finance and financial stability An important aspect of the new financial landscape is the increased focus on financial stability. The more market oriented systems with market-based finance activities, the creation of new financial instruments and an increasing number of market participants with global reach, and more interconnected financial systems has expanded the potential for, and channels through which, financial shocks are transmitted to the economy and across borders. Indeed, recent experiences with crises have also shed new insights into the complex web of relationships that exist between sovereign, financial and economic risks, and underscored the critical importance of strengthening the pillars of financial stability that can serve to contain the impact of a crisis. | 0 |
Before the EU/IMF programme was agreed, the total Eurosystem loan support for Ireland (combining monetary policy operations to all eligible banks and emergency liquidity assistance from the Central Bank of Ireland) amounted to about 100% of Irish GDP. Our total loan provision now stands at above EUR 125 billion. There are however statutory limits to what the Eurosystem can do, and a clear dividing line between the tasks of a State and the tasks of a central bank. There can also be no doubt that the current amount of liquidity support extended by the ECB and the Central Bank of Ireland 4 BIS central bankers’ speeches to Ireland’s banks needs to be substantially reduced over time, and we expect that the Irish authorities and the banks are working hard to achieve this. For Ireland’s economy to recover, its banking system must be sound and fully functioning. A virtuous cycle must blossom. That will be difficult to instil with banks that remain dependent on Eurosystem support. With measures in place to break this dependency, the conditions will be in place for recovery. The foundation for this recovery has already been laid. In late 2010, the ECB played a key role in mitigating the challenges facing the banking system, and in designing programme measures to reverse the situation. I hope you share my view that these measures achieved their initial aims: the stabilisation of the banking system. | Norman T L Chan: A new era of smart banking Opening keynote speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at HKIB (The Hong Kong Institute of Bankers) Annual Banking Conference 2017, Hong Kong, 29 September 2017. * * * Dr Patrick Fung, Ms Carrie Leung, Vice President Pan Guangwei, distinguished guests, ladies and gentlemen, good morning to all of you! The theme of my speech is “A New Era of Smart Banking”, “智慧銀行新紀元 ” in Chinese. In the last few years, we have frequently come across two comments amongst the fintech community. The first comment is that Hong Kong is very backward in fintech, quoting mobile payment developments in Mainland China as the evidence. The second is that fintech will disrupt or displace traditional banking. I must say I don’t agree with these two comments for two main reasons. First, Hong Kong has not been slow in developing and adopting fintech. It is not entirely appropriate to use mobile payment as the only benchmark for measuring the state of development in fintech. There are many other important aspects of developments that define the maturity of fintech developments, such as the use of digital or internet banking and the robustness of cybersecurity. Even in the field of mobile payments, we should appreciate that Hong Kong already has a well-developed electronic payment ecosystem. In 2015, each Hong Kong citizen had on average 2.6 credit cards, compared to 0.3 credit cards per person in Mainland China. | 0 |
5 [8] and our assessment is that there is no technical obstacle to settling payments in Swedish krona there. Moreover, it doesn't cost anything to join TIPS over and above the adaptations the Riksbank and the market need to make to their IT and communication systems. Joining the platform involves the central bank wishing to participate entering into an agreement with the ECB and the Eurosystem. If the Riksbank decides to use TIPS, the settlement of instant payments in Swedish krona will thus take place in Italy, where the platform is located. As the Riksbank would then be outsourcing the operation of the system to an external party, the TIPS operations must meet the requirements made by Swedish legislation. In addition to these requirements, the outsourcing process would also raise a number of broader issues regarding national self-determination. It may be worth reminding you that the Swedish payment infrastructure is already dependent on external parties. Let me give some examples: RIX has been procured from a South African company, the settlement of Swedish securities takes place in Euroclear’s technical system in France, Swedish banknotes are printed in the United Kingdom, the communication network used to send payment orders between Swedish financial institutions, which is required for instance when customers make normal cash withdrawals, is owned by an international cooperative society with its headquarters in Belgium (SWIFT) and card transactions in Sweden are cleared through two American corporations. | The institution that is responsible for the settlement of payments between financial institutions gains a considerable influence over the payment system as a whole. If 4 [8] the settlement of payments had been a branch characterised by substantial competition and low entry barriers, it would not have been problem. But as payment settlement is instead characterised by economies of scale and network effects, Sweden actually has to choose between a public monopoly and some form of private monopoly. Even a privately-owned infrastructure can be supplied in a competitively neutral way without creating monopoly profits, but it must in that case be accompanied by regulations, supervision and oversight which is once again an unnecessary detour if the infrastructure could just as easily be directly supplied by a central bank. I therefore believe that both financial stability and competition on the payment market would benefit from the Riksbank supplying a payment system that is available whenever the participants wish to use it. Platform sharing with other central banks is cost-effective Platforms for settling instant payments must be able to process a large number of payments, be accessible 24/365 and offer first-class continuity solutions. The systems are therefore expensive and complex to develop. We have not calculated in detail how much it would cost for the Riksbank to develop or procure a system for the settlement of instant payments, but simple business economics speak against this type of project. Payment infrastructures entail substantial fixed costs. | 1 |
This could dent the capital and liquidity positions of banks and other financial intermediaries, thereby weakening their ability to channel funds to the real economy. If the financial system is weakened, the transmission of monetary policy is impaired, meaning that changes to the monetary policy stance will not be properly transmitted to the real economy. The third channel is via climate-related financial risks on the Eurosystem balance sheet. Rules regarding asset purchase programmes and the collateral framework will be revised to encourage counterparties to steer away from fossil fuels, speeding up the transition to net zero. The Eurosystem, which consists of the ECB and all the national central banks of the euro area – including the Central Bank of Malta - has taken steps towards integrating climate change considerations into its policies and operations. In fact climate features prominently in the review of the ECB’s monetary policy strategy that was finalised in July 2021. The ECB laid out three core objectives: (i) managing and mitigating the financial risks associated with climate change and assessing its economic impact, (ii) promoting sustainable finance to support an orderly transition to a lowcarbon economy, and (iii) sharing our expertise to foster wider changes in behaviour. Let me elaborate. 4 The Eurosystem will adjust its corporate bond holdings towards issuers with better climate performance. Better climate performance will be measured with reference to lower greenhouse gas emissions, more ambitious carbon reduction targets and better climate-related disclosures. | But it’s true that, economically speaking, Italy is a in a difficult juncture. It is the only euro area country that is experiencing a technical recession. And it has not seen an improvement in the labour market, which is another thing that sets it apart from other euro area economies. In the longer term, Italy’s problem is well known: it is productivity growth. I don’t believe that any of this has to do with the euro, otherwise it would be a general problem across the euro area. The response is to focus on the country’s strengths, such as its small and medium-sized enterprises. And to use the Single Market to leverage their strength and help them export to global markets. Isolation and protectionism don’t work. Europe is an asset for our economies. 1/2 BIS central bankers' speeches It seems to be difficult at the moment to undertake the much discussed reforms to complete the banking union and the capital markets union. Do you share this impression? Yes, I do, and it’s a concern for the ECB. We firmly believe that Europe is part of the solution in dealing with the problems faced by European citizens. Many citizens in many countries are angry because economic results are not what they should be, because it has taken too long to recover from the financial crisis, because unemployment especially among the youth – is still high and because globalisation has not lived up to its promises, instead increasing inequality and marginalising parts of society. | 0 |
Losses from the tear-up of positions would still be expected to be allocated in the order contractually agreed in the rulebook without discrimination between counterparties. But the discretions exercised by the resolution authority, such as the scope and price of the partial tear-up or the speed of replenishment of the depleted default fund would be taken with objectives to protect financial stability and subject to public law safeguards. In taking these actions the resolution authority would have the advantage of being able to coordinate and exchange information with other domestic and foreign authorities and with the wider market in a way that the CCP would not. This ability to coordinate could be crucial to the orderly management of a systemic event particularly if defaults were impacting multiple CCPs. An important aspect of stabilising the CCP and the wider market would be to maintain sufficient certainty around the losses that could be incurred in the resolution. A CCP’s rulebook provides its members with assurance ex ante about the point at which and the extent to which they will be exposed in the event of a clearing member default. It protects them from discrimination in the allocation of losses. Resolution authorities should similarly respect the CCP rulebook in the allocations of loss. If, in extreme circumstances, it proves necessary for the resolution authority to deviate from the rulebook, CCP members should be compensated for losses borne in excess of what would have been incurred had the rulebook been followed. | In addition, central banks may choose to participate in distorted financial markets where there may be threats to financial stability, as is sometimes done with reserve accumulation and exchange rate intervention in EMEs, or as has been the case of some interventions in debt and other asset markets in advanced economies. However, interventions beyond currency markets must be truly exceptional and only on the grounds of preserving financial stability or complementing monetary policy. Another way to control the vulnerability of the system to the reversals of asset prices is to limit the amount of debt that finances the purchase of those assets with higher prices or increase capital buffers for such debt. In terms of macro prudential policies there are a series of options for this. Higher capital requirements for intermediaries participating in the business of making leveraged purchases of financial assets are one option. In the same vein, reducing loan to value (LTV) ratios in mortgage loans, increasing provisions for housing loans or increasing capital requirements on mortgage lending are all viable options if the distortion is in the housing market. Several countries in Asia have been actively using LTV caps over the last couple of years to reduce the risks from housing price booms. Which of these tools should be used will depend, however, on the institutional setting of each country, the functioning of the financial system and the asset price that is distorted. | 0 |
At the same time, however, employers are claiming that the inflation target is no longer an obvious startingpoint. According to the Swedish Association of Industrial Employers, it is instead competitiveness and wage outcomes in the euro area that constitute their benchmark. 3 The implications of this are not obvious. Ultimately, the outcome depends on each respective party’s negotiating strength. But since wage increases in Germany, for example, have tended to be quite modest and since the industrial sector’s wage agreements in turn constitute a benchmark for other collective agreements in Sweden, it is conceivable that this could have contributed to the flat Phillips curve since 2011 in Figure 4. In the long term, however, this should not be a major problem as the euro area has an inflation target of “close to 2 per cent”, i.e. very close to our own target. This should imply that wage increases will also be higher in the euro area going forward. But tensions may arise periodically, of course. All in all, therefore, there are numerous feasible explanations for why wage increases have been relatively low despite good economic development. But so far we have no definitive answer to why it is like this nor to how permanent the phenomenon is. Research on the Phillips curve ongoing As I mentioned, the discussion about the Phillips curve is international to a high degree. Quite lively debate has been taking place in various countries recently centred on intensive estimation of Phillips curves, using slightly different specifications and different methods. | In this regard, flexible exchange rate serves as an automatic stabilizer to cushion against external shocks and economic imbalances in the short-term, and as an important price signal for resource allocations and catalyst for structural changes in the long term. In some cases, however, exchange rate flexibility and fluctuations can have costly consequences given some economic contexts, particularly in emerging market economies, including Thailand. First, financial markets in these economies are less developed and relatively illiquid compared to advanced economies. This may potentially cause extremely large asset prices and exchange rate movements in response to capital flow volatility. Additionally, the availability of foreign currency hedging instruments, especially to small enterprises, remains limited, amplifying the negative repercussions from exchange rate volatility. Moreover, many emerging market economies, including Thailand, rely on exports as the main engine of growth. Many of their export items often command little bargaining power and hence need to compete on the basis of price. As a result, extreme and sudden exchange rate movements would affect firms’ competitiveness. For these reasons, many emerging market economies cannot neglect the implications of exchange rate movements. This leads us to the next part of my talk this evening. Managing capital flow and exchange rate stability Ladies and Gentlemen, There is no one-size-fits-all measure to deal with capital flow and currency volatility, as well as its impacts on the real economy. Take Thailand as an example. We have adopted multi-dimensional responses to the financial spillovers. | 0 |
They include the fact that the probability of the zero lower bound constraint binding is likely to be materially 17 All speeches are available online at www.bankofengland.co.uk/speeches 17 higher than it has been historically. Recent simulation studies have suggested this probability may be as high as around one-third, if r* remains around current levels (for example, Kiley and Roberts (2017)). Implications for Future Research The link between the competitive structure of product markets, the macro-economy and the setting of monetary policy is a relatively under-researched area. This paper has only scratched the surface of this important topic. But trends in concentration and market power have clear potential to impact on the macroeconomy and monetary policy, justifying ongoing research on the topic. To that end, we conclude with a few reflections on potentially fruitful future research avenues. First, the framework used here to understand the macro-economic implications of increased market power assumes a particular competitive structure – monopolistic competition. This has limitations, assuming as it does that no one firm is sufficiently large to have a significant bearing on others’ behaviour. In practice, strategic interactions between firms are likely to be important in many markets, especially network markets (for example, Bramoullé, Kranton and D’Amours (2014)), with potentially important implications for pricing and the Phillips curve. Second, the framework developed here also sidesteps questions about the competitive structure of the market for inputs, especially labour inputs. | 14 All speeches are available online at www.bankofengland.co.uk/speeches 14 these would tend, therefore, to reduce the interest elasticity of investment demand, 𝜎. Whether these effects are significant at the macro-economic level is, however, far from clear. Market Power and Monetary Policy Taking this evidence together, we now summarise the various channels we have discussed through which monetary policy might prospectively be influenced by a rise in market power and mark-ups. First, if shocks to firms’ mark-ups have increased over recent decades, this would tend to shift outwards both output and especially inflation variability. Because these shocks are trade-off inducing, monetary policy is constrained in its capacity to cushion them. In consequence, the path of interest rates (both its level and variability) is affected only modestly by a rise in the incidence of mark-up shocks. Second, a rise in market power also has the potential to alter the slope of the Phillips curve, as discussed above. This, too, may affect the setting of monetary policy. To see that, consider the period loss function for monetary policymakers in the textbook model. This can be derived from the utility function of the representative household (Galí (2008)). It takes the form: 𝐿𝑡 = 𝜋𝑡2 + 𝜆𝑥𝑡2 (10) where the weight on the output gap is: 𝜆= 𝜅 𝜖 (11) Under optimal discretionary monetary policy, the policymaker minimises this loss function each period, subject to the Phillips curve, taking expectations as given. | 1 |
If, on the other hand, it thinks there’s going to be an imminent resolution (high q, low E[T]), there is every incentive to wait until that actually happens. In the meantime only extremely high-return projects would get the go-ahead. One general implication of this is that empirical estimates of the impact of uncertainty on investment, which generally assume that the effect is purely contemporaneous – investment today is a function solely of uncertainty today – are (strictly speaking) an over-simplification. At least in principle it will also depend on how long businesses expect any uncertainty to endure: the shorter the expected duration the greater the predicted impact. I doubt this would ever be straightforward to test empirically. As hard as it is to measure uncertainty very precisely it’s obviously harder to gauge accurately how long people expect that uncertainty to last. But the distinction may nonetheless matter on occasion. One such occasion is when there is thought to be a particular date at which important information is likely to be revealed. If so, then [3] suggests that the effect of uncertainty on investment should intensify the closer 8 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 8 one gets to that point. As the remaining time shortens the perceived cost of waiting for news falls with it. | Indeed, in mitigating inflationary pressures, an exchange rate appreciation restrains the MPR adjustments that could result from only the closing of the output gap. One working assumption we use in our projections is that the real exchange rate will change little into the long term. Any movements away from its trend are possible in a floating regime. Its potential financial effects on aggregate output and inflation will be definitely considered by the Board as an input for its future decisions. As we have demonstrated in the past, our monetary policy is highly flexible. It has contributed enormously to the good standing the Chilean economy enjoys today, in an environment of stable prices and restored employment and output. Now I will review the main features of the macroeconomic conditions we believe are the most likely for the next two years and its implications for inflation and monetary policy. Macroeconomic scenario The first closing of second-quarter National Accounts showed GDP growth at 6.5% y-o-y. In terms of velocity, the second quarter ended with an annualized quarterly variation of around 20% (figure 3). Domestic demand also grew above forecasts, driven by increased private consumption and a strong rebound of investment. Such dynamism has responded to not only temporary factors but also to more persistent ones. Among the temporary factors, what stands out is the immediate repair of the damages caused by the catastrophe of 27-F and the reversal of the dramatic contraction of domestic demand during 2009, associated to the then high levels of uncertainty. | 0 |
Barbro Wickman-Parak: Inflation targeting and the financial crisis Speech by Ms Barbro Wickman-Parak, Deputy Governor of the Sveriges Riksbank, at LO (the Swedish Trade Union Confederation), Stockholm, 9 January 2009. * * * It is usual at the beginning of a new year to look back over the past year. If we look back at economic developments during 2008, it would be an understatement to say that it was an eventful year. First we had soaring oil and other commodity prices, combined with rising cost pressures and ever declining economic activity abroad. At this point concern was expressed in the international debate that the economies could suffer stagflation, that is, a combination of rising inflation and an economic downturn. The anxiety about stagflation soon faded. When the crisis in the financial markets suddenly intensified in the wake of the Lehman Brothers bankruptcy and economic activity deteriorated substantially in most parts of the world, a new theme for the debate arose; deflation. It is no surprise that situations like the present one cause people to wonder whether the monetary policy system is really strong enough to withstand these conditions, too. Let me first say that it is important to discuss this; new experiences and knowledge change the conditions for monetary policy. These things are not carved in stone! | Note that this takes into account only first mortgages held by the banks. If loans with second mortgages were included, the number of cases would undoubtedly be larger. Residential property prices fell on average by 7% in the first quarter of this year. So the negative equity problem will have got worse, as the latest figures to be published shortly will show. This poses some threat to the profitability of banks. So far, however, even mortgage loans in negative equity have continued to perform reasonably well, although the delinquency ratio of around 2.5% is worse than for those with positive equity. The impact of SARS Even before SARS arose as an issue, 2003 was expected to be another challenging year for the banks. But the prospect of lower charge-offs for credit cards encouraged a number of banks to forecast that they would achieve higher profits. Performance in the first quarter seemed to bear this out. As usual, some banks did better than others, but aggregate profits in the first quarter did show an improvement over the same period of last year. The SARS outbreak is now affecting the business of the banks in various ways and the banks are having to react to this. The first priority has been to maintain business continuity and to protect the health of bank staff and customers. Banks have therefore activated, and where necessary reviewed and updated, their business continuity plans, demonstrating in the process that these are not just paper exercises. | 0 |
Beechey, Meredith, and Heidi Elmér (2009), “The lower limit of the Riksbank’s repo rate”, Economic commentaries no 11, 2009, www.riksbank.se. Finansinspektionen (2010), “Den svenska bolånemarknaden och bankernas kreditgivning”, www.fi.se. Holmsen, Amund, Jan F. Qvigstad and Øistein Røisland (2007), “Implementing and Communicating Optimal Monetary Policy”, Norges Bank Staff Memo No. 2007/3, www.norges-bank.no. King, Mervyn (1997), “Changes in UK Monetary Policy: Rules and Discretion in Practice,” Journal of Monetary Economics 39, 81–97. Kohn, Donald L. (2006), “Monetary Policy and Asset Prices,” speech held on 16 March 2006, www.federalreserve.gov. Kohn, Donald L. (2008), “Monetary Policy and Asset Prices,” speech held on 19 November 2008, www.federalreserve.gov. Kohn, Donald L. (2009), “Policy Challenges for the Federal Reserve”, speech held on 16 November 2009, www.federalreserve.gov. Laséen, Stefan and Lars E.O. Svensson (2009), “Anticipated Alternative Instrument-Rate Paths in Policy Simulations,” Working Paper, www.larseosvensson.net. Leeper, Eric M. and Tao Zha (2003), “Modest Policy Interventions,” Journal of Monetary Economics 50, 1673–1700. Norges Bank (2005), Inflation report nr. 1–2005, www.norges-bank.no. Svensson, Lars E.O. (1999), “Inflation Targeting: Some Extensions.” Scandinavian Journal of Economics 101, 337–361. Svensson, Lars E.O. (2003), “Optimal Policy with Low-Probability Extreme Events”, in Macroeconomics, Monetary Policy, and Financial Stability – A Festschrift for Charles Freedman, Proceedings of a conference held by the Bank of Canada. Svensson, Lars E.O. (2009a), “Evaluating Monetary Policy,” in Koenig, Evan, and Robert Leeson, eds., From the Great Moderation to the Great Deviation: A Round-Trip Journey Based on the Work of John B. Taylor, under publication, www.larseosvensson.net. Svensson, Lars E.O. | Miguel Fernández Ordóñez: The state of Spain’s economy Testimony by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, before the Parliamentary Budget Committee in relation to the draft State Budget for 2011, Madrid, 5 October 2010. * * * Ladies and gentlemen, I appear before this Committee in connection with Parliament’s discussion of the State Budget for 2011. In my view, this Budget will be crucial for Spain’s economic future and it will be subject, more than on any other occasion, to in-depth analysis and close scrutiny not only by Spanish society as a whole but also by the main supranational agencies, by our European partners and by the international financial markets on which Spanish households, firms and governments obtain the funds they need to finance much of their activity. As is known, Spanish budgetary policy responded most forcefully to the global economic and financial crisis, in step with the support programmes for the financial sector, coordinated at European level, and with the firm, resolute action by the European Central Bank, which drastically cut its interest rates and implemented a wide range of conventional and non-conventional measures to prevent liquidity tensions from ultimately shutting down the European financial system. The fiscal policy response undoubtedly contributed to softening the adverse effects of the crisis on the Spanish economy. | 0 |
In Turkey, the ratio of direct foreign capital stocks to the GDP had not changed since 1990 and still stood at 9 percent as of end-2003, while this ratio rose as high as 50 percent for the Czech Republic and Hungary and 30 percent for Argentina and Brazil during the same period. Graph 13: FDCI/GDP: Turkey and Other Emerging Markets (2003) 236.5 100 90 80 70 (%) 60 50 40 30 20 10 Hong Kong Hungary Czech Rep. China Argentina Mexico Brazil Poland Russia Turkey India 0 Source: UNCTAD, WIR 2004. When the conditions for foreign direct investment are analyzed from the perspective of international investors, two factors come to the forefront as prerequisites: The first one is related an investment environment with a healthy functioning legal system with legal security. The latter includes the attainment of sustainable macroeconomic balances and administrative stability in basic policies on international investments achieved irrespectively of changing governments. In other words, what is essential is the stability of the policies that are being implemented. Turkey’s experiences show that partial improvements that are achieved without meeting these two prerequisites will not help to attract direct foreign investments to the country. Furthermore, other problems that should be noted include the unpredictability of legal arrangements, the amount of time wasted on administrative regulations, as well as the lack of transparency and consistency. | The analysis of a total of 52 balance of payments crises experienced in the 1980-2001 period in 19 countries including Turkey show that 51 of these crises erupted under managed floating exchange rate regimes.1 Thus, in almost all countries facing a balance of payments crisis it can be seen that pegged or foreseeable exchange rate regimes were being implemented. In addition, there were problems related to financial stability or the implementation of tight fiscal and incomes policies that were supposed to support the exchange rate regimes in these countries. A second issue I would like to touch upon is that the open positions of the banking sector are so low that they are even comparable to those of the past. Within this framework, the amount of open positions of the banking sector is closely monitored and necessary warnings are given. Meanwhile, the real sector should also be cautious about open positions. Another important issue that needs to be kept in mind in relation to the current account deficit is that the Central Bank does not try to artificially keep the New Turkish Lira overvalued. US dollar 21.7 billion worth of foreign exchange purchase since 2002 is an indicator of this. Besides, short-term capital is not encouraged, and market players are continually reminded that the exchange rate risk lies in the market. | 1 |
