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Solvency II sets out how to estimate the premium needed to compensate for the risk that the borrower defaults or is downgraded, known as the Fundamental Spread. As an approximation, in equation form: Matching Adjustment = Yield minus risk-free rate minus Fundamental Spread The most important determinant of the Fundamental Spread is the credit rating of the asset. Broadly speaking, the higher the yield on an asset for a given credit rating, the bigger the Matching Adjustment. Earlier I showed that insurers were diversifying into illiquid assets because they offered wider spreads than bonds. Chart 7 is the same picture but with the split between the Matching Adjustment and Fundamental Spread added. Not only are the yields on illiquid assets wider but the majority of the additional spread is being captured in the Matching Adjustment. UK insurers estimate the underlying credit quality of these assets, reflected in the Fundamental Spread, to be similar or better than their corporate bond portfolios. So the shift into illiquid assets is giving insurers a double benefit: first wider spreads and second a bigger Matching Adjustment. This helps to explain their eagerness to increase their asset allocation towards illiquid assets. But why is the Matching Adjustment on illiquid assets larger than on corporate bonds? One possibility is that that the wider spreads are compensating other investors for the risk that they might need to sell into secondary markets that are less liquid than the corporate bond market. | In response to the wider environment, constant adaptation is needed both of the architecture itself and the institutions within it, such as the IMF. In terms of our quest for financial stability, this focuses specifically on sovereign debt, crisis prevention and resolution. Progress has been made since the Asian Crisis, but significantly more is needed to build on the emerging elements of the exceptional access framework, and the Fund’s lending-into-arrears policy, but also Collective Action Clauses, and the recently devised Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets. In using the matrix to categorise sources of threat there are of course a number of ways one could cut the cake. Credit exposure to emerging sovereign debtors for example can appear in the “credit” and “international architecture” boxes. iii) Activities Now we can move to the rows. To use the matrix as a location device to focus our efforts, decide on deliverables and enhance our resource allocation, we need to create the “boxes” by considering the types of activity we could undertake to address each main source of threat – the rows. a) Assessment of Threats Firstly we need to evaluate threats to the system. We need a process of data collection and assessment to analyse information and market intelligence from multiple sources. This “horizon scanning” enables us to get early warning of how and where threats could appear. We cannot do all this without knowing how markets work. | 0 |
Mr. Bäckström reports on inflation and the interest rate in Sweden Speech by the Governor of the Bank of Sweden, Mr. Urban Bäckström, at a conference organised by the Stockholm Chamber of Commerce and Veckans Affärer in Stockholm on 27/1/98. Thank you for the invitation to talk at this conference about the outlook for inflation and the interest rate. It is now five years since the inflation target was instituted; so before considering the current situation for monetary policy, I should like to say something about the intervening period. Five years with an inflation target In January 1993 the Riksbank’s Governing Board decided to adopt an explicit target for inflation and specified that as of 1995 and measured in terms of the consumer price index, the rate of inflation was to be limited to 2 per cent, with a tolerance interval of ±1 percentage point. The commitment to an inflation target originated from the Riksbank but both the Government and the Riksdag (Sweden’s parliament) expressly support monetary policy’s focus on price stability as well as the inflation target. Last year five of the political parties in the Riksdag agreed that the Riksbank’s objective, to safeguard the value of money, should have the force of law; a Government bill with provisions to this effect was presented to the Riksdag in November. In recent years, monetary policy’s commitment to low inflation has thus been established increasingly firmly. | In response, banks managed to optimise their operational costs and improve their capital ratios. In this regard, the Bank of Albania has emphasised the accurate identification of the credit portfolio situation, asking the banks to take firm action and recover their non-performing loans value. This may be realised through support to qualitative borrowers in temporary difficult situations as well as through execution of collateral in the case of hopeless borrowers. Execution of collateral and the need to improve the relevant legal and operational framework are considered as a priority by the Bank of Albania. Following recommendations from an earlier BIS central bankers’ speeches 1 forum organised on this topic, the Bank of Albania is fully committed so that other public authorities address the issue with priority. Furthermore, in cooperation with the banking sector, the Bank of Albania has identified and undertaken a number of other supervisory and regulatory actions, aiming at improving operational capitalisation situation and minimum liquidity requirement both in the national and foreign currencies. Next, some amendments to the Law “On banks in the Republic of Albania” were drafted and approved, which, in essence, complete and improve banking activity supervisory framework. These actions were pivotal for addressing an added risk perception due to international and regional financial developments. I take this opportunity to thank you for your cooperation and concrete actions with regard to the implementation of these new requirements, confident that you will fully accomplish them within the required timeframe. | 0 |
We’ll continue to be transparent about our thinking about the economy and monetary policy. But, changing circumstances call for some changes in how the FOMC communicates its policy views. Now that interest rates are well away from zero and the economy is humming along, the case for strong forward guidance about future policy actions is becoming less compelling. For one, the future direction of policy will no longer be as clear as it was during the past few years. When interest rates were extremely low, it was obvious that the direction for rates was upward, toward more normal levels, and our forward guidance reinforced that point. At some point in the future, it will no longer be clear whether interest rates need to go up or down, and explicit forward guidance about the future path of policy will no longer be appropriate. In addition, as we have moved far away from near-zero interest rates, it makes sense to shift away from a focus on normalizing the stance of monetary policy relative to some benchmark “neutral” interest rate, often referred to as “r-star.” Now, I have spent a good deal of my career studying r-star and I find it to be a useful concept for describing the economy’s longer-run behavior. Having said that, at times r-star has actually gotten too much attention in commentary about Fed policy. Back when interest rates were well below neutral, r-star appropriately acted as a pole star for navigation. | In short, what is now needed is a new decision which will provide a comprehensive framework for surveillance; which will approach members’ obligations explicitly from the perspective of external stability; and which will do so in terms which can readily be made operational. And it must be written in clear and unambiguous language. This is a tall order I know – so here are some suggestions. One very simple way of keeping surveillance focused would be to include a ‘selectivity principle’ in a new Decision. This would say that the scope of all surveillance activities should be based on their relevance to external stability: and that what matters is how a member’s policies could affect the rest of the world. The most difficult challenge will be to state members’ commitments in terms that are both general enough to take account of their very different economic circumstances, and specific enough to provide a clear focus for IMF surveillance. Striking the right balance is essential if a new framework is to provide a useful basis for assessing industrialised countries, emerging markets, and developing countries alike in a way that will be accepted as even handed. A good way of meeting this challenge would be to ground surveillance in a more structured analysis of the policy frameworks which countries themselves choose to adopt. The Fund could then focus on identifying areas where a member’s policy frameworks might be unsustainable or inconsistent with external stability, and then offer policy recommendations tailored to the circumstances of the country or countries concerned. | 0 |
Pillar 2: Supervisory Review Let me also briefly touch upon the two other pillars of the revised capital adequacy framework – supervisory review and market discipline. These topics are certainly familiar and important ones to all of you. 9 BIS Review 75/2000 As I mentioned in the context of the internal ratings-based approach, supervisory review of capital is a critical complement to minimum capital requirements. The task for supervisors in the revised framework is to evaluate how well banks are assessing their capital needs relative to their risks, including whether banks are appropriately addressing the relationship between different types of risk. I want to stress that this proposed approach is in no way intended to replace the judgement and expertise of bank management, or to shift responsibility for capital adequacy to supervisors. On the contrary, it is well understood that bank managers have the most complete understanding of the risks their institutions face, and it is they who have primary responsibility for managing those risks. Most importantly, in proposing this second pillar, the Committee intends to foster a more active dialogue between banks and their supervisors, such that when deficiencies develop, prompt and decisive action can be taken to restore capital. Pillar 3: Market Discipline The third pillar of the new capital adequacy framework, market discipline, will serve to reinforce capital regulation and other supervisory efforts to promote the safety and soundness of banks and financial systems. | Nina Stoyanova: Bank of Bulgaria’s latest projects in the area of financial services and payments Speech by Ms Nina Stoyanova, Deputy Governor (Banking Department) of the Bulgarian National Bank, at the opening of the “Innovations” Financial Forum, Sofia, 14 June 2016. * * * Dear colleagues and guests, I would like to welcome you at the Financial Forum ‘Innovations’ organised for the third year in a row by the ‘Bank of the Year’ Association in partnership with the University of Finance, Business and Entrepreneurship (VUZF). The topic of this forum gives us the opportunity to present and discuss the innovations in the financial sector in the area of technologies, banking products and regulations. In this regard, I would like to briefly present the latest projects in the area of financial services and payments, on which the BNB is working. Later today our colleagues are going to give you more details on these projects, which will have an impact on the financial sector over the next couple of years. As you are well aware, the legal and regulatory framework of financial services and payments in Bulgaria is consistent with all European trends and requirements aiming to achieve an integrated European market, to harmonise the rules and conditions for providing payment services, to promote innovative payment methods, to ensure a high level of security for payments and better consumer protection. | 0 |
This takes place in connection with a written report on the policy carried out and the current state of the Swedish economy. 4. Finally, it is important to remember that the assignment to the Riksbank is given in the form of an ordinary law. It is inter alia formulated that the Riksbank shall maintain stable prices. This means that the Riksdag can at any time reformulate the task of the Riksbank in an ordinary law. The EU Treaty sets limits, however, as to how the assignment can be formulated. BIS Review 44/2000 2 The bank management’s reaction to independence When the new Executive Board met before the New Year in 1999 to draw up policy for independence, the starting point was that the Bank was to work in conditions of complete openness. A very substantial openness is required for the Riksbank’s monetary policy to obtain public confidence and for the approach to an inflation target to be completely understood. This has been our lodestar when planning our work. 1. The Riksbank’s target for stable prices is given as 2% inflation measured by the consumer price index with a tolerance interval of 1% in each direction. When we consider that the CPI has been affected by factors that do not permanently affect the CPI, we can, however, decide to disregard these. The reason is that if we try to counteract these, it would lead to unnecessary fluctuations in production. 2. The underlying material for the monetary policy decisions is published. | At the same time, an increasing proportion of lending by the banks is to smaller enterprises and households, where the possibility of evaluating the credit risk in a traditional way is poorer than for large companies. Altogether therefore considerably higher demands are made on the banks’ risk management systems than previously. Major investments in knowledge on modern financial economy and IT-based risk systems are required for instance. This development is taking place at the same time as increased competition is tending to squeeze profits and information technology is changing the conditions for provision of payment services. When traditional bank activities shrink and change, the direction of activities has to be reviewed. The banks can for instance opt to take part in the provision of capital in the securities market and generate profits by charging fees for this activity. One strategy may be to offer businesses and private persons all financial services such as advice, insurance and payment services. In order to be competitive, larger banks are then often required, which is a driving force behind the increased frequency of bank mergers and mergers between banks and insurance companies taking place. Another alternative is of course to concentrate activities and become competitive within a particular niche. Small and medium-sized enterprises need for instance to have access to capital via banks which are able to obtain knowledge on the risks associated with lending to these. The possibility of turning to the securities market to have their need of capital satisfied should above all be confined to large businesses. | 1 |
However, it is likely that the distribution of income will be affected in terms of growing gaps between those with and without higher education. Wage shares have fallen in many countries, without any real explanation, while profits in the OECD area have been at an all-time high. Technological developments have led to both increased profits and increased demand for highly-educated labour in relation to less qualified. The possibility that increased competition from low-wage countries could be part of the explanation cannot be entirely ruled out. However, there is no support in the statistics to say that economies that are more dependent on foreign trade have higher unemployment than others. It is rather the other way round; that increased trade often goes hand in hand with lower unemployment and higher welfare. The rapid market growth in such large countries as China and India means that demand for goods and services produced in the old industrial nations increases. The investment in research and development in China and the transition to increasingly advanced production does not mean that "all jobs” will move there. Experiences from Europe’s trade exchange with Japan and Korea in recent decades indicates a different development. There one can see that an increasing percentage of trade has developed to become what is known as inter-sector trading, that is, one exchanges goods with one another that are produced using roughly the same technology. | Bandid Nijathaworn: Financial developments and the Thai banking sector Keynote address by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the Third Euromoney Thailand Investment Forum, Bangkok, 10 June 2009. * * * Thank you and Good morning First let me thank Euromoney for the invitation. It is an honour to be speaking to you today. For the last few years that I have been coming to this forum to speak, I find the session to be very useful as it provides an excellent opportunity for us at the Bank of Thailand to interact and share our views with investors on Thailand’s current issues, including our policies. So, it is a pleasure to be here this morning. My topic today is about financial developments and the Thai banking sector. Given the limitations of time, I want to focus my remark today on two issues. The first is the short-term issue about the current economic and financial conditions, and the policy response that we have had in trying to strengthen the process of recovery. Next, I will speak on the mediumterm issue of financial sector reform, beginning with how we see the new or the post-crisis financial landscape emerging and our plan to respond to these changes in the context of our financial sector Master Plan. First, the current conditions. Latest economic data in Thailand continues to show deterioration in economic activities as evidenced by the estimated decline of 7.1 percent in this year’s first quarter GDP growth. | 0 |
Since the inflation risk premiums are low, employees will not need to demand extra high nominal wages to insure themselves against unexpectedly high inflation. This is because it can be anticipated that the central bank will tighten monetary policy. This in turn will mean that less stringent measures will probably be required than would be needed by a central bank that had not yet established its credibility. BIS Review 132/1999 2 Turning more specifically to the situation in Sweden, it can be said that the macroeconomic conditions today are favourable: inflation is low, budget deficits have been transformed into surpluses and the prospects for growth are good. However, economic policy is a continuous learning process and the successes of recent years should not be taken as evidence that the structural problems have been solved. On the labour market, for example, structural rigidities remain; also, the tax-pressure is still high, which inevitably distorts incentives to work and save. As far as monetary policy is concerned, the credibility of the inflation target regime has as yet hardly been tested in a period of economic upturn. What does this mean for how much and how often monetary policy should react to changes in the economic outlook? This, of course, is a question that the Executive Board of the Riksbank addresses on an ongoing basis, communicating its views in inflation reports, the minutes of its meetings and speeches. | Commodity exports play a particularly important role in several of the countries that were the first to introduce inflation targeting. The objective of monetary policy is to safeguard the value of money in the long term, and seek to contribute to stabilising economic developments in the short and medium term. The most important contribution monetary policy can make to sound economic developments in the long term is low and stable inflation. The inflation target provides an anchor for economic agents’ expectations concerning future inflation. We have a very open economy with free capital movements. Stable inflation expectations also contribute to more stable krone exchange rate expectations. Inflation targeting means setting the interest rate so as to achieve a numerical target for inflation. Norges Bank sets the interest rate with a view to stabilising inflation at 2.5 per cent within a reasonable time horizon, normally 1-3 years. The more precise horizon will depend on disturbances to which the economy is exposed, and how they affect the path for inflation and output. The inflation target represents a framework for, not an obstacle to, monetary policy’s contribution to stabilising output and employment. We have chosen flexible inflation targeting, i.e. variability in output and employment as well as in inflation is given weight. The objective of monetary policy is low and stable inflation. The instrument is the interest rate. The interest rate influences inflation with a lag and with varying intensity. As interest rates fall, household and local government consumption and investment tend to pick up. | 0 |
33 Legislative dates for compulsory schooling vary from dates of enforcement. Barro-Lee Educational Attainment Dataset: http://www.barrolee.com/ 35 Bolton (2012). 36 Willetts (2017). 37 Bolton (2012) for data from 1950 to 2000. 2016 data from Department of Education. 38 Bolton (2012) and Universities UK (2017). Refers to full-time first degrees only. 34 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 Raising levels of skills and training for workers is one way of limiting the costs of technological disruption. Providing them with access to finance or housing is another. This support helped smooth the hit to incomes th th and lifestyles brought about by job displacement. Starting in the late 18 and early 19 centuries, at the dawn of the Industrial Revolution, financial institutions began to emerge to provide financial support through bridging loans, often operating on collective or co-operative principles. In the UK, the Friendly Societies Act of 1819 established today’s credit unions. The Regulation of Benefit Building Societies Act followed in 1836. Other sets of institution emerged to support workers in wider ways. Trade unions grew in importance during th the 18 century, as workers’ jobs were hollowed-out and their share of the income pie was consumed. th Unions gained rights progressively during the 19 century, culminating in the foundation of the Trade Union Congress (TUC) in 1868. The Trade Union Act of 1871 gave unions fully-fledged legal status. | Dear Brothers, A review of the topics addressed on the first day of this conference by the distinguished speakers shows that they touched upon important issues and gave a future vision of housing in the Kingdom, and how to benefit from the experiences of different countries in this area. Today will be an extension of those topics that are directly related to housing finance. In general, I find that the conference broadly covers all aspects of housing finance in the Kingdom. In conclusion, I thank the audience and the organizers of this conference, and wish you all success in your deliberations. 2 BIS Review 14/2007 | 0 |
If we are to believe the cliché, 'regulation' and 'innovation' are incompatible. On the contrary! Regulation without innovation would just be sterile conservatism, while innovation without regulation and financial stability would be devoid of the trust that is the sine qua non of sustainability. So, to accompany you as you eat your lunch, I'm going to combine these two ingredients, first as part of a hearty main course on the lessons of the crises of 2023 (I), followed by a slightly newer and more forward-looking recipe for the digitalisation of currency and payments (II). I. 2023, illustration of the virtues of regulation The events of 2023 have served as a reminder of the fundamental need for a regulatory framework. Page 2 of 6 The first warning came in the banking sector. Despite the shock waves emanating from the United States and then Switzerland, the banking crisis has not affected the euro area or France in particular, even though we remain on our guard. There is a good reason for this solidity: more solid fundamentals, but above all two inseparable pillars - effective regulation, coupled with proactive supervision. Basel III regulations apply in full to all European banks, but only to 13 banks in the United States. Therefore, the priority is not to keep reworking Basel III requirements – and delaying their application – but to apply them everywhere and as quickly as possible. In a nutshell, more Basel III now, rather than some hypothetical delayed Basel IV. | 2023 Paris Finance Forum – Paris, 5 July 2023 Regulation and innovation: the yin and yang of the financial sector Speech by François Villeroy de Galhau, Governor of the Banque de France Page 1 of 6 Ladies and Gentlemen, It is a real pleasure to be taking part in the Paris Finance Forum and I wish to warmly thank Augustin de Romanet for his invitation, and Europlace for their work. Europlace has contributed to the growing interest in the Paris financial centre in the wake of Brexit. As I have the privilege of speaking this lunchtime, I shall begin with dessert. According to an excellent Bloomberg article,i "If any city can make claim to being the European Union’s new pre-eminent hub, it’s Paris". Paris is the only financial centre to offer a broad range of financial activities – from global asset management to insurance and banking and market activities – and it has benefited from the relocation of all segments of the financial industry. Paris has now overtaken London as Europe's largest financial centre in terms of stock market capitalisation. With the presence of the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA), there is also a 'regulatory hub' – to which I should add the ACPR, generally recognised as an exacting but extremely competent supervisor. The Paris financial centre is therefore a good illustration of harmonious coexistence between regulation and innovation. In my view, these are the yin and yang of the financial sector. | 1 |
Increased competition means that companies must become more efficient and cost-conscious, which in turn should have a positive effect on productivity. In addition, a new competition act came into force in Sweden in 1993, containing an expressed prohibition of co-operation between companies that limits competition, as well as a ban on the misuse of a dominant position. There has also been deregulation in a number of areas. For instance, government monopolies have been abolished and freedom to establish businesses has been introduced with regard to, for instance, transport, communication and energy. Changed conditions for competition thus affect productivity growth, but they can also affect price trends in a more direct manner. Despite the fact that we gained much tougher competition legislation in 1993, it appears that developments in this field are moving rather slowly. Swedish prices continue to lie at a higher level than those in other countries in most areas, without this being fully explained by differences in VAT rates and wages. Increased competition could contribute to a convergence of price levels. High food prices Swedish food prices were, for instance, more than 18 per cent higher than the average prices in the 3 EU in 1998 . The difference has declined somewhat since then, but apparently at a very slow rate. If one regards 1998 prices in current terms with the aid of HICP development since then, one finds that 3 Eurostat's survey of the price level index for 1998, published in 2000. | The longer the krona remains 2 2 These calculations are based on a Cobb-Douglas production function with a constant returns to scale. BIS Review 78/2001 undervalued, the greater the risk of bad investments being made in domestic businesses. I do not intend to go into these issues in greater detail here and now, but would nevertheless like to point out that undesirable effects on business can arise through a misaligned currency giving flawed relative prices. Companies may make decisions regarding investment and employment on the basis of these relative prices. The foremost risk here is that too many resources will be drawn to the export sector and to the import competition sector before there is a return to the equilibrium exchange rate and to corresponding relative prices. At that point, the resources overinvested in these sectors will be transferred to other sectors. We know from previous structural changes in, for instance, shipping, steel manufacture and the property sector, that such a development would result in considerable costs to the real economy. One should not underestimate the importance for welfare of a correctly valued Swedish krona. Openness is important Factor productivity is also affected by a country's capacity to utilise technological progress in the outside world. This capacity in turn depends on how open the country is to impulses from outside, which is determined by the barriers that exist to ideas, goods, services and production factors moving freely across the borders. | 1 |