As discussed over the past two days, many economies in Asia have been working on this, as this reform is important not only to derivative markets, but also to bank lending. The HKMA has actively engaged our banks to identify their exposures to the benchmark rates of relevance (i.e., LIBOR and HIBOR) and to prepare for various scenarios that could play out during this process. At the same time, the Treasury Markets Association in Hong Kong has proposed HONIA as an alternative risk free overnight reference rate to HIBOR and is consulting industry stakeholders. I should take this opportunity to mention that ISDA’s leadership on two important implementation issues – namely, how to adjust new overnight reference rates for longer tenors and how to ensure credit risk premiums are reflected – helped pave the way for constructive discussions in Hong Kong. So overall, progress is being made. Managing the Risks in Financial Market Development Whether it’s facilitating fintech innovations or deepening derivatives markets, it’s critical that a robust and adaptive regulatory framework and effective international coordination are in place to mitigate potential financial stability risks. The types of regulatory framework would depend on the stage of development in the market itself. For markets that are going through innovation, particularly those that are adopting new technologies, regulations should focus on “nurturing” rather than “restraining”. | To me, the market’s opinion is clear: derivative markets in Asia need to be further developed. Let me share some recent experiences in Hong Kong in this regard. By daily average trading volume, our interest rate and FX derivative markets have almost doubled since 2013, and are now first and second, respectively, in terms of regional market share. Notwithstanding this growth, Hong Kong still only accounts for a small global market share, and the products we cover – both in terms of contract type and underlying currency – has a lot of room to expand. We have therefore taken a proactive approach by encouraging international banks to establish derivative hubs serving Asian risks in Hong Kong as long as they meet capital adequacy requirements and our risk management standards. Establishment of these hubs can help banks take advantage of Hong Kong’s double tax agreements with all key economies in the region; more importantly, our city’s growing status as a nexus between Mainland China and the rest of the world means that Hong Kong will play an increasing role in providing risk management solutions for international investors going into China and, increasingly, Chinese investors going global, just like how we successfully facilitate those investments through our Connect schemes. Our commitment to further developing the derivatives market is strong and we stand ready to work with various partners on this. One key current issue is benchmark reform. | 1 |
Ardian Fullani: Bank of Albania’s work progress, 2012 results, and challenges for the future Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Parliamentary Commission on Economy and Finance, Tirana, 9 April 2013. * * * Honourable Chairman, Honourable Deputies, Ladies and Gentlemen, I would like to start by expressing my great appreciation for this opportunity to present to you, on behalf of the Bank of Albania, the central bank’s work progress and results over the past year. Also, this meeting will let us share our opinions about recent economic and monetary developments, and touch upon the challenges, which, in Bank of Albania’s opinion, deserve attention in the future. Right from the start, I would like to emphasize that the Bank of Albania succeeded in fulfilling its legal responsibilities in 2012. Consumer prices remained stable, as depicted by the 2% average inflation rate during the year. The financial system soundness also improved at both macro and micro levels. The major objectives of the Bank of Albania were achieved, despite adverse internal and external environment, and shocks posed to Albanian economy over this period. Their achievement reflected, to a great extent, the Bank of Albania’s cautious monetary policy, regulatory measures and our policy of banking supervision. They were favoured by ongoing improvement of the financial payment infrastructure, prudential and efficient liquidity management operations, and transparent communication with the public. | Mugur Isărescu: Opening speech – conference “Investment and Investment Finance in Romania” Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the conference “Investment and Investment Finance in Romania”, organized by the National Bank of Romania and the European Investment Bank, Bucharest, 13 February 2020. * * * Vice President McDowell, State Secretary Gyorgy Attila, Distinguished audience, Ladies and gentlemen, It is a pleasure for me and the Board of Directors to welcome you at the National Bank of Romania, to the conference dedicated to Investment and Investment Finance in Romania. This conference has been organized by the European Investment Bank in partnership with the National Bank of Romania. In fact, this partnership has had a long standing as a pillar for progress and investment in Romania. Please allow me to express a heart-felt welcome and to extend my warmest thanks to Mr. Andrew McDowell, Vice-President of the European Investment Bank and to Ms. Debora Revoltella, Chief Economist of the European Investment Bank, for their continuous support and deep commitment to develop investments in Romania, and, moreover, for being trusted partners and friends. I am glad that we have decided to co-organize this conference here in Romania, at the central bank, as this year we honour two landmarks with historic importance. One is the National Bank of Romania’s 140th anniversary and the other is the 20 years’ celebration of the day (February 15th 2000) when the EU formally started the accession negotiations with Romania. | 0 |
To enhance risk management of banks, the HKMA has just issued a set of guidelines to banks, requiring them to tighten the underwriting criteria for mortgages where borrowers already have one or more properties under mortgage. 4. Under these new measures, when handling new applications for mortgage loans for residential, industrial or commercial properties from borrowers who already have one or more properties under mortgage, banks must adopt the following three requirements: First: for mortgage loans assessed based on the debt servicing ability of a mortgage applicant, the maximum debt servicing ratio (DSR) shall be lowered from the current 50% by 10 percentage points to 40%. Accordingly, the maximum stressed DSR shall also be lowered correspondingly from the current 60% by 10 percentage points to 50%. However, an applicant with just one property with outstanding mortgage loan will not be affected by this new measure if the new mortgage loan is for self-occupied purpose, or for the replacement of an existing property. Second: for mortgage loans assessed based on the net worth of a mortgage applicant, the maximum loan-to-value (LTV) ratio shall be lowered from the current 40% by 10 percentage points to 30%. Third: for mortgage applicants whose principal income is derived from outside Hong Kong, the applicable maximum LTV ratio shall be lowered by 20 percentage points, instead of the current 10 percentage points. 5. Based on the experience in Hong Kong, borrowers with multiple outstanding mortgage loans have higher level of indebtedness and leverage. | He found, for instance, that the US economy needed to grow by at least 3 per cent to avoid an increase in unemployment. Okun’s law can thus be interpreted as a short-term relationship that expresses the link between changes in economic activity and changes in activity in the labour market. As the relationship between growth and employment is dependent on factors such as labour market policy, productivity, social norms and demography, the relationship varies between different countries and different periods in time. 1 Okun, A. M. (1962), “Potential GNP: its measurement and significance”, American Statistical Association, Proceedings of the Business and Economics Statistics Section, pp. 98–104. BIS Review 58/2010 1 A recently-published Economic Commentary on the Riksbank’s website 2 estimates this relationship using Swedish data. 3 The study shows that there is a relatively strong link between GDP growth and unemployment, a link that has also varied over time. The connection has increased over time and between 2004 and 2008 it was relatively high, which indicates that unemployment was more sensitive to changes in GDP during this time. However the relationship has weakened over the past year, when GDP fell heavily without unemployment rising as much as one would have expected, given the historical relationship. According to the study, a GDP growth of more than 2.8 per cent is now needed for unemployment to decline, which can be compared with the historical average of 2.3 per cent. | 0 |
Here in Asia, as in other markets, more work needs to be done to improve the quality of disclosures regarding traditional banking activities. Time and again experience has shown that in periods of stress, insufficient or inaccurate information about asset quality can lead to rumors and overreactions in the marketplace, creating the potential for problems to spread to institutions that may otherwise be in good health. Of course, progress on the disclosure front will be limited until accounting standards are enhanced to ensure proper valuation and to reflect innovations over the past decade, both in terms of new products and modern risk management techniques. Accounting systems serve a variety of purposes, but none more important than helping creditors make rigorous decisions as to which enterprises meet market tests of efficiency, competitiveness, and profitability that are necessary for those enterprises to fulfill their obligations. Sound accounting systems also enable investors to determine the value of enterprises, and, in so doing, assist in attracting capital, both foreign and domestic. With these important purposes in mind, ongoing efforts to enhance accounting standards worldwide should continue and even intensify. There is also a need for greater harmonization of accounting standards across countries. We simply must get to a point where supervisors and market participants alike can analyze and compare all internationally active financial institutions on a consistent basis. And it will not be possible to have uniform capital standards until we have achieved some consistency in accounting standards across countries. | In implementing this agenda, we should always keep in mind the fundamental objective - preserving financial stability so that banks and the broader financial system can effectively perform their critical functions in a market economy. There is no question that the more effectively a banking and financial system operates, the more likely the economy is to flourish and the citizens of that society to prosper. This is particularly true in many emerging market economies that have a relative scarcity of savings in relation to their large-scale investment needs. The banking sector in emerging market economies also tends to be more concentrated and represents a larger share of the domestic financial system, suggesting that, if problems occur, they are likely to have an amplified effect on the real economy and on the fiscal cost associated with bank rescue and resolution costs. In pursuing the objective of financial stability, we must also acknowledge that both the public and private sectors have a critical role to play. While the perspectives of market participants and official supervisors may differ from time to time, our objective is the same - to maintain a strong and vibrant financial system over the long term. Indeed, it is clearly evident to me, as a former commercial banker and now as a supervisor, that only if we work together, each meeting our responsibilities and reinforcing the other, will we be able to successfully manage and supervise a rapidly evolving, ever-more complex financial services industry. 9 BIS Review 27/2000 | 1 |
The Bank has reviewed 6,000 pages of Binding Technical Standards and over 6,500 rules, and published 473 pages of amendments in 15 EU Exit Instruments. 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 We have also put in place temporary permission and recognition regimes so that EU firms providing financial services into the UK will be able to do so without disruption even in the event of a ‘no deal, no transition’ Brexit. Some risks have required action on both sides of the Channel. We have worked with the ECB and other EU authorities to identify and mitigate these. We have not, to be frank, agreed on everything and there remain areas of potential disruption that, as of the last FPC assessment, need to be addressed.1 But, action, at EU and member state level, has been taken on most of the main financial stability risks. The other financial stability risk is the general economic impact of a disorderly Brexit upon the financial system. The Bank of England tests the core UK banking system annually against a stress scenario to ensure it has the resilience to absorb the losses that would arise from a very severe but plausible set of domestic, global and market shocks.2 To address resilience to Brexit risks, we developed a worst case Brexit scenario, and compared its impact to the impact of the Bank’s 2018 annual stress test that the core banks had passed. | The MPC published analysis last August suggesting that the trend real rate in the UK has fallen by more than 2pp since 1990. Slower population growth, increased life expectancy and slower productivity growth have all contributed to this fall.9 Looking forward, many of the structural factors currently weighing on the trend real rate – in particular, changes in demographics – are likely to persist for many years to come, though other factors could push in the opposite direction.10 The trend real rate of interest, however, cannot be observed directly. It can only be estimated and while most estimates suggest it has reduced materially, estimates do vary widely. See August 2018 Inflation Report. See also ‘Secular drivers of the global real interest rate’ by Lukasz Rachel and Thomas D Smith (Bank of England Staff Working Paper No. 571). 10 For example, increasing financial integration of lower-income countries, a pickup in overall global productivity growth and increasing automation. 9 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 As to income growth, to the extent that expected low real rates reflect expected lower productivity and hence expected lower income growth, they would not make debt more sustainable. Over the economic cycle, of course, the short-term real rate of interest will be moved around its longer-term trend by more temporary factors. But the persistence of the fall in the trend real rate means interest rates are likely to need to remain low by historical standards for some time to come. | 1 |
Trichet: It is not an issue, taking into account the decisions taken by the Greek government to reduce the public deficit and the statement by the euro area Heads of State or Government. Il Sole 24 Ore: Will the current crisis suggests a slowdown of the EMU enlargement process? Trichet: Participating in the euro zone requires from all member governments sound fiscal policies, a sound monitoring of production costs and structural reforms. Today’s difficulties have shown that a bad management influences negatively all participants, while a good one is positive to all, given how our economies are closely intertwined because of the single currency. As I said before, peer pressure is a crucial aspect of the euro zone functioning and it has a profound economic rational and legitimacy. Therefore it is also true that to enter the euro zone there must be an overwhelming sentiment within society that the country is BIS Review 45/2010 1 preparing to share a common destiny with the other members. This calls, in my opinion, on newcomers to have a clear bipartisan agreement on the desire to join EMU. Il Sole 24 Ore: In a certain sense participation in the euro area must have both a multinational and a multipartisan framework. Trichet: That’s correct. We are participating in an endeavour of great historical importance. One cannot jump in and jump out of the euro area as one hops on and off from a bus. Participation in EMU commits the destiny of a country. | Thirdly, the Federal Republic is a major world competitor in sectors such as machine tools and industrial equipment. Its global competitiveness is a major asset for the euro area given how closely intertwined EMU countries are. Therefore, I would point out to all those who argue in a similar fashion that what looks as a disadvantage for the euro area as a whole from a specific angle is in reality an advantage when seen from the right perspective. Il Sole 24 Ore: But in a more general way Ms Lagarde did point out that the euro area is experiencing large economic imbalances. Is there a Europe-wide agenda to solve this problem? Trichet: The aim must be to elevate significantly growth potential in all countries through the structural reforms that are overdue in Europe. This will remain strategically important in the 2 BIS Review 45/2010 next decade. The 2020 Agenda will have to be implemented in a more effective way than the 2010 Lisbon Agenda, as President Van Rompuy has recommended. More generally let me say that given the nature of monetary union, some countries, because of a rapidly aging population for example, will have to run current account surpluses, while other countries with very significantly fewer pension liabilities will not be called to run such surpluses. Similarly, some countries, to regain competitiveness, will have to keep inflation below the EU average. | 1 |
When designing policy conduct, there are no mechanisms conducive to countries internalising the benefits of achieving a suitable economic policy mix for the area as a whole; and this especially at a time, such as the present, when the existence of a very accommodative monetary policy means that both the national effects and the impact on other countries associated with a specific fiscal impulse are greater. Against this backdrop, and as highlighted in the recent discussion paper on the deepening of EMU published by the European Commission, it would be necessary in the medium term to develop a fiscal capacity for the euro area as a whole that contributed to supporting monetary policy. 6/7 The estimates detailed in this year’s Annual Report of the Banco de España suggest that a study could be conducted of a common fiscal instrument, managed at the supranational level, but which does not entail permanent transfers between countries and which, without committing a high volume of funds (around 1% of GDP), provides the euro area with a fiscal stabilisation capacity similar to that other federal states have. It also appears necessary to seize the opportunity afforded by the favourable economic juncture and the overcoming of some of the political risks to complete the reform of European governance, along the lines considered by the Five Presidents’ Report published in 2015 and the recent discussion paper by the European Commission. | ASEAN Disaster Risk Financing and Insurance Programme Today, I am pleased to announce the official launch of Phase 2 of the ASEAN Disaster Risk Financing and Insurance Programme. ADRFI Phase 2 will be impact-focused, 11. and targeted at strengthening ASEAN’s capabilities in ex-ante risk financing and risk transfer strategies. ADRFI Phase 2 was approved by the ASEAN Finance Ministers at the ASEAN Finance Ministers Meeting in April 2018 and the 3-year detailed Plan of Action was subsequently endorsed in April this year. 12. To drive ADRFI Phase 2 forward, the Plan of Action will be implemented by a dual programme office, to be led by the ASEAN Secretariat and the NTU-ICRM. The dual programme office will adopt an open architecture structure to support global collaboration with stakeholders including policy makers, governments, multilateral development banks, international organisations and the private sector. 13. Allow me to provide an overview of ADRFI’s 3 focus areas over the next 3 years. These are: (i) Risk Assessment, as I mentioned earlier (ii) Risk Advisory; and (iii) Capacity Building. Leveraging on their respective strengths, ICRM will lead the Risk Assessment and Risk Advisory pillars, while ASEAN Secretariat will lead the Capacity Building pillar. 14. These are upstream activities which will strengthen ASEAN’s disaster risk management capabilities, and complement the downstream public and private disaster risk financing solutions, such as the SEADRIF. Let me elaborate further on the 3 key focus areas. 1 5 . First, Risk Assessment. | 0 |
Over the past year, the PCE deflator has risen only 0.2 percent – held down by lower import prices and falling energy prices – and the core PCE deflator, which excludes the more volatile food and energy components, has risen 1.3 percent. There is also some evidence that suggests that inflation expectations are under downward pressure. In particular, some survey measures of long-term inflation expectations are at the low end of the ranges that have prevailed in recent years. For example, the University of Michigan median measure of inflation expectations at a five-to-ten year horizon fell last month to 2.5 percent, the lowest level since September 2002. Similarly, the New York Fed’s three-year median inflation expectations measure from our Survey of Consumer Expectations is currently at 2.8 percent, down from 3 percent a year ago. The good news, however, is that these declines are very modest in magnitude. Thus, I would still judge that inflation expectations remain well-anchored based upon these survey measures. Similarly, measures of inflation compensation based on the interest rate spread between nominal Treasury securities and Treasury Inflation Protected Securities (TIPS) have fallen sharply over the past year. For example, the Board of Governors’ 5-year, 5-year forward measure – in other words, what inflation compensation would be for the period five-to-ten years from now – currently stands at around 1.8 percent, down about 40 basis points from a year ago. However, I put even less weight on this development than on the survey evidence for two reasons. | As the financial stability authority we are also responsible for monitoring stability at the level of the sector as a whole. While we have multiple policy hats the common denominator in this space is ensuring that the sector has adequate operational resilience – that is that firms can continue to provide critical services that are important for their own integrity and the functioning of the sector. If a firm’s operations are interrupted, we want to be sure that they can be recovered quickly and reliably especially where they are systemically important. Three observations at this point: a) First to stress our accent on financial stability. Our efforts target first those firms where operational failures may result in disruption to the provision of vital financial services to the real economy or in dislocation to the rest of the sector. That does not mean the failures in customer facing applications do not matter. It is just that, where no immediate systemic dislocation results from such an outage, any consumer detriment will be a concern for our colleagues at the Financial Conduct Authority (FCA) more than it is for us. b) Second, operational resilience is different from operational risk. In operational resilience we are describing a policy outcome we want to deliver in terms of the system functioning. This may be a by-product of effective operational risk management. | 0 |
I would therefore like to clarify that under a flexible exchange rate regime, movements in the ringgit exchange rate reflects both external and domestic factors, including the strength of the domestic economy and the flow of foreign capital in the financial market. Our economy remains resilient with a respectable growth performance within the range of 4 – 5%, relative to the performance of regional and emerging market countries. The ringgit depreciation is not a unique and isolated event. It is a global phenomenon. The strong appreciation of the US dollar has led to similar depreciation pressures in all global and regional currencies. This is due to several factors including the uncertainties surrounding monetary policy in the US as well as global economic and political developments. These global developments have affected sentiments in global financial markets that led to capital outflows from emerging markets. The currencies of many countries have underperformed and the ringgit was also not spared. The ringgit was affected given the structure of our economy and financial market that is one of the most open among emerging market countries. Our market was exposed to global financial market uncertainties that led to the reversal of portfolio investments. There were also other specific factors that affected the ringgit. First, some investors had taken advantage amid the market turmoil and uncertainty to gain profit through speculative activities in the offshore ringgit non-deliverable forward (NDF) market. | This successful launch, to the benefit of 305 million Europeans, represents the crowning achievement of the euro changeover, after the launch of the euro on the financial markets, on 1 January 1999. Both operations were a technical success because they had been meticulously well-prepared by the full body of the Eurosystem, the European Central Bank, and all the euro area national central banks, including Banque de France in France. However, aside from the technical success in itself, the warmth and enthusiasm with which French citizens and other Europeans welcomed the euro, their new currency, was proof that European construction enjoys real popular support that has all too often been underestimated. Let me now turn to the core of my subject today: first, the process for economic reform, second, the perspective of enlargement. * 1. * * Economic reforms Before reviewing the priority topics which require a new impulse, I would like to make a remark on the also often underestimated link between reform and the changeover to the euro : indeed, the introduction of banknotes and coins in euro is a major structural reform in itself, as it constitutes a powerful drive towards restructuring the European economy, and a strong lever to facilitate the comparison of prices, taxes and incomes between the Member states. | 0 |
While there was some evidence of a pickup in the general public’s inflation expectations at the beginning of the year, probably in response to higher gas prices, they have fallen back a little since then and do not yet appear to have had any effect on actual wages or prices. Conclusion To sum up, by delivering the inflation target the MPC seeks to produce a platform of stability. That doesn’t produce a quiet life for businesses – on the contrary it can make the pace of change quicker because it makes the underlying business imperatives clearer. In recent years, we have been helped in keeping inflation low and stable by the integration of new economies into the world market and the disinflationary pressure that has produced. As a result of that stability, the market and the public now expect inflation to remain around target and that appears to have helped to damp the impact of the recent oil price hikes on the overall inflation rate; the total impact has been modest and there are no signs yet of spillovers into wages and prices. We do not know yet whether the benign international context will continue or what other shocks may occur. We are seeing renewed rises in energy prices this year which have helped push inflation back above target. Our role is to continue to assess the situation as it develops, monitoring economic data, financial markets, and listening to our regional agents and their business contacts. | The MPC’s current view, as expressed in the latest Inflation Report, is that import price inflation will moderate over the coming period, but that it will not prove as much of a downward force on inflation as in the late 1990s and early 2000s. We have, for example, seen signs of costs rising in China and the Far East. Looking further ahead, there must be a risk that this begins to spillover into higher import price inflation. And while globalisation has helped to hold down prices of most goods, the demand for energy and other raw materials coming from the newly emerging economies has contributed to higher prices of energy and some commodities. The direct effect on the CPI of higher petrol prices has been much more limited here than in the US for example because so much of the price of our petrol is accounted for by duty. Nonetheless since the beginning of 2004, petrol prices have gone up by over 25% and gas prices by more still. The prices of petrol, utilities and transport services added about 1 percentage point to CPI inflation in May. And this does not include the effect on other goods and services where oil or gas is a component cost. In the past we have seen wages pick up in response to hikes in the oil price and all central banks have been – and remain – watchful for those “second round effects” now. So far we have seen few signs of them. | 1 |
Overall, tax revenues, before the transfer to local and regional government, are projected to increase by 7.8% in 2017, while social contributions are projected to increase by 6.3%, which, given the macroeconomic forecasts and the impact of the tax reforms mentioned above, would entail a greater response by revenues to growth in activity than in the past, especially in the case of social contributions, which are projected to grow by more than their bases (employment and wages), even taking into account the effect on revenues of the legal changes mentioned above. If the uncertainties surrounding the estimates of the impact of the legislative changes on taxation are also taken into account, it is clear that revenue growth needs to be monitored constantly over the course of the year, so that a timely adjustment can be made to spending or revenue in the event that the risks to the deficit target materialise. Moreover, in such a decentralised country as Spain, where more than 40% of public spending is made at the local and regional level, the State and Social Security budgets give merely a partial view of the budgetary policy of the public sector as a whole for next year. From this perspective, the Updated Stability Programme to be published in the next few days is particularly important, since it consolidates the budgets of central government agencies with those of regional government and local government. | As in the euro area as a whole, inflation rose notably at the beginning of the year to levels of 3% in January and February, according to the year-on-year rate of change in the CPI, and declined to rates of close to 2% in March. Its quickening in January and February responded, in particular, to the strong increase in electricity prices and the base effects of oil prices. Consequently, this increase is expected to be temporary and will begin to fade as the impact of the acceleration of the energy component dissipates. Thus, after an average 4/9 increase of 2.2% in 2017, the CPI will foreseeably slow to 1.4% and 1.6%, in 2018 and 2019, respectively. The risks The scenario which I have just outlined is not without both external and internal risks. Noteworthy on the external front is the higher degree of uncertainty concerning global economic policies and their possible impact on world trade and the capital markets. In particular, the current buoyancy on financial markets reflects, at least partly, the expectation that the new US Administration will apply economic policies favouring higher growth and inflation in the short term – such as a possible fiscal expansion – perhaps underestimating the effect of such policies on the pace of the monetary normalisation in the United States, as well as other less favourable aspects, such as the shift towards the lower international mobility of goods and people. A trend towards consideration of the introduction of protectionist barriers in certain developed economies has been observed recently. | 1 |
Andrew G Haldane: The Great Divide Speech by Mr Andrew G Haldane, Executive Director and Chief Economist of the Bank of England, at the New City Agenda Annual dinner, London, 18 May 2016. * * * I would like to thank James Antwis, Andrew Bailey, Jeremy Franklin, Jonathan Fullwood, Andrew Hauser, Andrew Hebden, Alex Holmes, Leanne Leahy, Emma Murphy, Ben Nelson, Laurie Roberts, May Rostom, Pedro Santos, Minouche Shafik, Emma Sinclair and Paul Robinson for their comments and contributions, and to Gillian Stamp for conversations on these issues over many years. In November last year, the Bank of England hosted a so-called Open Forum. This was a new departure. For the first time in its 300-plus year history, the Bank brought together all of the main stakeholders in the financial sector: not just policymakers, banks and investors, but politicians, civil society, businesses, regional representatives, religious groups and the media. This was a deliberately broad church, with an eclectic congregation comprising religious zealots, high priests, regular church-goers, agnostics and atheists. The aim of the Open Forum was to discuss, in an unscripted way, the progress made towards fixing the financial sector. The Open Forum was an opportunity to hear a different set of views from a different set of voices: from the customers and users of finance, as well as the producers and investors; from the often-silent majority of outsiders to finance, as well as the often-vocal minority of insiders. This made for a very different dialogue. | Assuming this pre-crisis trend was a reasonable one 8, this is a cumulative income loss of over one year’s worth of pre-crisis GDP or £ trillion. For advanced economies, the corresponding cumulative loss of income is also close to one year’s worth of pre-crisis GDP or $ trillion. These are simply mind-boggling sums. And the clock, of course, is still ticking. These losses are unlikely ever to be fully recovered. Quite how we value the net present value of this continuing stream of losses depends on how much we discount the income of future generations and how sustainable pre-crisis rates of growth were believed to be. But even on conservative estimates, it seems possible the eventual cumulative losses of income could total multiples of annual pre-crisis GDP. One reason these losses may have endured is because crises have a deep, and irreversible, scarring effect on an economy’s growth potential. 9 That may arise because credit-starved companies are unable to invest or indeed start-up in the first place. Or it may be because financial crises act as a permanent drag on risk-taking and entrepreneurship, as was also evident after the Great Depression of the 1930s. 10 Either way, perhaps it should come as no surprise that productivity has flat-lined since the crisis. Yet it is perhaps along the third dimension – social capital – that the losses arising from the crisis may prove most enduring. Social capital is inextricably linked to trust. And banking is quintessentially a trust business. At root, it involves swapping promises to pay. | 1 |
A similar message emerges from two papers presented in Session 3, which have scrutinized the factors that contributed to the very rapid credit expansion in the specific cases of Romania 2 and Lithuania 3 , and from the World Bank report 4 presented in Session 6, which provides a detailed overview of the recent credit developments in all ten new EU member states from Central and Eastern Europe. While stressing the demand factors that have fuelled the expansion of credit to the private sector, these papers also point out that the supply side has played a role too: the boost in credit volume was made possible by the privatisation of banks, deregulation of financial systems, and the deepening of the financial markets in the region. Both the above-mentioned World Bank report and the paper 5 prepared by International Monetary Fund staff, also presented in Session 6, were aimed at identifying vulnerabilities and risks that might threaten the financial stability of CEE countries. The former concludes that these countries vary rather widely with regard to the sustainability of the credit growth. While the largest new EU member states seem to be still on the safe side, the Baltic states and, to a lesser extent, the emerging economies of South-Eastern Europe probably witness a credit boom that leads to significant macroeconomic imbalances and might ultimately end in a crisis. | This may also be working alongside the level of uncertainty to encourage firms to meet output growth using labour rather than undertaking capital expenditure projects. At the margin, the idea that workers are responding to Brexit by showing increased flexibility could mean that there is more room than headline measures of slack suggest for the economy to grow without generating above-target inflation in the medium term (Slide 8). Certainly, it would help explain why, despite unemployment being at its lowest level in 42 years, measures of domestically generated inflationary pressure generally remain below levels that would be consistent with inflation being at target in the medium term. That includes a wide range of measures, including unit wage costs, those derived from the Consumer Price Index, and those based on national accounts measures of value added. In turn, the subdued nature of domestically generated inflation is evidence that the current elevated level of headline inflation is attributable to pressure arising from the pass through of the depreciation of sterling. In 2 See Broadbent (2017) for a full discussion of these issues Private sector real wage growth, calculated by deflating nominal wage growth by output prices, was 1.8pp weaker in the year to 2017Q2 than expected at the time of the May 2016 forecast, while growth in productivity per head was 0.7pp weaker. | 0 |
Among UK companies, debt as a fraction of companies’ total financial liabilities has risen from around 20% in 1988 to around 34% today. In certain sectors, the run-up in debt has been more dramatic – for example, among US and UK commercial property companies whose leverage has more than doubled in the past decade. It is also true of some companies subject to leveraged buy-outs including, of course, Liverpool Football Club. Finally among sovereigns, the picture up until recently has been benign with public debt flat relative to GDP. But the crisis means that picture is set to change dramatically. Among the G7 countries, the IMF forecast that public debt ratios will rise from around 80% of GDP in 2007 to around 125% by 2014. In the UK and US, public debt ratios are forecast by the IMF to double, mirroring the pattern following past financial crises. 6 Taking together the debt position of the financial sector, households, companies and sovereigns paints a sobering picture. Total debt ratios relative to GDP rose significantly in all ten countries studied by McKinsey’s, from an average of around 200% in 1990 to over 330% by 2008. 7 Over the same period, UK debt ratios more than doubled, from just over 200% to around 450% of GDP. To date, servicing these debts has been cushioned by policymakers’ actions. | On the contrary, it is important to deal with these issues on an international level. But the overall framework has not been drafted with the specific situation in the banking sector in mind. It may therefore be difficult to find suitable solutions in a crisis situation without running the risk of breaking a number of regulations. It is not acceptable that decision-makers should have to fumble in an acute crisis situation, trying to steer clear of this risk. It is also important that the action by the authorities in such a situation is evaluated against a regulatory framework fit for its purpose. A framework which makes it possible to maintain a proper balance between the different parties involved also in a crisis situation. There is a need for a special insolvency and resolution framework for banks In my opinion, all this points in one direction. A special insolvency regime is needed for banks and other institutions that are covered by the safety net. In this country it has long been said that banks should be covered by the ordinary corporate bankruptcy legislation, at least as long as there is no direct threat to the system. This is because government intervention over and above the existing safety net for the banks should be avoided. I believe that this is the wrong way to look at it. The ordinary bankruptcy regime does not sufficiently recognise the need for speed when dealing with banking problems. | 0 |
Private debt has increased, although it has also increased in Europe. The counterpart to these developments is a high level of saving in Asia – primarily China. Asia’s willingness to purchase US Treasury bonds has allowed the imbalances to build up further. The Norwegian economy is also part of this picture. High oil prices have resulted in substantial surpluses in oil-exporting countries’ current accounts, which have been invested in international capital markets. A balance of payments surplus provides the opportunity to save and apportion revenues over time. Trade deficits and surpluses do not necessarily reflect an imbalance, but can be a prudent adjustment. Chart: Exports from emerging economies in Asia Emerging economies in Asia now account for 16 per cent of total global exports, compared with 9 per cent in 2000. With substantial labour reserves and a cost level that is considerably lower than other countries, it has been easy for emerging economies to find markets for manufactured goods. A Chinese manufacturing worker’s hourly wage is about 1/20 of a US worker’s wage3. Even though there are considerable gains related to international trade and free capital movement, there are also dangers to be avoided. Over the past thirty years, a number of countries have been hit by financial crises. The Asian crisis at the end of the 1990s showed that the combination of large trade deficits, small foreign exchange reserves and a fixed exchange rate regime proved to be demanding. | BIS central bankers’ speeches 1 The financial crisis hastened the pace of these changes. The global economic downturn in the wake of the crisis was marked in many countries and regions. For the OECD area as a whole, GDP fell by 3.5 per cent in 2009. Chart: Growth in 2009 Emerging economies, on the other hand, sustained a high level of activity despite a sharp fall in demand for their exports. As shown in the world map, countries in South-East Asia and some countries in South America and several parts of Africa continued to grow when the rest of the world was struggling with the aftermath of the crisis. To enable poor countries to grow more rapidly, international trade is vital. It allows countries to specialise, while giving them access to goods and services from other countries. But specialisation necessitates readjustment. Over the past decades, western countries have encountered strong competition from low-cost countries, particularly in manufacturing production. As a result, firms, and virtually whole industries, have closed down and new industries have emerged. Norway has also had experience of losing industries that have become commercially non-viable, as when the textile and clothing industry almost completely disappeared in the 1970s. Chart: Current account Imbalances in world trade have built up over the past decade. Large and rising deficits in the US economy have been driven by high consumption and a strong appetite for credit among US households. Consumption has outstripped production in the US for a long period. | 1 |
SPEECH DATE: 22 November 2018 SPEAKER: Cecilia Skingsley VENUE: SNS finance panel SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 [email protected] www.riksbank.se Considerations for a cashless future1 Two years have passed since I asked the question of whether the Riksbank should issue digital money – the e-krona. 2 Since then, we at the Riksbank have started an investigation and have been given the opportunity to analyse and discuss the matter from several different angles. Of course, the need to modernise the money issued by the Riksbank is new and is connected to the increased digitalisation of society as a whole. But there are also points in common with older issues such as that of which role central government should play on the payment market. On 28 September 1900, a crowd of bankers gathered in Stockholm to listen to Professor Pontus E. Fahlbeck, a member of the Riksdag (the Swedish parliament). The subject of this meeting was the decision by the Riksdag to give the Riksbank sole right to issue banknotes in Sweden. As from 1904, the commercial banks’ right to issue banknotes would thus come to an end. At the meeting, this reform was denounced as unnecessary, inappropriate and even dangerous. It was not considered possible for the Riksbank, on its own, to be able to provide the ‘means of exchange’ to such an extent as to satisfy the needs of the business sector. | 12 Above all in times of financial unease, problems can arise when confidence in the private banks’ money can rapidly collapse. The question is what happens in a financial crisis if confidence in the entire banking sector sinks. Would there be problems if, in the future, it became impossible to switch from commercial bank money to central bank money? Issuing an e-krona is sometimes described as something revolutionary and, in principle, I share this opinion. However, how revolutionary it will be depends, to a great extent, on how the e-krona is designed. If it were to be approximately the same as cash but stored in a card or another physical unit, the consequences for the payment market, monetary policy and the financial system would generally be minor. The more popular the e-krona were to become, the greater the consequences would be, of course: greater competition with depositing in banks and greater risks for the Riksbank’s balance sheet, for example. Careful analysis and calibration is therefore required here. It is also therefore wise to proceed with caution. At the same time, we must stand prepared with a state solution if cash becomes completely marginalised, which could happen quickly. 13 Judicious government intervention in the payment market cannot be consigned to history. In my opinion, the presence of the state will also be needed in the future to allow us to manage the different problems that could arise if state-issued means of payment (banknotes and coins) were to vanish entirely from the payment market. | 1 |
Housing finance has, as in Sweden, often been an issue of great political interest, which is reflected in all the above factors. Outstanding residential mortgage loans /GDP 1998. Per cent 70 60 50 % 40 30 20 Greece Italy France Spain Belgium Portugal Ireland Austria Finland EU Germany Sweden UK Netherlands 0 Denmark 10 Sourc e: EMF 1998 It might be thought that standardised financial products such as housing loans should be very suitable for cross-border sales, but cross-border activity has been little to date. This is probably related to the housing loan market being primarily focused on private customers, who are difficult to reach without a local distribution network. It remains to be seen what internet can change in that respect. However, 1 BIS Review 113/1999 why should people not purchase a housing loan on the net, when they now pay bills and carry out other transactions that way. There are already today good possibilities for finding the cheapest housing loan on the market via internet, so technology will certainly increase transparency and competition even within the traditional more inert private sector. We are far from the time when Swedish house owners waited respectfully for years to move their building credit at the bank to a real five-year loan at a housing loan institution. | If now EMU leads to increased competition in the housing loan market, which should be an effect of monetary union, there will also be an expanded need to finance housing loans in way that is economical with capital. It is not unreasonable to believe that securitisation in this perspective will attract increasing interest. Increased competition can accordingly drive forward a growing market for securitisation. However, the causal connection can also be the opposite, namely that improved opportunities for securitisation will increase competition. This is the experience in Australia, where the housing loan market was deregulated in the 1990s. A legislation that facilitates securitisation reduced the previously high entry barriers which existed in the market, cleared the way for new players and reduced costs for the housing loan customers – in fact by as much as a couple of percentage points. Some conclusions Taken as a whole, we seem to be moving towards greater competition in the housing finance sector. New financing forms, new technology and possible EMU membership are driving factors that will together reduce entry barriers and thus increase competition. Since housing loans are standardised products, it is above all price which is the means of competition. The financing issues will thus be at the centre of interest. The traditional Swedish form for housing finance where the entire balance sheet constitutes one body of collateral has many advantages. It is possible that the investors’ demands for collateral in the form of equity may gradually make this form too expensive. | 1 |
As prepared for delivery Good afternoon, everyone. When I give a closing keynote I try to bear in mind that you’ve been listening for hours to complex and technical material. I wish I could say that I’m here to offer some light relief, but, alas, no. The topic I’m going to address this afternoon is both complex and technical. It’s the recent turmoil in the repo markets and the Fed’s actions to address it. I’m going to start by laying out the Fed’s operating framework for carrying out monetary policy. This will take me into aspects of the “plumbing” of the financial system, which may seem like an esoteric topic to many, but it’s one of critical importance, so please bear with me. I will then go over the money market turmoil from a month ago that led the New York Fed to conduct open market operations to stabilize short-term interest rates. I’ll conclude by describing the path forward as laid out in the Fed announcements this past Friday.1 Before I go any further, I should give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System. Monetary Policy, Interest Rates, and Ample Reserves As a prelude, it’s worthwhile to step back and remember how this all connects to the Fed’s overarching monetary policy goals. The Federal Reserve has two goals set by Congress: maximum employment and price stability. | My message to you is: Don’t let last month’s temporary spike in SOFR, or hope for the creation of some other replacement reference rate, become an excuse for delaying your transition away from LIBOR. I’ve said it before and I’ll say it again: like death and taxes, the end of LIBOR is unavoidable, and we must do all that it takes to prepare for a LIBOR-less future.9 And the existence of LIBOR is only guaranteed for another 807 days.10 Conclusion I’ve talked through a lot of important issues this afternoon, and I greatly appreciate your attention. The events I’ve described are an apt reminder of the importance of well-functioning financial markets and the vital role the Federal Reserve plays in providing liquidity. They are also a demonstration of our ability to act swiftly and effectively to execute our monetary policy implementation goals and keep the federal funds rate within in the target range. Thank you. 1 Board of Governors of the Federal Reserve System, Statement Regarding Monetary Policy Implementation, October 11, 2019; Federal Reserve Bank of New York, Statement Regarding Treasury Bill Purchases and Repurchase Operations, October 11, 2019. 2 Board of Governors of the Federal Reserve System, Statement Regarding Monetary Policy Implementation, October 11, 2019. 3 Board of Governors of the Federal Reserve System, Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization, January 30, 2019. Further details were announced in Board of Governors of the Federal Reserve System, Balance Sheet Normalization Principles and Plans, March 20, 2019. | 1 |
Similarly, the liability structure of the Islamic banks is characterized by two distinct categories of deposits: the demand deposits which are not subject to the risk associated with the banking business and for which the principal is guaranteed, and the investment deposits which involve risks and hence, eligible to share the profits earned from the banking business. Given that the returns are not predetermined, profit-sharing depositors of Islamic banking institutions, as the capital provider will have to bear any of the losses. This places a higher degree of fiduciary risk on the Islamic financial institutions in ensuring that the investment deposits funds are managed in the most effective and efficient manner. This is further compounded by competition in managing the liquidity in the system. The profit share distributed needs to be competitive relative to that earned and paid by the conventional banks. This is important to avoid a shift of deposits and to retain the funds in the system. A central feature of the regulatory framework for Islamic financial institutions is financial transparency and disclosure. Market conduct disclosure and customer relationship management form the core of these principles. Addressing the information asymmetry between Islamic banking institutions and the depositors is of vital importance. Under the Mu-da-ra-bah principles, there is a need for disclosure by Islamic financial institutions to investors on how the funds are being managed so as to provide the assurance that the underlying business operations, the risk profile and the risk control mechanisms are in place. | In Malaysia, the National Shariah Council on Islamic Banking and Takaful has invited prominent international Shariah scholars to participate in the deliberations as its members. The move is expected to help bridge the gaps in the interpretations of Shariah injunctions in relation to the conduct of Islamic banking business among the Shariah scholars in different parts of the world. Another forum through which the differences in the interpretations is being addressed is regular and continuous dialogue sessions by the scholars. A RM200 million endowment fund has been established by Malaysia to support the role of the international community of Shariah scholars in developing global Islamic banking and finance. The development of a vibrant Islamic banking sector cannot be achieved without the support of appropriate human capital development. Underpinning the success of Islamic banking system is the strengthening of research and intellectual capacity in the sphere of finance and Shariah. The Islamic banking industry needs to be equipped with a new breed of innovators, risk managers, regulators and supervisors who have the right blend of knowledge of finance and the understanding of the Shariah. For this purpose, Malaysia has established the International Centre for Education in Islamic Finance (INCEIF), which will commence operations in March 2006, aimed at developing talents in Islamic finance. INCEIF will offer professional certification programs in Islamic finance and will forge strategic alliances with domestic and foreign institutions of higher education to offer Masters and PhD. programs in Islamic finance in specific areas of specialisation. | 1 |
In this regard, I welcome the recent compromise as part of the trialogue process on the transposition of Basel III into EU law and I hope it will now be formally adopted as quickly as possible. Moreover, we await the next US package with great interest. An astute observer might object: why did Credit Suisse fail if it met the Basel requirements? The answer is simple: while good regulation is necessary, it is never sufficient. A Highway Code - regulations -, even the best one in the world, will only be effectively enforced if the traffic police - supervisors - are efficient. This proactive supervision is one of the great successes of our European Banking Union. As part of this proactive supervision, we will obviously continue to keep a close eye on the risks affecting the financial sector. We just published our Assessment of risks to the French financial system at the end of June ii and it reiterates our confidence in the solidity of French banks. Nevertheless, we will continue to be even more vigilant to the risk of a disorderly market correction which could affect non-bank players most exposed to leverage and liquidity risk. The second reminder came in the crypto-asset sphere with the "crypto winter" punctuated by a long series of shocks: the collapse of Terra-Luna, the failure of FTX, and the legal proceedings taken against Binance and CoinBase in the United States. Europe was a pioneer in this area by adopting MiCA regulation. | Christian Noyer: No moral hazard – the banks are doing their job Comment by Mr Christian Noyer, Governor of the Bank of France, in the Financial Times, 18 September 2007. * * * In recent weeks, Central Banks in Europe and the US have acted repeatedly to provide liquidity to interbank money markets. These interventions have raised some questions. Concerns were expressed that monetary authorities were bailing out speculators, thus creating the same kind of moral hazard that may have led to excesses in the past. There were also concerns as to whether the integrity of monetary policy would be compromised. These are valid questions. On numerous occasions, in the past, we pointed out the potential dangers that mispricing of credit risk posed for financial stability. We may be now seeing some of the consequences. Excessive risks were taken, and losses will have to be accepted. It is important that monetary and financial authorities take no action that would prevent this process from running its course, let alone be seeing to be condoning past or future excesses. However, the logic behind recent interventions is different. Put very simply, financial turbulence and uncertainty have suddenly triggered an upward shift in the demand for Central Bank money. Faced with such a shift, whose direction is apparent but amplitude uncertain, the choice, for monetary authorities, is clear: either accommodate, and provide temporary liquidity; or not, in which case, interest rates would have to rise to restore balance in the interbank market. | 0 |
Since the last monetary policy assessment, the exchange rate and interest rate conditions have changed substantially. This has considerable repercussions for the inflation and growth outlook in Switzerland. Global economic outlook I will now present our assessment of the global economy. The international economic environment is developing largely in line with our previous expectations. The global economic recovery is continuing. In the fourth quarter of 2014, growth in the US remained above potential. The favourable momentum of the economy there is also reflected in the sound growth in employment. The economy picked up somewhat in the euro area. This was primarily due to strong quarterly growth in Germany. In Japan, too, demand increased. By contrast, economic developments in the major emerging economies were mixed. Consumer price inflation edged down worldwide due to lower oil prices. In many advanced economies, inflation moved into negative territory at the beginning of 2015. During the course of the year, the growth of the global economy is likely to firm gradually. Several factors are supporting this growth. First, the significant decline in oil prices is helping to increase demand. Second, monetary policy in the advanced economies remains very expansionary. The euro area, in particular, is likely to benefit from the further decline in interest rates as well as the marked depreciation of the euro. Recently, an easing in European banks’ lending conditions, which were very restrictive, has also been observed. BIS central bankers’ speeches 1 Despite these favourable developments, the outlook for the global economy is still uncertain. | To ensure that Thailand reaps the benefits of the changing landscape and is in the position to mobilize resources for investment and support economic growth, the Bank of Thailand is set to launch the second phase of our financial sector Master Plan this year to further enhance efficiency, robustness, and competitiveness of the Thai banking system. Our Financial Master Plan Phase II aims to promote financial system efficiency so that financial institutions can perform their functions more efficiently, becoming more competitive, with increased financial access to the public. The plan essentially comprises three pillars. The first pillar is to improve the regulatory environment and to reduce the unnecessary regulatory and legacy costs. The focus in this pillar will be on streamlining regulation, and on promoting measures and incentives to deal with legacy NPA and NPL, without compromising prudential oversight or good risk management. The second pillar is to enhance efficiency by injecting more competition into the financial system. The focus will be on financial liberalization, increasing competition from the current and new players, and promoting greater financial access. The latter will give importance to expanding the retail banking businesses and promoting new microfinance business models and players. And the third pillar is to substantially improve the economy’s financial infrastructure in the areas of risk management, credit information system, legal reform, information technology, and upgrading the quality of human resource. Such infrastructure is crucial for banks so that they can attain greater efficiency and more effective risk management at a lower cost. | 0 |