The Banking Law that was enacted by Parliament in the summer of 1999, and the amendments made during the last month, were aimed at giving the banking system the necessary efficiency and soundness. In conclusion, let me summarise recent history. We have been working on this program for the past two years. Its technical excellence accurately reflects well the effort that has gone into it. I do not hesitate to say that the program is “comprehensive”, “strong”, “ambitious”, “bold” and “imaginative”, and most of all “achievable”. The willingness of the political authorities to execute this program is clear from the way they have taken the necessary but politically difficult economic decisions: quickly, without hesitation or second thoughts. The IMF and the World Bank have strongly endorsed the program, the former by approving for Turkey a three-year standby arrangement, and the latter by extending project credit. The prospect of membership negotiations with the European Union pursuant to the Helsinki decision provides an additional strong incentive to implement the program forcefully. There is a strong autonomous ownership of the program. The Government, the Parliament, policymakers, and the social partners all understand the great rewards, particularly in terms of reduced interest costs and stable growth, that will follow the program’s successful implementation. The markets’ reactions to the program have also been very positive. Interest rate declined from 100% last October to the 30s recently. | On the demand side, private consumption remains strong, growing more than 7% per annum in the first quarter of this year. Consumption is backed by the sustained growth in salaried employment and good financial conditions. But the main change has been the recovery of fixed capital investment which went from an average increase of 2.4% during the last three quarters of 2006, to a solid 7.9% in the first quarter of this year. Behind this strong investment are good corporate profits and favorable credit conditions, the progressive exhaustion of output gaps and good prospects for growth. In addition, exports of goods and services have strengthened, going from average growth of 3.8% in the last three quarters of 2006, to an average around 10% in the first quarter of 2007. Recent fuel price hikes begun in January have acted as a brake to the expansion of private consumption, through their effect on households’ disposable income. The renewed strength of output has also contributed to a remarkable improvement in the labor market, with significant job creation and reduction in the seasonally-adjusted rate of unemployment. From a longer perspective, in the past 13 quarters GDP has grown at an average annualized quarterly rate of 6%, considerably above trend GDP growth. Over the same period, the seasonally-adjusted rate of unemployment went down from 9.5% in 2003 to only 6.8% in the quarter ending last May. | 0 |
The value of a ‘deeply-out-of-the-money’ option has relatively low correlation with movements in the price of the underlying instrument or the market generally. So a simple measure of riskiness based on historical correlations will mistakenly show a leveraged out-of-the-money option trade as providing a good risk/return trade-off. In the jargon, selling volatility protection can be one way to generate ‘beta disguised as alpha’. One would usually expect that any mispricing of risk here would be counteracted by market forces. Countervailing strategies – buying volatility - should be profitable in the long run. The problem is that it requires patience, persistence and deep pockets. Going ‘long’ volatility means being prepared to make regular small payments and hoping to be compensated by a large irregular payoff. In a world of short run return targets, it is not surprising to find this is unpopular. If mispricing of this sort is underway it would show up in higher asset prices and lower implied volatilities across a range of markets. And implied volatilities are at or around historic lows in equity markets, bond markets, credit markets and foreign exchange markets [Chart 6-8] despite the market turbulence during May and June and recent rumblings on the dollar. BIS Review 124/2006 5 6 BIS Review 124/2006 Implications of low risk premia These low levels of implied volatility – and associated low level of risk premia – can have real implications for the economy and the stability of the financial system. | Mark Carney: The spirit of the season Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, to the Economic Club of New York, New York City, 9 December 2013. * * * Accompanying charts can be found at the end of the speech. It is always a pleasure to be in New York during the festive season. At this time of year in this city everything seems possible. However for some time now, appearances have deceived. The hopes and dreams of the holiday season have gone unfulfilled as the bright lights of December have given way to the grim realities of January. Around this time every year policymakers, investors and economists take stock. For four of the past five years, perhaps caught up in the seasonal spirit of goodwill, they have rendered the same verdict: the outgoing year was disappointing but the incoming one will be better (Chart 1). This year is no different. The IMF, the Bank of England and private forecasters all predict faster growth in the advanced and global economies in 2014. Will such hopes again be dashed once the New Year dawns? More profoundly, as the string of disappointments lengthens, some are raising deeper questions. It is being suggested that a malign spirit, a spectre of Christmases past, haunts our future. In particular, no less an authority than Larry Summers has raised the prospect that “secular stagnation” could be the root cause of past excess and current weakness. | 0 |
Even this very summary review illustrates how the changeover to a single currency in Europe will affect conditions for the financial system. The financial markets will become larger, accompanied by increased competitive pressure. Some activities will be modified or disappear entirely. Others will be concentrated to one or a few financial centres. But there will probably also be some new activities. These developments will leave their mark even in countries that do not join the euro area but are adjacent to it. This, too, is a process that has already begun. Banks are being merged into large units. Cost-cutting has come to the fore. Modes of distribution are being overhauled along with a buildup of specialist knowledge. Systems for pricing different products are being changed. Financial transformation not straightforward Today there is a widespread conviction that free trade in goods and services enhances prosperity in the long term. In the same way, most things suggest that in time, free trade in the financial field leads to increased economic growth. But we have also learned that the transformation and development of the financial field are not without problems. In the past decade there have been bank crises in a number of countries as well as several heavy corrections and large fluctuations in money, equity and currency markets around the world. There is nothing inherently new about financial crises. On the country, they have occurred from time to time for many centuries. | Such “tilt” investment strategies, which overweight high ESG stocks, and “momentum” investment strategies, which focus on companies that have improved their ESG ratings, have outperformed global benchmarks for close to a decade. More widespread adoption of such strategies is essential. At present, one of the biggest hurdles to doing so is the huge variation in the measurement of ESG.18 Common taxonomies to identify environmental outperformance, such as the EU’s Green Taxonomy and the Green Bond Standard can help but they tend to be binary (either dark green or all brown). Mainstreaming sustainable investing will require a richer taxonomy – 50 shades of green. One promising option highlighted by the UN’s Climate Financial Leaders is the development of transition indices composed of corporations in high-carbon sectors that have adopted low carbon strategies. Consideration should also be given to the new assessments by leading asset owners of how well their portfolios are positioned for a two degree target. Once again, Japan is leading the way. GPIF, the world’s largest pension fund, calculates that its portfolio is aligned to a 3.5 degree world. Allianz assesses that it is on 3.7 degree path and has committed to get to 1.5 degrees by 2050. | 0 |
And the threat of contagion from the parent may remain anyway. There are of course a myriad of shared approaches between these extremes as well. What have we seen in practice? 5 Understanding international bank capital flows during the recent financial crisis; Hoggarth, Mahadeva, Martin; September 2010. BIS central bankers’ speeches 3 I would describe the approach in the run up to the crisis as one of fragmentation – with host supervisors focused on local risk in local entities and home supervisors unappreciative of some of the risks taken overseas. Host supervisors did not fully consider risks from the parent group. Information sharing was fitful. Colleges – gatherings of relevant supervisors – were fairly rudimentary. And while there were some attempts to increase home-host coordination, in practice there were material gaps. This meant that neither host nor home supervisors had sufficient information to assess the risks to domestic financial stability posed by overseas firms. A key lesson we learnt in the crisis as host supervisor was the manifestation of global risks in local entities, and the importance of home-host information sharing and coordination. For example on the wholesale side, Bear Stearns and Lehman both saw problems occur outside their UK operations, where we had little sight of developments, and which led to uncertainty, loss of confidence and a flight of short term wholesale funding. Similar issues arose on the retail side, where some overseas banks had taken significant amounts of retail deposits very quickly whilst others had provided significant lending to UK borrowers. | And I would hope, on this evidence, that the future evolution of our approach to overall economic management would be in the direction of further improvements to our supply-side flexibility, rather than any retreat from the present emphasis on macro-economic stability. Of course I am well aware that a stable overall macro-economy does not - and cannot - mean equally stable economic conditions for every individual sector or individual business. A particular complication over the past few years has been the surprisingly persistent strength of the exchange rate against the euro, itself a reflection of the puzzling more general weakness of the European currency. This has contributed to an uncomfortable imbalance within the UK economy primarily between the euro-exposed sectors, which have been under consistent pressure, and the domestically-oriented sectors, which have by and large been doing relatively well. Understandably the suffering sectors and businesses tend to complain that monetary policy takes too little account of their position, often pointing out that inflation has for the past two years fallen somewhat below the target. The implication is that monetary policy has been tighter - interest rates have been higher - than was necessary, which, they say, in turn at least helps to explain the behaviour of the exchange rate. I hope you won't think me patronising if I tell you that I have genuine sympathy with their concerns. Indeed I very much admire the huge efforts that many of them have made to overcome the disadvantage coming from the strong exchange rate. | 0 |
In terms of activity, the percentage of GDP generated in quarantined areas has dropped from 65 to 45%. The relationship between quarantined territories and economic activity, however, is far from mechanical, depending on sector-specific characteristics, the intensity of the measures in place and the actual behavior of individuals (Figure 2). Looking ahead, the process of deconfinement is not exempt from the risk of setbacks, as has occurred in other parts of the world and in some areas of the country. Globally, the loosening of confinements and the increase in mobility have cooperated to draw activity above its lowest points of April and May. Production, sales, and expectations show improvements in some countries (Figure 3). It should be noted that in China the data for the second quarter were above expectations. Financial markets and commodity prices have been favored by these trends, as well as by the highly expansionary monetary conditions promoted by the major central banks. The price of copper has fluctuated around $ per pound and market volatility has seen significant reductions from its highs of March and April. This represents an important difference with respect to external shocks that have affected the Chilean economy on past occasions. Our country’s economy contracted by 14.1% annually in the second quarter, its worst record in several decades. The biggest month-on-month drop was in April, subsiding in May and recovering slightly in June and then again in July. The sharp initial contraction also occurred in a wide range of countries, although with some nuances (Figure 4). | The balance, up to this point, shows is the economy has managed to contain the pressure of the global crisis generated by the pandemic, achieving sufficient stability to undertake a recovery. The Central Bank has contributed to this, without abandoning its medium-term institutional agenda. All this, however, is far from implying that the crisis has been weathered and the job is done. While the figures for activity in 2020 are beginning to stabilize, revealing that a major catastrophe has been averted, the evolution of the economy in 2021 and 2022 will determine the deeper legacy of this episode. Just to recover the losses of the past year there is a long and difficult road ahead, full of challenges and risks. Measured only in the per capita income dimension, by the end of this year we will have fallen back to the levels 8 The BIS, CEMLA, and World Economic Forum, among others. 10 of 2013 (Figure 17). If the growth trend between 1990 and 2008 had been maintained, by 2025 we would be close to doubling the 2008 per capita income. However, the sum of the years of low growth, the social outbreak and the Covid-19 crisis only allows us to project that by 2025 per capita income will have accumulated an increase of around 25% since 2008. To even consider closing this gap, it will be necessary to create hundreds of thousands of jobs, sustainably recover consumption, reactivate investment, and maintain credit growth. | 1 |
Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. Risks to the medium-term outlook for price developments are still broadly balanced but, as already indicated in January, could move to the upside. Currently, upside risks relate, in particular, to developments in energy and non-energy commodity prices. Furthermore, increases in indirect taxes and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years, and price pressures in the production chain could rise further. On the downside, risks relate mainly to the impact on inflation of potentially lower growth, given the prevailing uncertainties. Turning to the monetary analysis, the annual growth rate of M3 declined to 1.7% in December 2010, from 2.1% in November. The annual growth rate of loans to the private sector also declined, albeit marginally, to 1.9% in December, after 2.0% in November. These declines partly reflect the reversal of special factors that operated in November and do not indicate a general weakening of monetary dynamics. Overall, however, broad money and loan growth is still low, confirming the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium to long term should remain contained. Looking at M3 components, annual M1 growth moderated further to stand at 4.4% in December 2010, reflecting the prevailing low remuneration of overnight deposits. | 10 But even with those constraints applied we have considerable headroom after the current programme is completed, reflecting a range of considerations. And many of those considerations are within our control - while those constraints are there for good, pragmatic reasons, they are not set in stone, and there would certainly be scope to re-evaluate them based on Bank advice if the MPC judged that even more monetary policy headroom was needed (Figure 8). Figure 8: There is plenty of QE headroom remaining Stylised map of the gilt market1 (1) The area of each block represents the market value of the gilts in that sector of the market. Taking as a given that the MPC has more headroom to buy more gilts, the question then becomes whether we have the scope to impact their pricing. This is a trickier calculation– it depends not just on the quantity of headroom, but on how effective any action might be, which is highly state contingent. But again my starting point is we have plenty of scope to affect prices. While yields on longer-dated gilts are at historically low levels, that doesn‘t mean they couldn’t still go lower. As the March episode illustrates, there may also be occasions when the absence of action – the counterfactual – would mean an increase in those yields. Of course the quantity of QE purchases is not the only policy variable available to the MPC. The pace of purchases, as illustrated by our March intervention, is another. | 0 |
Vítor Constâncio: Banking Union and European integration Speech by Mr Vítor Constâncio, Vice-President of the European Central Bank, at the OeNB Economics Conference, Vienna, 12 May 2014. * * * Ladies and gentlemen, I thank the Oesterreichische NationalBank for inviting me to Vienna to make this address on the Banking Union and European Integration at the occasion of one more of its prestigious Economic Conferences. As Vice-President of the ECB, I have been involved in the Banking Union project from the start and it is with great pleasure that I now see it beginning to come into place. By the start of next year, we will have an operational Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM). It is undoubtedly the more important and far reaching reform in the European Union since the creation of the euro. As many other European institutional innovations, the project was born in connection with the crisis management effort of trying to sever the bank-sovereign nexus that was contributing to financial fragmentation. The idea of launching the SSM emerged during the June 2012 European Council meeting. It was a consequence of the decision that the ESM could directly recapitalise weak banks, thus taking some fiscal pressure off sovereigns. But if the European level were to assume liability for European banks, it also logically had to assume control: hence the need for a European supervisor. | from assessing the resolvability of banks and drawing up resolution plans, to deciding on resolution schemes for failing banks and whether to make use of the Fund in such cases. These tasks are shared between the Board at the European level, which is directly responsible for all banks under direct ECB supervision and all cross-border banks, and the national resolution authorities, which are responsible for the other banks. However, the Board may at any time decide to directly exercise all the relevant powers under the Regulation with regard to any of the indirectly supervised banks. In addition, the Board also becomes directly involved whenever a resolution of an indirectly supervised bank will make use of the Fund. Finally, there is also an option for Member States to choose that the Board will be responsible for all banks in their jurisdiction. These features make the SRM a single system. The Single Resolution Board At the centre of the SRM there needs to be a single authority with operational independence and sufficient decision-making authority to take resolution action in the interest of the euro area and of the Union as a whole. This is achieved with the setting up of the Single Resolution Board. The Board will meet in two different compositions: the plenary and the executive sessions. The executive session will consist of a Chair, four independent full-time members and two observers from the Commission and the ECB, respectively. | 1 |
These would include vulnerabilities resulting from global imbalances, growth prospects, developments in housing markets, creditworthiness of borrowers, to name a few. The monitoring involves processing large amounts of (often disparate) information of a statistical nature and is based on market sources. In addition, continuous market intelligence efforts are essential for effective risk monitoring and the early detection of new financial instruments, practices or business strategies which could create vulnerabilities and risks in financial markets. In the case of the Risk Board, market intelligence will be complemented by what could be called “institutional intelligence” and “policy intelligence”, given the qualitative information and expert knowledge available to central banks and supervisory authorities represented in the ESRB. The Board’s independent, impartial status could prove to be invaluable in the surveillance and identification of risks viewed as material. Risk monitoring is facilitated by a large set of tools, including contemporaneous financial stability indicators and forward-looking early warning indicators and models. These tools need to be regularly revised and updated in order to capture innovation in financial markets, fuelled by new products and business models. Macro-prudential indicators comprise a vast set of indicators – on the macroeconomic environment, financial markets, financial institutions and financial system infrastructures. More specifically, they include macroeconomic aspects, financing conditions, monetary conditions, asset valuations, risk appetite, market liquidity, funding liquidity, credit risk, financial strength of institutions, and others. | 10 Like pollution, systemic risk involves externalities, in the sense that each financial intermediary manages its own risks but does not consider its impact on the risk of the system as a whole. The financial crisis contributed considerably to a better understanding of the phenomenon of systemic risk, which is also reflected in aspects of regulatory reforms. In particular, the possibility of aligning capital requirements to a measure of firms’ systemic risk contribution is being contemplated by regulators, e.g. the Basel Committee on Banking Supervision. 11 How could the ESRB then structure its supervisory work on systemic risk? In broad terms, systemic risk analysis can be broken down into two core components: i) surveillance, or risk detection, and ii) risk assessment, each of which I will address in turn. Risk detection Financial stability surveillance concerns risk identification. This kind of surveillance mainly aims to detect potential sources of risk, especially financial vulnerabilities – that is weaknesses which, if unearthed, could lead to a disruption or failure in part of the financial 7 De Bandt, Hartmann and Peydró-Alcalde (2009), “Systemic risk in banking: An update”, forthcoming in the ECB Working Paper series, and Berger, Molyneux and Wilson (eds. ), Oxford Handbook of Banking, Oxford University Press. This paper surveys all the relevant academic research with respect to the three categories and relates them to the present crisis where applicable. | 1 |
The US slowdown comes at a particularly bad time for Japan which is already suffering from a combination of weak domestic demand – particularly consumer demand – and supply-side constraints reflecting pressures on the banking system, heavily burdened with non-performing loans, and an acknowledged need for restructuring parts of the non-financial sector. Japan has pretty well exhausted the scope for macro-economic stimulus. Successive fiscal packages focussed on public works, and a sustained period of attempted monetary expansion, at near-zero interest rates in the face of deflation, have failed to overcome a high rate of precautionary saving by an ageing population facing an uncertain economic future. The policy emphasis of the new Japanese administration appears to be shifting towards firmer action to bring about supply-side reform in the belief that this will help to engender greater confidence. The danger is that, to the extent that more aggressive restructuring results in bankruptcies and higher unemployment in the short term, that in itself might tend to weaken consumer demand for a time before the benefits of the restructuring come through. Closer to home, the Euro area economy is a good deal better placed to withstand the US slowdown although we are all bound to be affected to some degree. For most of last year the Euro area economy performed relatively strongly, with overall output growth well above trend, and unemployment in the area as a whole continuing to fall from its earlier chronically high level. | For 2012, the inflation rate will amount to –0.7%. For 2013, we expect inflation of –0.1% and for 2014, 0.4%. In the foreseeable future, therefore, there is no risk of inflation in Switzerland. The third quarter of 2012 saw weak growth and a decline in trading activity worldwide. Although growth in the US economy and some of the emerging economies picked up, a mild recession persisted in the euro area. In Switzerland, real GDP in the third quarter increased again following a temporary downturn. For the fourth quarter, however, we expect significant weakening in growth. Consequently, economic growth in Switzerland for the year 2012 is likely to remain unchanged at around 1.0%. For 2013, we expect growth of 1.0–1.5%. The downside risks for the Swiss economy remain considerable. Although the measures announced by the European Central Bank (ECB) have significantly reduced the probability of extreme developments in the monetary union, there is still substantial uncertainty in connection with the management of the debt crisis in the euro area. It also remains to be seen how far the upcoming budget consolidation in the US will hamper growth. This question is weighing on the sentiment in the financial markets and the real economy. Moreover, momentum in the Swiss residential mortgage and real estate markets remains strong, and has led to a further increase in risks for financial stability. Global economic outlook I would now like to outline the outlook for the global economy and Switzerland in more detail. | 0 |
This also includes those parts that may not be under the regulatory capture. Financial stress in a specific segment may no longer be confined to that segment but may rapidly be transmitted to the rest of the financial system. Thus, a piecemeal policy response would not be sufficient. It would require a comprehensive response to ensure that such stressed conditions does not evolve into a major financial crisis. Secondly, the build-up of risks to financial stability need to be identified early. Pre-emptive action would reduce the cost of the crisis on the financial system and the economy. Third, the regulatory authorities need to be accorded the necessary powers to manage the risks to financial stability. Fourth, the optimal policy mix may not only include policy actions to address immediate term issues but would also need to simultaneously address the underlying structural problems. Fifth, is to give recognition to the importance of enabling conditions that will render the implemented policies to yield the desired outcomes. Finally, to facilitate effective policy decision making there needs to be a platform and governance process for policy coordination across agencies within an economy and for this to be extended for regional and international collective action. Following the recent global financial crisis, the policy response at the national level has been extensive and on an unprecedented scale. | Zeti Akhtar Aziz: Global financial stability and the internationalisation of financial systems in emerging economies Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the EuromoneyQatar Conference “Global financial stability and the internationalisation of financial systems in emerging economies”, Doha, 11 December 2012. * * * It is my honour to be here in Doha to speak at this Euromoney-Qatar Conference on “Global Finance Re-designed”. I wish to thank the Qatar Central Bank for the invitation to speak at this event. In this current global environment, the unprecedented and wide ranging global policy responses have yet to produce financial stability and a sustainable recovery of the global economy. The intensification of the globalization of finance in this decade has resulted in an even more connected and interdependent world. While the financial systems and economies in most parts of the world felt the effects of the recent global financial crisis, it has not discouraged the pace of internationalization of financial systems, in particular, in emerging economies. My address this morning will be on financial stability and the internationalization of financial systems in emerging economies. My remarks will cover the benefits and challenges of such internationalization, the lessons that can be drawn from the recent global financial crisis, the Malaysian experience on the internationalization of our financial system. Benefits and challenges of internationalisation of financial systems While there are significant benefits from internationalization of financial systems, the resulting increased international financial integration brings with it new risks and challenges. | 1 |
Source: Central Bank of Chile. Page 11 of 19 Jul.20 Figure 5 Households' consumption (annual change, percent) 30 30 20 10 Durable goods Services 0 20 10 0 Non-durable goods -10 -10 -20 -20 -30 -30 -40 -40 17 18 19 20 Source: Central Bank of Chile. Figure 6 Inflation indicators (annual change, percent) 6 6 Goods w/o volatile items 6 5 5 4 4 4 3 3 3 2 2 2 1 1 0 0 5 Services w/o volatile items 1 0 19 Jul. 20 Jul. 6 Last MP Report 5 4 CPI 3 2 CPI w/o volatile items 1 0 16 17 Sources: Central Bank of Chile and National Statistics Institute (INE). | Page 17 of 19 20 Apr.20 20 Aug.20 Table 1 Domestic scenario (annual change, percent) 2019 GDP Domestic demand Domestic demand (w/o inventory change Gross fixed capital formation Total consumption Goods and services exports Goods and services imports Current account (% of GDP) Gross national savings (% of GDP) Nominal gross fixed capital formation (% of GDP) 2020 (f) 2021 (f) 2022 (f) Sep.20 Report Dec.20 Report -5.5/-4.5 -7.1 -5.6 -10.6 -4.2 -2.2 -9.4 -1.4 18.5 21.0 -6.25/-5.75 4.0-5.0 5.5-6.5 3.0-4.0 -9.1 5.6 9.4 2.7 -7.8 7.0 9.6 2.4 -13.0 8.0 7.3 4.9 -6.3 6.8 10.3 1.7 -1.7 5.0 4.3 4.8 -12.6 8.6 16.0 2.2 0.9 -2.5 -1.5 -1.7 19.7 16.8 17.0 18.2 20.5 21.8 20.6 22.2 1.1 1.0 1.5 4.2 0.8 -2.3 -2.3 -3.9 18.9 22.4 (f) Forecast. Source: Central Bank of Chile. *** Page 18 of 19 Sep.20 Dec.20 Sep.20 Dec.20 Report Report Report Report 3.0-4.0 2.9 2.5 5.1 1.8 4.8 3.4 -1.8 17.6 21.2 | 1 |