If its debt was so onerous that the government could not or would not finance it by conventional non-inflationary means, and if the independence of the central bank were sufficiently fragile, inflation could come to be viewed as just another tax, rather than something to be stabilised in its own right. In extremis, when the credibility of the macroeconomic framework is entirely lost, inflation expectations – indeed inflation itself – would be determined solely by the fiscal position. Even a notionally independent central bank could do nothing to affect it. Purchases of government debt by the central bank, for example, would do nothing to depress their yields. (Indeed, if they served only to reinforce the central bank’s subservience, thereby pushing up expectations of future inflation, QE could actually raise bond yields. Put another way, the policy can only work as intended to the extent the framework is credible – if it’s generally accepted that deficits are controlled by conventional fiscal measures and monetary policy is devoted to a fixed nominal objective.) There is also the potential, in this extreme situation, of a positive feedback between inflation expectations and inflation itself, and an associated risk of hyperinflationary spirals. When inflation expectations rise, the expected cost of holding zero-interest money goes up as well. Reluctant to hold on for very long to the paper the government is using to fund itself, people spend it straightaway, feeding the inflation and confirming those prior expectations. | I would also like to welcome Mr. Emil Stavrev, Deputy Division Chief, and Mr. Mariusz Jarmuzek, Senior Economist, both of them from the IMF European Department, who have contributed extensively to the report under debate today. Now, returning to the main topic: The National Bank of Romania has always valued the Regional Economic Outlook Report as it gave us a full and unbiased image of where we stand as compared to our peer countries. It has helped us to better understand the macroeconomic developments in our region and the interconnectedness/connections between our economies. The current report marks a turning point in our post-crisis economic history: We should take advantage of the improved economic context to focus on structural reforms needed to accelerate the real convergence and to raise Romania’s economic capacity in the long run. We need to preserve competitiveness and enhance the quality of public expenditure. We are all glad to see the global economy back on track and the European recovery strengthening. These results are even more encouraging, if we think back to 2010, in the aftermath of the crisis, when economists and policymakers started to really doubt our economies ever returning to business as usual. At that time it was believed that the new normal would come with secular stagnation, low interest rates and low inflation. Romania has secured a record growth of 8.6% in 2017/Q3. Nevertheless, we need to moderate our enthusiasm. | 0 |
The criterion of security covers primarily the reduction of risks such as market, credit and concentration risks. In addition, it is important for us to maintain the real value of the foreign exchange reserves in the long term. Consequently, the long-term return on investment must match the average rate of inflation. If the criteria of security and liquidity are fulfilled, our investment policy aims to achieve an additional return over and above the real maintenance of value. The return on foreign exchange reserves is made up of current income plus changes in the value of the investments. The income takes the form of interest and dividend payments on the bonds and shareholdings. In view of the current low interest rate environment, these amount to only around 2% of foreign exchange reserves per year. Just like investments that fall due, income is generally reinvested. Therefore, foreign exchange reserves tend to rise even when we do not need to purchase additional foreign exchange. The other component of returns is changes in the value of foreign exchange reserves. We value all investments at market prices and in Swiss francs. Consequently, changes in the prices of interest-bearing paper and shares as well as exchange rate movements have a direct impact on the net result for investment. If the Swiss franc strengthens against the investment currencies, this results in a valuation loss on the foreign exchange reserves. | In May and June we saw what could happen if expectations of a less expansionary monetary policy course become widespread in the market. At that time, the announcement by the US Federal Reserve of a possible reduction in its bond purchase programme caused share markets to plunge temporarily. The wave of selling did not recede until the beginning of July, when the Federal Reserve, the European Central Bank and the Bank of England reassured markets that key rates would remain at very low levels until the recovery of the individual economies was on a firm foundation. On bond markets, interest rates continued rising in June and July. Since then, they have largely moved sideways. This applies to US, UK, German and Swiss government bonds, in particular. Until the beginning of September, yields on ten-year Confederation bonds rose to almost 1.2%. They are currently at around 1%, which means that they have increased by about half a percent year-on-year. Government bonds in the emerging economies were particularly strongly affected by the rise in interest rates, since the expectation of an impending monetary policy normalisation in the US led to significant capital outflows from these countries. By contrast, risk premia on government bonds for the peripheral euro area economies did not increase very much. Moreover, these risk premia have fallen again in the meantime so that returns on government bonds in the peripheral economies are now in fact lower than at the beginning of the year. | 1 |
David Miles: Monetary policy and financial stability Speech by Mr David Miles, Member of the Monetary Policy Committee of the Bank of England, at the Bristol Business Forum, Bristol, 14 July 2010. * * * I would like to thank Conall MacCoille and Gilberto Marcheggiano for research assistance and I am also grateful for helpful comments from other colleagues. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Monetary Policy Committee. Monetary Policy in the UK has never been as expansionary as it is today. Just over 15 months ago the level of Bank Rate was reduced to what is – to all intents and purposes – its floor. As Chart 1 rather starkly shows, this is the lowest level to which Bank Rate has fallen since the Bank of England was established at the end of the seventeenth century. Bank Rate has not been changed for 16 consecutive meetings of the MPC. That is not so unusual. In fact, as the Chart reveals, between 1720 and 1820 Bank Rate did not move from 5%. Had a Monetary Policy Committee then met each month, as it does now, it would have decided at 1200 consecutive meetings not to change the level of interest rates. So it is far from unusual for the interest rate set by the Bank to remain constant for over a year. | Now we have in place a framework for the recovery and resolution of banks, something that we did not have two years ago. Serious steps forward have been made on all technical issues that are of key importance for the integration into the European financial infrastructure. I wish to point out something in the BNB’s work, something that may be difficult to see – it is the huge amount of experts’ work and the intensive technical consultations that we are having about our joining the Exchange Rate Mechanism II and the euro area. I’ve already had a suitable occasion to thank my colleagues in the central bank. Now it is a pleasure to thank you, too, for the very good results achieved in this sector. All the items on our agenda are not yet completed and we still have a lot to do. I will not go into details or numbers, but let me mention some of our today’s priorities. I will begin with the amendments to the Law on Credit Institutions which take effect from today. They create an appropriate legal framework for further consolidation of the BNB’s supervision model. You probably know that from today onwards all the most important decisions and administrative acts will have to be approved and issued by the Governing Council. The second group of most important issues relates to lending to so-called ‘related parties’. A legal framework has been created for better definition of this subject and for managing the relevant supervisory practices. | 0 |
While much effort has been made to deepen our understanding of and ability to respond to market dislocation since the global financial crisis, the emergence of these problems suggests the Bank and wider central banking community still have some work to do in throwing light on and building resilience in some of the shadow-ier parts of the non-bank financial sector, as emphasised by my colleagues on the FPC and internationally in the FSB. But that is for the future. Right now, we are dealing with the problems that pose an immediate threat. The intervention announced yesterday by the Bank is intended to facilitate an orderly adjustment in the positions and structures that were threatening to generate dysfunction in that market segment. By acting in the gilt market to facilitate the necessary reduction of leverage – or at least creating an environment where that reduction can take place – the Bank is preventing a self-sustaining vicious spiral of collateral calls, forced sales and disappearing liquidity from emerging in a core segment of the financial markets. Restoring market functioning helps reduce any risks from contagion to credit conditions for UK households and businesses. The intervention is targeted specifically at that market segment where problems were emerging. And it is time-limited, because the Bank buys assets in order to sell them on afterwards, thereby helping the orderly re-shuffling of holdings of and exposures to longer-dated gilts that needs to Page 4 take place. These operations do not create central bank money on a lasting basis. | Finanstilsynet (the Financial Supervisory Authority of Norway), for example, sets limits on the size of a single loan in relation to the collateral provided. Another possible measure is to set minimum requirements for the risk weights banks can use in their internal model-based approach to calculating capital adequacy. 46 As an extraordinary measure, in connection with the establishment of the swap facility, 2- and 3-year fixedrate loans specially designed for small banks were allotted. This was extensively explained in the Storting documents. 47 See also Peter Stella: “Minimizing Monetary Policy”. Paper presented at the Annual General Meeting of the Bank for International Settlements in June 2009. http://www.bis.org/events/conf100624/stellapaper.pdf 48 The mechanism in known in economic theory, see the Modigliani-Miller theorem. BIS Review 154/2010 15 In other countries the procedures are now being revised to allow central banks to participate when such discretionary measures are implemented. In Norway, Finanstilsynet is highly competent in the oversight of individual institutions. However, Norges Bank has more competence in macroeconomic matters, given its tasks. The central bank also has an informational advantage as we are the bankers’ bank and operate in foreign and domestic markets. The division of responsibility should be based on the advantages specific to each organisation. The Ministry of Finance should define the objective of macroprudential supervision and delegate its use. The Ministry must also assess whether the objective has been achieved. One alternative is to delegate responsibility for implementing discretionary measures against systemic risk to Norges Bank. | 0 |
The top level management is responsible for putting in place a well-defined risk governance framework and formulating the appropriate risk strategies. At the operational level, the roles of the business units are to ensure that key risks are appropriately identified, assessed and mitigated. We are all aware, therefore, that risk management is a dynamic and iterative process. Risk management is not a one-off exercise. Instead, it is a continuous cycle. Hence, there should be genuine awareness, ownership and accountability of risks throughout the company. Every employee should see himself or herself as a risk manager! It is exciting to see the breath of the topics for this Conference. And it is even more encouraging to see risk experts from different countries like the United Kingdom, Hong Kong, Singapore, Philippines and Malaysia coming together to exchange information and experience. I am also pleased to note that some of the discussions will cover the Takaful perspective. This will include discussions on the impact of Shariah requirements, as well as sessions on financial management and business continuity management for Takaful business. In closing, let us remind ourselves again that risk management is a corporate culture and everyone plays a role in the process. Your roles are critical in ensuring that the key risks, both present and foreseeable, are identified and effectively mitigated. With concerted efforts from all parties, an effective risk management process will enable companies to minimise financial losses, and optimize business practices, in order to respond to the changing business environment. | As Malaysia moves into the next stage of economic development, by transforming from a mainly production-based economy to a more innovation-driven and knowledge-based economy, the financial services sector will play a prominent role in this evolution. In support of this transformation, Bank Negara Malaysia is developing a new blueprint for the financial services sector. This blueprint will chart the next phase of the development of the financial sector, position the financial sector as one of the main catalysts for the transformation of the Malaysian economy and ensure our economy remains robust and resilient to respond to any emerging risks. Risk management for insurance institutions It is expected that the financial sector in Malaysia will expand and become more complex and inter-connected over time. Therefore, the corporate governance and risk management practices in insurance institutions will also need to evolve to keep pace with the fastchanging environment. It is a fact that institutions which performed better during the crisis were consistently differentiated by more robust governance and risk management practices. According to a recent Towers Perrin survey of major U.S. corporations, failure in risk management has been cited to be the key characteristic of financial institutions that suffered large losses during the global financial crisis. Thus, improving risk management was the top priority of CFOs in reaction to the global financial crisis. Prioritizing risk management is even more important for insurance companies. This is due to the fact the core activity of insurance involves risk-taking and risk-transfer, and that insurance risks are usually long-tailed. | 1 |
ERM II membership also offers a meaningful, flexible but credible framework for : • - increasing convergence with the euro area, - tackling the challenges faced by accession countries on the road towards the adoption of the euro, - contributing to macroeconomic and exchange rate stability, - helping determine the appropriate level for the eventual irrevocable fixation of parities. This is to be accomplished in the best interest of the candidate countries themselves. Thirdly, a sound and efficient banking and financial system is key. Significant progress has been made over the past few years in rehabilitating the banking sector and encouraging structural reforms and foreign ownership. Progress in corporate governance, the enhancement of the legal and supervisory frameworks that support the banking sector are also crucial. They are conducive to achieving the macroeconomic objectives of the accession countries. *** To conclude, let me stress two words: rapidity and stability. Rapidity is a key word. We have not much time to meditate, decide, implement. The structural reforms, that we are badly in need of, must be implemented as rapidly as possible if Europe is to be up to its historical challenges. The Chinese say “It is later than you think” has never been so true. In any case, history itself does not wait for us. | Clearly, the demand for labor is very strong—we hear that from employers who are finding it hard to fill all their openings—and a lot of people are getting hired. At the same time, the numerous people leaving their current jobs contribute to the recordhigh level of postings as employers look to fill newly vacant positions. We won’t see all the vacancies filled overnight—it takes time for employers to fill open positions. With the strong, sustained demand for workers and progress on hiring, I am confident that we will see continued strong job gains going forward. The last aspect of the outlook that I’ll speak about is inflation. Recent inflation data have moved up sharply, which has garnered a great deal of attention. My view is that the spike in inflation mostly reflects the temporary effects of the surprisingly rapid opening of the economy. Given the importance of this issue, I will explain my thinking in more detail. With the economy reopening, people are once again enjoying activities, such as travel, that they postponed during the worst days of the pandemic. With the return of these activities, prices for things like airfares and hotel rooms have rebounded. But we must keep in mind that many of these increases are simply reversals of the large declines we saw last year when the pandemic first took hold. Once these prices have fully adjusted to the reopened economy, they shouldn’t continue to increase at recent elevated rates, and their effect on overall inflation should subside. | 0 |
In many ways, the build-up of vulnerabilities that led to the crisis arose from a series of bad financial decisions made by borrowers, bankers, investors and regulators. This brings forth the importance of sound financial governance as a fundamental element of robust economies and financial systems, one that ensures that the possibility of the existence of weak links within the system is minimised. 1 Kremer, M. (1993). The O-Ring Theory of Economic Development. The Quarterly Journal of Economics (Oxford University Press) 108 (3): 551–575. 2 Hartford, T. (2015). Teamwork gives us added personbyte. Financial Times 19 June 2015. BIS central bankers’ speeches 1 Today, I would like to discuss three inter-related issues relevant to the theme of this conference. First and briefly, the issue of global financial governance. Then I will focus at greater length on the relationship between financial governance and economic growth at the national level. The third and final part of my remarks will cover the governance of finance. Global financial governance: a lack of urgency Let me start with global financial governance. I will be brief on this as much of the discussion has been had elsewhere at various other platforms. Since the demise of the Bretton Woods system in the 1970s, while the global monetary and financial system has become more integrated and sophisticated, global financial governance has changed little. | It affects the way financial decisions 2 BIS central bankers’ speeches are made, including decisions relating to savings and spending, borrowing and lending, investment and profit distribution, and it is relevant to all economic agents, be they households, businesses or governments. Soundness of financial governance is a critical prerequisite for the sustainable growth of any economy. Having said that, we also have to recognise that the process of economic growth itself is an outcome of a system that is highly complex and adaptive, and that a country’s economy, polity and society – and the institutions that underpin each of these – are embedded within a complex network of interdependencies. Therefore, there cannot be a one-size-fits-all prescription of what constitutes good financial governance for all economies. Nevertheless, I do believe that we can recognise the presence or absence of good financial governance based on broad characteristics. In this regard, three key inter-related features are typically present when there is good financial governance. Firstly, effective financial governance ensures that financial decisions take into account all externalities arising from the decisions. Financial decisions often have consequences that are not fully borne by the decision maker. Financial decisions that may appear rational at the individual level, may in fact be collectively unsustainable. For instance, corrupt practices may be optimal for the individual perspective, but they are clearly detrimental to the welfare of society and the economy. | 1 |
It will have potential profit and loss, tax and accounting implications on market participants. Migration of legacy contracts and adoption of new documentation involving hundreds of thousands of clients would be another complex exercise. All these 1/4 BIS central bankers' speeches issues will cut across different segments of the financial market, from derivatives, to bonds, to loans and many others. The implications may also vary greatly across different jurisdictions given the different market structure and legal environment. Therefore, industry associations such as ISDA have an important role to play, in helping to address these wideranging issues with a global and industry-wide perspective. Global banks should take the lead 8. Likewise, international banks, which have operations across many jurisdictions, will be better placed to help shape the path for transition for the banking sector. As we all know, IBORs are used in nearly every aspect of their business – from trading, to risk management, to pricing and valuation. Preparing for the transition means they need to develop the necessary operational and system capability for their global operations, probably dealing with multiple alternative reference rates at the same time. I can see this is a very onerous and resource-intensive process. But then, given the quantity and diversity of financial contracts on their book, and their presence and market knowledge in various jurisdictions, these global banks should be best equipped to take the lead in devising a comprehensive transition plan. | Here is Chancellor Denis Healey, writing in his memoirs3 about a spat with the Prime Minster of the day: 3 2 Healey, D (1989), The time of my life, Michael Joseph London. BIS Review 11/2004 ‘At this time my own relations with Jim were shaken by an incident just after the Party Conference. On October 6 I had asked him to let me raise interest rates by another 2 per cent to the then unprecedented level of 15 per cent…He refused. I said I wanted to take the matter to Cabinet that morning. ‘All right’ he replied ‘but I will not support you.’ Nevertheless I insisted…’ In the event this did not prove necessary: Callaghan backed down, leading Healey to comment wryly that ‘This was the only time I have ever used the threat of resignation to get my way.’ The new framework has taken the politics out of interest rate decisions without sacrificing democratic accountability or oversimplifying the policy process. It is an elegant institutional solution to the lengthy debate between those who favoured untrammelled discretion and those who advocated rules (such as monetary targets); one, moreover, which manages to respect the constitutional priorities of a parliamentary system. Achievements Performance over the six years since the Bank became independent has been impressive. Against the target of 2.5% for RPIX which ran from 1997 until December 2003, average inflation was 2.4%. | 0 |
In summary, the political economy case for one person/one vote does not entail the equivalent of postal voting, which I believe would impair the quality of our discussions and so, probably, of our decisions. Communication of the Committee’s reaction function: whether to publish an expected path of Bank Rate Central bankers know that expectations matter. So they know that delivering their goals requires more than being able to set the overnight money market rate from one policy meeting to the next. It matters where agents – businesses, households, financial markets – expect the policy rate to be set in the future. More than that, it matters that agents have a broad understanding of how the monetary authority will react to unforeseen developments in the economy; their “reaction function”. That being so, some central banks have started publishing their expected future path of rates, or a range for the future path. This could have advantages. For example, absent a clear agreement and statement of the strategy being pursued by the Committee, differences amongst members about the monthly decision can occasionally stem from judgments about how the precise timing of Bank Rate changes would affect perceptions of the Committee’s future course and so monetary conditions. But in my book, there are two reasons for not publishing a planned policy path – both related to the political economy context in which the MPC operates. | For example, in Germany, the institution that became the highly independent Bundesbank was established as part of the country’s reconstruction after WWII and so before its new democracy was embedded. It had “goal independence”. And in the US, while there is hesitation over giving the Federal Reserve an inflation target, as great weight is placed by Congress on the “dual mandate”, there is not concern about the scope or mechanics of the FOMC’s accountability to Congress. Every member of the executive arm of the government is unelected except the President. The central bank is no outlier. 18 But in the UK it really was a novelty – in a way, a constitutional departure, foreshadowed perhaps only by the judiciary 19 – to give such a politically sensitive lever to a body of unelected technicians. The institutional obstacles to Bank of England “independence” therefore needed institutional solutions. Responsibility for bank regulation was transferred from the Bank in 1997. The pathway to resolution of the “democratic deficit” problem had potentially been opened up in the 1980s by the St John Stevas reforms of Parliamentary Committees which led, over time, to a Treasury Committee with a high reputation and standing, supported by access to expert advice. In the 1997 reforms, the sphere of politics was carefully delineated. The goal of price stability is set by Parliament in legislation; and, within that framework, the Chancellor of the day sets the Bank its target for inflation. | 1 |
Lars Nyberg: In the wake of the financial crisis Speech by Mr Lars Nyberg, Deputy Governor of Sveriges Riksbank, at the HQ Bank, Stockholm, 18 November 2009. * * * I would like to start by expressing my gratitude for having been invited to discuss a few of my thoughts about what may follow in the wake of the financial crisis. Make no mistake, the crisis is not behind us yet. Many balance sheets in many countries must be adjusted before the world’s banking system can be given a clean bill of health. But the acute phase is hopefully over, giving us reason to reflect not just over why developments took the turn that they did – many others have already written volumes about this – but also over what should be done to prevent these mistakes from being repeated. Much of this discussion deals with regulation and supervision and, just like after every crisis, many political initiatives are being proposed, some better than others. This is what I intend to talk about today. But there is also reason to reflect over the interplay between financial stability and monetary policy. The current crisis has indisputably demonstrated that monetary policy and financial stability overlap in many important ways that we in the central banks previously may not have entirely considered. I intend to devote the main part of my speech to this issue. | The difficulties monetary policy is faced with when markets cease functioning normally has also been underestimated, despite previous experiences from, for instance, Japan. Monetary policy and financial stability overlap in several areas. Following the past year’s dramatic economic developments, it should be evident that insufficient financial stability leading to a major financial crisis seriously impairs the preconditions for monetary policy. Strategically important markets must be made to function in order to avoid a total collapse. Central banks have thus been compelled to undertake a series of unconventional measures, partly aimed at maintaining a functioning payments system and partly aimed at improving the functioning of the financial markets, thereby contributing towards the desired effect of the expansionary monetary policy. At the same time, there exists greater awareness of the fact that a monetary policy that does not adequately consider financial factors can lead to the accumulation of serious financial imbalances. Financial stability has been demonstrated to form an important restriction to the manner in which monetary policy can be applied in crisis situations. 3 Monetary policy models must become better at capturing the functioning of financial markets. In my opinion, the present monetary policy framework, in which monetary policy is aimed at stabilising both inflation and real development, still works well. However, monetary policy analysis needs to be developed, in certain respects, to enable us to make better forecasts within this framework. | 1 |
The total non-government sector deposits (including the demand deposits) are planned to increase by Denar 5,139 million or by 13.6% in 2001. The deposits growth should result from the increased confidence of the economic agents in the banking system, as a result of: • Stable macroeconomic environment • Increased income of the economic agents resulting from the projected acceleration of the economic activity • Initiation of bond repayment process of so-called “old foreign exchange savings” • Modification in the legal framework regarding the operations of the Insurance Deposit Fund, which has been transformed into a state fund. Moreover, the amount of the insured deposit, and the indemnfication percentage in case of risky event have been increased, as well • Increased presence of foreign investors in the banking system of the Republic of Macedonia. Analyzed by currency denomination, in 2001, Denar and foreign currency deposits are projected to increase by Denar 3,139 million, or by 12.0%, and by Denar 2,000 million, or 17.5%, respectively. Namely, following its introduction in the first half of 2002, the Euro will replace the currencies of the EMU member countries. This will result in enhanced Euro conversion of the households' foreign currency deposits currently denominated in these currencies and not deposited in the banking system. Hence, part of the converted savings are expected to remain within the banking system, increasing the foreign currency deposits. | On the other hand, the supervisory authorities will need to strengthen their macro-prudential risk assessment capacities, by focusing more on systemic behaviors of the financial institutions. The central bank is expected to take a larger responsibility in this area, particularly in those countries where it did not use to have a strong supervisory role. Whatever the approach in this direction, the supervisors will need stronger legal powers which will ensure their ability to act in a timely and flexible way. As mentioned also above, procedures for managing distressed financial institutions and for crisis management will need to be revised to ensure stronger and more effective inter-institutional and cross-border cooperation, and in general to better address the potential conflict between ex-ante supervision and ex-post intervention. This important process of financial regulatory reform is not without risks. I believe that the public authorities will pay particular attention to control the tendency for over-regulation, and to avoid a “blind” adoption of the regulatory changes as well as asymmetric/unilateral approach. Regulating more should mean regulating better. Undertaking risks is a natural thing for the financial industry in their valuable role of financial intermediation. Such undertaking of risk, when well identified and properly managed, is useful for increasing efficiency and returns of the activity, two important elements for a viable and solid on-going financial performance. Every country should certainly follow with particular attention the discussion and the changes that are being proposed for the financial regulatory reform, as this process will affect them for sure. | 0 |
1 This calculation and reference are only intended to make a comparison with other economies and do not imply an evaluation of the contractivity of the monetary policy or the neutral interest rate. At this time we are working in the process of reestimating the neutral interest rate, those results will be published in the December Monetary Policy Report. 4 Bilateral Meetings Foreign exchange intervention As announced, the foreign exchange intervention program ended on September 30. It helped the foreign exchange market to function properly, facilitating the adjustment of the economy and the financial markets to external and domestic conditions. In total, we sold $ billion in the spot market and placed $ billion in forwards. The stock of the latter will continue to be renewed, at market conditions, until January 13, 2023. The Central Bank does not pursue a specific level for the exchange rate. Interventions are not related to this parameter, but rather to the evaluation of whether the exchange market is presenting problems in its functioning that may affect other markets. The conditions in which the market operates today are very different from those of midJuly. In general, the currency has followed the behavior of other parities. In any case, as always, we remain committed to the floating exchange rate regime, reserving the option to intervene in the exchange market in exceptional circumstances. | The major elements of cost are the considerable expense of insolvency, the substantial loss of value through any excess, “fire sale” markdown of the value of assets and business lines and the externalities of a large failure to other firms, their stakeholders and market participants in the form of knock-on and psychological effects. When the observation is made that a financial institution is not resolvable or is too big to fail, it represents a judgment that the financial costs and externalities of failure are unacceptable. The desire to improve the resolution process for cross-border financial firms is widely shared, but how we should we judge progress? The success of private and public sector actions, such as those recommended by the CBRG, to improve the resolution of systemically important firms can perhaps be gauged by the extent to which resolution costs are reduced. We might further gauge progress against additional expectations, such as the absence of taxpayer support of the resolution process, the efficiency of the process (to the extent it is not captured in resolution costs) and the equitable and consistent treatment of stakeholders. To improve the resolution process, the CBRG’s first recommendation is that national authorities have appropriate tools to deal with all types of financial institutions in difficulties so that an orderly resolution can be achieved. The recommendation specifically mentions power to create bridge financial institutions, transfer assets, liabilities and business operations to others and to resolve claims. | 0 |
One of the explanations for the historically very low policy rates is a downward trend in global real interest rates, that is, the interest rates obtained when inflation is subtracted from nominal interest rates. Most central banks control a short, risk-free nominal interest rate – the so-called policy rate. This then affects other nominal market rates to households and companies with longer maturities. The nominal rate has a certain impact on household consumption and corporate investment and hence on demand in the economy. But perhaps an even more important role is played by the real interest rate. Monetary policy is considered to be able to affect the real interest rate in the short term. This is partly due to the fact that it can take time for companies to adapt their prices when demand changes. Via the real interest rate, the central bank can thus influence demand in the economy and by extension inflation. On the other hand, monetary policy is not considered to be able to affect the real interest rate over the longer term. Instead, it is then determined by other factors, such as demographic development, households’ valuation of consumption today compared with in the future, trend growth and, in smaller economies, also by the international real interest rate level. But the long-term real interest rate plays an even more important role for rate-setting. If it has fallen, the average policy rate needs to be lower in order to be able to uphold the inflation target. | Implementing the reforms needed to create a better balance on the housing market and to build more housing will, however, take some time. Measures to restrain the accumulation of debt by households and to strengthen the banking system will therefore be necessary during this period. Over the long term, mortgage borrowers will benefit from lower indebtedness The measures that need to be applied to restrict households’ opportunities to borrow and to strengthen the banks’ resilience may have short-term effects on demand and inflation, which monetary policy needs to consider. But the measures may also impact different groups in society in different ways. In practice, this could be one reason for why it has been difficult to apply appropriate measures. There are so many groups to consider: mortgage borrowers and other households, high income earners and low income earners, households in rural areas and households in metropolitan areas, and so on. But in several cases, the variations are also large between different households within these different groups, which makes it difficult to determine who will win and who will lose from different measures. It may therefore be difficult to conduct a policy that clearly mitigates the consequences for those households hit hardest by the measures. Another difficulty concerns distribution effects in the short and long terms. These can often differ. In the short term, it is likely that many indebted households – mortgage borrowers – may be forced to cut back on their consumption while they reduce their debts. | 1 |
But when ambitious reform programmes are adopted and implemented, that is what happens! These countries are on the road to recovery. The markets have been quite calm so far. But what if the situation worsens? Their reaction also shows the resilience of the euro area to external shocks. The safety nets that have been put in place in recent years are playing their part. I’m referring to the European Stability Mechanism (ESM), the banking union and the different European Central Bank programmes. But we must be vigilant. The ECB clearly stated on Sunday that it was monitoring economic and market developments closely. Should risks arise, we are ready to use the instruments we have at our disposal – quantitative easing and the OMT programme – and we are even ready to use new instruments within our mandate. What could these new instruments be? The Governing Council of the ECB is monitoring the situation in real time. We have already said that we are ready to do more in terms of monetary policy, if necessary. Until now, the ECB has always found answers to crises, within its mandate. The Court of Justice of the European Union has validated the OMT programme that was put in place in 2012 [a bondbuying programme for countries receiving financial assistance, which has not yet been used, ed.]. It was the Court’s judgment that the ECB should be allowed broad discretion when choosing its instruments. | From 1986 to 1990, monetary policy was oriented towards maintaining a fixed exchange rate against a trade-weighted basket of currencies. In 1990, the krone was pegged to the European currency unit, the ECU. The peg was abandoned in December 1992 when international currency turbulence compelled Norway and several other countries to discontinue the fixed exchange rate system against the ECU. However, monetary policy was still geared towards maintaining a stable krone exchange rate against European currencies. The ECU was used as the main reference for European currencies. The euro took over this role when it was introduced on 1 January 1999. BIS Review 90/2001 1 Developments since the beginning of 1997 indicated that the exchange rate was no longer an appropriate operational target of monetary policy. Norges Bank therefore placed increasing emphasis on low and stable inflation as a precondition for exchange rate stability. In our opinion, the best contribution monetary policy could make to a stable krone exchange rate against the euro was low and stable inflation in line with inflation in the euro area. Monetary policy was therefore oriented towards bringing inflation over time into line with that aimed at by the European Central Bank. Guidelines for economic policy in Norway On 29 March, the Government issued new guidelines for monetary policy. Monetary policy shall now be oriented towards low and stable inflation. The operational target of monetary policy is consumer price inflation of 2½ per cent. | 0 |
Eddie Yue: New and important frontiers of financial development reached in 2017 Welcome remarks by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong-London Financial Services Forum 2017, Hong Kong, 18 December 2017. * * * Opening Richard, distinguished guests, ladies and gentlemen, good afternoon. I would like to welcome you all to the Hong Kong-London Financial Services Forum 2017, especially our guests travelling from London. This is already the seventh Forum since the first Hong Kong-London RMB Forum convened back in 2012. The Forum has proved to be an effective platform for the private sectors in the two places to collaborate and promote the use of RMB in the international markets as well as to grasp the associated business opportunities. Last year, London and Hong Kong decided to broaden the scope of the Forum to cover not only RMB business but also other new and important frontiers of financial development including infrastructure financing, the Belt and Road (B&R) Initiative, green finance, as well as Fintech. Looking back, it was a good move. As 2017 is drawing to a close, I think most of you would agree that B&R and fintech are the two hottest buzzwords in the financial services sector this year. RMB Internationalisation But that is not saying offshore RMB business has been all quiet in the past year. On the contrary, 2017 witnesses important milestones in Mainland China’s capital account liberalisation. | 3/3 BIS central bankers' speeches | 1 |
Two elements are vital in this process. The first is to ensure that the domestic intermediation process remains strong so as to support domestic demand. And secondly, the fiscal stimulus is key to containing the effects of the external developments and to placing Malaysia in a position to resume growth once conditions in the global economy stabilises. During this challenging period, financial institutions including Islamic financial institutions have an important role to ensure the continuous access to financing by the private sector. Key to this, is the forward looking business strategies being adopted by banking institutions, the organisational structure and the operational capability that is put in place. I would like to take this opportunity to highlight two other important dimensions in the development of Islamic finance, going forward. For more than two decades, the Islamic financial system in Malaysia has gradually transformed into a comprehensive Islamic BIS Review 25/2009 1 financial landscape. This has been reinforced by a legal and regulatory framework, the essential financial infrastructure, and an environment conducive for product innovation. Notwithstanding the success of Islamic finance, the global ramifications of the crisis also calls for more concerted efforts to bring the industry to a higher level of resilience. Of importance, in this process, is to embrace the values of Islamic finance of justice and fairness that benefits the society and the system. It is thus important for Islamic finance to transcend beyond just the pursuit of growth and monetary performance but also to emphasise ethical market conduct practices. | Zeti Akhtar Aziz: Islamic finance developments in Malaysia Address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Launch of Public Islamic Bank Berhad, Kuala Lumpur, 3 March 2009. * * * It is my pleasure to be here today on the official launch of "Public Islamic Bank Berhad". This marks the transformation of the Islamic window operations into an Islamic subsidiary, a dedicated institutional structure that will give greater focus to Islamic banking business operations. The continued progress of Islamic finance in our financial system has demonstrated that despite the on-going global financial crisis, it has not discouraged the further expansion and development of Islamic finance. Malaysia now has a total of 17 Islamic banks, of which nine (9) are the subsidiaries of the domestic banking groups. The underlying philosophy for the incorporation of an Islamic subsidiary is primarily aimed at further strengthening the institutional structure for Islamic banking business operations. Financial institutions which have achieved a critical mass in their Islamic banking business, have migrated from their Islamic banking window operations to an Islamic subsidiary. The establishment of Islamic subsidiary has greater potential to complement the goals of the banking group by providing business flexibility and autonomy to the Islamic subsidiary. Currently, the Islamic banking system in Malaysia has successfully positioned itself as a robust and competitive component of our financial system. | 1 |
The noticeable slowdown across consumer and commercial loans that started in the third quarter continued into the fourth quarter, causing these loans to post an annual growth rate of 8.7 and 16.2 percent, respectively, at the end of the year (Chart 9). Thus, commercial loans continued to grow at a faster pace than consumer loans in the fourth quarter of 2015, following the same pattern since early 2014. We expect that these developments in loan growth and loan composition will contribute to the rebalancing process and financial stability as well as limit the effects of the recent cost pressures on inflation. The annualized growth rates of 13-week averages show that consumer and commercial loans lagged far behind past years’ averages; the former across 2015, the latter mainly in the second half of 2015. However, as reflected by 13-week averages, both loans, particularly commercial loans, saw a modest rise during the 4 BIS central bankers’ speeches last quarter of 2015 (Chart 10). The recent adjustments made to the risk weights of consumer loans are likely to support loan growth in the upcoming period. Yet, due to ongoing tight financial conditions, we expect annual loan growth rates to remain at reasonable levels in the coming months. Chart 9. Chart 10. (Adjusted for Exchange Rate, Percent) Rate, 13-Week Moving Average, Percent) Annual Credit Growth Rates Source: CBRT. 2. Annualized Credit Growth Rates (Adjusted for Exchange Source: CBRT. | Amid an economic environment fraught with prolonged global uncertainties, it is important to contain negative spillovers into the Turkish economy. In terms of the fundamentals of the economy, the significant improvement in the current account balance over the past few years, reasonable growth rates in loans and a loan composition that supports price stability and financial stability all contributed to reducing economic fragilities. These developments were due to the tight monetary policy and the measures taken regarding financial stability as well as the sharp fall in commodity prices in the case of the current account balance. Moreover, the effective use of the measures presented in the August road map has alleviated the excessive fluctuations in exchange rates and loan rates. Our current tight monetary policy reduces the economy’s sensitivity to global shocks, thus supporting financial stability. We maintain the view that the tight monetary policy may be implemented within a narrower interest rate corridor, should the global volatility decline persistently or policy measures that would maintain and improve the gains in external balance and financial stability be implemented effectively. In 2015, the annual growth rate of loans extended to the non-financial sector, which decelerated partly due to our tight monetary policy stance, and the macroprudential measures introduced by the BRSA regarding consumer loans excluding mortgage, fell to 13.6 percent, adjusted for the effect of exchange rates. | 1 |
2 For an outline, see Asplund, M. & Friberg, R. (1998), “Links between competition and inflation”, Sveriges Riksbank Quarterly Review 3, Sveriges Riksbank. 3 See, for instance, Dutz, M. & Hayri, A., (1999), "Does more intense competition lead to higher growth? ", Discussion paper No. 2249, Centre for Economic Policy Research. Nickell, S, (1996), "Competition and Corporate Performance", Journal of Political Economy, No. 4. 2 BIS Review 25/2002 The relative price level in Sweden The price level in Sweden is approximately 28 percentage points higher than the EU average and 4 Sweden is thus, along with the other Nordic countries, one of the most expensive countries in the EU. There is a considerable spread of price levels within the EU, as illustrated in diagram 1. The price level in the most expensive country (Sweden) is twice as high as that in the cheapest country (Portugal). Sweden in general has higher prices on goods and services not traded across borders, while the price level for trade goods such as clothes and furniture is below or in line with the EU average. Diagram 1: Differences in price levels for private consumption in relation to the EU average 2000. | Growth forecasts have been revised downwards as a result of the interest rate increase in July. GDP growth will pick up, but will remain below the growth potential next year. The internationally exposed sectors of the economy are moving on a different path from some sheltered industries. Whereas private consumption is buoying demand growth, scaling back is expected in the manufacturing industry. Frictional unemployment is expected to rise. High real wage growth is resulting in divergent developments between private and public consumption. A large share of the growth in public spending will go to covering higher labour costs in the central and local government sector. As a result there will be little scope for increased activity in the public sector, and instead high growth in private consumption. A time horizon of two years for interest rate setting allows monetary policy to contribute to stabilising production. This horizon prevents monetary policy in itself from causing unnecessary fluctuations in the economy. As an alternative, we could have sought to achieve the inflation target of 2½ per cent using a time horizon of six months to one year. We would then have had to reduce the interest rate sharply this summer. This would have amplified the pressures in the Norwegian economy that are so clearly reflected in wage developments and household demand for loans. In all likelihood, this would have required marked interest rate increases one to one and a half years ahead. | 0 |
Good progress has been made and we expect the new competency framework can be rolled out within the next few months. 5. I would like to thank the TMA and its committees for their tireless efforts in joining hands with the HKMA and others in the “platform building” work. Measures that make Hong Kong more competitive as a wealth and asset management centre 6. It is not easy to come up with an exhaustive list of factors that affect Hong Kong’s competitiveness as a wealth and asset management centre in Asia. There are some factors such as air quality, law and order, cost of doing business, international school places, etc that have a major effect on individual firms’ decision to locate or expand operations in Hong Kong and not elsewhere, but these factors apply across the board and are not confined to the financial services sector. What I propose to do now is to highlight a couple of key “soft” infrastructure that is uniquely important to Hong Kong’s future development as the wealth and asset management hub in Asia: (a) as we all know, the existence of an inheritance tax or estate duty, even at low rates, is a material impediment to the development of wealth and asset management businesses. Back in 1998, the HKMA started to lobby the HKSAR Government to abolish the estate duty in Hong Kong in order to foster Hong Kong’s development as a wealth management centre. | Norman T L Chan: How can Hong Kong consolidate its position as Asia’s premier wealth and asset management hub Welcoming remarks and keynote speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Treasury Markets Summit 2013, Hong Kong, 6 September 2013. * * * Good morning, Ladies and Gentlemen, 1. It is very nice of the Treasury Markets Association (TMA) to invite me to speak at this year’s Summit. It should not come as a surprise to you if I choose to talk about the “soft powers of Hong Kong” again today. I have no doubt that financial centres aspiring to win the privileged position of IFC (international financial centre) all have very good hard infrastructure, such as airport, roads, telecommunications, IT etc. But what really differentiates a winner from the rest is its clear edge in the “financial market infrastructure” or the “soft powers”. Today I would like to talk about two key building blocks in the arena of “soft powers” competition: “platform building” and “reaching out”. Tribute to TMA 2. The aim of “platform building” is quite simple. An IFC must ensure that it has the appropriate legal, regulatory, tax and policy framework for the financial services to develop and prosper. Competition is not just about how good you are or have been, but more about whether you are better than your competitors or not. | 1 |
And perhaps in the same way, too, might forced asset sales into stressed financial markets have negative spillovers for all other users of that market. In the case of the core government bond market that could be significant. What is being done to address risks from non-bank leverage, and where is there further progress to be made? Having set out how leverage in non-bank financial institutions might create risks to financial stability, I’ll turn now to what needs to be done if we are to ensure those risks are reduced. Let me be clear. The onus for building resilience in the non-bank system sits first and foremost with the firms themselves. If firms use leverage, they must be able to manage the liquidity consequences of their risk exposures. As part of this, they need to learn from the decades of experience that show how leverage and liquidity risk creates rollover risks; volatility; operational challenges in accessing liquidity; and exposures to amplification mechanisms from the wider system. Firm stress testing and resilience must be set with reference to the system and to market dynamics and not just a firm’s own atomistic actions. Indeed this is where associations such as yourselves, ISDA and AIMA, can be hugely supportive in sharing best practices and industry standards. LDI funds have demonstrated the art of the possible here, by building resilience at speed when severe stress demonstrated the clear need for it. Regulators worked with LDI funds during the Bank’s operations to ensure greater resilience for future stresses. | Haga clic aquí para escribir texto. 01.03.2018 Developments in the economic situation Asociación Española de Directivos, Santa Cruz de Tenerife Luis M. Linde Governor Introduction Let me begin by thanking the Tenerife Asociación Española de Directivos for their kind invitation to me to join you today. The European environment I shall devote my address to the current situation of the Spanish economy. I will begin by highlighting the favourable cyclical juncture at which the euro area – the economic environment closest to us – stands. The upturn in which the euro area economy is immersed may be classified as robust and dynamic, and extensive to all productive sectors and countries. The euro area economy began to show signs of strength in the closing months of 2016, and these stepped up in the second half of last year. As a result, GDP at the close of 2017 was growing at 2.7%, a rate not seen since the start of monetary union and one significantly above what was expected a year earlier. These figures comfortably exceed the potential GDP growth estimates for the area as a whole and thus contribute to erasing the negative output gap generated by the crisis. One of the characteristics of the current expansionary phase is its intensity in terms of job creation, meaning that the euro area as a whole has now exceeded pre-crisis occupation levels. Wage restraint and the reforms carried out in some countries have been conducive to the vigorous response by employment to economic growth. | 0 |
For example, we see increased capacity in writing specialised risks like aviation, energy, marine and political risks. For the life insurance industry, we have also seen greater product innovation as well as increased interest from insurers offering more sophisticated products catering to the needs of the high net-worth and mass affluent segments. BIS Review 163/2010 1 Future challenges and opportunities 7. But greater challenges and opportunities lie ahead. Enhancing risk management capabilities 8. The recent global financial crisis has underscored the importance for financial institutions to have strong risk management capabilities. The use of risk management tools such as stress testing, for example, helps identify potential risks, and allows countermeasures to be instituted early. Insurers in Singapore would have to keep abreast of developments internationally, and should continually look for ways to deepen their risk management tools and capabilities. INCOME is no exception. But unlike some of the other insurers that are part of larger global financial institutions and can therefore leverage on their parents’ risk management expertise, INCOME does not have such an advantage. These global financial institutions have widely-tested risk management practices and more established risk management cultures, given their richer experience. INCOME would have to grow its risk management expertise internally, but it would do well to learn from these global players’ recent experiences. Strengthening governance 9. However, having risk management tools and capabilities alone will not be enough. The challenge is often in successfully integrating enterprise risk management into the insurer’s business, and this would require effective governance. | In this loop, we describe what has been termed a liquidity spiral, where an initially liquid bank’s concern about the solvency of its counterparty (or solvencies of its counterparty’s counterparties) or perhaps concern that itself may run into funding difficulty in the future, decided to forgo interbank interests and began to hoard liquidity. When enough institutions embarked on the BIS Review 130/2009 3 same actions, a general freeze in liquidity ensued, leading to “unnecessary” defaults that further exacerbated doubts in the system. These examples of positive feedback loops were some of the interactions that took place in the amplification stage of the crisis, as market participants responded to specific problems and general distress. But while the feedbacks were important in themselves in setting off deleveraging and losses, it was also the interactions between these feedbacks that contributed hugely to intensifying the problem and multiplied the losses into a larger systemic problem. What we saw was the rapidly worsening crisis that spread beyond financial institutions into money and capital markets. On this aspect of loss intensification, a number of studies have pointed to joint exposures to common risk drivers and network linkages between financial institutions to be the two key propagation channels. Let me elaborate further on this point. First, propagation channel in the form of joint exposures to common risk drivers means that different financial institutions are becoming not so different. In other words, their investment strategies and methods for minimising regulatory capital were beginning to copy one another. | 0 |