I would therefore like to spend a little time going into these areas in detail Responsible investment The work in the area of responsible investment has undergone substantial changes since the fund began investing in equities in 1998. From the start, the approach was that the fund should be invested in the world as it is. At that time, the fund was not supposed to exercise ownership rights. As the fund has grown, its size and international position have made such an approach virtually impossible. In 2004, on the basis of discussions in the Storting, the Ministry of Finance laid down ethically motivated guidelines for the observation and exclusion of companies from the fund. Today, the fund must not be invested in companies that produce certain types of weapons, base their operations on coal, or produce tobacco. Nor shall the fund be invested in companies whose activities otherwise contribute to violations of fundamental ethical norms. In 2004, the Ministry also established an independent Council on Ethics to make ethical assessments of companies. Following a change in 2015, the Council on Ethics sends its recommendations to Norges Bank. The decision is taken by Norges Bank’s Executive Board, which is tasked with assessing the policy tool that is most appropriate. At the end of 2019, 134 companies had been excluded from the fund’s investment universe. Chart: Responsible investment But the fund’s responsible investment involves more than merely questions of what we will not own. Our key policy tool is the exercise of our ownership rights in companies. | One of the distinguishing features of the Brazilian economy is its prudential regulatory framework. The vigilant stance of the Central Bank prevented the development of 1 2 See http://www.oecd.org/document/59/0,3343,en_2649_34349_41966331_1_1_1_1,00.html, 2009. January 12, BIS Review 8/2009 disequilibria and excesses that emerged in several other economies. We did not let the markets adopt risk taking attitudes that led to the losses and problems that many countries are facing today. In fact, the Brazilian framework is considered a model for prudential regulation and regarded as an example to be followed by other regulatory authorities. That does not mean that Brazil is not being hit or suffering the impacts of the financial turmoil. But the Brazilian government is prepared to react and take all the necessary measures to tackle the crisis. In conclusion, a floating exchange rate is no cure-all remedy for all economic ills. But it is certainly the best regime for a large, relatively closed, economy like ours. If Brazil had not floated the BRL in 1999, it would surely have done so since then, and possibly in more adverse conditions. For all the above, this 10th anniversary is worth celebrating. Thank you very much. BIS Review 8/2009 3 | 0 |
For example, the need for a lender of last resort following panics and crashes during the early 20th century led to creation of the Federal Reserve system in the US. The Central Bank of Turkey, on the other hand, was founded both as a symbol of national independence and to stabilize seasonal fluctuations in financial markets due to nature of agriculture-based economy. The concept of price stability was not brought to the foreground during the initial stages of central banking, because there was not much concern for inflation in many advanced economies. The value of money was well-protected thanks to the use of gold standard. As Friedman once said, “Inflation is always and everywhere a monetary phenomenon.” Therefore, there would be no permanent inflation as long as long term money supply expands in parallel to long term money demand. In this context, inflation concerns were kept in the background in many countries under the gold standard during the 19th and most of the 20th century. With the collapse of gold standard after the Great Depression and its successor (the Bretton Woods System) in 1973, we have entered the era of fiat money. In the absence of a solid anchor like gold, the only mechanism left behind to support the value of the fiat money was the credibility of central banks. This brought out the issue of price stability in the foreground of central banking. Our initial experience with fiat money was not promising. | In the current crisis, the securitization boom and the easing of monetary policy in the US helped fund the loan growth, while in the case of the Asian financial crisis, it was the large capital inflows in the form of direct borrowing that funded the credit boom. In both cases, however, poor underwriting standard by banks was an important common contributing factor. Looking back, the Asian financial crisis has been an important turning point for policymakers in the region, as the lessons learned from the crisis had led to many important policy reform initiatives, all of which aimed at strengthening the robustness and the risk management discipline of the domestic financial systems, and this brings me to my second point. BIS Review 96/2009 1 In the case of Thailand, after having restored financial stability in the early 2000s, financial reform became a top priority, with emphasis on instilling prudent regulations and strong risk management. We adopted a macro-prudential approach in the early 2000s, in recognition of the systemic linkages between the financial system and the increasingly opened macroeconomic conditions; utilizing our natural institutional advantage as we continue to oversee both monetary policy and financial institutions supervision. Hence, from 2003 to 2006, a series of macro-prudential measures were introduced, aiming at restraining then the rapid growth of credit, especially credit card loans and mortgage loans. | 0 |
To achieve this greater awareness will require both openness on the grounds for the rulings BIS central bankers’ speeches 3 and in-depth research on the basis of such grounds. A recent study conducted by the International Shariah Research Academy for Islamic Finance (ISRA) on fatwas of Shariah boards in the Asian region and the GCC countries reveals that, contrary to the popular perception, there are more similarities than differences in Shariah resolutions between the two regions. The study by ISRA however further indicates that there is a lack of awareness on the Shariah justifications to most of the resolutions being reviewed. This awareness is essential to pave the way towards greater understanding and nurturing of mutual respect. Whilst there are some initiatives to enhance the greater awareness on the juristic reasoning in Islamic finance, to facilitate greater mutual recognition, it will require greater transparency in the Shariah rulings in addition to constructive dialogue on the grounds of such rulings. With the efforts of the Islamic Development Bank (IDB), the Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAIOFI), it has facilitated greater cross-border engagement among practitioners and Shariah scholars. In turn this has contributed to a greater understanding on issues and challenges faced by the industry and the progressive convergence of Shariah views and rulings. More such international collaborative work and engagement would further facilitate this harmonization process. | Chart 8: Accounting for intangibles reduces the missing-investment puzzle Note: The orange line shows the investment puzzle using industry-level data, and the shaded area around it is the 95% confidence intervals. The line shows the estimated year fixed effects from an industry-level regression of investment rates on the wedge, including industry fixed effects, and standard errors clustered at the industry level. See Appendix B to Bailey et al. (2022) for full details. The blue line shows the same statistic from the regressions in which both investment rates and the wedge are adjusted to include intangibles. See Appendix A.2 to Bailey et al. (2022) for a discussion of the adjustment. Source: ONS, KLEMS, Jordà et al. (2017) Macrohistory Database and authors' calculations. The remaining puzzle is mostly concentrated immediately after the global financial crisis, and so it is possible this is not driven by structural factors, but rather the lingering impact of the global financial crisis, for example related to the sluggish demand recovery or financial frictions. [22] While the results suggest an important role for intangibles in explaining the missing-investment puzzle, a few notes of caution are in order. It could be that certain drivers of investment, such as financial frictions, are captured more accurately only at more granular level, such as in firm-level data. Moreover, there could be large non-linearities related to the nature of the global financial crisis that cannot be captured by the simple regression framework used above. | 0 |
On the contrary, Basel III has many important components, including completely new requirements concerning the banks’ liquidity management and limits for debt levels. The new regulations will be implemented over a period of six years, starting in 2013. 5 In some cases, however, the banks may be forced to meet the requirements earlier due to the demands of the market and individual countries. I 4 Basel II states the liquidity risk is a central factor in the banks’ risk management and that risk management should comprise adequate systems and calculation methods for the correct assessment of the extent of the risk. 5 For a detailed schedule for the implementation of Basel III see Financial Stability Report 2010:2. 4 BIS central bankers’ speeches will discuss all of the components of Basel II in more detail, but let me begin with perhaps the most fundamental change, the revised capital regulations. Higher capital levels and a new definition of capital The changes in the new regulations mainly affect Tier 1 capital and Core Tier 1 capital. I will therefore focus on these two components. An important new feature is the stipulation of a minimum level for Core Tier 1 capital. In contrast to the present vague wording about the role of equity in the capital base, Basel III makes it clear that all banks must have at least 4.5 per cent of their risk-weighted assets in share capital and retained earnings. | Decisions are made by the governing body “The Group of Central Bank Governors and Heads of Supervision” (GHOS) which is made up of the central bank governors and the heads of the supervisory authorities from the 27 member states. 2 A more general description of the Basel III regulations and the Riksbank’s view of them can be found in the speech that Barbro Wickman-Parak made on 26 November 2010 – “New international regulations for banks – a welcome reform”. 2 BIS central bankers’ speeches balance sheets by borrowing. Before the crisis began, no one raised their eyebrows at banks with debt levels of more than 30 times their equity. However, as you well know, low levels of capital and high levels of debt turned out to be a catastrophic combination. When the crisis broke out and it was realised that the ability of hybrid capital to cover losses was extremely limited, the highly leveraged banks were left more or less defenceless. It was not long before many of them were forced to turn to the governments and the taxpayers who had to inject capital and become part-owners. The rest is history. Basel II underestimates the risks in banking operations Another weakness of the current Basel II regulations is that they do not sufficiently capture the banks’ risks. There are many examples of this. One is that the regulations and supervision have focused too much on risks in individual banks and too little on risks in the system as a whole. | 1 |
I take this opportunity to extend my special thanks to the media and congratulate this community for its work. The media has transmitted the decision-making and activity of the Bank of Albania in a timely and reliable fashion to the public. Year 2011 was a complex year for the entire global economy, especially the European one, to which the Albanian economy is more sensitive. From this perspective, the role of the media takes special significance. I am happy to affirm that in Albania, the media has expanded its broadcast time dedicated to economy and finance-related issues and especially to transmission of information from the Bank of Albania, whose decisions were covered professionally. The media has been active also in promoting reflection by stakeholders. Media has supported Bank of Albania policies, forestalling dissemination of uncertainties amongst the public. The self-adjusting attitude has been another important element in media’s activity. The alarming effect has been cancelled successfully by thorough analysis of news items, providing nuances of the truth beyond excesses and speculations. A fresh example of this responsible behaviour is the EUR/ALL exchange rate fluctuation at the beginning of December this year. Some “panic” was caused amongst the public by earlier media reports and analysis, which were later considered by the media itself as an unreal exchange rate volatility. | Ardian Fullani: Educating and inspiring Albania’s young generation Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the 2011 end-year reception, Tirana, 21 December 2011. * * * Honourable Minister, Your Excellencies Ambassadors, Honourable Members of Parliament, Dear representatives of the banking system and the media, Dear participants, I would like to welcome and thank you for your participation. Your presence today is a special pleasure for me personally and the Bank of Albania. My special thanks go to the former members of the Supervisory Council of the Bank of Albania, whose term in office has ended. I personally appreciate the seriousness and commitment they have dedicated to their work, a precious contribution to Bank of Albania’s institutional furtherance. Thanking them once again for their professional work, allow me to welcome the newly appointed members of the Supervisory Council of the Bank of Albania, renowned public figures with an unquestionable professional career. They come from diverse fields of professional careers and will bring in added value to the Bank of Albania, contributing to a wider coverage of the institution’s functions. I am confident that the Bank of Albania, in its activity, will continue to incorporate best international standards as regards decision-making, independence, accountability, transparency and governance. I believe that a healthy economy that generates stable growth needs a developed financial sector in terms of its depth and width; a flexible banking system, which manages public’s deposits cautiously and channels them efficiently to fund the economy. | 1 |
The challenge is for policy makers to find ways of operating more effectively within the current system, to maximise the opportunities it affords and to manage the risks associated with open capital markets. As a monetary policy maker, I am acutely conscious that a world of large imbalances carries some risk of disruptive market adjustments, even if the probability of them occurring is low. These could have a significant impact on economic activity, especially if they included a sharp reversion of long-term interest rates to something closer to their long-run average. We have been trying to factor this risk in to our thinking about interest rates as long as I have been on the MPC. But it is not a risk that maps easily on to any particular interest rate decision. While the risk of a disruptive adjustment may still be low, the sheer scale of current imbalances increases the potential costs of policy mistakes and misperceptions. Any disconnect between what the markets expect and what policy makers intend to do becomes increasingly hazardous. That puts a premium on excellent policy communication, to reduce uncertainty and minimise the risk of sharp market corrections. And policy makers need to ensure that their policies are robust to the possibility that market expectations may not be consistent with economic fundamentals. Policy makers in systemically important countries also need to be better at factoring wider political risks into their decision taking. | At present the US still earns positive net income from abroad despite a steady deterioration in the current account since 1991, and a slower rise in its net external indebtedness. This is not to imply that the US is immune to the basic arithmetic of debt sustainability – sooner or later persistent deficits will lead to levels of external indebtedness that represent a significant economic burden even on the US; but it is more than usually hard to predict how long this might take. The dollar’s central role in the foreign exchange policies of Asian emerging markets adds to the uncertainty about the deficit levels at which the US will face tighter credit constraints. Since the foreign official sector – mostly Asian central banks – have been financing a substantial part of the US current account deficit (in net terms) and now hold a substantial amount of the outstanding stock of US Treasuries, private investors’ willingness to hold dollar assets depends to some extent on their expectations of what these Asian central banks will be doing. Since many Asian EMEs already have far more reserves than they need for self-insurance against financial crisis, their appetite for continued accumulation of US dollar assets will at some stage abate: indeed there has been some anecdotal evidence of this over the past year. They can already choose to diversify their reserve holdings, and the options available may become more attractive to them with the development of Asian bond markets. Their development strategies will also evolve. | 1 |
The key principle behind our targeted loan policy is to provide funding in a way that will boost investment, employment, production and exports, and on reasonable terms. Therefore, we attach great importance to making credits available to a broader population and the easy access to loans by our industrialists. Thanks to our efforts to expand the use of rediscount credits, the share of SMEs in total credit utilization has steadily increased since early 2022. The share of SMEs was 6% of rediscount credit utilization at the end of January 2022; this exceeded 20% in July 2022. 4/5 BIS - Central bankers' speeches In this context, the regulations we have made regarding access to export credits have affected SMEs positively. The share of SMEs saw an increase to 50% of TRY rediscount credit utilization, which reached 90% on the back of our liraization strategy. The net export status and rediscount credit shares of firms with a rediscount credit balance since the beginning of the year indicate that the share of net-exporting firms in rediscount credits has increased to 55% from 40%, and the ratio of net-exporting firms that used credit has gone up to 68% from 59%. Accordingly, the net foreign trade contribution of firms with a rediscount balance, and their net FX contribution in the spot market improved significantly in the same period. In our new economy model, we are focused on achieving the most efficient results for the Turkish economy with our targeted loan policies that will support the current account surplus. | Having grown steadily before the pandemic, our exports accelerated and increased sharply after the pandemic, reaching USD 126 billion in the first half of 2022, up nearly 20% year-on-year. This marks a historical high for our exports in the first six months of any year. 3/5 BIS - Central bankers' speeches We identify three main reasons for our record-breaking export performance despite the armed conflict between our major trading partners. First, we see that Türkiye has become a key trade hub thanks to its increased relative advantages in the reshaped global market after the pandemic. Second, we observe that our exporters have the capacity to adapt rapidly to changing conditions by covering diverse products and destinations thanks to their resilient and flexible structure. I would like to discuss this point with you in more detail. As you know, Turkey has a much stronger export structure compared to many similar, neighboring or regional economies. This is supported by the high share of manufacturing in exports and the diversity of the number of destinations and exported products. The destination and product diversity of our exports doubled in 2022 compared to 2006. Around 29% of the increase in our exports between 2015 and 2022 was generated by new markets. The flexible and dynamic structure of our exporters protects our economy against external shocks. Our companies' flexibility in introducing new products and finding new markets allows them to compensate for possible losses in adverse conditions, including the current armed conflict. | 1 |
All the usual suspects were present during the build-up to the Icelandic crisis: very strong capital inflows fuelling a credit and asset price boom that subsequently turned into a bubble at the same time as the economy overheated and an unsustainable external position developed, as could be seen in a double-digit current account deficit. And macroeconomic and prudential policies were not up to the task. Quite the contrary: there was a policy conflict between monetary policy and the demand levers pulled by the Government, and the risks inherent in capital flows, FX balance sheets, and credit and asset price booms were left under-regulated and insufficiently supervised. At a deeper level, the macroeconomic part of the story was related to three factors. The first factor centres on the complications that tend to arise with macroeconomic management as very small, open economies become more and more financially integrated. The second relates to the specific conditions of abundant, cheap credit at the global level. Third, major policy mistakes were made in Iceland, both of the type that would be deemed to be such in any book (such as giving an already overheated economy a demand stimulus), and those more closely related to the orthodoxy prevailing at the time: freely floating exchange rates, interest rate policy focusing mainly on low inflation in terms of goods and services, and good micro-supervision; and let the markets do the rest. In the wake of the crisis, it is better appreciated that this view is deeply flawed. | That autumn, two separate but interrelated sub-stories of the recent Icelandic saga converged in a tragic grand finale. The first story was related to Iceland’s boom-bust cycle and problems with macroeconomic management in small, open, and financially integrated economies. This is a story that has played out many times around the globe, and many of its elements have been seen before in Iceland. It might have been somewhat more extreme this time around, but it wasn’t fundamentally different. The second story was the rise and fall of three cross-border banks operating on the basis of EU legislation (the European “passport”). This story was much more unique, as it involved the first banking crisis in Europe since the EU single market was formed in the early 1990s. Let me turn first to the banking story. In a few years prior to the crisis, the banking system had expanded very rapidly, as you can see from Figure 1, making it one of the biggest in Europe relative to GDP. Most of this expansion was cross-border, and a significant part of it was really off-border, having little to do with Iceland, as both financing and investment took place abroad. Towards the end, around two-thirds of the combined balance sheet of the three cross-border banks was denominated in foreign currency. On the liabilities side, the share of FXdenominated debt was actually higher, as can be seen from Figure 2, with almost half of the financing in the form of FX deposits and other short-term FX financing. | 1 |
We are therefore faced with a situation where the traditional triangle of the trilemma is shrinking and sometimes seems to collapsing into the straight line of a dilemma. I still think it is a trilemma, but the trade-offs facing SOFIEs can be severe. In principle, there are three ways to mitigate the problem. The first is to adjust macroeconomic policy frameworks and improve execution and policy co-ordination. The second is to use prudential regulation and supervision aimed at reducing potential vulnerabilities and increasing resilience in the face of volatile capital flows. The third is to introduce targeted tools aimed directly at the financial integration part in order to regain greater monetary independence and shift the effects of monetary policy more to the interest rate channel and towards the non-traded goods sector. In Iceland, this issue is very much on the agenda as the country prepares to lift the comprehensive controls on capital outflows that were introduced at the peak of its financial crisis. We have been working through all of the avenues that I have just mentioned. Very recently, we introduced a CFM tool in the form of a special reserve requirement on portfolio inflows excluding equity. It is constructed in such a way that the bite is biggest for short-term flows. | It is against that gloomy – some would say dismal – background that I want to discuss today how I view the growth and development of market-based finance in recent years. 1 Carlyle is thought to have coined the phrase having read the works of Thomas Malthus, who argued that economic stagnation and starvation would be an inevitable result of population growth, although the exact phrase first appears in Carlyle’s tract on his opposition to the emancipation of West Indian slaves. 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 And, to reassure you that we do not invariably see the glass as half empty, I want to start not with the risks, but with the benefits of the development of market-based finance from a financial stability perspective. And finally, I want to look at some of the issues and the risks to market-based finance arising from Brexit. Growth and development of market-based finance. Market-based finance, measured by the assets of non-bank financial institutions, grew to $ trillion in 2015 – an increase of about 50% since 2008. It now represents nearly half of the assets of the global financial system. The asset management industry – firms like those here today – manages around $ half of which is in investment funds. The growth of market-based finance since the crisis has not been evenly distributed – either geographically or between types of activity. Geographically, the US still dominates with 35% of global non-bank financial assets. | 0 |
Here, a more stringent implementation of rules and procedures to check and correct excessive deficits and debts will be essential, among other things by increasing the automaticity and speed of procedural steps. Ultimately, the process needs also to comprise non-pecuniary forms of deterrence. In the most severe cases of persistent non-compliance, a limitation or suspension of voting rights should be considered. The second area of institutional reform tackles one further aspect of the crisis: the fact that seemingly sound public budgets can sometimes reflect an overheated economy. When rising asset prices boost revenues from financial and housing market transactions, the budget looks sound; but when asset prices fall, the budget can go into profound distress. So for all its critical importance, reinforced fiscal surveillance is not enough. We need reinforced macroeconomic surveillance. There is one indicator that can reveal underlying weaknesses as they are forming: losses of competitiveness. Within a monetary union, the relative competitiveness of economies measures the sustainability of national price and cost developments, the compatibility of national nominal trends with those that are likely and appropriate for the union as a whole. The third area of institutional reform will be a crisis management framework. This framework has to respect strict conditionality and minimise moral hazard. It is an issue that has not yet been addressed in the task force itself. | Therefore in July 2006 Bank of Albania decided to shift the course of monetary policy by raising the base rate (7 days repo rate) with 25 basis points. We are happy to observe that market is reacting following our decision. However based on our short term inflation forecasts and in presence of several risks, some of which I already explained above, Bank of Albania perceives that inflation pressures for the next 12 months remain elevated. Currently we are cautiously evaluating the extend of market response and assessing whether further action is needed. Simultaneously Bank of Albania is becoming increasingly concerned regarding the quality of loan portfolio. The accelerated pace of credit expansion, is posing challenges to both banks and to supervisory authority. The response to these challenges will aim at achieving macroeconomic stability, by means of a well capitalized banking system. With this goal in mind, the Bank of Albania, as the supervisory authority, has intensified the dialogue with the banks in order to find an adequate consensus for: setting realistic objectives of annual activity growth; containing the credit expansion and maintain good credit portfolio quality; strengthen the internal control and risk monitoring systems; and monitor carefully the capital indicators. I would like to use this floor to emphasize that Bank of Albania will be very firm to follow strictly all requirements that derive from the law and regulatory framework. | 0 |
Basel II seeks to align capital regulations more closely to banks’ current practices – it will not change the way that banks actually evaluate risk to decide whether to invest in emerging market economies. To understand this answer, we must first understand the issue that may have triggered this debate. One of the valid criticisms of the 1988 Accord concerns its rather arbitrary treatment of country risk. The 1988 Accord assigns risk weights, and hence capital charges, to sovereign governments and related borrowers, as well as to banking organisations, based on whether the country in question is a BIS Review 33/2004 3 member of the Organisation for Economic Cooperation and Development. The “OECD Club Rule,” as it has become known, assigned a zero percent risk weight to exposures to sovereign government borrowers that were members of the OECD, which means that no capital had to be held against such sovereign exposures. In contrast, exposures to all other countries were assigned the standard 100% risk weight, which is equivalent to an 8% capital charge. The Club Rule was meant to help distinguish between higher and lower risk sovereign borrowers and their banks. In retrospect, it seems to be an unfair way to divide the world. Indeed, some OECD member governments have experienced serious economic shocks that threatened their repayment abilities, while several non-OECD member governments have performed extremely well in the international debt markets. | Thomas Jordan: Structures of a new financial system Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Volkshochschule Zürich, University of Zurich, Zurich, 15 April 2010. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Well-functioning financial systems are fundamental for long-term economic growth. They enable capital to be allocated efficiently and facilitate trade in goods and services. However, financial systems also harbour major risks. The recent financial market crisis clearly revealed the vulnerability of our globally integrated financial system. Wrong turns taken in the past few years together with government rescue measures have led to a situation that is, from a liberal perspective, untenable. All this underscores the urgent need to make financial systems more robust and to minimise the risks faced by governments and by national economies as a whole. It will not be possible to banish crises forever, since we cannot be sure what the origins of the next crisis might be or when exactly it will occur. Building a more robust financial system therefore represents a major challenge. The key role that banks play in the economy combined with their high level of vulnerability clearly underline the necessity of effective bank regulation. Greater stability and security, however, do not automatically mean less efficiency or growth. On the contrary, the creation of an intelligent and stabilising framework is a basic prerequisite for the efficient functioning of the financial system. | 0 |