Outright deflation, in turn, would be a dangerous development because it would drive up real debt burdens and make it much more difficult for households and businesses to deleverage. So what are the implications of all this for monetary policy? The first implication is that the federal funds rate target is likely to remain exceptionally low for “an extended period.” The desired policy outcome is a robust recovery in the context of price stability. The second implication is that the Federal Reserve needs to ensure that market participants and the public understand that the FOMC has the tools to exit smoothly from the very low federal funds rate, and that it stands ready to do so when the time comes. On this point, let me be perfectly clear: An enlarged balance sheet and the high level of excess reserves in the banking system will not delay or prevent a timely exit. The angst about the Fed’s ability to exit smoothly stems from the rapid growth of its balance sheet over the past year. In September 2008, on the eve of Lehman Brothers’ failure, the consolidated Federal Reserve balance sheet was about $ billion. Today it is about $ trillion, and it is likely to peak at around $ trillion early next year. Some observers are concerned that this expansion will ultimately prove to be inflationary. Proponents of this view say that the monetary base, the broad monetary aggregates, and total credit outstanding have historically tended to move together with inflation, at least over longer time periods. | Similarly, the forecasting system will have to be adjusted once the Czech Republic enters the euro area and policy is set by the ECB Governing Council. It is worth mentioning that the development of our forecasting system has been part of the wider evolutionary process that the Czech inflation targeting regime has gone through. The first years of the new regime were not easy, and included frequent numerical target misses. Nevertheless, the Czech Republic enjoys low inflation, and inflation expectations seem to be firmly anchored at low levels at present. Monetary policy decision-making is rule-based and transparent, thereby enhancing the credibility of the CNB. Let me conclude with the statement that a “forecast based” monetary policy framework seems to fully allow an independent central bank to commit credibly to its long-term goal of price stability. Therefore, any new developments in economic forecasting are highly appreciated and welcomed by monetary policy practitioners. BIS Review 40/2006 3 | 0 |
SPEECH DATE: 17 May 2022 SPEAKER: Deputy Governor Henry Ohlsson VENUE: Department of Economic History, Uppsala University SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 [email protected] www.riksbank.se Monetary policy and inflation in times of war* The 2020s could certainly have begun better. Following a pandemic, which we still haven’t quite seen the end of, another war has broken out in Europe. As information now spreads faster than ever before, via news channels and social media, and as it is a country quite close to us that has been affected, the war in Ukraine has shaken us more than usual in our safe Swedish everyday lives. That, at least, is how I feel. However horrific the war in Ukraine may be, it is not the war as such that I intended to talk about today, but its economic consequences – and those of war in general. After all, it is in the field of economics that I have my comparative advantages, and as policy-maker at a central bank, monitoring the economic consequences is, of course, something that is part of my job. I will focus on the effects on inflation, as they are particularly important for a central bank. When major and unusual events such as a war occur, there is no ‘manual’ for how to act as an economic policy decision-maker. | 10.02.2023 Moving the economic governance framework of the EU: towards more efficient fiscal rules in a more complete monetary union Warwick Economics Summit 2023 University of Warwick – Coventry, United Kingdom Pablo Hernández de Cos Governor Thank you to the Coordination Team for inviting me to speak at this 2023 edition of the Warwick Economics Summit. I would like to congratulate the University of Warwick’s Department of Economics on encouraging its students to run this initiative, which has benefited from the words of highly distinguished participants since 2002. I am honoured to join this group of speakers that have shared with you their views on various matters that are key not only to our present but also to our future. Allow me to add that I am particularly glad to be able to do so this year in person after the recent pandemic years. In my remarks today I will address what I consider to be the key role that the fiscal governance framework of the European Union (EU) plays, or ought to play, and the ongoing review for its reform. I will also touch upon the European Commission’s recent orientations for the reform of the fiscal rules that were published last November. Please note that my words today are merely one more voice in the ongoing debate involving academics and other policymakers on the reform of the EU’s fiscal governance framework. Introduction The current economic context is one in which economic activity, even if more resilient that initially expected, is losing steam. | 0 |
In this regard, the BBA has recently published a report, and has invited comments from financial market participants. What is the SNB’s standpoint on this discussion? The SNB – like all market participants – has a strong interest in ensuring that the Libor reflects true market interest rate conditions. For the three-month Swiss franc Libor, there has so far been no evidence that this has not previously been, or is no longer, the case. The use of the three-month Libor as an operational target stems from its considerable economic significance as a reference rate for many financial and lending contracts. Here too, there is so far no evidence that the Libor has lost its significance in the Swiss franc market. Since not all reporting banks have been equally affected by the financial market turmoil, and since the extent and liquidity of Libor-based, unsecured money market trading in a crisis is automatically much lower than usual, the range of numbers reported will automatically be wider in such a situation. This can also give rise to random fluctuations. Moreover, in general the risk premium inherent in the Libor has become a lot more volatile since the start of the turmoil. This volatility makes it harder to steer the Libor. It should, however, be borne in mind that the SNB does not use a point target but a target range, which allows a certain amount of fluctuation in the Libor. | In December 2007, for the first time in its history, the SNB was able to provide its counterparties with US dollar liquidity against the usual SNB eligible collateral, thanks to a swap agreement with the Fed. In this context, it is important to point out that this dollar liquidity had no impact on either monetary policy or the SNB’s income statement. Yet it helped to facilitate refinancing by our counterparties, and thus made a positive contribution towards easing the tension on the Swiss franc money market. In this phase, the central banks supplemented their usual remedies with some booster treatments. The third wave of turbulence, in March this year, resulted from acute liquidity problems faced by individual international banks, combined with concerns that the money market problems might become chronic. In this third phase, the SNB did not provide any new instruments, preferring to make greater use of our existing tools. In particular, we resumed our US dollar auctions, at which we now offer USD 6 billion on a fortnightly basis. In this way, we are providing the market with a maximum of USD 12 billion. In addition, we are supplying the BIS Review 80/2008 1 market with generous amounts of Swiss franc liquidity and actively engage in fine-tuning operations whenever necessary. Other central banks have opted for more wide-reaching measures over the past few months. For instance, the range of eligible participants and collateral for refinancing operations was expanded. | 1 |
Had the APF done so, in addition to strong primary market private sector demand, it would undoubtedly have helped to drive down market spreads. But it would also have risked displacing that private sector demand, to little purpose in my view. In fact, a greater intervention in this market during this period could have made things worse – the problem was in the functioning of the market, not a lack of demand for the assets. It would be fair to say that the corporate bond scheme attracted some criticism in its early months. Many observers misunderstood the nature and purpose of the scheme and considered that the small amounts bought were a sign of failure. But, as I have stressed tonight, the objectives of the scheme were not based on buying a particular amount. In fact, over the past year, the corporate bond market overall has performed consistently strongly and in line with the original objectives of the scheme: There has been record issuance of sterling corporate bonds (Chart 5); spreads for eligible bonds have halved (Chart 6); bid-offer spreads have narrowed; and the bond-CDS basis 6 has also contracted significantly. These asset purchases do seem to have played their part in improving the access of investment grade corporates to bond market financing. The one disappointing feature of the sterling corporate bond market is the continuing problem of secondary market illiquidity. | Commercial paper Commercial paper (CP) is a common way for larger firms to manage their day-to-day cash needs. And insufficient cash flow is one of the key ingredients in corporate failures. At the start of 2009, commercial paper spreads were way above any estimate consistent with the risk involved: they implied default rates around 50% higher than witnessed in the Great Depression. This market seemed like a prime candidate in which the APF should intervene – and so facilitate otherwise credit-worthy firms in maintaining their access to short-term finance. In trying to catalyse a market, the Bank could not operate like a private investor or bank which would make purely discretionary judgements about whose CP to buy. Rather, a facility was set up which, in principle, any firm could access if they met fairly broad criteria. The APF offered to buy up to three-month CP at spreads which were significantly below those in the market at the time, but which were significantly above those expected to prevail in normal conditions. Initially this would help to drive market spreads down and the APF would then revert to providing a “backstop” offer. In this way the scheme was set up to be self-liquidating as normal market conditions returned. There were some important restrictions. Most notably, only broadly investment grade paper could be bought, consistent with the terms initially set out by the Chancellor and so limiting the degree of credit risk taken. | 1 |
SOA is an architecture that provides IT infrastructure which allows different applications to exchange databases and participate in business processes that are loosely coupled from the operating systems and programming languages underlying those applications. 5.2.2 SOA is a design for linking business and computational resources that are available on demand to achieve the desired results to service consumers. Under SOA models, different applications/services can communicate with each other by passing data from one application/service to another, or by coordinating an activity between two or more applications/services. Further, the financial institutions with IT infrastructure based on stand alone systems acquired over time to meet different business goals can benefit from an integrated service-oriented architecture. Web services can be considered to implement a service-oriented architecture where certain functions/services can be accessible over standard Internet protocols that are independent from other IT systems in the institution. The Central Bank of Sri Lanka is now using a web-based application to gather regulatory compliance reports from financial institutions. Although it is still at a preliminary stage, it is certainly a step towards improving the quality of the GRC in banks. 6. Conclusion 6.1 Now is the time to change. There should be a multifaceted approach to face the GRC challenges. GRC should be treated as one package or a set. This approach includes governance, built on Principles and Rules, Integrated Risk Management Mechanisms to identify, assess and mitigate risks and a defined compliance mechanism that deals with internal and external compliance requirements. | These risks and their effects on the real economy should not be underestimated. The markets' increasing dependence on one another both within and between countries could lead to considerable contagion effects when there is a disturbance in one part of the system. To summarise; the risks of large financial imbalances building up in economies have probably declined over the past decade as a result of more predictable economic policy. Regulations and risk management systems have also improved. At the same time, the complexity of the financial instruments and the opportunities for extensive positions off the balance sheets have increased the difficulty in assessing future profits and risks in companies. Meanwhile, increased saving and financing in market-listed instruments have made households and companies more dependent on the safe and efficient functioning of the financial markets. This could mean that the effects of disturbances from the BIS Review 18/2002 3 financial system on the real economy could increase in the long term if regulatory frameworks and supervision are not adapted sufficiently rapidly. Can we live with large imbalances? When share prices plummeted almost two years ago and when uncertainty increased following the terrorist attack in September last year, there were fears that expectations for the future would be revised down so strongly that households' willingness to consume and companies willingness to invest would decline drastically. The fears concerned the US economy in particular, but the uncertainty was also expected to affect the rest of the world. | 0 |
A third step succeeds later, and thus onward till a genius pieces the bits together and makes the decisive contribution.”16 Today, I have had the privilege of addressing such people – geniuses who have pieced the bits together and made decisive contributions. 1 Ricardo, D. (1817), On the Principles of Political Economy and Taxation, London: John Murray. 2 Sargent, T. & Wallace, N. (1976), “Rational Expectations and the Theory of Economic Policy", Journal of Monetary Economics, 2(2): 169–83; Lucas, R., (1976), “Econometric policy evaluation: A critique”, Carnegie-Rochester Conference Series on Public Policy, 1: 19–46; Kydland, F. and Prescott, E. (1977), “Rules rather than discretion: the time inconsistency of optimal plans”, Journal of Political Economy, 85(3): 473–491. These models also provided the ground for structural econometrics, which allowed for policy analysis and the study of counterfactuals. See Hansen, L. P. (2013), “Uncertainty outside and inside models”, Lecture on receipt of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 8 December; and Sims, C. (1980), “Macroeconomics and Reality“, Econometrica, 48(1): 1–48. 3 Clarida, R., Gali, J. and Gertler, M. (1999), “The Science of Monetary Policy: A New Keynesian Perspective”, Journal of Economic Literature, 37(4): 1661–1707. 4 6/7 BIS central bankers' speeches 4 Notably Kiyotaki, N. and Moore, J. (1997), “Credit Cycles”, Journal of Political Economy, 105(2):211–248 and Bernanke, B., Gertler, M. and Gilchrist, S. (1999), “The Financial Accelerator in a Quantitative Business Cycle Framework”, Chapter 21, Handbook of Macroeconomics. | Such an adjustment, never easy, requires unprejudiced, honest assessment of the new realities with clear eyes, unencumbered by the defence of previously held paradigms that have lost any explanatory power. Fifth, we must be aware of the gaps that still remain in our knowledge. Our mainstream macroeconomic models still have little to say, for instance, about the non-linear propagation of shocks, the distributional impacts of policies, or how endogenous firm entry and exit can affect economic performance.15 Policy actions undertaken in the last ten years in monetary policy and in regulation and supervision have made the world more resilient. But we should continue preparing for new challenges. The changes that we have discussed, profound as they are, often hinge on one fundamental idea. A natural question to ask is whether such an idea sprang out as a response to a specific policy problem or was rather conceived previously in an entirely different, unrelated intellectual environment, perhaps addressing a different set of problems. It is a question that is especially relevant in economics, when previously held consensus views change. But it is a question that is unlikely to have a precise answer. Let me rather use the 1939 words of Abraham Flexner, the first director of the Princeton Institute for Advanced Study: “Almost every discovery has a long precarious history. Someone finds a bit here, another a bit there. | 1 |
Also, in today’s environment, the fear of an event often is the event itself, because of the inherent tendency of markets to anticipate developments and overreact. BIS Review 61/2002 3 G But on the positive side, financial recoveries can proceed more rapidly in today’s environment, particularly with the right policy responses from borrowers. In part, this reflects the fact that today’s market participants generally have the capacity - and many have little choice, under mark-to-market accounting - - to digest losses and move on. The broader sourcing of capital today also gives more scope to the possibility that, while some investors may withdraw, others may take their place. The caveat here is that the well not be poisoned through unnecessarily broad or heavy-handed approaches, a point I will return to later. • What is the right way to deal with this changed and changing environment? In my view, the solution is neither a single piece of financial engineering nor a compact between the official lenders and private creditors. Rather, it is a process incorporating a number of elements. Essentially, I would suggest that our current case-by-case approach to crisis management needs to evolve in ways that are market-based and adaptive, yet strategic, creative, and principled. • Being successful in today’s environment requires adapting to the particularities of the case at hand, as well as the global financial and economic context, and requires seeking, as far as possible, to work with the grain of a given situation. | Moreover, alignment of market expectations with the central bank’s own targets, through fluent and transparent communication, allows monetary policy to exert a stronger influence along the entire yield curve. Yet notice that this latter channel becomes most relevant if central bankers approach markets from the sort of leadership position emphasised by Professor Blinder. I agree with him on this important point: central bankers should continuously monitor markets and should extract from them as much information as possible. But they must not put themselves under the thumb of what is sometimes capricious and short-sighted market sentiment. In any event, one of the most robust lessons we can extract from the recent period of global monetary and output growth stability is that low inflation may well be consistent with episodes of high financial volatility. Cases of financial stress have been recorded both in industrialised and in emerging market economies over the last few years without noticeable inflationary pressure. Even in countries whose financial system has proved more resilient, financial cycles have become wider and more volatile. Indeed, a long period of monetary stability coupled with low interest rates, as has been the case for some years now, may arguably be conducive to certain types of imbalances in asset markets. In such an environment the poor returns on low-risk investments and the softening of lending standards may lead investors to take on increasingly riskier projects. | 0 |
This time mismatch between the costs and benefits of reform is a prime reason why they are hard to sell. And where the costs and benefits accrue to different segments of the economy, the difficulty of instilling reforms is exacerbated since it is hard to create satisfactory compensation schemes while those who lose out tend to be concentrated and thus more effective in organizing opposition to the reform. Next, even if the obstacles to selling the reforms have been overcome, one of the most important issue that follows is the proper pace and sequencing of structural reform. In the context of financial sector reforms, for example, the underlying challenge is the proper mitigation of the additional risks that are injected into the financial system as markets develop and become more sophisticated. These risks consist of both financial risks borne by market participants as well as macroeconomic risks that may be associated with greater financial market volatility. Hence, the consensus on the importance of structural reform efforts does not carry over with the same strength to the issue of the appropriate pace and sequencing of policy changes. And finally, in the context of emerging market, the main stumbling block for structural reforms is the high degree of political fragmentation. The need to accommodate many, and sometimes conflicting, interests not only slows the reform process but often leads to compromised solutions that fail to address the original underlying goal of the reform. | Thus, it is imperative that emerging market devise a proper strategy and process to expedite reforms and develop the financial system. The second long-term reform I want to bring up is on policy institution and framework. On this, two institutions are upmost important for attaining monetary and financial stability. The first is a credible monetary framework that effectively anchors the public’s expectation of inflation. On this, the key issue is the importance of independence and transparency of the monetary policy process. Our view is that lack of independence can come at a great cost in terms of lower central bank credibility and a less favorable trade-off between inflation and output volatility. Likewise, weaknesses in monetary policy transparency can contribute to policy uncertainty and exacerbate the impact of shocks on macroeconomic volatility. The second important policy institution is an effective supervisory policy and domestic financial institution’s capacity for sound risk management. The logic for this is clear. With less effective supervision and limited capacity to manage risk, the ability of the economic system to absorb volatility from global markets is significantly compromised. Reflecting this emerging market has put enormous emphasis on building up the necessary institutions with regards to effective supervision. But the challenges are many. For example, at this time many emerging markets are facing the challenge in implementing Basel II. (i) Stronger risk management culture The objective of Basel II is to strengthen the soundness and stability of the banking system through more risk-sensitive capital requirements and rigorous internal risk assessment process. | 1 |
It should be stressed that the most important efforts to implement the Core Principles are occurring in individual countries and, with this in mind, I am pleased to say that approximately 120 countries have now endorsed the Core Principles. Without the support and backing of national authorities to follow through with the implementation of these principles, our broader efforts simply cannot be effective. In this connection, the Basel Committee has long recognized the need for effective training of participants in the global supervision community, and over the years has sponsored numerous programs which have been beneficial in allowing supervisors from different countries to share experiences and exchange ideas for improved practices. In 1998, the Basel Committee, along with the Bank for International Settlements, jointly established the Financial Stability Institute, which conducts leadership seminars for supervisors in emerging market countries and facilitates technical assistance. Effort to revise the Basel Accord Let me move on to the Basel Committee’s initiative to revise the 1988 Capital Accord. As you well know, capital has been, and continues to be, an important supervisory tool. Since 1988, capital regulation has evolved around a set of minimum ratios that were devised by the Basel Committee on Banking Supervision and set forth in a document known as the Basel Accord. The Accord was, without question, a milestone achievement – for the first time, supervisors were able to use a common yardstick for assessing banks’ capital adequacy. | I’d like to begin by addressing the profound impact of today’s technology on banking and the financial markets, then move on to the implications of that impact for effective supervision in the twenty-first century. On the subject of official supervision, I will discuss the Basel Committee’s Core Principles for Effective Supervision, and then conclude with an update on the Committee’s major initiative to revise and refine the 1988 Capital Accord. 1 BIS Review 75/2000 Technology changing the world, banking and supervision It’s been said that information is power. Whoever said that surely never had to deal with the flood of e-mail most of us receive each day. Indeed, with increasing frequency, the complaint nowadays is about “information overload.” With wireless communications enabling us to conduct business anytime, anywhere, I sometimes feel, as I’m sure many of you do, that no matter where I am in the world, I’m expected to be awake and working. For those who occasionally feel overwhelmed by technology’s marvels, it’s worth remembering that there was a time, and not so long ago, when reliable market information was decidedly scarce and concentrated in the hands of a privileged few. The Rothschilds built an international banking empire on the wings of carrier pigeons, whose messages enabled the brothers to buy and sell on information about investment opportunities or financial disasters in distant places long before their competitors heard the news. | 1 |
4 [14] Monetary policy also seems to have had the desired effect on inflation and inflation expectations. The upturn in inflation that began in 2014 has continued, and the downward trend in long-term expectations has turned into an upward trend since the beginning of 2015. Another sign that the expansionary monetary policy has had an effect is that we have had strong economic activity in Sweden. Growth has been high and employment has increased. Monetary policy's distribution effects are difficult to disentangle At the same time as the expansionary monetary policy has contributed to the economic upturn, asset prices have risen. They can be affected by monetary policy through several different channels. Lower policy rates mean that bond yields become lower, at the same time as prices of bonds rise. If the central bank also purchases bonds, this puts further downward pressure on yields and further upward pressure on prices. Those selling the bonds to the central bank may also wish to adapt their portfolios and buy other assets, which means that the prices of these assets will in turn rise. The central bank can also, by means of various types of communication on monetary policy, make it clear that the expansionary policy will continue for a longer period of time, which can contribute to a more positive view of activity in the economy. This can in turn contribute to asset prices rising. The Riksbank and other central banks are well aware of all of these channels. | We have gone through a long period where inflation has been low and central banks around the world have struggled to bring inflation back up to their respective target levels. One might therefore think that the question of monetary policy’s distributional effects has become topical because inflation has been higher than expected, which has benefitted some groups at the cost of others. But this is not actually the main reason; instead it is the efforts the central banks have made to increase activity in the economy and to bring up inflation. Low interest rates have contributed to a rapid rise in prices of shares and other assets, both financial assets and real assets. This effect in itself should be inconspicuous. Asset prices normally rise when interest rates fall, which occurs in periods when monetary policy stimulates the economy. However, recent years have been special in many ways. Apart from policy rates being low for an unusually long time, the Riksbank and other central banks have also used other methods to further push down the general interest rate level, for instance purchases of government bonds. The monetary policy measures have affected asset prices in a more direct and visible manner than the conventional policy of interest-rate cuts. This has contributed to more discussion of the distributional effects of monetary policy. | 1 |