Thirachai Phuvanatnaranubala: The strengthening and development of regional bond markets Speech by Mr Thirachai Phuvanatnaranubala, Deputy Governor of the Bank of Thailand, at the APEC Business Advisory Council Meeting, Tokyo, 16 May 2003. * * * Lessons from the Asian crisis – a local perspective Thailand’s experience The crisis of 1997 brought to light weaknesses in the country’s financial sector development and the sequencing of liberalization policies. Prior to 1997, the function of financial intermediation fell almost entirely on commercial banks. They mobilized funds mainly through deposits, which accounted for roughly 80 percent of domestic banking liabilities. At the same time, they held almost 70 percent of total financial sector assets, most of which were in the form of credits to the household and corporate sectors. Direct financing through the domestic bond market – through both public and corporate bonds – was relatively small and not well developed. Nine consecutive years of fiscal surplus between 1988 and 1996 provided no incentive for the government to issue regular and substantial amount of government bonds. The resultant limited supply of government bonds inhibited the development of a risk-free benchmark against which to price corporate issues and mark to market daily trading. The crisis brought to the fore an imbalance in the structure and operation of the Thai financial markets. With financing channels limited to bank loans, Thai businesses faced severe liquidity crunch as the banking sector sharply curtailed their credit operations amidst high non-performing loans and massive recapitalization needs. | I would therefore like to share with you after a brief description of what preceded the economic slowdown we have now entered – my view of what are the core issues for assessing growth and inflation prospects for the near future, both in the USA and in Sweden. The driving forces behind the economic upturn in the USA The very optimistic expectations regarding long-term growth comprised an important driving force behind the sustained rise in the US economy. It was the rapid developments in information technology and the telecom sector in particular that were assumed to have such spread effects to the rest of the economy that production was expected to continue increasing at a more rapid rate than before, even in the long term. Investments therefore rose strongly, particularly in the IT sector. There were also many people who claimed that future fluctuations in the business sector would be less pronounced than before. Efficient stock management and trimmed production processes were assumed to be factors that would reduce the risk of major fluctuations in growth. The USA had taken the step into a “new economy”. And developments on the stock market reflected the belief that “this time it’s really different”. At the same time, the fact that demand could increase so strongly and over such a long period of time without inflation accelerating in the USA was regarded by many as the revenue from breaking earlier economic ties. | 0 |
To a significant degree, the crisis was about regulatory gaps – be it gaps in terms of loosely regulated mortgage underwriting practices in the United States, the activities of bank-sponsored structured investment vehicles (SIVs) and conduits, the providers of insurance guarantees against structured finance products such as AIG Financial Products Group, or the structured 1 In this regard, I am considerably more worried about countries that implement standards that are more lax than the norm, rather than more tough than the norm. However, if many countries individually were to opt for tougher standards, this could raise questions about whether the international norm is too lax. 2 Work underway by the Basel Committee on Banking Supervision and others all are designed to make the traditional banking sector more robust. This includes requiring more and higher quality capital, better capturing of risk in the application of capital standards, imposing a capital leverage limit on banks, raising liquidity buffer requirements, and requiring compensation regimes to be consistent with financial stability. 2 BIS Review 28/2010 finance models of the rating agencies and others that turned out to be defective. Thus, the experience of the recent crisis strongly suggests that confining regulatory reform to strengthening the banking sector would be insufficient to make the financial system as a whole resilient and robust. A crucial case in point is the too-big-to-fail problem. Having some firms that are too big to fail creates moral hazard, which distorts incentives. | There are three key initiatives under FAIR of particular relevance to the life insurance industry. These are the web aggregator, direct purchase insurance products and the balanced scorecard framework. BIS central bankers’ speeches 1 Web aggregator 8. First, the web aggregator. Life insurers offer a wide range of life insurance products to cater to the varied financial needs of consumers. However, it can often be a daunting task for consumers to be sufficiently informed of what’s available to meet his needs and to have some easy way to compare life insurance products. 9. I am pleased to note that a web aggregator will be launched in early April as a collaborative effort between MAS, CASE and the life insurance industry. This will provide a single information portal that will enable consumers to easily look up available life insurance products and compare indicative quotes based on specified parameters in a user-friendly and interactive manner. Direct Purchase Insurance 10. Second, direct purchase insurance products, or DPI. This is a new class of life insurance products for basic needs that is “retail-access friendly”. • It will be simpler as the features of DPI are broadly standardised. This allows a consumer to make straightforward product comparisons when deciding which DPI to purchase. • It will be easier to buy as consumers who know what they want and do not need financial advice will be able to buy DPI directly from life insurers. • It will be cheaper as no commissions will be charged. 11. | 0 |
Although developments in Iceland showed many of the same characteristics as those in some of the other Nordic Countries during the post-liberalisation rapid expansion, such as credit expansion, current account deficit, exchange rate depreciation and so on, Iceland escaped the difficulties suffered by banking systems in some of the other countries. Icelandic bank credit grew very rapidly in the late 1990’s and into the year 2000 and a sizable portion of the credit expansion was financed with credit from abroad. The capital adequacy ratios of banks fell for a while but nevertheless remained comfortably above the minimum required and internationally recognised levels. The year 2001 also turned out to be quite favourable for the banks, a development which continued by and large into the current year. Consequently, the capital position of the banks has improved and all the major banking institutions have relatively strong capital adequacy ratios at present. Loan losses have increased, as was to be expected in the wake of the credit expansion, but nowhere on the scale experienced in some of the other Nordic Countries a decade ago and very much less than they did during the downturn in the Icelandic economy around and after 1990. The conclusion to be drawn is, therefore, that the Icelandic banking system weathered the relatively turbulent post-liberalization boom period of 2000 and 2001 pretty well and is well poised to meet new challenges, including continued rationalisation and intensified competition from foreign banking institutions. In the most recent decades, the Icelandic economy has also seen structural shifts. | in the EU, the US and Japan. Capital markets outside these areas are small. However, changes are also being made in monetary policy regimes in a number of emerging markets. One important tendency is that fewer countries operate an exchange rate policy regime where they are free to change the conversion rate to other currencies on their own initiative, so-called “crawling pegs”. A number of emerging markets have chosen inflation targeting instead: for example Israel, Chile, Brazil, Colombia, Korea, Thailand, Mexico og South Africa. Other countries, such as China, Hong Kong and the Baltic States, have chosen to continue to use a fixed exchange rate system. The operational target of monetary policy in Norway as defined by the Government is inflation of close to 2.5 per cent over time. The inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. The inflation target is also a vehicle for allowing monetary policy to stabilise developments in output and employment. This objective is also expressed in the Regulation on Monetary Policy. High demand for goods and services and labour shortages normally point to higher inflation. When interest rates are increased, demand falls and inflation is kept at bay. When demand is low and unemployment rises, inflation will tend to slow. BIS Review 46/2003 5 Interest rates will then be reduced. This orientation of monetary policy will normally also contribute to stabilising output and employment. The impact of monetary policy occurs with a lag. | 0 |
We are also restricting the new licences to players anchored in Singapore for two reasons. First, so that we maintain a strong local core in our banking system, which must remain our objective as I explained earlier. Second, to avoid an unintended unilateral liberalisation of our full bank regime as a result of our WTO commitments. MAS will also issue up to three digital wholesale bank licences, which will be open to both local and foreign players. The digital wholesale banks will be introduced as a pilot, and 34. MAS will review whether to grant more such licences in the future. Safeguards 35. To ensure high-quality applicants, MAS will set prudent baseline requirements on track record and sustainability of business models. MAS will not allow value-destructive competition to the detriment of long-term financial system stability. We will also put in place safeguards to protect depositors, mitigate the risk of untested business models, and minimise costs to the financial system in the event of a failure. We will also ensure that digital banks will compete with incumbents on a level playing field. 36. As digital full banks will have access to retail deposits, MAS will phase in their permissible activities via a two-stage process to minimise risks to retail depositors. It will also be required to be a member of the deposit insurance scheme. A digital full bank will commence as a restricted digital bank to build up its business model and internal processes, and gradually progress to become a full functioning full bank. | The assessment which guided today's monetary policy decision was that, overall, the prospect has strengthened for inflation to fall below 2% in the course of 2003 and to remain in line with price stability thereafter. Our decision should also help to improve the outlook for the euro area economy by providing a counterweight to some of the existing downside risks to economic growth, thereby supporting confidence. The most likely scenario is that economic growth will gradually recover in the course of 2003 towards rates more in line with potential. Falling inflation should support real disposable income and, together with a reduction in the gap between perceived and actual inflation rates, should underpin private consumption. Moreover, we expect an improvement in world demand. This, and the low level of interest rates, should benefit investment. Let me point out that, with today's decision, the key ECB interest rates have reached a very low level by historical standards. The Governing Council will continue to monitor closely all factors that may affect the prospects for inflation in the euro area. The outlook for the euro area economy will also very much depend on visible progress in other policy areas. Regarding fiscal policies in the euro area, I would like to reiterate that budgetary discipline strengthens the conditions for sustainable growth of GDP and employment. Therefore, sound fiscal positions, as enshrined in the Treaty and further developed in the Stability and Growth Pact, are in the interest of all the Member States. | 0 |
No matter how good the financial regulations are or how hard the supervisors try, external surveillance can only supplement, but not replace, good internal controls. This means that a suitably designed control system endorsed by the Board of Directors must be put in place to ensure that there are effective checks and balances within the firm to monitor and detect breaches of the approved risk taking parameters and code of conduct in dealing with clients. “Culture” The last “C” is “Culture”. This is a more difficult concept to explain than the first two “Cs”. But I’ll try. Competence basically means having the technical expertise to conduct financial businesses. It can be learned through different channels, such as formal education, in-house programmes or on-the-job training. Control means having a system within a firm that monitors and manages risk-taking or the conduct of its staff. People within the firm are required to behave in a way that is prescribed by their rules. To put it in another way, people behave properly because they have to or else they would face unpleasant consequences if and when they are caught. In contrast, culture refers to a set of internal values shared by a group of people that influence and shape their mindset and behaviour. Culture and values normally define what is proper and what is not. Culture makes people behave in a certain way because they want to behave in that way and not because they have to. Let me use a day-to-day example to illustrate this point. | They must be able to control the amount and types of risks based on prudent parameters. The history of the financial world is littered with staggering examples of breakdowns in risk control by firms, all of which inevitably led to disastrous outcomes not only for the firms themselves, but also for the societies as a whole in many instances. I don’t think I need to labour today why control and governance of risk-taking are important to the continued success of financial firms, large and small. The second type of business that financial firms undertake is the provision of advisory services and distribution of financial products. This category covers a wide range of financial services, including investment banking, wealth- and asset- management and brokerage. As these firms are offering advisory services, or marketing and distributing financial products, they are not taking risk using their balance sheets. However, control and governance are no 2 BIS central bankers’ speeches less important than for the first type of financial firms because these firms must be able to treat their customers fairly and take into account their interests in offering their advice and products. Again, we have seen many instances in which a breakdown in the control of the sales process has resulted in mis-selling of financial products that were not suitable for the customers. One point I wish to highlight here is that a good control and governance framework can only be established within the financial firms from the top down. | 1 |
But, for the region as a whole, this kind of integration is less striking than the presence of banks from the developed markets. For example, the number of US and European banks in Hong Kong roughly equals that of banks from the region. Similar observations may be made about the equity markets. In declining order, we now come to monetary integration. There have, in fact, been some recent efforts at monetary co-operation. These began in 1995 with the collection of EMEAP bilateral swap facilities that provide US dollar liquidity secured against US Treasury securities. In 1997 the idea of an Asian Monetary Fund was aired, but it came to nothing. Then, in 1999, came the collection of ASEAN+3 bilateral swap arrangements under the Chiang Mai Initiative. These cannot be said to amount to efforts towards monetary integration. And, in fact, while ideas may have been thrown around from time to time, there has not really been any formal discussion among Asian authorities that I am aware of towards monetary union. Why is this the case? I think it is mainly because the obstacles to union appear to be so daunting, and that the special considerations that apply to the Asian case throw up so many difficult questions. These "special considerations" are big matters, and they can be conveniently divided into three broad categories: economic, technical and political. Let me give a brief outline. The economic issues concern the viability of an Asian monetary union. | Now it is true that slightly over half of trade within non-Japan Asia is processing trade geared towards meeting import demand outside of the region, in particular in the developed economies. But this reliance on demand from the developed economies has been decreasing, and is likely to continue to decrease. Trade integration within the region is therefore likely to grow. Financial integration in the region shows a more mixed picture, and can be said to be high or low depending on what exactly is meant by financial integration, which is not at all clear. In terms of foreign direct investment, the degree of regional integration seems high if we look at the available figures on the sources and destinations of FDI within the region. The most striking examples are the various economies in the region as a source of FDI for China, and as destinations for FDI from Japan. But in terms of financial intermediation within the region - meaning the flow of savings into investments, other than FDI, through the banking, debt and equity channels - the degree of financial integration is not high at all. The very substantial, and growing, volume of domestic savings invested overseas goes mainly, on a gross basis, to the developed rather than the regional markets. | 1 |
With this in mind, the key questions are: 1) Where are we in the adjustment process, and 2) what, if anything, can monetary policy do to facilitate a smoother adjustment and more rapid progress toward our dual mandate objectives? In terms of the adjustment process, starting on the household side, most signs point to significant progress. For example, the revisions to the national income and product accounts announced in July revealed substantial upward revisions to the personal saving rate (Chart 5). The current saving rate is broadly consistent with the historical relationship between personal saving and the household net worth-to-income ratio. Of course, part of this story depends on the stabilization of household net worth, which had earlier fallen sharply due to declines in both home and equity prices. Although household net worth dropped significantly again in the second quarter according to the Flow of Funds accounts, the subsequent rise in the U.S. equity market is likely to have reversed that decline. Meanwhile, housing price declines have moderated substantially, helped, in part, by the fact that the low 2 BIS Review 127/2010 level of mortgage rates combined with the sharp drop in house prices has resulted in a substantial improvement in affordability (Chart 6). Households have retrenched in terms of their borrowing and this has helped push down the household debt-to-income ratio sharply from its peak in 2007. Another factor behind the fall in the debt-to-income ratio has been credit losses and debt forgiveness. | During the panels, formal Q&As, and sidelines of the conference, I encourage you to share your views on these topics and other changes that you are confronting, with a focus on the opportunities, risks, and mitigants. By sharing our perspectives, community banks can continue to play a central role in the sustainable provision of financial services to customers in the Second District. Moreover, by working together to address these changes, the New York Fed and the broader regulatory community will be better positioned to achieve its goal of creating safe, sound, and stable banking and financial systems that support the U.S. economy. Thank you for your attention. 1 Aggregate Second District data is based on Call reports and UBPR data from 114 firms. 2 Fintech Trends to Watch in 2018, CB Insights. 4/4 BIS central bankers' speeches | 0 |
A current subject of horizontal analysis is leveraged loans – specifically, whether lax underwriting practices for such loans could pose a significant risk to financial stability. In addition, we have reorganized the supervision group at the New York Fed in a number of ways that promote unbiased analysis and professional objectivity. Many of these changes directly reflect the recommendations in a 2009 report that I commissioned from David Beim, which was featured in the recent This American Life program about supervision at the New York Fed. For example: • Over the last five years, we have reassigned some of our most senior personnel to front-line positions at the largest supervised institutions. We also recruited experienced executives with financial backgrounds from outside the New York Fed. The purpose of these personnel changes was to position leaders with the confidence and depth of professional experience necessary to challenge the leadership of supervised financial institutions. • We increased training, especially for more senior examiners. Since 2011, we have required enhanced training for senior supervisory officers on corporate governance, business strategies, and risks. Our goal is to deliver stronger and clearer 4 BIS central bankers’ speeches supervisory views to boards of directors and senior management. Also since that year, we have offered a customized management development program for managers in the supervision group. • We hired more risk specialists and created the role of business-line specialist to assess the risks and vulnerabilities in firms’ business models. | This means two things: improving the resilience of the financial system to climate-related and environmental risks; and encouraging the scaling up of the financing flows needed to support the transition towards a sustainable economy. To give substance to its Glasgow Declaration, the NGFS has just announced its new work programme. It comprises six key initiatives: enhancing supervisory practices with respect to managing climate risks; designing actionable climate scenarios; assessing the implications of climate change for monetary policy; providing guidance for central banks on their own net-zero transition; analysing nature-related financial risks; and building capacity among its membership. Let me start with SUPERVISION. The NGFS will take to the next stage its ongoing work to incorporate environmental risks within supervisory frameworks and practices. One of the new areas of focus will be financial institutions’ transition plans to manage environmental risks. To be credible and impactful, financial institutions’ transition plans must be based on how they will facilitate the transition of their clients and customers towards greater sustainability. This will in turn depend on the respective industry transition pathways relevant to their clients and customers. The NGFS will examine the role of supervisors in assessing financial institutions’ transition plans. We will study potential ways to assess transition plans’ resilience to environmental risks. We will identify good practices among supervisors on overseeing financial institutions’ transition plans, along with the necessary data needs. We will examine how financial institutions should consider their counterparties’ transition plans with respect to exposure analysis, transition risk management processes, and their own transition plans. | 0 |
The downward slope of the current yield curve signifies a tight monetary policy stance (Chart 6). Additionally, loan interest rates have recorded a notable increase since October (Chart 7). As a consequence, loan growth rate declined to more reasonable levels towards the yearend (Chart 3). 4 BIS central bankers’ speeches Chart 6. Chart 7. Yield Curve* Consumer and TL Business Loan Rates*(Percent) Calculated by the return on bonds quoted on the ISE *Flow data. **4-week moving average. Bonds and Bills Market using the Extended Nelson-Siegel (ENS) method. Source: CBRT. Source: ISE, CBRT. Overall, the last quarter of 2011 was marked by ongoing tightening in monetary and financial conditions and a pronounced deceleration in loans. 2. Macroeconomic Developments and Main Assumptions Having climbed to 10.45 percent at end-2011, inflation was significantly above the target. As you all know, the Article 42 of the Central Bank Law stipulates that in the case of a significant breach of the inflation target, we are required to report to the Government and announce to the public the reasons behind the breach of the target and the necessary measures to be taken. I would like to announce that we will publish the Open Letter that will be sent to the Government today on our web-site at 12 a.m. Now, I will touch upon the macroeconomic outlook and our assumptions which constitute the basis for our forecasts. | It limited the extension of bank credit in Singapore dollars to non-residents except for economic activity, and buttressed this with some restrictions on interbank Singapore dollar derivatives, such as currency and interest rate swaps and options, which might have helped financial players to leverage or hedge their positions. This policy made it harder for would be speculators to short the Singapore dollar, and signalled unambiguously our disapproval of such speculation. This framework served us well. That we encountered very few speculative attacks in practice perhaps showed that the policy was effective. The strength and stability of the Singapore dollar instilled confidence and kept inflation low. Price stability provided the foundation for sustained economic growth, which in turn provided the basis for continued strengthening of the Singapore dollar. We benefited immensely from this virtuous cycle. Over the past two decades since 1981, the Singapore dollar has risen steadily by more than 70%, on a trade-weighted basis. Domestic inflation has been among the lowest in the world, averaging 2.0% per annum compared to 6.5% for the OECD countries. In real terms, GDP growth averaged 7.6% a year, while GDP per capita in 2000 was two and a half times the level in 1981. Financial supervision MAS’ second responsibility is oversight of the financial sector. MAS was an integrated supervisor long before this became internationally fashionable. When it was formed in 1971, MAS was responsible for both monetary policy and the supervision of banks. | 0 |
To sum up, to the extent that the new economy is a reality, its supply-side effects can be expected to make price tendencies somewhat more subdued than otherwise. If the effects are not transitory, they could pave the way for a less tight monetary policy. At the same time, demand is normally affected as well and there is a risk of this getting out of step with the stronger growth. 3. Conditions in Sweden One approach to the question of whether the new economy could also show up in Sweden involves looking at conditions in Sweden for some of the factors that are generally considered to have played an important role in the United States: the IT revolution, increased competition and the macroeconomic environment. 3.1 One question is how Sweden compares with the United States in terms of the technologies that are considered to drive the process. Although there is a lack of fully comparable statistics, it is hardly controversial to say that IT use in Sweden is high - higher than in many other countries in Europe and possibly much the same as in the United States. The per-capita level of Internet subscriptions is one of the highest in the world, on a par with the United States, and so is the number of PCs per capita. In certain respects Sweden is even ahead of the United States. In per-capita terms, mobile phones are used more in Sweden than in the United States and most other European countries. | Chairperson, in conclusion, I wish to take note of the commendable step that Stanbic Bank Zambia Limited has taken to build its own offices here in Zambia after a long presence in the country. I am hopeful that this initiative will create a more expansive and customer-friendly environment for your customers. I congratulate you for this milestone. I thank you for your attention. 2 BIS Review 88/2009 | 0 |
This development has caused some analysts to talk about “the missing deflation”.5 The so-called Phillips curve, which shows the relationship between the rate of inflation and economic activity, appears to have flattened compared with before.6 One possible explanation for this development is that the monetary policy conducted in recent decades around the world – where independent central banks have primarily focussed on attaining low and stable inflation – has gradually succeeded in anchoring inflation and inflation expectations. This has meant that the Phillips curve has stabilised in a situation with low average inflation. It is not entirely clear why this would also have contributed to reducing the slope of the Phillips curve, but we cannot rule out the possibility that if expectations are anchored better, price-setting and wage formation will be less sensitive to changes in economic activity. So, even if a monetary policy aimed at keeping inflation low and stable was perhaps not the main explanation for the Great Moderation, it is possible that it made an enduring impression in the form of a flatter Phillips curve. We cannot know whether this phenomenon is temporary or permanent. But if it is the case that we have had a fundamental change in the way the economy functions, it is also possible that this should lead to the central bank adapting, at least to some extent, the policy it conducts. A flatter Phillips curve implies that inflation has become less sensitive to the domestic demand situation – that it varies less with cyclical phases. | We will discuss with each affected bank individually why it is not fully provisioning for loans which have been non-performing for several years. Only if the results of this structured dialogue do not convince us will we consider Pillar 2 measures. We have followed this path before, for instance with our recommendation on dividend distribution policies and the Asset Quality Review. The addendum to our guidance on non-performing loans explains our methodology and is currently the subject of a public consultation. This consultation will increase transparency for banks, and the public, and it will help to ensure a level playing field. So, while it is ultimately up to the banks to deal with NPLs, we supervisors play a role too. It’s our job to address vulnerabilities in the banking sector. NPLs are probably the single biggest challenge – and of course they are a drag on the entire economy. And while I am convinced that the ECB has led the way with its work on NPLs, we are not the only ones who can and should take action. European finance ministers agreed, in July this year, on an action plan to tackle NPLs. Also, national governments can help to resolve the NPL problem by reforming their legal and judicial systems. In some countries, it can take quite a long time to recover NPLs in court. This is something that can only be addressed at national level by national governments. NPLs are a joint problem, and we need to make a joint effort to resolve it. | 0 |
Small depositors Given the prospect of mergers and rationalisations, it is natural that many bank customers are apprehensive and worried about how they will be affected. A merger will result in rationalisation of branch and ATM networks, which will inconvenience some customers. But overall, customers should have access to more branches and ATMs after the merger, even though not every existing branch and ATM can necessarily be retained. And because a larger merged bank can operate more efficiently and realise revenue synergies, it should be able to provide better service and greater choice to customers. Of course the bank will have to handle the implementation carefully and sensitively, giving customers adequate notice of changes and helping them to adjust. It is in the bank’s own interest to do this, and I am sure they will make every effort to do it well. Unfortunately this does not mean that as a result of a merger, every bank service will become cheaper or free. This is not possible, not because of mergers, but because of competition. Competition will force banks to watch their bottom lines more closely, and to make each service and product break even. It will become harder for banks to continue cross-subsidising services that they used to provide for free or below cost. That was a luxury that they could only afford in a protected and languid market where profits came easily, a state of affairs which was unsustainable in the long run. | I am very sure that if, as is pretty likely, one of you will be back here in 40 years talking about economic policy challenges, it will be about something that is now hard to imagine. 8 See G20 Leaders' Communique Hangzhou Summit, http://www.g20.org/English/Dynamic/201609/t20160906_3396.html. 11 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 11 I guess that in the end, that is why despite my enduring affection for the Arts, I do not miss my first profession. The challenges of economic policy making are constantly changing; the learning, it seems, never stops. And though one never gets one’s forecast right, the rewards to good policy are great. Thank you. Figure 1 Illustrative breakdown of some of the factors affecting the appropriate real policy rate 12 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 12 | 0 |
Instead of expressing its goal of maximum employment in purely technical and macroeconomic terms, the Fed has come out in favour of collective efforts to combat poverty. Maximum employment may be a legitimate Fed goal alongside price stability, but the plan phrased in this way marks a departure from the previous world in which the Fed isolated itself from political influence. The ECB is unlikely to follow the same path as the Fed when it completes its monetary policy review. It is prevented from doing so by European law and by the limited appetite of EU citizens to reduce social disparities in this way. Instead, central bankers are increasingly voicing support for climate protection. This comes in the wake of a speech given by the former Bank of England governor Mark Carney, who in 2015 drew attention to the risks to financial stability from climate change and the responsibilities this implies for financial regulators. The ECB, however, is going even further: Christine Lagarde says she wants “to explore every avenue available in order to combat climate change”. In a sense it’s understandable that central banks are subscribing to broader government policies, whether at national or EU level. After all, it’s something that’s written into the laws governing their activities. One might also accept that if they want to maintain their influence, they need to move with the times and embrace the values that are increasingly driving world affairs. However, there are many big risks associated with this approach. | As I said at the start, in the second part of my address I will talk about our main macroeconomic and monetary policy considerations during the coronavirus crisis. From a purely technical perspective, this crisis has been fascinating and inspiring. It also took us completely by surprise. Its main feature is that it was a typical exogenous shock: it hit the economy from the “outside”. 5/7 BIS central bankers' speeches The GFC was caused by endogenous economic processes linked with huge levels of subprime lending, widening imbalances and unprecedentedly high risks building up in the financial sector, whereas the coronavirus pandemic is more like the plagues of Egypt. It has often been said that this crisis has drawn a sharp dividing line between the sectors and industries which have profited unexpectedly and sometimes even wildly from it, and those which have been hit extremely hard or even wiped out by it. Unlike typical cyclical crises, which tend to have a synchronised effect on most industries, this crisis is characterised by contrasting impacts. This feature has manifested itself in relatively smooth flows of employees between industries, so structural unemployment has stayed quite low. I should add, though, that strongly expansionary fiscal policy has been a major mitigating factor. At the price of sharply rising public debt, fiscal expansion has made it easier for the private sector to adjust structurally at the microeconomic level. | 1 |
This would successively reduce the Riksbank’s possibilities of influencing domestic inflation prospects with the repo rate. The SEK/EUR exchange rate Another item in the discussion in financial markets is the rate at which the krona would be converted if Sweden were to join the euro area. There may therefore be reason to also say something about this. Arriving at an appropriate conversion rate is not a simple matter. It involves trying to pin down many complex economic relationships and assessing the future long-term paths of various central variables. Estimates of the long-term equilibrium exchange rate For several years now we have been engaged at the Riksbank in analysing the krona’s fundamental value and the likely path of the exchange rate in the somewhat longer term. This work has been needed quite apart from the question of future ERM membership, for instance as a contribution to assessments of the exchange rate’s importance for inflation prospects. The study results provide information about the direction and approximate strength of the krona’s future trend. An assessment of the appropriate value for the krona in the event of ERM membership can start by considering what the exchange rate would be if the Swedish economy were in macroeconomic equilibrium. This is a situation were resources are fully utilised without generating higher inflation and the level of external debt is such that the economy can cope with it in the longer run. | Experience shows that in the process of arriving at a reasonable central rate, the factors which are considered include the country’s macroeconomic situation, various indicators of its competitive position, the exchange rate’s historical path and its average levels in recent years. When other currencies have been linked to the exchange rate mechanism, this has usually been done either at or fairly close to the prevailing market rate. ERM membership could stabilise exchange rate expectations A factor of importance for participation in the euro area is the krona’s stability. Membership of ERM2 could also facilitate Sweden’s entrance to the monetary union. It may therefore be appropriate to say something about the timing of an adherence to ERM2. This, as I mentioned, is a matter for the Government to decide. In the Spring Budget the Government has declared that participation in ERM2 is not being considered at present. The choice of an entry date presumably depends in part on the duration of ERM membership that other countries expect from Sweden before qualifying for participation in the euro area. Another central consideration is whether ERM membership as such can contribute to exchange rate stability and smooth the path to the euro area. In my opinion, ERM2 membership could help to stabilise exchange rate expectations if and when it is clear that Sweden does intend to join the euro area. That in turn would simplify the krona’s conversion into euro. | 1 |
Natural to raise the repo rate 2010–2011 Purchasing Managers’ Index in the manufacturing sector Lending to households and companies An index over 50 indicates growth Annual percentage change GDP Inflation Quarterly change in per cent calculated as an annual rate, Seasonally-adjusted data. Annual percentage change 6 CPIF excluding energy CPIF CPI 4 6 4 2 2 0 0 -2 06 08 10 12 14 -2 Note. Forecasts from April 2011. Sources: Institute for Supply Management (ISM), Swedbank, Statistics Sweden and Sveriges Riksbank 18 [20] Figure 3. Troubling situation at turn of year 2014-2015 Inflation Annual percentage change Inflation expectations Annual percentage change Note. Measured using the CPIF (left) and the CPI (right). Sources: Statistics Sweden and TNS Sifo Prospera Figure 4. 2015–2017 – inflation rises towards target again Inflation Annual percentage change Inflation expectations Annual percentage change Note. Measured using the CPIF (left) and the CPI (right). Sources: Statistics Sweden and TNS Sifo Prospera 19 [20] Figure 5. The development of services prices indicates that the Phillips curve works Annual percentage change Note. Broken lines represent mean values since 2000. Source: Statistics Sweden Figure 6. | 95 5 1292 4 57 3 )*++,- #77 477 277 1 54 77 44 2 77 4#4 87737 5#4 6 54 4#4 #77 4#4 2 4#4 < 74 4#4 ;@ < 4A5 5 57 75 847 54 8 7 4 354% 54' ' 8 54 ' ( 735 447 4 ' 736 ( 7 &7 54')0+ $ 54%')00+ ( 2 $ ( 54 736 44 46 4')0H+ 6 641 641 56 8 7 641 4 1 816 74641 6 7641 6 6 4 77 6 76841 81 56 8 74 7 6 56 47 6 456 76841 56 1641 56 8 6 164 166 56 56 7 71 54 451 41 + 56 841 64 841 5 74641 1 841 16 1641 1 6 6 856 47 1 46 6 4 <=>? @ABC=> 95 10 10 /5%!85 $ | 0 |
They will also conduct peer reviews of national supervisors and issue recommendations on the basis of the outcomes. In the regulatory area, they will be able to issue non-binding guidelines on the implementation of EU law. The second pillar – macro prudential supervision The second pillar is the establishment of a new European body responsible for macro prudential supervision. The European Systemic Risk Board (ESRB) will be mandated to identify and assess systemic risks on a European-wide basis. Having a common body that provides a “birds-eye view” of financial system risks will help to avoid repeating the mistakes made during the current crisis, where both regulation and supervision focused too much on individual institutions and markets. Also, by looking at risks arising from macro economic trends, as well as from developments within the financial system, the ESRB can identify threats to financial stability coming from both endogenous and exogenous factors. On the basis of its analysis, the ESRB will issue specific risk warnings as well as recommendations for policy action to address the identified risks. These will be directed to those institutions that have the power to take corrective action. This could include memberstate governments or authorities, the European Commission or other EU bodies. Warnings and recommendations will not be binding. Instead they are expected to be followed on a “comply or explain” basis. On a case-by-case basis the ESRB will decide if warnings and recommendations should be disclosed to the public. | To address these problems the European Commission last fall initiated a fundamental overhaul of the EU supervisory structure. A group chaired by the former head of the IMF, Mr. Jaques de Larosière, was mandated to come up with proposals for needed reform. The recommendations made by the group were broadly embraced by the EU member states and we are now at that stage in the process where final details are being negotiated. The new supervisory structure will rest on two pillars. The first pillar – micro prudential supervision The first pillar consists of several initiatives to strengthen micro prudential supervision in the EU. Regulatory measures at the EU level shall ensure strengthened and more consistent BIS Review 134/2009 1 supervisory powers at the national level. Supervisory colleges will be mandatory for all the major cross-border firms in the EU. Differences in national laws will be indentified and removed. All these reforms will take place within the new European supervisory network, the European System of Financial Supervisors (ESFS). The main element of this reform is the transformation of the three existing EU supervisory committees into independent EU authorities. These authorities will form a central hub of the European supervisory community and will be equipped with both regulatory and supervisory powers. The day-to-day supervision will still be a national responsibility and carried out on a decentralised basis. The new authorities are therefore primarily to be seen as a complement to the national regulators and supervisors and not as a replacement. | 1 |
Norges Bank is therefore in the process of establishing a clear organisational divide between the investment division for real estate and other investment divisions. A management team for the real estate division has been established and we will appoint a division head in the course of the year. Large real estate investments will be subject to consideration by an investment committee. The largest investments will also be subject to approval by Norges Bank’s Executive Board. The integrated structure for the management and reporting of GPFG performance and risk will be continued. Moreover, the Ministry proposes increasing the number of central bank deputy governors from one to two, and that both function as members of the Executive Board. The Executive Board will in that case aim to establish a risk and investment committee for investment management. The committee will comprise one deputy governor and two of the Executive Board’s external members. The committee will strengthen and improve the Executive Board’s work on overarching risk management of the GPFG, the framework for the GPFG’s real estate management and decisions relating to large real estate investments. The GPFG is a long-term and responsible owner. Our work on responsible investment is an integral part of the investment process. As of this year, the Council on Ethics issues recommendations on company exclusion directly to Norges Bank. Norges Bank’s Executive Board will on the basis of these recommendations assess exclusion against other tools in the exercise of ownership. The aim is to establish a unified chain of tools. | In 1999 the GDP growth rate is expected to be rather more than 3 per cent. This implies that in 1998 and 1999 growth will be stronger than the increase in potential output, for which the annual trend is estimated to be just over 2 per cent. That means that today’s surplus capacity will be activated by degrees. It is difficult to tell how quickly this will happen. The Riksbank considers that the output gap -- a way of attempting to gauge unutilised capacity in the economy as a whole -- is currently about 2 per cent of GDP. With the growth rates envisaged above, the gap would then close some time in 1999. Other information with a bearing on when inflation might be likely to accelerate was also included in the inflation report. Estimates of structural unemployment and thereby, indirectly, of the level of unemployment that can be combined with stable, low inflation, suggest that risks of inflation also exist less than two years ahead. The rate at which capacity utilisation rises may likewise play a part. A rapid reduction of unutilised resources might generate inflationary impulses even though there is still a capacity surplus at total level. Risks in the wage negotiations Wage formation is particularly relevant at present because the settlements that are due in the coming six months will cover a large part of the labour market. Labour shortages are not yet being reported from more than a few sectors, but experience shows that the domino effects can be substantial. | 0 |
Do you think prices in general will be higher, about the same, or lower, 5 to 10 years from now?” Those who respond “stay the same” are then asked whether they mean that prices will go up at the same rate as now, or that prices in general will not go up during the next 5 to 10 years. Those who indicate that they mean prices will go up at the same rate are then given the same follow-up questions as those who answer that they believe prices will be higher 5 to 10 years from now. Respondents who answer that they expect prices to be higher [lower] 5 to 10 years from now receive the question “By about what percent per year do you expect prices to go up [down] on the average, during the next 5 to 10 years?” Only respondents who give a response over 5 percent are then asked the clarifying follow-up question “Would that be [x] percent per year, or is that the total for prices over the next 5 to 10 years?” Respondents who answer “total” are then asked for a “per year” amount. 18 Further, the clarifying question used in the Michigan survey that asks whether respondents meant their response to reflect price changes per year or over the entire time period induced significant revisions. The follow-up question is administered only to respondents who give expectations over 5 percent, thus failing to correct misinterpretations among those who gave lower responses. | GDP fell about 5 per cent and unemployment rocketed from levels around 2–3 per cent to two-digit figures. After a series of heavy attacks, the Swedish krona was left to float in 1992. The fixed exchange rate regime was replaced by a return to price stability as the policy objective, now in the form of a 2 per cent inflation target. Since 1999, price stability is enshrined in law and the Riksbank is more independent in the pursuit of this goal. While low inflation is admittedly not an ultimate goal for economic policy in general, it is an important prerequisite for generating growth that is stable and high. History clearly demonstrates that a high and fluctuating rate of inflation is incompatible with a permanent improvement in standards of living. A commitment to price stability is therefore one of the foundation stones of any economic policy that aims for rising prosperity and high employment. BIS Review 81/2001 3 The years since the policy realignment have been successful. But this is not only because stabilisation policy is now being conducted differently, with a clear focus on price stability and a balanced budget. It is also a result of all the measures that were introduced around the turn of the 1980s to improve the workings of the economy. These included the deregulation of capital markets, “the tax reform of the century”, a realignment of housing policy and so on. | 0 |
Crises can and should be curbed, using measures to strengthen the economy’s immune system as well as measures that reduce the impact once the crisis has erupted. This means that government intervention using public funds may be the right approach in a situation of decline and deflation, low interest rates, high unemployment and pessimism. But crisis-related measures must also be focused on the deeper causes of the crisis in order to strengthen economic sustainability over time. Countercyclical policy must not become counterstructural policy. Crises are not necessarily just an evil. A crisis can lead to reforms and measures that foster progress, as it did in Norway in the 1990s. The regulation of the banking sector in the wake of the global financial crisis is another example. Experiences such as these may give us some comfort in the bleakest of times. The world will go on, even after a deep crisis. Thank you for your attention. BIS central bankers’ speeches 7 | Of course, last year the fall in the oil prices was also beneficial for the trade balance. On the financing side, the financial flows were large enough to cover the current account deficit and to provide additional reserve accumulation. It is important to note that FDI inflows continued to flow in the economy, with their ratio to GDP being kept stable at 3.3% of GDP. Yet, the largest part of the financing flows came through the government borrowing at the international market, at rather favorable terms, pinpointing the perception of the investors for sound fundamentals and rather prudent policies in the Macedonian economy. Observing the inflation path, it more or less resembled the inflation pattern elsewhere, with the falling food and energy prices pushing prices down. The average headline rate for 2014 was mildly negative (–0.3%), while the core inflation albeit slowing down, on average remained positive. The inflation adjustment is perceived as temporary, driven by supply-side factors, and without any risks to become entrenched in the inflation expectations and to jeopardize the BIS central bankers’ speeches 1 economic recovery. The fact that the negative output gap has been narrowing and the fall of the prices has been significantly slowing down in the first months of this year, just support the former notion. Domestic financing through the banking sector significantly increased in 2014, with credit market recovering much faster compared to the previous years. | 0 |
But the pooling of savings within Life insurance companies and the willingness of policyholders to commit their savings for the long term also allows those savings to be channelled into new types of investment – ones that would be difficult or impossible for individuals to access directly, but which will play an essential part in the recovery and in meeting the challenges of the 21st century. And our data show that insurers are investing in ever more diverse and novel asset types, which often represent very long-term commitments. A willingness to innovate is to be welcomed. There is nevertheless a flipside to this novelty – the lack of a long history to guide the selection and risk-management of these assets, or to show how they may perform under various possible stress scenarios. So there are new sources of uncertainty to contend with, alongside those that insurers have been managing as their bread and butter for hundreds of years. Insurers, and we as their prudential regulator, have a responsibility to understand and respond to new uncertainties, some of which may play out over a very long horizon, to ensure that policyholders’ trust is repaid. Ensuring adequate policyholder protection is clearly a good in its own right – policyholders are consumers of a financial product, which may be very significant to them and their families, and they deserve to be protected. But it goes further. Securing policyholder protection upholds policyholders’ confidence and trust in the face of uncertainty. | In Norway, Norges Bank will inform the authorities that measures other than those available to the Bank are required if a situation arises where we are unable to return the exchange rate to its initial range without causing inflation or a deflationary recession. This implies a greater focus in the conduct of fiscal policy on factors that influence the exposed sector of the economy. This is consistent with our concern that the economy may run into a Dutch disease. 10. Economic developments From looking at the principles of Norwegian economic policy, let us turn to Norges Bank’s view of the current situation. The high and steady rate of growth from 1992 and onwards has been moderated this year. The overall picture indicates that the exchange rate is stable, while the economy is showing signs of cooling off. BIS Review 121/1999 12 Each quarter Norges Bank presents an inflation report with an assessment of the outlook for the Norwegian economy and for price inflation for the next two years. The projections in the Inflation Report provide a basis for the Bank’s conduct of monetary policy. The Inflation Report published in September indicates that price and cost inflation in Norway will gradually slow to the level aimed at in the euro area. Among other things, this is based on the assumption that growth in public expenditure will be approximately in line with the trend rate of growth in the mainland economy. For 1999 Norges Bank expects a growth rate of ½%. | 0 |
A monetary stimulus in the US will have a different effect on the euro area if, say, Asian countries have flexible exchange rates rather than fixed rates against the dollar. So the choice of exchange rate regime by any one bloc both depends on and affects the choices of the others. How did we end up in this position? Under the gold standard of the late 19th and early 20th century, exchange rates were fixed and capital flowed freely internationally. Domestic monetary policy was subordinated to the demands of the gold standard, except in time of extreme crisis when the need for flexibility overcame the desire to adhere to the standard. From the end of the Second World War until 1971, the member countries of the Bretton Woods system had a formal commitment to fixed but adjustable exchange rates, and capital accounts were largely closed to give members the flexibility to operate independent monetary policies. Since the breakdown of the Bretton Woods arrangements, countries have been free to make quite different choices of exchange rate regime, and have not hesitated to do so. As international financial markets have developed, there has been a general movement to flexible exchange rates supported by credible domestic monetary policies. That is a sensible use of the price mechanism to respond to complex and unpredictable shocks. | Mervyn King: The international monetary system Speech by Mr Mervyn King, Governor of the Bank of England, at the “Advancing Enterprise 2005” conference, London, 4 February 2005. * * * Later today the G-7 finance ministers and central bank governors meet in London. Markets are speculating on what the communiqué will or will not say about exchange rates. On such matters a private exchange of views might serve us rather better than a public statement. What is a matter for public discussion, however, is the mix of exchange rate regimes we see in the world today, and the consequences for international monetary stability. The current international monetary system comprises three large currency blocs: the dollar, the euro, and an Asian bloc of currencies that are to varying degrees fixed against the dollar. These blocs, of broadly comparable size, produce more than twothirds of world output in total. Given their size, the choice of exchange rate regime of one bloc has a significant effect on the options available to the others. Countries have always faced constraints in choosing their exchange rate regime. Any country can have only two out of the following three – an independent monetary policy, a fixed exchange rate and an open capital account. At various times countries have tried – and failed – to have all three. But in a world of large currency blocs decisions about exchange rate policies are interdependent. | 1 |