This presupposes that there are not many different types of money in circulation that can give rise to different ways of expressing prices. There must quite simply be a standardised measure in the same way as the meter system for measuring distances. Secondly, money must be able to function as (2) a store of value, with a relatively stable value over time. This is needed because saving is a means of postponing consumption until a later date. Thirdly, it shall function as (3) a means of payment, that is, it shall transfer a value to the recipient, who can then use it to pay someone else. This requires that we have easy access to money when we need it and that the instruments we use as money can be comfortably transported with us. It is here that technological advances entail changes. The money we use must have the general public's confidence There is a further element that is essential for money and the entire monetary system to function: the general public's confidence. All those who have entered into agreements entailing money should rely on them holding. The money must retain its value over time and be accepted by everyone. Having said this, it is easy to understand why central banks were created once upon a time and were given the central role in the monetary system that they have now. | Digitalisation driving development The rapid decline in the use of cash in Sweden is part of a broad digitalisation trend that affects society as a whole. Technological advances have given us, for instance, new more efficient payment solutions such as real-time payments with the Swish mobile application, which is used for transactions that used to be mostly cash-based. Similarly, mobile phones can function as card terminals, which gives small business owners increased opportunity to accept cards. Swedish banks also have a tradition of cooperating with one another when innovative payment solutions are introduced on the market. In this way, they can make better use of network effects and more quickly attain a critical mass of users. Moreover, Sweden has a highly-educated population that is willing to adopt innovations in the IT field. Technological advances that lead to more efficient payments, cooperation between producers of services who make it possible to fully utilise the network effects, changed consumption patterns and a technology-friendly population are a powerful combination when it comes to creating changes in payment habits! In an international perspective, Sweden and the other Nordic countries are way ahead in this change process. However, the trend is global – an increasing number of people want to use digital solutions to pay and fewer want to use paper-based payments, including banknotes and coins. In particular, the younger generations are quick to adopt digital technology. It is probably therefore only a question of time before more countries find themselves in the same situation as we have in Sweden today. | 1 |
It is clear, however, that the ambitions of most countries still fall short of the requirements in the Stability and Growth Pact. This is certainly attributable in part to the economic slowdown, with Italy as the clearest example. But it is also notable that the ambitions for budget consolidation are now lower than before the move to Stage Three. The relatively good growth during 1998 ought to have left room for budget consolidation in many countries but it was not used and in certain countries the structural deficit has actually increased. The Ecofin Council has in fact criticised a number of countries, including Germany, France, Austria and the Netherlands, for the low level of ambitions in their stability programmes. In Sweden, the budget position looks comparatively healthy. Our fiscal policy is likewise less restrictive than before but the structural deficit has been turned into a surplus that is now growing and the ambition is still to achieve a budget surplus of 2 per cent of GDP on average over the business cycle. At the same time it should be underscored that some variation in the objective across countries seems reasonable. The degree of fiscal readiness — and thus the requisite size of the surplus — depends on a number of factors. One is the cyclical sensitivity of government finances and another is the level of government debt. It is then reasonable that a country like Sweden has a larger public sector financial surplus than a country where the automatic stabilisers and government debt are smaller. | Their downgrading to junk bond status sent a small shockwave through the relevant market segments; other segments have so far remained largely unaffected, however. The credit risk premiums of other corporate debtors rose only slightly and have remained at a historically low level (cf. Graph 2). Meanwhile, those of emerging markets have developed in line with the economic fundamentals of their respective countries. 2. Investment policy A large proportion of the SNB’s assets comprise currency reserves. An internationally accepted means of payment in crisis situations, they serve as a safety net for the Swiss economy and the Swiss franc. In order to fulfil this function, these reserves need to be invested in foreign currencies – primarily in the reserve currencies such as the dollar and euro – and in gold. The Bank’s leeway for investment was extended considerably with the entry into force of the new National Bank Act in May 2004. This has allowed the SNB to invest part of its currency reserves in foreign equities and corporate bonds. In mid-February 2005, the SNB – having already invested in corporate bonds since June 2004 – turned its attention to the expansion of its equity portfolios. At present, a little over CHF 3 billion are invested in internationally diversified equity portfolios. As the equities are index-managed by external asset BIS Review 46/2005 1 managers, the SNB takes no active decisions regarding the weighting of individual sectors or securities. | 0 |
Low growth in total factor productivity continues to be expected, which is supported by its consolidation of a downward trend (figure 12). Our neutral MPR estimate puts it at 3.75%, within a range between 3.5% and 4%, equivalent to a 25 basis points increase from our previous estimate. This hike is consistent with the recent reversal of neutral rates in other economies, which reversed the downward trend of global rates. 5 Our projections In the central scenario, headline inflation is projected to keep declining in the coming quarters, converging to the 3% target in the second half of 2024. Core inflation will decline somewhat more slowly, reaching 3% by the end of 2024. The trajectory we are forecasting for inflation is somewhat above our estimate in the last MP Report. By the end of this year, with the information available on 30 November, we projected annual inflation of 12.3% (12% in September). For 2023, we project headline inflation to average 6.6%, ending the year at 3.6% (6.1% and 3.3%, respectively, in September) (figure 13). This revision considers the surprise accumulated in recent months and a slower decline in the real exchange rate over the projection horizon. The real exchange rate will hover around its current levels for a few quarters, contributing to the adjustment of macro imbalances, and then will begin to decline, in line with the evolution of the economy and its fundamentals towards long-term stability. The convergence of inflation continues to rely on the economy continuing to adjust. | In its deseasonalized series, non-mining GDP fell by 0.8% from the previous quarter, its second consecutive quarterly decline. The performance of trade, which fell 2.8% in the quarter, stands out in this result. Entrepreneurial services were the exception, rising 1.1% in the period. With this, it continues with the growing trend that it has been showing for several quarters, explained by the outsourcing of activities. The October Imacec confirmed the downward trend of non-mining activity, with a seasonally adjusted 0.4% decline month-on-month (figure 5). On the demand side, in the third quarter, gross fixed capital formation (GFCF) performed significantly better than expected. This result was driven by investment in renewable energies and other particular sectors. The latter included the impact of engineering works associated with the terminal phases of mining projects and one-off factors such as bus imports. In any case, the outlook for investment remains weak. The latest survey by the Capital Goods Corporation points to declining investment amounts during the 2022-2025 period. At the same time, business expectations remain pessimistic. The slow dynamism of the housing sector also stands out. However, long-term interest rates and local uncertainty levels have fallen in recent months, which could be of some help for the future path of investment (figure 6). Private consumption continued to adjust in the third quarter. It is worth noting the new drop in durable goods, whose deseasonalized series fell 3.8% with respect to the previous quarter. | 1 |
Despite oil prices more than tripling from the beginning of 1999 to the end of last year, inflation expectations stayed at the Riksbank’s target. If expectations also increase, monetary policy must be made considerably more stringent to expel inflationary expectations from the economy. From this point of view, it is important that monetary policy is reviewed and that a discussion takes place on the Riksbank’s actions, although the importance of the bank should not be exaggerated. Having said that to provide a perspective on the tasks we have at the Riksbank, I should like to move on to discuss the economic situation in Sweden. Favourable growth During the past three years, GDP has increased in Sweden by an average a bit more than 3.5 per cent. The rate of growth is increasingly higher than what is possible in the long term. The Swedish economy has expanded approximately a half per cent more quickly per year than the euro area in the past four years, although over one per cent more slowly than in the United States during the same period. BIS Review ? ?/2001 1 Strong foreign trade has made a positive contribution to growth in Sweden for large parts of the 1990s and since 1994, the current account has been in surplus. The weak exchange rate for the krona throughout almost the whole of this period with a floating exchange rate, combined with the vigorous growth in the telecommunications sector have been the driving forces underlying the increase in exports. | However, there is also a risk that uncertainty about the future of the Swedish economy will result in households reducing consumption. At present, household’s financial savings are insignificant. In this respect, the situation is similar to the United States although the problems there are more serious. Uncertainty about the development of the krona remains great, however. There is general agreement that the krona is fundamentally undervalued – this has contributed to creating the surplus in the current account that has reduced our foreign debt in recent years. When the foreign debt starts to reach levels that are more sustainable in the long run, the krona should be strengthened. There is thus no reason to depart from the Riksbank’s assessment that the krona will appreciate in the long term. However, asset prices and exchange rates are sensitive to changes in expectations. And just now it seems that the krona is being weakened by the focus on the foreign exchange market on the expected capital outflows, which will be the result of pension funds being invested abroad. Reduced interest in purchasing Swedish shares is considered by others to be the explanation why the krona is so weak BIS Review ? ?/2001 5 just now. During the years with a floating exchange rate, we have noted short-term fluctuations in the exchange rate do not seem to have any great effect on domestic prices. There is only an effect on prices if businesses believe that changes in the real exchange rate will be of some duration. | 1 |
The other scant quantitative indicators that are still available for the quarter, such as new car registrations or the retail trade index, on the demand side, and the industrial production index, on the supply side, tend to confirm the loss of momentum in activity. Among the confidence indicators, the August PMIs show signs of moderation in both services and manufacturing. Manufacturing, in particular, evidences the decline in new (both internal and external) orders. Industrial activity has continued to be weighed down by global supply problems (which are affecting the automotive sector above all) and by the escalation of input prices since 2021 H2 (which have affected a very high number of products). Economic projections have been revised down notably for growth and up for inflation The latest ECB projections for the euro area, in contrast to those published in June, include, in particular, new developments in the gas market. First, gas prices were revised up in accordance with developments in the gas futures markets. Second, and for the first time, a degree of gas supply rationing, albeit moderate, is assumed. This would be more significant in the countries that are more heavily dependent on Russian imports, which could even see some production cuts in the winter. By contrast, demand for gas is expected to decline. Euro area economic activity is expected to slow in the coming quarters, as a result of the loss of purchasing power stemming from higher-than-expected inflation, the decline in confidence and, in general, greater uncertainty. | Spreads and volatility have also been lower for longer, although there is some market discrimination between agents and between emerging market economies (EMEs), as well as periodic spikes in volatility, especially recently. Next, why are inflation or interest rates so low and how does this impact policy? First puzzle: inflation remains low in countries where unemployment is close to the NAIRU, like the USA, or where the output gap has been sharply reduced, like Germany; this may imply that the Phillips curve has a lower slope too. Yet, various studies by the IMF or the BDF show that, even if slopes have tended to flatten since the early 1990s, there has been no clear-cut change over the last years. BIS central bankers’ speeches 1 There are two possible explanations. The benign one is that transitory disinflationary shocks, e.g. due to commodity prices, temporarily shift the Phillips curve downwards. The worrying one would be a disanchoring of long-term inflation expectations, threatening the objective of price stability; such a disanchoring is suggested by the surprising correlation between spot oil prices and market expectations derived from inflation-linked swaps up to 5 years in 5 years. People can reasonably differ in their interpretation; hence the scope for healthy policy debates. As regards low policy or market rates, these are mainly seen as reflecting lower equilibrium, or neutral, interest rates. This leads us to the second puzzle: does the lower neutral interest rate result from cyclical or structural factors? | 0 |
6 BIS central bankers’ speeches study of the impact of competition policy on TFP in twelve OECD countries found a positive and significant effect.18 So far, catching-up economies have made notable reforms of framework conditions that increase competition, for example by strengthening competition authorities, reducing administrative burdens on companies, softening authorisation requirements and ensuring a fair public procurement process. However, progress in reducing excessive rents in sheltered goods and services markets has been less impressive, especially in network industries such as energy, telecommunications and transport. This is partly due to the micro- or sectorspecific dimension of the reform needs, which imply confronting vested interests inside a certain sector. Reforms in these sectors are key, not only because they support reallocation, but also because they immediately increase the competitiveness of the tradable sector by reducing often onerous input costs. This could in turn strengthen incentives to raise TFP as the gains would no longer have to be shared with suppliers of intermediate inputs. Reallocation of capital needs of course to be accompanied by reallocation of labour, and here price signals are also important. For example, there is some evidence that slower ULC adjustment in the non-tradable/services sectors in catching-up economies is discouraging labour from moving to the tradable sector, as wages remain higher in the former. Addressing this distortion across sectors is the rationale for labour market reforms that strengthen the link between wage formation and economic conditions. Reforms in this area are now welladvanced. | If such losses were still to erode a bank’s capital, the new EU resolution framework will ensure, first, that the costs of bank failure fall mainly on the private sector rather sovereigns, and second, that they are spread evenly across the euro area banking sector rather than concentrated in the affected countries. The relevant innovations here are the minimum requirements for bail-in before sovereign interventions, and the creation of the Single Resolution Fund for all banks that participate in the SSM. That said, in my view achieving high quality financial integration must also involve deepening capital markets in Europe, both to improve the possibilities for market-based debt and equity financing, and to provide further channels for private risk-sharing. This obviously goes beyond Banking Union and will not be straight-forward, as it concerns multiple aspects of national law. But there are practical ways in which progress could be made. To give just one example, a Securities Law Directive has not been proposed to date, although it was already recommended in the second report by the Giovannini Group more than ten years ago (in 2003).22 Managing the financial cycle Facilitating the process of resource reallocation should allow TFP convergence to resume in catching-up economies, while the structural reforms being undertaken in these economies should help ensure that efficient resource allocation lasts. However, there is still one question from the pre-crisis period that I have not addressed: how can we ensure that the 21 Giannetti, M., and S. Ongena, 2009. | 1 |
Qualifying high-growth and high value-added financial activities will enjoy a concessionary tax rate of 5%, while a 10% rate will apply to tax-sensitive but mature activities. We have also enhanced incentives for specific activities, such as fund management, trustee and custodian services, insurance and capital market and treasury activities. We also undertook a fundamental review of the Central Provident Fund (CPF) Scheme, which is our social security and pension fund scheme. We refocused the CPF on its core objective of providing for the basic needs of the majority of Singaporeans, in terms of retirement needs, healthcare expenses and home ownership. We are tightening the use of CPF for buying properties, so as to leave more for retirement needs. We are reducing the coverage for high-income Singaporeans, who should be able to plan and provide for their own retirement. We are lowering contribution rates for older workers, who are most vulnerable to losing their jobs. These measures will make our labour market more flexible, and contribute to our economy’s overall resilience and competitiveness. Second, we want to encourage entrepreneurship in order to develop more local and foreign start-ups and emerging enterprises to complement our strong base of MNCs and established local companies. In this rapidly changing, unpredictable environment, the best way to spot and exploit new opportunities is not by centralised direction, but through the drive and entrepreneurship of our people. According to the 2001 Global Entrepreneurship Monitor Report, Singapore ranked 27th out of 29 countries in terms of entrepreneurial activity. We need to do better. | William C Dudley: Lessons at the zero bound – the Japanese and US experience Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and Chairman of the Committee on the Global Financial System (CGFS), at the Japan Society, New York City, 21 May 2013. * * * It is a pleasure to have the opportunity to speak today at the Japan Society.1 Our countries have very close relations and this is particularly true at the central banker level. I just got back from the BIS last week where I had a chance to spend some time with Governor Kuroda. Today, I will discuss the challenge that we both have been working to solve – how best to conduct monetary policy when short-term interest rates are already pinned close to zero, but the economy is still operating well below its potential. This has required considerable learning. After all, until Japan’s experience began in the 1990s, no major country had actually faced this problem since the Great Depression of the 1930s. As the first nation to experience the zero bound in modern times, Japan was an early pioneer in developing unconventional tools and strategies. Its experiences, both good and bad, along with lessons from other periods such as the Great Depression, have helped to inform the policies adopted by the United States (U.S.) and other nations in recent years. | 0 |
2/3 BIS - Central bankers' speeches One area of promise is the voluntary carbon credit market. It is expected to play an increasingly important role, especially in Asia. The demand for credits will come from sectors where it is quite difficult to reduce emissions due to prohibitively high costs or the lack of proven technology. At the same time, activities like reforestation, mangrove restoration, and the early retirement of coal-fired power plants can potentially generate good carbon credits. We will showcase efforts by Singapore to work with global stakeholders to foster a sound and vibrant voluntary carbon credit market in Asia. This Pavilion is a result of the close partnerships among Singapore businesses, NGOs, academics, civil society groups, and the government. Please also join me in expressing appreciation to the organising team. I wish you a fruitful time at the Singapore Pavilion and at COP27. 3/3 BIS - Central bankers' speeches | More than half of Turkey’s population is under the age of 30. However, unemployment rate for the young population stands at 21.2%. In order to unleash our potential, we need to keep investments at high levels and utilize human capital effectively. Since domestic savings rate in Turkey is not high enough to finance investments, we need to attract foreign savings, which implies having BIS Review 79/2008 1 current account deficit. But the good news is that the quality of financing has improved significantly in recent years. The FDI inflows were more than USD 20 billion in each of the last two years. Nevertheless, I should say that ratio of greenfield FDI to the total FDI is relatively low yet. I believe that the greenfield FDI will also increase in the following years as we keep the macroeconomic and political stability in place and continue to improve the business environment. The second comparative advantage that I would like to underline is the convergence story of Turkey to European Union. Steps taken during the negotiation process will undoubtedly increase the momentum of Turkey and help unlock the growth potential of the country. European Union membership is our medium-term anchor and all parties in Turkey should adhere to this aim decisively. Dear Guests, The best way that a central bank could support sustainable growth is reaching and maintaining price stability, especially in a country that experienced high and chronic inflation for decades. As you may know, Turkey has adopted the full-fledged inflation-targeting regime in 2006. | 0 |
Over time, the employment share has fluctuated around a stationary average. The same is true in other countries. • The effects of technology have been felt, at least to some degree, in hours worked, as Keynes predicted back in the 1930s. In the UK, the average working week has fallen from 50 hours a century ago to around 30 hours today (Chart 11). Nonetheless, this fall-off has fallen well short of Keynes’ prediction of a 15-hour week. The “leisure classes” are no more numerous today than a century ago. • Shifts in population – through changes in birth/death rates or through immigration – have also had no obvious impact on employment. The relationship between population growth and the employment share is, if anything, positive (Chart 12). This, too, is evidence of the compensation effects of population growth – higher output and demand – outweighing any displacement effects in the jobs market. • As technology has boosted productivity and incomes, its fruits have been harvested by workers, typically in the form of higher wages. Since 1750, the upwards march of productivity has largely been matched by the upwards march of real wages (Chart 13). Since the Industrial Revolution, the former has risen on average by 1.1% per year, the latter by 0.9% per year. BIS central bankers’ speeches 5 • The same pattern was evident prior to the Industrial Revolution. Then, the absence of technological progress led to productivity flat-lining. The real incomes of workers similarly flat-lined (Chart 13). | For my family, it was real. For many communities and regions it was a blight, social every bit as much as economic. Across the country, it depressed the everyday lives of millions of adults, some of whose sons and daughters I knew as friends. And it was a blight that affected not one generation, but many. It was that experience as a teenager that led me to commit to economics, and to public service, as a way to understand, and perhaps try and correct, that economic and social blight. And more than thirty years on, those are the same reasons I remain committed to better understanding, and perhaps hoping to improve a fraction, the functioning of the economy to this day. Those wrenching developments in the UK labour market in the early 1980s have been repeated throughout history, since at least the Industrial Revolution. The cycles and shifts in BIS central bankers’ speeches 1 jobs and wages, and attempts to moderate them, are as old as civilisation itself. Today’s cycles and shifts in the labour market are, in some respects, an echo of that past. As in the past, technology is changing the quantum and nature of work, displacing some jobs while creating others. As I will discuss, through each of the Industrial Revolutions innovation has disrupted the number and nature of jobs. Often, it has led to a so-called “hollowing out” of mid-skilled workers and a widening wage gap across the economy. Yet, in other respects, this time may be different. | 1 |
The first clear signs that these developments were not sustainable emerged in 2007 – in the US housing market, in the money market and in banks. BIS Review 16/2009 7 Few countries benefited more than Norway from the economic upturn, which drove up prices for oil, gas and other export commodities. At the same time, an increasing number of cheap consumer goods were imported from new EU countries and from Asia. In addition, EEA enlargement provided Norway with large inflows of labour, particularly from Poland. Moreover, Norwegian firms were also quick to make use of new technology and organise their activities effectively. Norway’s disposable income increased by more than 50 per cent from 2002 to 2007, more than that of any other western country. Not surprisingly, economic agents in Norway were optimistic about the future. Saving fell, and euphoria spread through the housing market. Household and corporate debt surged. Inflation slowed for a long period. Norges Bank reduced the key rate when inflation fell and approached zero in 2003 and 2004. Production capacity had increased markedly, providing scope for strong growth in demand for goods and services. Low interest rates underpinned the solid growth capacity of the economy. Well before inflation picked up, the Bank began to raise the key rate in 2005. The pace of the interest rate rise was gradually increased. 8 BIS Review 16/2009 The economic turnaround in Norway occurred just over a year ago. Growth in consumption came to a halt and house prices began to fall. | Indeed, the spirit of "acting for greater good" is clearly manifested by all those who are involved in the organisation of this conference. We are also very pleased in having participants as well as experts and resource persons of multilateral agencies from as many as 12 different countries. The attendance of so many participants and experts from the domestic and the international community for this conference speaks volumes for the importance of this subject and the universal relevance of the issues to be deliberated in this conference. I would like to extend my heartfelt appreciation to the speakers and moderators who had make their way to Kuala Lumpur from all around the globe; it is indeed an honour to have all of you here to speak at this important conference. Our thanks to those international multilateral institutions in working with longestablished domestic and regional organisations in participating or organising regional conferences on topical issues. On a few occasion, we have observed some multilateral institutions upstaging these regional bodies. This is not beneficial nor the right thing to do. It is better to collaborate and avoid duplicity so that, overall, it will be a win-win for all parties. I. Remaining vigilant in facing turbulence amid economic downturn regionally and globally The current global financial crisis is centred in the advanced economies and the severe financial instability and the resultant economic downturns has affected and infected the developing world as well. This shows that we live in an increasingly interconnected world. | 0 |
Against a backdrop of these global challenges, the Islamic financial sector has continued to advance. Value-based intermediation has become more entrenched in the corporate value intent and business strategies of Islamic financial institutions. According to AIBIM"s VBI report which will be launched later today, RM146.6 billion in financing, investments and deposits were intermediated by Islamic banks in VBI-related or VBIaligned initiatives between 2020 and 2021. Tools such as the VBIAF Sectoral Guides, implementation roadmaps and reporting frameworks are now widely used by the industry to drive positive value and impact on the economy, society and environment. The intermediation of capital is also more diverse, with innovative instruments mobilising "beyond deposits", adding risk-absorbent capital and social capital into the mix. Notwithstanding the progress, one might question whether Islamic finance has been living up to its promise and full potential. Let me highlight three challenges here. 1. One, it appears as if we are still in the early days of value-based finance. Many financial institutions – conventional and Islamic alike – have yet to make important changes to how they operate and do business to fully deliver on value-based finance. Five years since the launch of the VBI initiative in 2017, the majority of Community of Practitioners members are only at the "Emerging" phase of implementation. 1/4 BIS - Central bankers' speeches 2. Meanwhile, the efforts to diversify value-based capital – such as to fund new ventures and other VBI-aligned outcomes – is far from full realisation. | Nor Shamsiah Mohd Yunus: Keynote address - Global Islamic Finance Forum 2022 Keynote address by Ms Nor Shamsiah Mohd Yunus, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Global Islamic Finance Forum 2022, Kuala Lumpur, 5 October 2022. *** It is a pleasure to be here at the seventh Global Islamic Finance Forum today. At GIFF 2018, I made a call for us to "rethink value, risk and human capital" in charting a new path of Islamic finance beyond profits. And so, I thought that it would be fitting for my remarks today to reflect on the progress made, and how Islamic finance has measured to its promise, especially in the context of developments globally since 2018. Indeed, a lot has happened in these four years. The world also continues to face various challenges as we speak. We weathered an unprecedented pandemic, transitioned into the endemic phase and are now on the path to recovery. But the road continues to be rocky. Next year, global growth is expected to moderate. This challenging environment is further complicated by inflationary pressures which is leading major central banks to tighten monetary policy aggressively. We have also entered a period of strong US dollar, leading to almost all major and regional currencies – the ringgit included – depreciating. In addition, the heightened geopolitical tensions have also fuelled global food and energy security concerns. All these challenges are also complicating the green and climate transition. | 1 |
A common approach to analysing the effect of the interest rate in models where it is endogenously determined is to apply an exogenous impulse or a shock to the interest rate. This means that the interest rate is raised in response to factors other than those that can be explained historically by the other variables in the model. The effect of such a rise in the interest rate will depend on the variables included in the model, the model’s structure and estimation period. On the one hand, the result can be more robust if we use a long time-series in the estimation. On the other hand, historical changes in monetary policy regimes can influence the results. It may therefore be of greater interest to confine the estimation period to, for instance, the period of inflation targeting – the past ten years. 8 Consumer price inflation adjusted for tax changes and excluding energy products (CPI-ATE) BIS central bankers’ speeches 9 The chart shows the effect of an interest rate increase on output and inflation over time in 11 VAR models. These models only differ in that they are estimated on data from slightly different time periods. In each estimation we use data up to the present, but start the estimation at different points in time between 1986 and 1996. In the analysis, the interest rate is raised by 1 percentage point, that is, an interest rate shock is applied. | King (2013) “Flow and stock effects of large-scale treasury purchases: Evidence on the importance of local supply” Journal of Financial Economics Volume 108, Issue 2, Pages 425-448 for evidence associated with programmes conducted in the US and Joyce et al. (2010) in the UK. vii See speeches of August 2016 (Handelsblatt conference), September 2016 (annual CERS conference) and April 2017 (conference at Columbia University). viii Stefan Zweig, Visiting the billions (Besuch bei den Milliarden), 1932. ix Stefan Zweig, The World of Yesterday, Memories of a European, 1944. | 0 |
The OECD’s Economic Outlook in May 2011 expected the robust growth to continue, with increases in real GDP of on average 3.3 per cent in 2010–2015. It was expected that the policy rate would need to be raised gradually as economic activity improved.6 A similar assessment was made by the International Monetary Fund (IMF) in July 2011. GDP growth was assumed to gradually decline to 3 per cent in 2014, when inflation was expected to amount to 2 per cent (measured in terms of the HICP). It was assumed that the interest-rate increases that had begun would need to continue.7 One conclusion I draw from this is that many unexpected events have occurred in recent years. The situation today is rather different than all analysts – both on the Executive Board of the Riksbank and outside the bank – were expecting at this time. I shall return to this later. Another conclusion is that the general picture was that the Riksbank’s policy was on the whole well-motivated and essentially based on traditional monetary policy deliberations. Although there were different opinions on exactly how high the repo rate should be, as there always are, the policy was thus not perceived as odd or conspicuous. | Although foreigners, including non-EU nationals, are present in all sectors and at all levels, their employment has increased mainly in professional and administrative support services, and not as is sometimes claimed, in sectors characterised by lower skill levels. The increased employment of foreign nationals across occupations has enabled organisations to grow and venture in new areas. A sudden reversal of this pattern could stall activity in several sectors. Efforts to upgrade the country’s infrastructure should therefore be complemented by measures that prevent a disorderly depletion of foreign human resources and enhance the skills of Maltese nationals. *** Favourable economic developments, although easing somewhat, are expected to continue to buttress financial stability. Lending volumes remain supportive of interest income but pressures on margins persist due to the low interest rate environment. Notwithstanding, profitability remains a challenge for traditional banking models such as those of our banks. In fact, though still comparing favourably with their European peers, the profitability of domestic banks has been slimming. In addition to the limitations on their ability to generate more interest income, banks have to contend with ‘no-fee’ alternative products being developed by fintech players which operate with a lower cost base and hail from a less intrusive regulatory environment. Concurrently, banks are facing a more rigorous and intrusive supervisory approach coupled with more rigorous standards of Anti Money Laundering and Combating the Financing of Terrorism. This is absolutely necessary and has our full and active support. | 0 |
The NSFR is a somewhat different calculation designed to incentivise banks to hold longermaturity funding: different liabilities are weighted together according to estimated maturity (reflecting, among other things, their degree of stickiness) and a minimum standard is applied. The NSFR was agreed internationally in the BCBS and announced in October 2014. All jurisdictions have committed to implement by January 2018. The EU is to make legislative proposals based on a report by the European Banking Authority (EBA) due in December 2015. Recovery and resolution, MREL, total loss absorbing capacity As described above, having sufficient capital to meet both anticipated and unexpected losses may still not be enough for a firm to continue trading. Part of the reform agenda is to put in place requirements for greater loss absorbing capacity such that, after a stress, a firm can be recapitalised sufficiently to continue to supply its critical economic functions. To deliver this, the firm’s management team needs to have put together a credible plan for recovery, to return the firm to a stable footing. And if even that is not enough, then we want firms to be easily wound down by the authorities i.e. for firms to be able to fail in an orderly fashion, with as close as possible a continuing provision of financial services, minimal spillovers to other firms and no public money involved. That process of managing the failure of a financial firm is what we call resolution. There are judgements to be made here about how much to rely on these different approaches. | An efficient securities clearing and settlement infrastructure is of fundamental importance to the integration and smooth functioning of financial markets. To this end, the Eurosystem supports the Commission’s intention to put forward a proposal for a directive on securities clearing and settlement. On the question of new regulatory initiatives, we share the view that asset management and retail financial services are areas where regulatory intervention could be considered. In the area of financial supervision, the Eurosystem fully supports the Commission’s view that the current institutional set-up should be exploited to the maximum extent before any potential structural change is considered. In particular, the Eurosystem agrees that the main policy objective in the area of financial supervision is two-fold: first, to enhance the competitiveness of EU financial markets and institutions and to facilitate the development of cross-border finance both in terms of institutions and in terms of products and services – the so-called financial integration angle; and second, to ensure the effectiveness of standards for oversight and supervision in a more integrated financial system – the so-called financial stability angle. In this respect, we attach particular importance to the consistent implementation of financial services legislation and the pursuit of supervisory convergence, as well as to the effective cooperation between home and host authorities. We are of the view that it is important that home-host coordination be developed on a robust and consistent basis for the financial groups involved in a way that both ensures effective supervision and reduces compliance costs. | 0 |
In parallel, the Bank of Albania has also paid attention to the strengthening of the financial stability of the country, throughout 2022. Let me now explain in greater detail. *** 2. Banking supervision and financial stability Geopolitical tensions and volatilities in international markets have found our financial system relatively prepared in general and the banking sector in particular. The improvement of risk management systems by banks themselves and the Bank of Albania's continuous monitoring and supervision have played a crucial role in this regard. In this context, I would like to make evident that the activity of the Bank of Albania throughout 2022 was focused in three directions: First, at the outset of the war in Ukraine, we carried out a complete assessment of the risks jeopardising the banking system from exposures stemming from markets related to the war. Ultimately, these exposures were minor. Nevertheless, in collaboration with commercial banks we conducted some stress test exercises to determine the capacity of banks to face the possible financial costs from this shock. The results from these tests showed that the banking sector was liquid and well-capitalised, able to withstand the assumed shock. Second, the rising trend of interest rates in international markets spurred banks to frequently assess their balance sheets in a considerable manner, which had 4/8 BIS - Central bankers' speeches potentially unfavourable affects on the intermediating activity of banks. | Currently, the Bank of Albania is working on the implementation of an instant payment infrastructure. This novelty in the field of payments aims at reaching those market segments which do not use electronic instruments. In the field of currency issue, in 2022 circulation of the new series of Albanian banknotes was completed with the denomination of 10.000 Lekë. The new series bears 6/8 BIS - Central bankers' speeches contemporary and sophisticated security features. An educational campaign on the use of the national currency accompanied the entire process. The Bank of Albania has scrupulously managed the international reserve, by observing the main objectives of liquidity and security. Despite the problems faced by international markets in the last year, the level of our foreign reserves is in compliance with our adequacy criteria and with the best international practices. The Bank of Albania has fulfilled its institutional obligations in the framework of the National Plan for European Integration. Since the opening of negotiations in July 2022, the Bank of Albania has intensified its participation and contribution in bilateral meetings with the European Commission, while it has continued economic and financial dialogue through the participation in joint committees with the authorities of the euro area market. Enhancing transparency and accountability through open communication has guided our relationships with the general public and with interest groups. Though, our decisions cannot be adequately conveyed in an economic environment, which is characterized by a limited degree of financial education. | 1 |
At the end of 2003 the foreign reserves of BoA reached $ covering 4.7 months of imports. BoA continues to maintain its view of a free exchange rate regime. This was reflected in the fewer episodes of BoA’s intervention in the foreign exchange market during the first half of 2003, when the purchase of foreign currency was almost four times that of the second half of the year. Nonetheless, this did not hold back the domestic currency from appreciating against the euro and the US dollar, with a stronger appreciating trend in place in the second half of the year. The appreciation of the domestic currency was one of the factors behind BoA’s 2.0% interest rate cut during year 2003. Monetary indicators have generally been performed in compliance with the forecasts set out in the Bank’s monetary programme. The annual growth rate of lek deposits was 19.1% by the end of the year, which is significantly higher than the annual rates of the pervious years. The credit balance rose by L11.9bn or 30.9%. The new credit increased by 50% meanwhile 76% is in foreign currency. The loans/GDP ratio is still low, at about 7%. The banking system experienced important developments during 2003 and in the beginning of 2004. The entry of two new banks of Albanian capital was soon followed by the successful privatisation of the Savings Bank from the Raiffeisen Zentralbank (RZB) Austria. Now, all in all there are 16 banks in the Albanian Banking system. | Tarisa Watanagase: Setting a balanced regulatory reform agenda – the global challenge and an emerging market perspective Keynote address by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the Symposium of SEANZA Forum of Banking Supervisors 2009 "Global Crisis: Challenges for Risk Management and Regulatory Framework”, Phuket, 31 October 2009. * * * Distinguished Colleagues, Ladies and Gentlemen, It is a great pleasure to join all of you here at the Symposium of SEANZA Forum of Banking Supervisors 2009. I am honoured to have the opportunity to share with you my thoughts on the global crisis, and challenges it poses for risk management and regulatory framework, particularly from emerging market perspectives. Despite the recent indication of increasing stabilisation of the global financial markets, the extent of the impact of this crisis and prospect of sustainable recovery still face many uncertainties. This financial crisis has been the most severe in modern time. Not only in terms of width and depth of its impact globally, but more importantly, it has brought into question the very tenet of modern capitalism, the trust in market mechanism, and the rationale for regulation. In short, it ushers in a new paradigm in global financial landscape and regulation. The forces unleashed by the crisis are very powerful, and will continue to drive fundamental changes going forward. We witnessed a widespread collapse of financial institutions worldwide, the apparent demise of certain business models, such as the investment bank, and retrenchment of critical markets such as mortgage securitisation market. | 0 |
Yves Mersch: Advancing Monetary Union Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Euro Exhibition, Osnabrück, 25 January 2015. * * * Ladies and gentlemen, Euro banknotes and coins are not just a means of payment. The bridges and arches on our banknotes are a symbol of European integration. They stand for the fact that there is a lot which connects us within the Monetary Union, and that our once so divided continent has succeeded in overcoming these deep divisions, as the crisis has recently shown. Our common currency also therefore stands for shared values. “Stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities” have been some of the accession criteria for membership of the EU since the European Council in Copenhagen in June 1993; “Membership presupposes the candidate’s ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union.” 1 The recently published legal opinion of the Advocate General of the European Court of Justice in the case of Peter Gauweiler and the Die Linke party against the ECB on the Outright Monetary Transactions (OMT) programme also refers to these constitution-like shared legal values. This “constitutional compact” underlies European integration and includes the German constitutional principle of constitutional identity review – it does not exclude it. | In two reports 6, representatives of the private sector, the European Commission and the European Central Bank presented concrete recommendations on how, for example, regulatory barriers could be broken down. Almost 12 years have now passed since the second report was published and some of these proposals and recommendations have still not been implemented. For example, we still do not have an EU-wide framework for the treatment of interests in securities. Drawing once more on the comparison with the United States, a cross-border securities transaction costs at least ten times as much in Europe as it does in the United States. I think that makes it clear that Europe’s economy has a lot to gain from dismantling the relevant regulatory barriers as part of a capital markets union. 5 At that time with the caveat: “to the extent necessary for the proper functioning of the Common Market”. 6 http://ec.europa.eu/internal_market/financial-markets/docs/clearing/first_giovannini_report_en.pdf. http://ec.europa.eu/internal_market/financial-markets/docs/clearing/second_giovannini_report_en.pdf. 4 BIS central bankers’ speeches In addition to harmonised regulation for securities, we should also seek to implement a harmonised legal framework for crisis management. The Council Regulation on cross-border insolvency proceedings has provided a common regulatory framework governing, for example, jurisdictions and the recognition of court judgements. But within this framework, there are substantial national differences, such as regarding the extent to which various stakeholders are protected in the event of an insolvency. In my view, a single resolution framework for non-banks, i.e. | 1 |
Following quarter-on-quarter growth in GDP of 0.9% in the first quarter, the latest information indicates that activity is expected to maintain a strong rate of expansion, whereby a further slight quickening in output is estimated in the second quarter, to 1% in quarterly terms. Average growth in the first half of the year, in annualised terms, is thus expected to be around 4%. The projections for the rest of 2015 and for next year point to continuing dynamism, with Spain clearly outpacing most of its euro area partners. However, this momentum might be slightly contained by the weakening of some of the expansionary impulses, such as the fall in oil prices and the depreciation of the euro. For 2016, the projections estimate average growth of 2.7%, with greater uncertainty naturally accompanying the longer time ahead involved. In terms of the composition of spending, the most recent phase of the recovery has been marked by the growing weight of national demand, which has replaced external demand as the main net contributor to growth. Foreseeably, in the near future, this pattern will continue, with a contribution by the external sector to the increase in GDP that is practically neutral in net terms. Exports, particularly to the euro area, are expected to post higher growth, while the tempo of imports will slacken somewhat. | If you want to know what behaviors are valued or esteemed in reality, look to see who is promoted and well-compensated and the behaviors that they embody. Do the results match what is said? Do they match your expectation of fairness? Do you aspire to be one of these individuals, not because of their status and compensation alone, but because of the esteem you hold for them and their values? Over the long haul, the economy needs a vibrant and trustworthy financial sector in order to thrive, just as the financial sector needs a vibrant economy to thrive as well. You are the rising leaders of your firms. You can help accomplish these aims. A strong and ethical culture in the banking industry will make it more trustworthy, and therefore more effective in performing its mission. It will also help the industry be held in higher esteem and this will help attract the talent needed to sustain the industry. I am encouraged by today’s gathering, and hope you will take heart that an improved culture in the financial services industry is both necessary and possible. Thank you for your continued efforts and your kind attention. 1 Stephanie Chaly, James Hennessy, Thomas Noone, Joseph Sommer and Joseph Tracy assisted in preparing these remarks. 2 See Criminal Accountability and Culture, Remarks by Preet Bharara, Reforming Culture and Behavior in the Financial Services Industry: Expanding the Dialogue, October 20, 2016. 3 See John C. Bogle, Enough: True Measures of Money, Business, and Life, 45 (2009). | 0 |
We do need to keep the pressure on the banks individually and collectively to make sure that they continue to pass through lower funding costs and are lending where they can. The Bank has made the funds available to support lending to UK households and businesses, it is up to the banks to deliver. That is one reason why we are publishing bank-by-bank outcomes under the Scheme. We wait to see what the impact is of the FLS on the stock of lending. The next data release on 4 March will be for end-December data. Even though lending rates have fallen, that is still quite early for much extra money to have flowed from the application stage into actual loans, compared with previous plans which showed that lending was most likely to fall in aggregate without the FLS. I would not expect to see a return to rising aggregate quantities until we start getting data for 2013 at the earliest. Indeed the aggregate data which have been published already – for all banks, not just those in the FLS – showed a small fall for the last quarter of 2012. Nevertheless, it does seem that we have the beginnings of a revival in mortgage activity which is visible in the approvals data and that trend is widely supported by business contacts throughout the country. The underlying message from the FLS is much the same as for monetary policy. | The recovery in financial markets that we have seen in the past 6 months or so, is in part driven by the statement that the ECB will do “whatever it takes” to keep the euro area together and the perceived commitment that the Fed will do whatever it takes to restore growth in the US. The belief in these policy approaches has been immensely powerful. But it must be backed not only by perceived intent but also by capability and delivery if needed – and economies always generate some surprises. If the actions don’t follow the words when necessary, then similar policy statements in future will be less effective. In the UK, market expectations are already consistent with monetary policy remaining very supportive for some time to come, indicating no change in Bank Rate until well into 2015. Yet there is still a debate about whether the MPC should give more “forward guidance”. In practice we have being doing this through the Inflation Report. The most recent edition makes it clear that we do not see much pressure arising from domestically generated inflation. Rather, we continue to see inflation being driven by factors such as tax changes, higher commodity and energy prices, and other external influences. These and similar adverse relative price changes have made us all financially worse off and contributed to keeping inflation higher than target over the past few years. In response, the Bank could have chosen to tighten monetary policy to keep measured inflation rates down. | 1 |
To improve our understanding of the Puerto Rican economy, the New York Fed has joined a group of local businesses – including some represented here – to sponsor and fund a household survey, undertaken by the Center for the New Economy, our hosts today, to benchmark Puerto Rican consumer finances. As of today, the data have been collected and Fed economists are collaborating with the CNE to provide technical assistance, to make the results of this study public and to make these data available for further research. To help businesses and government in Puerto Rico, we have also been providing technical assistance to Puerto Rico’s new Institute for Statistics. We recognize the importance of this work and applaud its efforts to improve Puerto Rico’s inflation measures, national income accounting and business activity measures, just to name a few. All of these activities, from monetary policy and financial regulation to fostering community development and economic literacy and measurement, complement and reinforce each other. Our policy actions are most effective when people understand how financial markets work. Our decisions are always better when we are well informed about the concerns of families and businesses. Thus, outreach to the region and communities we serve is an important part of my job. Thank you for your kind attention. I would be happy to take a few questions. 6 BIS Review 18/2010 | With this stature, the Shariah Advisory Council will therefore serve as the reference point for the court or arbitrator in dispute resolution that involves Shariah issues in Islamic banking and finance cases. To further strengthen the Shariah infrastructure, guidelines will be issued to define the new structure, roles and functions of the Shariah Committees of the Islamic banks, the Islamic Banking Scheme banks and the takaful operators. The guidelines would specify among others, the requirements for the appointment of the Shariah Committee members and the duties and responsibilities of Islamic financial institutions to facilitate the effective functioning of the Shariah Committee. In the Islamic capital market, the establishment of a strong Shariah infrastructure is equally pertinent to ensure that the structuring of Islamic capital market instruments, the construction of Islamic investment funds and the execution of Islamic investment fund strategies are Shariah-compliant. This is important to preserve the integrity of the Islamic financial system and promote confidence that Islamic banking and financial operations do not deviate from the dictates of the Shariah. The hallmark of a well-developed financial infrastructure is an effective regulatory and supervisory framework which underpins the stability of the financial system. The regulatory and supervisory function is an indispensable and vital component of the financial infrastructure. | 0 |
Their products are not highly price sensitive, as they reflect the innovative capabilities, technical know-how and high level of skills which are needed to operate a successful manufacturing business in the UK or any other advanced economy where labour costs are high by global standards. In the short-term therefore there is limited scope for an expansion of UK manufacturing output without major investment in skills and capacity – which is consistent with the picture shown by business surveys of capacity utilisation in manufacturing such as the CBI’s Industrial Trends Survey released today.6 This suggests that an expansion of the UK manufacturing base – along with other tradable activities – can only be achieved over a period of time with investment in skills and capacity. A relatively competitive exchange rate can help support that process, but the value of the pound also has other important macroeconomic effects which need to be taken into account by the MPC. Sterling’s depreciation since 2007 has added significantly to imported inflationary pressures in the UK economy and this is particularly unhelpful at present when we are seeing a renewed surge of energy and commodity price inflation. And the resulting squeeze on disposable incomes is clearly a factor holding back the growth of consumer spending in the short-term, offsetting the boost to growth we might be seeing from improved trade performance. | Mr Bergström reports on why Sweden has changed its stabilisation policy regime Speech by Mr Villy Bergström, a Deputy Governor of the Sveriges Riksbank, the central bank of Sweden, at the 140th anniversary of the establishment of Norrbärke Sparbank in Smedjebacken, Darlana on 21 May 1999. It is obvious to everyone that we live in a different economic world than we did ten years ago. Ten years ago, registered unemployment was 1.3 per cent and inflation 7 per cent. Now inflation is nonexistent while total registered unemployment is over nine per cent. Why has such a drastic change in the economy taken place? What is characteristic for the new economic conditions? Are there alternatives to the policies now being carried out? Background Since the second war, Sweden, in principle, had a fixed exchange rate. However, in practice, it was not particularly fixed after the mid-1970s. From autumn 1976 to autumn 1982, Sweden devalued five times. I will come back to the sorry history of 1982-92. In autumn 1992, the fixed exchange rate was abandoned and the krona immediately fell by 11.5 per cent. Thereafter the krona declined further so that the total fall in the exchange rate to the lowest position of 13 December 1993, was 31.5 per cent. Note that the starting point for the fall in the value of the krona in November 1992 was a cost level that was 25 per cent lower, measured in common currency, than it had been in 1976. This was a failure for stabilisation policy. | 0 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.