For example the Bank recently announced that it would be consulting on the appropriate level of access for new payments providers.20 Dealing with uncertainty: post-QE frameworks We can, and will, continue to strengthen our analysis of the demand for reserves, through more structured and frequent dialogue. But if there’s one big message I take from our Discussion Paper exercise, it’s that, no matter how deep we dig, we will still face persistent and material uncertainty about the future demand for reserves. We must ensure our post-QT framework can deal with that uncertainty robustly if we are to be confident that we can continue to use our balance sheet to deliver monetary and financial stability. One response would be to stick with the simple floor, but stop contracting reserves well before we hit the PMRR, leaving an ample buffer to ensure market interest rates are stable (Chart 9). | While overall labor market indicators for the second half of 2013 were not particularly strong, the overall trend in unemployment showed some improvement with the unemployment rate falling sharply over that period, from 7.5 percent in June to 6.7 percent in December. However, as has been the case since October of 2009 when the unemployment rate peaked at 10 percent, this decline in the unemployment rate was driven in large part by a decline in the labor force participation rate. Much has been written about the forces that are causing this decline of the labor force participation rate. Researchers have shown that the aging of the population is playing a role, as are changes in behavior. But our own analysis suggests that the cyclical weakness of demand for labor is an important contributing factor. As a result, I conclude that the decline of the unemployment rate significantly overstates the degree of improvement in the labor market. 4 BIS central bankers’ speeches Looking forward, I believe that the underlying fundamentals of the U.S. economy have improved to the point where we can expect sustained growth above the roughly 2 1/4 percent annual pace that prevailed from mid-2009 through mid-2013. Also, the amount of fiscal drag continues to diminish. Another good piece of news is that Congress has raised the debt ceiling until March 2015. This lessens the risk that political brinkmanship in Washington could harm consumer and business confidence. | 0 |
Banking sector reform: efforts made prior to the strengthening of the legal framework in 2010 Within the broad framework of the economic reforms undertaken in the late 1980s (overall reform of the economic regulation, including that of price systems), the banking reform has been implemented since 1990, following the enactment of the law on money and credit (1990) establishing a two-tier banking system. This major monetary reform reemphasized the role of money and monetary policy- through indirect tools- in macro-financial regulation, thereby enabling a gradual shift from the “financial repression” paradigm. Since the year 1990, and after assessing the vulnerabilities of the Algerian public banking system, a number of reforms have been undertaken to improve the functioning of public banks, reinforce the banking activity operating framework- especially through the opening of the sector to private investors- and promote the development of non-bank financial institutions. Based on institutional audits, action plans aiming at improving public banks functions have been launched during the first half of the 1990s and pursued during the 2000s. In order to improve their governance, performance contracts between the public banks’ managers and the State as the owner, took effect in the beginning of 2007. At the same time, and on the basis of their financial statements audits undertaken by international firms, cleaning up operations of the public banks’ balance sheet started in the beginning of 1991 with the repurchase of non- performing loans (NPLs) and capital increases. | This important and costly bailout program enabled public banks to meet the prudential regulation requirements in terms of solvency ratios and risk-distribution, in line with international standards. With the sustained implementation of the new banking regulatory framework for banks and financial institutions during the 1990s, especially with regard the rules and conditions for the establishment of new banks and financial institutions, the second half of the 1990s recorded the first phase of effective opening of the banking activity to the private sector. However, violations and breaches in some private banks led the Banking Commission – the supervisory authority – to withdraw the licenses of seven banks and two financial institutions between 2003 and 2009, a number of which being in bankruptcy conditions between 2003 and 2006 and having risks concentrated on entities of their group. Against this background, the deposit guarantee scheme was activated in 2003 in accordance with the prevailing regulatory framework. In August 2003 and in light of these failures, the 1990 banking law was revised to strengthen the licensing conditions, increase the minimum capital requirement, which also became fully due in cash, and strengthen the Banking Commission missions. In particular, the Commission was given exclusive competence to exceptionally extend the deadline for the publication of banks and financial institutions’ financial statements. In parallel, the supervisory capacities of the Bank of Algeria have been significantly reinforced since the beginning of the 2000s; Bank of Algeria’s corps of inspectors being legally in charge of implementing the supervisory program set up by the Banking Commission. | 1 |
This positive trajectory reflects a number of key fundamental strengths in the Thai economy. First, our human capital remains intact and strong. Thailand’s flexible and skilled workforce will continue to provide a solid foundation for businesses to flourish and expand. Second, the corporate sector boasts healthy balance sheets from accumulated savings and profits, enabling them to rebuild and invest. Third, the banking sector is strong and well-placed to provide the financing necessary to sustain the investment cycle. Finally, Thailand is well positioned geographically to serve as a supply-chain hub for many industries and to reap the benefits of an expanding as well as more integrated Asian economic block. As alluded to earlier, the process of regional integration will provide Thailand with enormous opportunities to expand our role in the region through increased trade in goods and services. Realizing these opportunities will not be easy, nor will they be automatic. The key impetus falls on structural reforms that lift Thailand’s international competitiveness. Considerable adjustment and transformation of our economy will be required. Factors of production will have to be reallocated to activities that offer the most promising way forward. Government policies and laws will have to be updated and changed to best facilitate such structural adjustments, all the while making sure that the burden of adjustment on those who stand to lose is bearable. The pursuit of economic growth should not be absolute, but inclusive. As should be apparent, such challenges cannot possibly be completely met in the short-term, let alone in 2012. | Against the backdrop of fear and uncertainty, banks have tightened their lending and consumers have become more cautious in their spending. This will act as a drag on the euroarea economy going forward. A key constraint for both the US and euro-area, as well as many other advanced economies, is the limited policy space available to authorities. In these countries, monetary policy and fiscal stimulus have been pushed to their limits. Limited capacity to respond to new shocks thus represents a real risk for these economies, and for the global economy, that we must be weary of. In this setting, and given the deep-seated nature of the problems being faced, meaningful remedies rest just as much on political factors as on economic ones. How governments respond and how their electorates receive these responses will be an important source of uncertainty. In contrast, the rising economies in Asia offer a more positive outlook. Despite the slowdown in exports of many Asian countries, reflecting the softer global economic backdrop, domestic demand remains robust. More fundamentally, the continued rise of China and the formation of the ASEAN Economic Community (AEC) will generate enormous economic opportunities for the region. As will be discussed later, the key challenge for Thailand will be how to optimally position ourselves to reap the full benefits of this trend. This brings me to the internal challenges. | 1 |
We know the current over-reliance on monetary policy to solve the problems arising from the global financial crisis has had downsides for long term finance, particularly pension funds and insurance funds. The costs and benefits of low or negligible interest rates are being debated, but there is no doubt about the increasing burden they pose for pension and insurance funds. 6. But the problem is not merely to do with current monetary policies, and not fundamentally of a cyclical nature. Low real interest rates are very likely here to stay, and for reasons that are essentially structural. 7. There are two main forces behind this. 8. The first is ageing itself, and its implications for savings behaviour, particularly in today’s advanced countries. A baby boom generation is reaching retirement, and they also expect to live significantly longer than their parents did. They will have to save more, for some time to come, in order to sustain themselves through retirement. Higher savings will in turn mean that a continuing surplus of savings over investment globally, a stubborn gap, and it also means that interest rates over the medium to long term, even after the normalisation of monetary policy, will remain low. 9. This is accentuated by shifts in asset allocation, as the baby boom generation is also likely to allocate more funds to bonds and other fixed income instruments, and gradually reduce holdings of equity. | But in a situation where we are going to have much longer lives, it is critical that we have the ability to earn a living and to save money over more years, so as to provide security and assurance through our retirement years. 22. It’s true everywhere in the world. Some countries have already recognised it through legislation. Denmark is a good example, of having linked their retirement age and pension age to life expectancy. Sweden intends to follow. Several other countries are considering the same thing. 23. But it is not just about pushing back the retirement age or pension age. It is critical that we make it attractive for older citizens to work. That means not just providing jobs but rearranging the work place so that it becomes part of the culture to have older persons, experienced persons, in the team, in the work place. The culture of the work place has to change and the culture of the consumers has to change in a whole range of industries so as to accept and celebrate the presence of older persons at work. 24. So that’s one important reform over the next 10 to 15 years – enabling older persons to work for longer, it may be full time or part time, but make it attractive to work. 25. The second important reform concerns the financial industry. We have to reduce the costs that ordinary savers face in saving for the retirement. 26. | 1 |
This has the advantage that there is no contradiction between long market rates abroad and the forecast for policy rates abroad, which makes it easier to determine the effects on the exchange rate. If there are special reasons for assuming forecasts for policy rates abroad that deviate from market expectations, this should be explained and justified. In these cases one should construct forecasts for inflation and resource utilisation using unanticipated deviations, where market participants are surprised by the actual policy rates abroad deviating from what was expected. The exchange rate determination will then be correctly based on long market rates abroad, even when the Riksbank’s forecast for policy rates abroad deviates from that implied by these market rates. 12 BIS Review 158/2010 BIS Review 158/2010 13 14 BIS Review 158/2010 BIS Review 158/2010 15 16 BIS Review 158/2010 References Assenmascher-Wesche, Katrin and Stefan Gerlach (2010), “Credit and Bubbles”, Economic Policy July 2010, 437–482. Bank of England (2010a), Inflation Report, August 2010, www.bankofengland.co.uk. Bank of England (2010b), Inflation Report, November 2010, www.bankofengland.co.uk. Bank of England (2010c), Minutes of the Monetary Policy Committee Meeting 6 and 7 October 2010, www.bankofengland.co.uk. Bank of England (2010d), Minutes of the Monetary Policy Committee Meeting 3 and 4 November 2010, www.bankofengland.co.uk. Bean, Charles, Matthias Paustian, Adrian Penalver and Tim Taylor (2010), “Monetary Policy after the Fall,” in Macroeconomic Challenges: The Decade Ahead, Federal Reserve Bank of Kansas City, www.kansascityfed.org. | Zeti Akhtar Aziz: Sustaining Malaysia as a platform for international Islamic finance Address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Launching of HSBC Amanah Malaysia Berhad: "Sustaining Malaysia as a Platform for International Islamic Finance", Kuala Lumpur, 25 November 2008. * * * It is my pleasure to be here today at this official launch of "HSBC Amanah Malaysia Berhad" (HSBC Amanah). This launch is significant in a number of respects. It reflects the continued expansion of Islamic finance in Malaysia , taking place at a time of great uncertainty in the glo bal financial system. The launch of HSBC Amanah, as an Islamic subsidiary of an international financial group, is also significant as it will contribute towards enhancing further the international dimension of Islamic finance in Malaysia, thus strengthening our international financial and economic linkages with other parts of the world. The Islamic subsidiary represents the transformation of the Islamic banking window operations into a dedicated entity that allows for greater strategic direction and drive of performance for the Islamic banking business. The advancement of the Islamic subsidiary institutions structure has the potential to further complement the goals of the group by providing an alternative model to spur the expansion of the banking business. It will pave the way for providing strong support in terms of capital, resources and operational infrastructure to elevate performance. | 0 |
Some people – perhaps even some of you – may be sensing a different reality: financial crisis, economic crisis, unemployment – these are the keywords currently dominating the discussions on monetary union. How much does the reality have to do with the actual idea of the euro? Is the euro still a symbol of what holds Europe together? Or has it become a symbol of what divides Europe? The growing appeal of anti-euro and anti-Europe parties is a sign that we need to make the incalculable benefits of a single currency easier to understand for the people of the euro area. And we should encourage people to look at the full reality and not just one facet. The euro is a fundamental part of the single market. More than 300 million people in 19 countries make payments using the euro. It’s the world’s second most important currency. Over 20% of global currency reserves are held in euro. And despite all the euroscepticism, recent surveys 1 show that 70% of people in the euro area want the single currency. Obviously, in my view too, a united Europe with a single currency is the right idea; as Theo Waigel, former German Minister of Finance, once said, the euro is “ingenious”. And, for me, it’s about more than the economic advantages brought by a united Europe and a single currency. It’s also about a political reality. Not all the countries of Europe can live in “splendid isolation” – Europe’s voice in world affairs would fall silent. | If they materialize, they may reshape the macroeconomic outlook and, therefore, may alter the course of monetary policy. We have identified two types of risks in the external front facing the Chilean economy. Some of them may potentially have a material impact, yet are hard to quantify (such as political-economic uncertainty). Others risks have been mentioned for quite some time, but their likelihood have varied. Regarding the latter, the expected trajectories of fiscal and monetary policy in the U.S. may potentially generate upside or downside risks. China remains a source of concern although its authorities appear to have successfully managed a gradual deceleration without a major disruption thus far. These are probably risks for most economies of the world, but particularly for a small open economy, such as Chile. 16. On the domestic front, after several years of subdued growth, we cannot rule out that a more persistent phenomenon may be affecting the economy’s ability to grow, in which case it would be necessary to revise the public and private expenditure plans. Moreover, while the labor market has gradually adjusted without generating a significant increase in unemployment, it is possible that after several years of low growth, firms require larger personnel adjustments, especially if the expected growth recovery towards the end of the year stalls. | 0 |
Adherence to international standards on AML/CFT, including the ability to trace funds back to the source and to positively identify the beneficiaries of the funds, are indeed vital. In Malaysia, electronic money is prescribed as a designated payment instrument in the Payment Systems Act 2003 (PSA) and the Act is under the purview of the Bank. As such, any person who wishes to issue electronic money would be required to obtain the prior approval of Bank Negara Malaysia and is subjected to the prudential requirements imposed by the Bank. In 2005, in line with the objective of reducing the use of cash in the domestic economy, we liberalised our policy by allowing non-banking institutions to issue electronic money. In 2008, the Bank issued the Guidelines on Electronic Money, which outlined the broad principles and minimum standards to be observed by electronic money issuers. As at end-March 2010, 26 issuers have been approved to issue electronic money comprising both card-based and network-based schemes. During the past five years, the use of electronic money recorded encouraging average annual growth of 21.5% and 24.9% in terms of volume and value respectively. With regard to the oversight of electronic money issuers, in particular the non-banking institutions, our objective is to ensure the safety and reliability of the issuers’ systems and operations. We acknowledge, nevertheless, that in this rapidly changing commercial and technological environment, it is becoming increasingly challenging for regulators to develop policies that are effective and appropriate to address the regulatory concerns while at the same time, promote innovation. | Digital convergence of telecommunications, computers, and the media is fast conjoining many new products and services to replace the old ones. For these reasons, inflexible and highly prescriptive regulations and rules may be inhibitive to innovation. In addition, with the entrance of more non-bank players in the payments industry, overseeing these players could be more challenging as a different regulatory approach may have to be adopted. Regulators would need to be conversant with the business dynamics and operational arrangements of these new players while, at the same time, these players have to adapt quickly to the regulators’ supervisory approach and requirements. The regulators’ dilemma in achieving a proportionate regulatory framework, in particular to promote the growth of electronic money, remains a challenge. This give rise to the need to balance trade-offs between impacting public confidence and promoting innovation and BIS Review 69/2010 3 competition. Let’s take the example of the provision of a more lenient regulatory regime. While this would promote the entry of new players in the market, it may also lead to the payment systems being used for illicit purposes. Regulators may as well get the major stakeholders to understand this dilemma. By doing this, hopefully the regulators will be able to apply a more stringent regulatory regime to protect public interest, but at the same time do not unduly affect the viability and growth of electronic payments. | 1 |
We should envisage that terrorist financiers will attempt to benefit from anonymous transactions made possible by innovations of new payment products and services such as internet-based payment systems, prepaid cards and virtual currencies. Likewise, fundraising through social media and other online platforms such as “crowdfunding” have increased in prominence, in addition to other more traditional sources of funds such as proceeds of criminal activities, conventional donations, and funding from legitimate purposes. As change is a constant, collation of data points that this environment will continue to persist. Global internet users have increased from 397 million in the year 2000 to nearly 3.9 billion as of June 2017, an impressive growth of almost 1000%. Similarly, global investment activities in the FinTech industry have increased from USD9 billion in 2010 to USD25 billion in 2016. If this trend is anything to go by, the financial industry will be hard pressed to mitigate, identify and prevent cases of abuse in the system. There is no doubt that rapid technological developments have offered immense potential for economic growth. Unfortunately, they have also spawned new ways for terrorist organisations to acquire, move and manage their funds. There are other risks not anticipated before, such as remote radicalisation via the internet that has resulted in an increase in the number of small terrorist cells and “lone wolf actors” that makes detecting and halting terrorism financing even more challenging. In light of this development, the role of financial sector as a bulwark against terrorists financing becomes even more critical. | This initiative allows for the viability of new technologies to be tested in a controlled environment while simultaneously exploring potential risks and the mitigating measures. In addition, Bank Negara Malaysia will continue to foster cooperative platforms between the authorities and financial institutions to enable “rapid responses” to terrorism financing threats. Early this year, we facilitated an information sharing platform between law enforcement agencies and selected financial institutions to swiftly and effectively mitigate risks and respond to threats. Greater access of intelligence information for financial institutions and the increased threats from ISIL had resulted in the upward trend of reporting of Suspicious Transaction Reports (STRs). To 2/3 BIS central bankers' speeches put it in perspective, in 2015, the financial intelligent unit (FIU) received 93 terrorism financing related STRs which led to 14 disclosures to law enforcement agencies. In comparison, between January and June 2017, we received 346 terrorism financing related STRs which have led to 34 disclosures to law enforcement agencies. Importantly, the quality of STRs submitted has also improved. Bank Negara Malaysia is also in the midst of finalising the details of a new requirement for the Banking and Money Services Business sector to report remittances in high risk areas. The high risk areas will be determined based on the law enforcement agency’s intelligence on areas that they view may pose higher risks for funding of terrorism activities. | 1 |
A digital pound issued by the Bank of England would provide an alternative, public, digital money an open platform, which would be available to all developers of new digital payment services. Moreover, if designed appropriately, a digital pound could complement and support new forms of private digital money and payment services, for example by acting as the ‘bridging asset’ between Page 6 different platforms enabling convertibility. By establishing technical standards available to all, it could help ensure interoperability between different platforms. Our assessment is that a digital pound, an alternative, publicly issued form of digital money, available to all, would help ensure competition and innovation and drive efficiency in payments. There are other important potential benefits. There is scope for innovation to generate further efficiencies in payments, allowing for faster and/or cheaper payments. That improvement might be facilitated by new technologies and new entrants to payments markets offering new functionalities. For example, small and medium-sized merchants pay far higher fees for accepting card payments than larger businesses[7]. Although these costs are not paid directly by customers, they may feed into higher prices in the economy overall. And cross-border transactions in particular are often very costly. The average cost of a payment sent to another country is about 6% of the value sent[8]. The digital pound could also complement existing financial inclusion initiatives, for example if it were able to provide for offline payments. It could, with international co-operation, present an opportunity to improve cross-border payments. | World Bank (2022) – Remittances Prices Worldwide Quarterly. 9. The Illustrative Scenario assumed demand for the digital pound was around 20% of retail and business deposits, which was equivalent to nearly all transactional deposits in the banking system. This assumption is particularly cautious for higher interest rate environments when deposits would be expected to pay holders somewhat more interest than an (unremunerated) digital pound. 10. Specifically, a limit of £ would allow 75% of UK income earners to hold their salary, pre-existing balances as well as an illustrative 10% bonus or overtime payment. 11. See for example the work the Bank of England has done with regard to omnibus accounts. 12. See for example BIS Innovation Hub projects looking at this topic - such as mBridge , Icebreaker, Dunbar and Jura. Page 12 13. Last year the Bank set out its thinking and approach on many of these elements through a consultation on the roadmap for RTGS beyond 2024. See also The road to enhanced payments - speech by Victoria Cleland | Bank of England. As noted, this effort is complemented by work ongoing at the BIS Innovation Hub London Centre to look at the potential benefits from synchronisation under Project Meridian. 14. See Bank of England: ‘New Forms of Digital Money (2021)’ - Stablecoins are cryptoassets that aim to reduce volatility by pegging their value to government-sponsored – or ‘fiat’ – currencies. 15. For an overview see Gaining momentum – Results of the 2021 BIS survey on central bank digital currencies 16. | 1 |
The labour supply Because labour force participation varies so much in different age groups, the future age structure is highly significant for the labour supply and thereby also for growth. The Nordic countries have generally high activity rates, around 87 per cent in the age group 25-54, compared with the other European countries. In the oldest age group, participation has decreased over the last 10 years. One reason for this is that the retirement age has fallen. In Sweden today, the actual age of retirement is 62 years. The only group in which there has been a rise in the labour supply in recent years is elderly women, since those that live to a higher age today are better educated than their predecessors. The proportion of elderly in the population is growing larger throughout Europe, and the Nordic countries are no exception. At present, 16 per cent of the European population are 65 years or older. This percentage is forecast to increase to 18 percent by 2010. If we look instead at the number of people over 80 years in Europe, this will double over the next 15 years. According to Statistics Sweden, the proportion of people in Sweden that are 65 years or older will rise from 17 per cent today to 23 per cent in 2050. Meanwhile, the economically active proportion of the population, those between 20 and 64 years, will decline from 59 per cent in 2002 to 54 per cent in 2050. | While we don't believe that resource utilisation will exert any pressure on prices and wages so soon, increasing demands for restraint will be placed on labour market organisations as economic activity gains impetus. Concluding remarks The main problem that I have discussed has been the implications of an ageing population for the Nordic countries and the resultant imbalance between the supporters and the supported. The problem is aggravated further by the fact that it will become difficult to maintain high taxes as a result of globalisation. So the great challenge facing the Nordic welfare states in the future is a combination of two processes that are both important and difficult to influence. BIS Review 46/2003 5 The demographic changes will entail a loss in tax receipts due to fewer people in work while expenditure on pensions and healthcare will rise. At the same time, globalisation and openness has made it easier to transfer money abroad or to live and work in other countries. Our tax bases have in other words become more mobile, which reduces the scope for high-tax policies. In Sweden we have taken certain preparatory measures, including a reformed pension system to enable the public finances to bear the costs of an increasing number of retirers. In this respect, Sweden has been a leading country from a European perspective. We have also consolidated our public finances thanks to our surplus target. This has laid firmer foundations to meet future demands. The question is whether it is enough. | 1 |
When there is confidence that the inflation target will be attained, high wage growth creates expectations of a tight monetary policy and relatively high interest rates. High returns make it attractive to take krone positions. Increased demand for our currency boosts the international value of the Norwegian krone. If wage growth slows , and we can be confident that it will remain low for the next few years, the interest rate differential against other countries can be narrowed. This will normally lead to the krone depreciating. Over the last thirty years, manufacturing has been scaled back in waves, and particularly sharply in the period 1977 to 1987. In the years leading up to the periods of contraction, profitability weakened in the manufacturing sector. It can take time before such a deterioration translates into lower output and BIS Review 49/2002 11 employment. But when the turnaround hits, it tends to hit fast and hard. It now appears that a new period of downscaling is under way. Several factors point to this: first, a trend analysis indicates that manufacturing employment will be reduced in the period ahead, partly because petroleum investment is expected to decline and productivity growth in manufacturing to be somewhat higher than in other industries. Second, manufacturing costs have increased sharply since 1998 as a consequence of high wage growth. Up to the summer of 2000, this cost increase was to some extent offset by a weaker krone. The appreciation of the krone has revealed and exacerbated the deterioration in cost competitiveness. | We do not have the instruments for fine-tuning the exchange rate. In Norges Bank’s submission of 27 March 2001 to the Ministry of Finance on the new guidelines for economic policy, we indicated that when monetary policy is aimed at low and stable inflation, this is the best contribution monetary policy can make to stability in the krone exchange rate over time. The interest rate affects price inflation through a number of channels, including the krone exchange rate. A stronger krone curbs inflation. If we take steps to counteract an appreciation of the krone when there are pressures in the economy, we reduce the possibility of keeping inflation at bay and there is a greater risk of pronounced fluctuations in the economy. Maintaining stability in the internal value of the krone must thus take precedence. As long as other countries pursue a policy of low and stable BIS Review 49/2002 7 inflation, stability in the international value of the krone is dependent on low and stable inflation in Norway The implementation of monetary policy is delegated to Norges Bank. This implies that Norges Bank sets the interest rate on the basis of our understanding of the regulation, as indicated in the Bank’s submission to the Ministry of Finance in March last year. Our interpretation places emphasis on the Government’s rationale behind the regulation, on the objective as formulated in the first paragraph and on our knowledge about the relationships between the interest rate, the krone exchange rate, output, employment and inflation. | 1 |
Today, we are also taking the opportunity of this very auspicious occasion, with the grace of Allah, to lay the foundations for another initiative, the launch of the International Centre for Education in Islamic Finance, INCEIF. The Islamic banking and financial services industry has experienced profound growth in this recent decade. This growth is expected to accelerate further global expansion in demand for Shariahcompliant financial products and services intensify. To sustain and support the future growth of the industry, an important prerequisite is the development of the talent and expertise that is needed to drive innovation and to raise the performance of the industry to greater heights. The establishment of the International Centre for Education in Islamic Finance (INCEIF) represents an investment in human capital to support the global development of the Islamic financial services industry. Human intellectual capital plays a pivotal role in driving the performance and market competitiveness of the industry. Going forward, it will be the defining factor. The fast pace of innovation in global financial services in general and in the Islamic financial services sector in particular, will demand new expertise and skills. Indeed, there will be an increase in demand for adequately qualified professionals. In this environment, the creation of a substantial pool of talent and expertise is thus indispensable for the future growth of Islamic finance. Strengthening research and development capabilities is also important for enhancing the capacity for innovation to meet the diverse requirements of the rapidly changing global economy. | The establishment of the International Centre for Education in Islamic Finance thus comes from the recognition of this need to invest in human capital to advance the industry forward to greater heights. Bank Negara Malaysia has allocated an endowment fund of RM500 million for this purpose. The income from the endowment fund will be utilised to finance the operations of INCEIF. The objective of INCEIF is to produce high-calibre practitioners and professionals in Islamic finance as well as specialists and researchers in the disciplines of Islamic finance. INCEIF will leverage on the wealth of experience of the Islamic finance industry, both in Malaysia and abroad, to provide its graduates with value added insights and perspectives, in particular for their research programmes. Malaysia's experience in Islamic finance for over more than two decades will also provide a training environment, including for internships for developing Islamic finance professionals. The required skill set in Islamic finance is unique. It needs to have the right blend of knowledge of finance with the understanding of the Shariah as being central. The Shariah principles must be embedded in every operational aspect of the Islamic financial institution, including in the design of financial products and financing structures, financial contracts and their execution, liquidity and balance sheet management, risk management as well as asset and wealth management. The upholding of the Shariah principles must permeate from the highest level, including at the broad and senior management levels. | 1 |
But now that we have passed the worst phase of that crisis, a reassessment of policy is needed. I have been arguing for some time that we should be gradually removing some of the monetary stimulus provided in the depths of the recession by raising interest rates to reflect the improvement in the economy at home and abroad and to counter the rather worrying tendency of inflation to run significantly above the 2% target set by the government. In recent months, however, there have been concerns about the sustainability of the UK economic recovery which might seem to weaken this case for higher interest rates. The GDP data for the final quarter of last year were disappointing, even allowing for the impact of the snow, and there are worries about the impact of fiscal tightening as it begins to have an impact through public spending restraint and higher VAT. There are also concerns about volatility on the international scene, with political instability in the Middle East and North Africa and the effects of the earthquake and tsunami on Japan, the world’s third largest economy. In today’s speech I want to discuss the growth of the UK economy over the current recovery and how it should be reflected in the MPC’s decisions on monetary policy. | But to my mind, the absence of a well thought-out position, with clear principles and rules, does not do away with moral hazard problems. They are still present under the surface. Ultimately it will be the tax-payer who stands to lose if actions are not well-prepared and policy is not coherent. This is our experience and I know it is also the view of, for instance, my Finnish and Thai colleagues. The strategy adopted by the Swedish authorities almost a decade ago worked relatively well. But in the absence of clear examples from other crisis management, it was arrived at by improvisation without any rules to rely on. The fact that the result was so satisfactory and the crisis could be resolved so quickly was presumably in large measure a consequence of the profound economic crisis generating a willingness to cooperate, both among politicians and in society in general. 1 BIS Review 85/2000 However, you cannot relay on that kind of spirit of cooperation, which means that a clear structure must have been established for managing acute problems. There has to be a clear division of labour between the competent authorities. The authorities concerned must have thought about the different situations than can arise and how to cope with them. In a draft legislation that was presented recently, a specific procedure, called public administration, is proposed for the reconstruction and winding up of banks. This should provide a credible way of managing problem banks that could jeopardise the entire system. | 0 |
As an example, Panel 4 shows a time series 8 / 15 BIS central bankers' speeches of the expected level of the federal funds rate at the end of 2017 for dealers and for buy-side firms; these two track each other closely. 22 On the other hand, both the dealers and buy-side community responses exhibit substantial dispersion around these medians. One explanation for the adverse reactions to Federal Reserve communications in the spring of 2013 is that the marginal investor is not the same as the median respondent to our surveys. Looking past the survey, I think there are a few key factors that differ between now and 2013 that might explain why the market reaction has been so much calmer this time. The macroeconomic environment is markedly better. Market participants have a better sense for the FOMC’s approach to increasing the federal funds rate, and there is much greater clarity on the respective roles of the balance sheet and the overnight policy rate. The normalization plan is more clearly gradual and predictable. And the balance sheet news this time around may just not have been all that surprising. I’ll talk briefly about each of these. One important difference between now and 2013 is that the labor market is very healthy, with unemployment close to levels most associate with full employment. | Under this, we are changing the education system to lighten the curriculum, encourage creativity, risk-taking and a spirit of life-long learning among our young. Second, we are setting up a $ billion venture fund to coinvest with the private sector in startups, whether by local entrepreneurs or foreign talent attracted to Singapore. Third, we are improving the physical infrastructure for start-ups, such as technology park facilities. And finally, we are reviewing existing laws and regulations, for example those governing taxation of stock options. A fourth area of change is the liberalisation of the financial sector. Our goal is to make Singapore a leading financial centre in our time zone, linked to other major financial centres of the world. Over the last two years, we have progressively shifted our philosophy on financial regulation to a lighter, more market oriented approach. We have given fund management companies greater access to domestic funds, including personal savings in the compulsory pensions scheme, and the government’s reserves hitherto managed by GIC and MAS. We are promoting the debt market, demutualising and merging the stock and futures exchanges, bringing corporate governance up to date, and introducing risk-focussed supervision and inspection of financial institutions. We are also allowing more foreign competition in the domestic banking sector. We have just issued new banking licences to foreign banks. Keener competition will mean better banking services and stronger local banks that can hold their own in a rapidly changing industry. While pursuing major economic priorities, we have not neglected to strengthen our social cohesion. | 0 |
Survey responses show the mean value for the repo-rate expectations of money market participants in February 2015. “MPR” refers to the Riksbank’s forecast for the repo rate in its monetary policy reports. Sources: Statistics Sweden and TNS Sifo Prospera But Chart 4 also shows that the repo rate has so far turned out to be much lower than the interest rate forecasts. The bonds have therefore risen in value and the funding of the bond purchases seems to become cheaper than expected, something which, at least in the short term, has led to higher profits than expected for the Riksbank. This is 11 An alternative measure of the future repo rate is provided by the market’s pricing of certain derivatives. This pricing suggested that the repo rate would increase more slowly than in the Riksbank’s forecast, but the bond purchases would realise losses also according to these market-based expectations. 6 [12] reflected in, for example, the forecast for the Riksbank’s dividend-qualifying profit in 2015 and 2016. 12 At the end of 2014, a total loss of just over SEK 10 billion was expected for those two years. 13 In March 2015, when bond purchases had begun on a small scale, the expected loss had risen to almost SEK 14 billion. The latest forecast, from October this year, has the benefit of hindsight and indicates that the outcome will instead be a profit of almost SEK 13 billion. | Following the deepening of the global financial crisis, we focused on policies to contain the adverse effects of the crisis on economic activity and financial stability, while also overseeing price stability. Accordingly, our Bank slashed policy rates and kept them at low levels for quite some time in addition to deploying supportive liquidity measures. 38. In view of the normalization in money and credit markets amid waning effects of the global crisis on financial markets, we announced our exit strategy on April 14, 2010, which encompasses the withdrawal of crisis measures and the normalization process of the monetary policy. Unlike other emerging economies, Turkey entered the global crisis with a strong and well-regulated banking system as well as a flexible and efficient liquidity management tailored to previous crisis experience. Hence, our balance sheet deteriorated only slightly due to anti-crisis measures and we were not forced to adopt radical measures during the crisis. Thus, our exit strategy was simple compared to those of many other central banks. 39. As part of the exit strategy and also considering the favorable developments in credit markets and the recovery in economic activity, the CBRT started to withdraw the temporary liquidity measures introduced during the crisis. Hence, the excess liquidity provided to the market was gradually drained in tandem with the normalization process. Moreover, as the first step of the technical rate adjustment process, the 1-week repo rate was adopted as the key policy rate in May. 40. | 0 |
Thus, the aim of maintaining the inflation target is not just about low and stable inflation being a good thing in itself, it also provides a means of ensuring that the policy rate can be used as a monetary policy tool. It is worth noting that this has implications for the argument that the central bank should not bother with inflation at all, but should focus on other things, such as solely balancing economic activity or dampening financial cycles. Doing this effectively requires using the interest rate and to use the interest rate we must have some average inflation. It may also be worth noting that there is an international debate that emphasises that as the neutral interest rate is historically low, even an inflation target of 2 per cent provides too little scope for monetary policy. The target, it is argued, should therefore be higher.9 I do not intend to bring up this debate now, but focus on 7 It is worth noting that it is not only the policy rate that is limited by a lower bound, the same applies to long- term interest rates. Quantitative easing, which aims to lower longer-term interest rates thus also becomes less effective in an environment with very low inflation, see Gagnon and Collins (2019). 8 See, for example, Broadbent (2015). 9 See, for example, Blanchard, Dell’Ariccia, and Mauro (2013), Ball (2014), Krugman (2014), Rosengren (2015) and Gagnon and Collins (2019). | When a financial system becomes impaired, there can be dire consequences for economic activity and the ability of central banks to achieve their macroeconomic objectives. Hélène’s work highlights an important global dimension to financial cycles, showing that gross capital flows, asset prices and credit often move in a synchronized way across countries as perceptions of risk change. As we now know all too well, the global financial crisis dramatically underscored the fact that instability in the U.S. financial system and those of other advanced economies imposed extraordinarily high costs on the entire global economy. Making the global financial system more resilient and less procyclical has been a key focus of policymakers since the financial crisis, and most countries have made substantial progress on this front. This is evident in stronger capital and liquidity buffers for banks, lower reliance on wholesale short-term funding, reforms of over-the-counter derivatives markets, and the development of resolution and recovery regimes for banks and key financial market infrastructures, among other efforts. Nonetheless, we must continue to work on these issues. In particular, the U.S. financial system—the epicenter of the crisis—has been considerably strengthened. Here, I would highlight additional reforms such as the Comprehensive Capital Analysis and Review (CCAR) regime, which imposes annual capital stress tests on systemically important banks; tri-party repo reform; and money market mutual fund reform. Policymakers globally have also made good progress on strengthening supervisory oversight, and are making headway—albeit more slowly—in developing effective macroprudential frameworks and toolkits. But, more work remains to be done in several areas. | 0 |
Our more partial models and assessments have some forecasting ability up to one year, but the uncertainty is considerable, even one year ahead. This is indicated in particular by the revisions to the forecasts for this year. It is thus necessary to take into account experiences of earlier financial crises. Harvard professor Kenneth Rogoff, who is also one of the advisers to the Executive Board of the 1 4 The IMF’s most recent forecast update from see http://www.imf.org/external/pubs/ft/weo/2009/update/01. the end of January 2009, BIS Review 25/2009 Riksbank, has together with his colleague professor Carmen Reinhart studied the effects of various financial crises. They consider the Swedish bank crisis of the 1990s to be one of the five most serious financial crises, “the big five”. 2 One of their studies shows that the financial crises that have occurred in industrial nations in recent decades have been followed by long periods of weak growth. 3 Seen as an average of the 18 crises reported, this concerns a period of three years of low growth and for the "big five" an average of three years of negative growth. In their most recent study of financial crises, which was presented in January, professors Reinhart and Rogoff have also chosen to include growth economies. 4 They find three common elements with regard to the consequences of the financial crises: • Firstly, house and share prices fall substantially and over a long period of time. | But experiences with the regime provided useful insight, and the ambitions were later adjusted. When confronted with shocks, small open economies in particular experienced that a rapid return to the inflation target could have undesired consequences for the real economy. 1 Norges Bank has addressed this concern by giving greater weight to output and employment. The inflation target horizon has been extended and monetary policy has gradually become more flexible. A few weeks ago, on 2 March, the Government adopted a new, modernised regulation on monetary policy. 2 The new regulation clarifies the monetary policy mandate and underpins the Bank´s flexible approach to inflation targeting. In Norges Bank ´s assessment, the new regulation will not result in significant changes in the conduct of monetary policy. 3 Let me elaborate somewhat on the implications of the new regulation. “Monetary policy”, according to the new regulation, “shall maintain monetary stability by keeping inflation low and stable.” The regulation thus clarifies the primary task of monetary policy. Price stability is the best contribution that monetary policy can make towards sound and stable economic developments over time. It does so by ensuring that inflation stays within a range somewhat above zero, while being kept under control. Since inflation targeting was introduced in Norway, inflation has been close to, but on average somewhat below, the previous target of 2.5 percent. Inflation has consistently remained within a band where the deviations from the target cannot be said to have entailed significant economic costs. | 0 |
If it turns out that the anticipated fall in asset prices does not materialize, the policy constructed under the assumption of a decline will likely have been too easy, and that might itself contribute to further rises in asset prices. This might sound like a more or less generic statement about the perils of having to make policy based on forecasts, but there is a sense in which the forecasting of asset prices, or indeed even understanding the driving forces behind movements in asset price after they have occurred, is particularly challenging. This is why there is a vast literature focusing on these challenges and characterizing the many "puzzles" of the behavior of asset prices. More generally, despite the fact that policymakers can’t be completely confident in their assessment of the future path of asset prices, it seems unavoidable that these assessments will factor into policy decisions. This is not to say that central banks should lean against bubbles or against asset price movements themselves. Nor should the appropriate response to a given change in asset prices be to change policy by more than what would be appropriate to address the effects on the central objectives of the central bank. But policy, in some circumstances, will need to respond to asset price movements when those movements alter the central bank’s assessment of the risks to its outlook, and that change in the assessment of the risks to the forecast should be part of the central bank’s communication with the public. | Again, we are seeing the two-way flow of talent for the different areas of professional expertise and the workforce leading to an increasingly diversified background of employment in different parts of the world. Malaysian professionals can be found in every continent in wide ranging areas of employment. Let me turn to the participation of women in the economy. About half of the Malaysian population are women and they account for about 47% of the workforce. The representation of women at the professional, managerial and technical levels has increased from less than 30% in 1990 to about 40% currently. Such progress has been achieved given the educational opportunities that have been made available to women. Literacy rates among women is about 90% due to the countries comprehensive and inclusive education system. Female primary and secondary students account for half of total enrolment, while at the public universities, female students account for 55% of the total enrolment. It is this educational foundation which has accorded equality to women in Malaysia . It has enabled women from all walks of life and backgrounds to contribute and participate fully in Malaysia's economic prosperity. Women in Malaysia have also participated significantly in the small and medium enterprise sector of the economy. A significant number of women run family businesses makes up a large part of this sector. | 0 |
Then, we used to stand in line to receive a pay packet, life assurance employees bicycled round to customers’ homes to collect premiums and almost everyone stood in line at the post office to pay their rent, electricity bill, etc. From freedom to regulation and the return to freedom The conditions for Sparbanken Gripen and the financial sector have certainly varied over the past 150 years. During the first part of this period, the financial sector was able to operate under considerable freedom. Bank deposits were developed as a basis for the banks’ lending. This meant that the banks created money by expanding credit to the extent that they dared to reduce their reserves. The banks also played an important role in the foreign borrowing that occurred, mainly in the form of bond issues in Germany and France. The banking system was particularly expansionary around the year 1900, when many new banks were established. Some of these did not last long. In 1907 the financial sector suffered a widespread crisis and many banks went into liquidation, were refinanced or taken over by other banks. The next financial crisis coincided with the deflation at the beginning of the 1920s. This crisis was particularly severe in rural Sweden, partly because of a severe fall in agricultural product prices. Deflation made the situation difficult for farmers encumbered with debts and thereby for the banks active in rural areas. | There has also been some further deregulation. For instance, state monopolies have been abolished and freedom to establish new companies with regard to, for instance, transport, communications and energy has been introduced. Changed competitive conditions thus affect productivity growth, but they can also affect price developments more directly. Despite the fact that we gained much stiffer legislation on competition in 1993, developments in this field appear to be moving slowly. Swedish prices remain higher than in other countries in several areas without explanations for this in the form of differences in VAT rates and wage levels. Increased competition can contribute to price levels converging, but this assumes that the relative price changes will be accepted and it can entail, as in the 1990s when electricity and telecommunications were deregulated, such large price reductions in some sectors that our inflation rate will be lower than that of other countries. Special interests and consumer interests Limits to competition are a clear example of how special interests dominate over general consumer interests. There are many examples of this in various areas of the Swedish economy, and in particular the construction sector. This means that we allow inefficiency to remain, which reduces growth and the development of most people’s standard of living. One interesting and very recent example of how special interests have declined concerns pharmaceutical prices. | 1 |
The public bank was tasked with estimating the value of the 500 or so different coins that were around and exchanging them with its own currency, the rijksdaalder. By having a single currency, the highly chaotic system was improved, and the bank quickly became a hub for settling international payments.2 The modern banknote In Sweden, problems with the coin system were of a different kind. At that time, Swedish coins were made of copper, not gold or silver. As a consequence, they had to be quite sizeable, as their value still depended on the metal used. Obviously, this made daily purchases a fairly heavy exercise. But again, great ideas seemed to come to our rescue when Latvian-born Dutchman Johan Palmstruch, with the blessing of Charles X Gustav, set up Stockholms Banco to issue the first ‘modern’ European banknotes. This was in 1661. However, Mr Palmstruch hadn’t thought it through properly. Or at least, he had underestimated the collateral needed to operate a business like that. When people started to queue up outside the bank to have their notes redeemed, he quickly ran out of metal. The bank was liquidated in 1667, and poor Mr Palmstruch was imprisoned, though reprieved from his initial death sentence. The year 2 See, for example, Gerarda Westerhuis , and Jan Luiten van Zanden, ‘’Four Hundred Years of Central Banking in the Netherlands, 1609–2016’’, in Sveriges Riksbank and the History of Central Banking (2018): 242–264, for more about Amsterdamsche Wisselbank. | Nevertheless, in the last couple of years, most measures of inflation expectations, be they survey-based or market-based, have pointed in the same direction of a prolonged period of too low inflation, well below our target of being close to but below 2% over the medium term. As a consequence, monetary policy has become progressively more accommodative. First, in a context of fixed rate full allotment introduced on the 15th of October in 2008 to offset liquidity risk in the market by ensuring banks’ continued access to liquidity, we have introduced forward guidance to avoid an unwarranted tightening of the effective monetary policy stance. Initially implemented in July 2013, this guidance was “firmly reiterated” in early 2014 and remains in place today. Second, the Eurosystem introduced targeted longer-term refinancing operations (TLTROs) and the asset purchase programs for covered bonds and asset-backed securities in June 2014, with the goal of improving the transmission of our monetary policy. Third, the main refinancing rate was cut to 5 basis points and the deposit rate entered into negative territory in two steps (–20 basis points). However, by January this year it was clear that economic recovery as well as monetary and credit indicators were too weak to bring medium term inflation close to but below 2%. Marketbased measures of inflation expectations, even if prone to liquidity shocks, had been falling further below the target and at longer term horizons. The Governing Council was determined to act boldly to counteract the risk of a too low for too long inflation. | 0 |
As well as giving me a different window on the world, these experiences were fuel for the imagination. That links to the second factor – social capital, the relationships we grow as individuals. “Grow” is the right word here because these working relationships, like any relationship, need to be fed and watered. Remote working inhibits our ability to cultivate and grow these working relationships. It has meant social capital has been another casualty of the crisis, with existing capital run down and new capital not built to replace it. Virtual meetings can be an efficient way of getting things done, indeed often more effective than the physical alternative. The Monetary Policy Committee (MPC) on which I sit and which sets interest rates has taken place virtually since March, having never taken place virtually in the more than 20 years prior to March. MPC deliberations have been no less effective, and MPC decisions no less expeditious, for this shift. What virtual meetings risk losing, however, is the capacity to explore uncharted territory, to share tacit knowledge and personal information. Those informal between-meetings conversations are, in my experience, the bedrock of relationship-building and the key to trust–building. It is the loss of those informal 23 24 Opezzo and Schwartz (2014). Barrero et al (2020b). 8 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 8 moments that has resulted in many of us running down our past stock of social capital for the past six months. This cannot be done indefinitely. | I always knew that I picked up a lot of information from the unscheduled time between meetings, when informal and sometimes chance conversations take place. Having now lived without them for 6 months, I now realise these informal non-meetings were often my main source of information. The informal chat in the 5 minute walk from the lift to my office often contained more useful knowledge than the subsequent one-hour meeting in my office. The other week I spoke to the Bank’s new crop of graduates. When I was in their shoes, almost all of my knowledge came from informal conversations in the pub with my graduate cohort on their jobs, bosses and experiences, rather than from listening to talking heads like me. This year all of that is lost and, with it, a significant down-payment of social capital. Those losses are being replicated among organisations right around the world. This social capital, once lost, will be difficult to reacquire. Whether it is creative sparks being dampened, existing social capital being depleted or new social capital being lost, these are real costs and costs which would be expected to grow, silently but steadily, over time. They weigh on the other side of the ledger when it comes to assessing the case for home-working. They cast doubt on whether it will lead to the promised land of improved productivity and greater happiness. If you asked me if I am happier working from home, I genuinely would not know. I do not miss the commute. | 1 |
A key challenge for Islamic financial institutions is to attract a knowledge-based workforce with the skills required to enhance the potential for innovation, productivity and performance. The Islamic financial services industry needs to continually promote human capital development and expertise to create a larger pool of experts and high calibre professionals. This involves attracting and retaining the existing talent, and building a robust pipeline of skilled individuals for the future. In addition, specialists in Islamic finance would need to combine knowledge and understanding of the Shariah with the necessary skills in finance. The provision of training and career development will have a key role in the sector. Learning systems therefore need to be strengthened to meet the skills and talent requirements of the next decade. Training is a joint responsibility between the industry, academia and Government. In Malaysia, the Government plans to establish an international financial training institute on Islamic finance. The ground work to establish this institute has already commenced. While this may meet some of the requirements, Islamic banking institutions are also encouraged to explore the feasibility of entering into collaborative arrangements with universities and other institutions locally and abroad, to identify and provide specialized training for the financial services industry. These would include training workshops and courses in new and emerging product lines which require specialised skills and expertise. Education of graduates and other personnel entering the Islamic financial market is also important. | Undergraduate opportunities to study Islamic finance or Shariah, either as a speciality or a major component of a business degree, should be readily available at local and foreign universities. The challenge is to provide programmes which keep pace with changes in financial innovation and technology. Meeting this need requires rigorous, extended programmes such as the post-graduate programmes in Islamic Finance and Financial Engineering with emphasis on Islamic banking principles. At the same time, relevant organizations can support such programmes by creating funds to sponsor promising students to pursue formal education, ranging from modular courses in Islamic finance to full post-graduate programmes. There is also a need to increase programmes and initiatives that provide education and training in Shariah. Islamic research organizations and financial institutions need to work towards developing a sufficient number of competent Shariah scholars who are equipped with sound knowledge and expertise in both Islamic jurisprudence and Islamic commercial laws to deal with innovative and cutting-edge products. There is also the need for extensive education of the consumer and business community. This would increase the outreach resulting in increased demand for new and innovative products and approaches. Malaysia has implemented a 10-year structured consumer education programme to increase the level of consumer awareness on the unique characteristics of Islamic financial products and the product choices offered by Islamic financial service providers. Increased awareness will drive the demand for a broader range of Islamic products and services customized to their requirements at more competitive prices and through more convenient channels. | 1 |
11 Assuming that the improvement in the outlook is not endogenous to the chosen policy setting to the extent that it would disappear if purchases were slowed. 4 BIS central bankers’ speeches Because growth this year will be constrained by fiscal consolidation, there is a risk that this could happen again. As a result, it is premature to conclude that we will soon see a substantial improvement in the labor market outlook. Efficacy of the asset purchase program exceeds the costs Our asset purchases are also conditional on our ongoing evaluation that the efficacy of the program exceeds the costs. That clearly has been the case to date – affirmed by our policy decisions. Since we put the outcome-based approach in place in September, my assessment is that efficacy has been as high or higher than I expected at the onset of the program, and costs the same or lower. Efficacy has two components: the effect of the purchases on financial conditions and the effect of financial conditions on the economy. Our latest purchase program has been associated with a substantial easing in financial conditions, higher equity prices, and narrower credit spreads. The resumption of additional agency MBS purchases in September pushed down MBS yields. With some lag, much of the drop in yields has been passed through to primary mortgage rates. Meanwhile, the impact of the improvement in financial conditions on the real economy has been somewhat stronger than I had expected. | 15 Among many other changes, the Dodd-Frank Act allowed banks to pay interest on corporate deposits, and those depositors, because they deposit large amounts, are likely more interest-sensitive, than individual depositors. Furthermore, the wholesale money market is intensely competitive, and, as evidence that reserves are distributed across banks in a way that reflects competitive considerations, note that currently, reserves are held in disproportionately large amounts by Foreign Banking Organizations. The reason I think this happens is that those FBOs do not have to pay the FDIC assessment fee on their liabilities (as they hold no U.S. deposits). That suggests that all banks face competition in attracting liabilities to match their reserve holdings, and that the FBOs, because they face a lower cost in doing so, have managed to attract those deposits at a faster clip than domestic banks. This is the sort of competition that I expect to see that will result in the interest on reserves being passed through by banks to their customers and to the broader economy. BIS central bankers’ speeches 7 Moreover, even if we were to put any weight on this consideration, the incentives go the other way – our enlarged balance sheet creates an additional reason to tighten monetary policy in a timely way. If the Fed were to delay in raising short-term rates to protect its current earnings, inflation would rise and this would push long-term rates higher. This would just necessitate a bigger rise in short-term interest rates and a greater loss of earnings later. | 1 |
And we need, and will most probably also obtain, better support from the framework for financial stability that we and others are now working to develop both in Sweden and abroad. When this project is complete, it will contribute to monetary policy more rarely needing to take into account untenable developments in the housing and credit markets. But I do not think we can achieve an entirely “bubble-free” world. 10 BIS Review 70/2010 | This is because greenhouse gas emissions stemming from the financial sector are very low and also because the activities it engages in do not significantly affect the environment. While this is true, the financial sector is actually highly exposed to risks associated with climate change by funding other sectors including those that are exposed to extreme weather events or those that will be affected by the transition to a more sustainable economy. Therefore, climate change poses two types of risks for the financial sector: physical risks and transition risks. First, physical risks are those that would materialise as permanent alterations of the climate, if we do not act to prevent global warming. Natural disasters would then become more frequent and their economic damage probably greater. In fact, there is evidence that such risks are already materialising to some extent: according to the FSB,2 global economic losses associated with catastrophes related to weather events have doubled since the 1990s, up to USD1.6 trillion over the last ten years. And while it’s true that financial markets and instruments covering these risks have been developed, these developments are unlikely to fully tackle the challenges of climate change due to: (i) the sheer magnitude of climate risks; (ii) the sizeable exposures of the financial sector to this form of risk; and (iii) the presence of externalities. The financial sector is exposed to these physical risks through several channels. Physical risks are of course relevant for the valuation of real estate assets, the main collateral of bank loans. | 0 |
The same message was also conveyed repeatedly by my predecessors, in three quarters of all press conferences since the introduction of the euro. The term “structural reforms” is actually mentioned in approximately one third of all speeches by various members of the ECB Executive Board. By comparison, it features in only about 2% of speeches by governors of the Federal Reserve. Our strong focus on structural reforms is not because they have been ignored in recent years. On the contrary, a great deal has been achieved and we have praised progress where it has taken place, including here in Portugal. Rather, if we talk often about structural reforms it is because we know that our ability to bring about a lasting return of stability and prosperity BIS central bankers’ speeches 1 does not rely only on cyclical policies – including monetary policy – but also on structural policies. The two are heavily interdependent. So what I would like to do today in opening our annual discussions in Sintra is, first, to explain what we mean by structural reforms and why the central bank has a pressing and legitimate interest in their implementation. And second, to underline why being in the early phases of a cyclical recovery is not a reason to postpone structural reforms; it is in fact an opportunity to accelerate them. The importance of structural reform Structural reforms are, in my view, best defined as policies that permanently and positively alter the supply-side of the economy. | All this confirms my main contention that the current environment, per se, creates no reason for delay. Conclusion Let me conclude. The economic outlook for the euro area is brighter today than it has been for seven long years. Monetary policy is working its way through the economy. Growth is picking up. And inflation expectations have recovered from their trough. This is by no means the end of our challenges, and a cyclical recovery alone does not solve all of Europe’s problems. It does not eliminate the debt overhang that affects parts of the Union. It does not eliminate the high level of structural unemployment that haunts too many countries. And it does not eliminate the need for perfecting the institutional set-up of our monetary union. But what the cyclical recovery does achieve is to provide near perfect conditions for governments to engage more systematically in the structural reforms that will anchor the return to growth. Monetary policy can steer the economy back to its potential. Structural reform can raise that potential. And it is the combination of these demand and supply policies that will deliver lasting stability and prosperity. BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches | 1 |
The present situation is difficult for the export industry and for parts of the tourism sector. We should not forget, however, that enterprises in the rest of Europe also have to contend with unfavourable conditions. High inflation or calls for massive pay rises, as seen in some countries, may cause production costs to surge. Switzerland as an industrial location remains attractive. Its advantages include low inflation, high social stability, performance-oriented and welltrained employees, trade unions with an awareness of economic correlations, a first-rate public infrastructure and administrative system and, last but not least, a low interest rate level and favourable financing possibilities in a first-class financial centre. The export industry's situation should improve rapidly once the global economy, and in particular the European economy, start to rebound. Experience has shown that the export industry always does everything in its power to further increase its productivity and to remain competitive internationally in the current exchange rate environment. Its efforts must be supported by a strengthening of domestic competition in Switzerland. The export industry will remain a key engine of growth in Switzerland and an essential basis of our prosperity. 2 BIS Review 39/2002 The main ticks on the horizontal axis indicate the beginning of the first quarter of the respective year. The value for each quarter is recorded in the middle of the quarter. | Minister Iswaran spoke yesterday about how government agencies are working with SMEs to help digitise their business processes and take advantage of e-payments. I need not elaborate. I will just give an example. • It often does not make sense, especially for an SME, to adopt an e-payment solution or platform but continue to use paper invoices. • Reconciliation of paper invoices with e-payments becomes a challenge, and the potential efficiency gains from e-payments will remain elusive. • Only if the business processes from front-to-back are all digitised and integrated with e-payments, will it make commercial sense and raise productivity. Conclusion Let me conclude. This is a conference on FinTech and financial inclusion. Of all the developments in FinTech, it is in payments where the gains in financial inclusion are potentially strongest – for the simple reason that we all need to use payment services to participate in the economy and society. As we proceed along our path towards becoming an e-payments society, the way we live and work will change. • 6 Diners will pay for dinner seamlessly and securely with a mobile phone. BIS central bankers’ speeches • Parents will send pocket money to their children via an app. • Young couples will make the down-payment for their HDB flats on their tablets using FAST. • SMEs will use electronic inventory management platforms to make and receive payments. An e-payments society will be inclusive, innovative, and perhaps, even inspiring. Thank you. | 0 |
The limit for how long and how much monetary policy can raise employment is determined in practice by the economy’s long-term growth potential, which in turn depends partly on how well the labour market functions. When we conduct monetary policy with an inflation target, this means under normal circumstances that we can help stabilise actual output around its long-term potential. If the Riksbank is to be able to take any account of employment in the short run, however, it is particularly vital that economic agents have confidence in monetary policy and the inflation target; this is a clear lesson from the situation in the 1970s and 1980s. As you know, the principal instrument we use to try to meet the inflation target is the repo rate. We set this rate with the aid of forecasts of inflation a couple of years ahead. Naturally, a lot can change in the space of two years so that our forecasts do not prove accurate. We can make up for this to some extent by being able to change the rate in the light of new information. But we can’t compensate entirely for such events, of course. Sometimes, developments affect inflation at very short notice: a sharp hike in electricity prices, an equity price bubble that bursts, a war that heightens unease in the world and curbs demand, etc. | This is one considerable difference compared with the developments in the 1970s and 1980s. While real wages have risen by about 2.5 per cent a year since 1995, the annual increase in real wages was no more than around 1 per cent in 1970-89. So, even though nominal wages rose more than 9 per cent a year during the 1970s and 1980s, purchasing power improved by only about 1 per cent; the high inflation and devaluations eroded the rest. In fairness, I should add that in addition to the shift in stabilisation policy regime there were a number of significant changes in other areas too that may have contributed to the robust performance. For example, the rapid advances in information technology are likely to have contributed to the improved productivity. Another important factor underlying the stronger recorded productivity growth in the whole economy is the relatively smaller role of the public sector today compared with ten years ago. Yet another feature of the performance of the last ten years is deregulations and increased international competition, the latter boosted by membership of the EU and the ongoing integration of the world economy. So, Sweden’s economic performance after the crisis in the early 1990s has been healthy in many respects. This does not mean that there are no problem areas. One of these is employment. There was indeed a relatively fast upturn in employment after the crisis years. | 1 |
I will look at both the underlying economics of the Fund, and on how we have structured our management model. As our "liabilities" are rather intangible, a broad approach is necessary in order to convey the major principles behind our model. The source of our Fund is commodity wealth. So let me start by putting the petroleum sector in Norway into perspective. In 2006 government oil revenue amounted to 36 per cent of total government revenues. That is a high figure, but it also implies that Norway has a substantial tax base (64 per cent) in addition to our natural resources. The Government Pension Fund has two main objectives: One is to serve as a savings instrument with an aim to distribute our national wealth in an equitable manner across generations. The petroleum resources are part of our national wealth and belong not only to the current generation but also to future generations. Second, even though Norway has a fairly diversified tax-base, the large variability in the price of oil would have caused large demand fluctuations in the Norwegian economy, if petroleum revenues were to be used as they accrue. Moreover, internationally exposed industries would suffer a negative impact from high-level spending of petroleum revenues through a deterioration in competitiveness. Hence, an important objective for the Fund is to shield the economy from fluctuations in prices and extraction rates in the petroleum sector, which is one reason why the Fund is not allowed to invest in Norway. | Pablo Hernández de Cos: Close of the 2019/20 academic year Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain and Chair of the Basel Committee on Banking Supervision, at the Centro de Estudios Monetarios y Financieros (CEMFI), Madrid, 10 July 2020. * * * Good afternoon class of 2020. Good afternoon dear colleagues, friends and families. It is a pleasure for me to participate in this virtual graduation ceremony together with Mari Luz Morán, Rector of Universidad Internacional Menéndez Pelayo, Susanna Esteban, Director of the Master Program, and Rafael Repullo, Director of CEMFI. I would especially like to thank the Rector for being here today. The partnership with Universidad Internacional Menéndez Pelayo dating back to 2006 has been instrumental in improving our ability to attract excellent students and the quality of our graduate program, and I am very grateful for this. Before I begin, let me acknowledge everyone whose hard work has made this online celebration possible, especially the CEMFI administrative and IT staff. The world into which this class of 2020 is graduating is a fundamentally different one from what we expected just a few months back. The coronavirus pandemic has caused the loss of many lives and affected the livelihood of millions of people worldwide. | 0 |
The current financial turmoil is here to remind us that financial innovation is not a smooth process. An appropriate knowledge of the mechanisms through which monetary policy affects the economy is of crucial importance for central banks. Financial innovation affects these mechanisms by altering the channels through which monetary policy operates. Drawing on some lessons from the current turmoil, I would like to make four points. First, securitisation has created new uncertainties in the transmission channels of monetary policy. It may have weakened some channels and strengthened some others. At least in normal times, financial innovation significantly weakens the bank-lending channel. Securitisation gives firms broader access to capital markets and, as such, makes them less dependent on bank funding. Similarly, banks may be more able to issue debt securities and less dependent on the constraint of funding themselves with secured deposits. At the same time, however, securitisation strengthens the “direct” transmission channel through which interest rates operate, since a great number of financial intermediaries are more dependent on liquidity and on its price. Second, financial innovation – to the extent that it makes it easier to take risks and encourages the “search for yield” – may have increased the impact of monetary policy because, in such an environment, risk premia are highly procyclical and move in tandem with interest rates. Third, this same procyclicality of “risk taking” can lead to booms and busts, when investors’ appetite for risk changes. | In this way, the systemically important banks benefit from the implied state guarantees. For instance, through attracting more customers or being able to pay lower interest rates to their financiers. However, when the survival of smaller banks is threatened, they are left to their fate. The Basel Committee is now discussing the possibility of systemically important banks having an additional increase to the capital requirement I mentioned earlier. This additional requirement would further increase these institutions’ resilience, as problems in these banks to a greater 8 BIS Review 159/2010 degree affect other parts of the financial system. Switzerland has decided to introduce such requirements anyhow. But here in Sweden, too, we need to continue the work on strengthening the financial system. We must, for instance, ensure that we have an effective regulatory framework for winding up banks in distress so that their operations can continue at the same time as the shareholders have to bear the costs. And this does not only apply to large, systemically important banks. In the wake of the HQ crisis, both Finansinspektionen (the Swedish Financial Supervisory Authority) and the Swedish National Debt Office have expressed concern regarding the difficulties in dealing with banks in distress. The Riksbank shares this view. Fortunately, the EU is carrying out extensive work on providing the conditions and tools to facilitate dealing with banks on the verge of bankruptcy. As I mentioned earlier, it is good that the Basel regulations will make greater demands regarding the banks’ liquidity. | 0 |
Let’s make sure we don’t waste this opportunity. 1 Notional value outstanding; see: www.bis.org/statistics/d7.pdf. 2 See Judgment of the General Court (Fourth Chamber) of 4 March 2015, United Kingdom of Great Britain and Northern Ireland v European Central Bank (ECB), Case T-496/11. 3 See www.ecb.europa.eu/ecb/legal/pdf/oj_joc_2017_212_r_0004_en_txt.pdf 4 4/5 BIS central bankers' speeches 4 Listed in Chapter IV of the Statute. 5 See Judgment of the European Court of Justice, §153 in case C 370/12 (Pringle case). 6 See Judgment of the Court (Grand Chamber) of 16 June 2015, Peter Gauweiler and Others v Deutscher Bundestag, Case C 62/14. 5/5 BIS central bankers' speeches | In addition to surveys, international organizations have mobilized to develop a range of indicators to assess the different dimensions of financial inclusion. Since the Cannes Summit in 2011, the G20 has focused on developing financial inclusion indicators, including indicators on access to and use of financial services, financial literacy, and the quality of financial service provisioning and consumption, as part of a continuous reflection process integrating new international trends in this field, notably the development of new distribution models and the emergence of digital financial services. The AFI also published a set of basic indicators on access to and use of financial services in 2013 and on quality in 2016 with the aim of harmonizing data among its members by providing them with a common tool to ensure comparability and foster peer learning. Ladies and gentlemen, In Morocco, since 2007 both the Ministry of Finance and Bank AlMaghrib have considered financial inclusion as a major instrument to develop a comprehensive strategy of the financial sector by 2020 which aims to deepen the national banking market, develop capital markets and position our country as a regional financial hub. Through our commitment to the Maya Declaration in 2013, we announced our pledge to promote access to and use of quality financial services based on sound and solid foundations. That same pledge was 4 reaffirmed in 2016 as part of the roadmap of aligning the Moroccan financial sector to sustainable development goals at the COP 22 held last year in Marrakech. | 0 |
If each country were to go its own way, the market for the relevant financial instruments would become too fragmented. The ECB welcomes current proposals which foresee the introduction of non-preferred senior debt instruments and a general depositor preference rule. This would further facilitate bail-ins. The second question is: what happens if the Single Resolution Fund runs out of money? What if there’s a major crisis, and the € billion is not enough to cover the losses? Well, in such a situation we would need a common European backstop for the SRF. And we need it quickly, and in any case before 2023, which is when the SRF will reach its target volume. European leaders committed to this when setting up the SRF, and they should stick to their commitment. The backstop could take the form of a direct credit line from the European Stability Mechanism to the SRF. The important thing is that it can provide both solvency and liquidity support. And now to the third and final question: has public support for failing banks really become a thing of the past? “Almost” is the answer to this question. And the rules are now such that any public support for a bank in fact triggers a “failing or likely to fail” decision. There are a few exceptions, however. One of these is known as precautionary recapitalisation. It allows governments to recapitalise banks using public funds. But the scope for this kind of state aid is very narrow. | This is with the view of facilitating greater efficiency in the provision of appropriate services by financial planners and financial advisers in response to consumer needs and demands as well as to pave the way for greater convergence in the financial planning industry. I would strongly encourage financial planners licensed by the Securities Commission to take advantage of the opportunity to apply for a financial adviser licence or become a financial adviser’s representative through this greenlane approval process and expand your current business scope. Some of the measures implemented earlier to promote the development of financial advisers include facilitating the transformation of the tied agency force into financial advisers’ representatives by allowing tied agents to continue receiving renewal commissions during the transition period of five years. These measures are indeed a reflection of Bank Negara Malaysia’s serious effort and commitment to continuously promote the development of financial advisers as a new distribution channel for financial products and services. Moving forward, the financial services intermediary sector which includes financial advisers, would be gradually deregulated and liberalized to pave the way for self-regulation with the expectation of continuous improvement in service standards. We believe that professional pride and aspiration of intermediaries such as financial advisers will provide the necessary self-discipline to ensure orderly development of the sector. In this regard, Bank Negara Malaysia and the Securities Commission are working together with key industry players in formulating a workable self-regulatory regime for the financial advisory and planning industries. | 0 |
The fall in market interest rates has also played its part in narrowing the net interest margin, since the cost of liabilities, and especially of deposits, which are the main source of funding for Spanish banks, tend to be less sensitive to changes in market returns than the remuneration of assets. This effect heightens when interest rates move close to cero, since this level has served as a lower bound for the cost of deposits. The reason for this downward stickiness in the cost of deposits is that negative interest rates in these instruments could reduce the supply of funds, especially in the case of households, as they would prefer to hold cash, which has zero but not negative remuneration, rather than deposits. An analysis of the average loan-deposit gap in the case of outstanding balances shows that there is in effect a historically positive relationship between this variable and the level of market interest rates. Nevertheless, the fact that since 12-month EURIBOR turned negative in February 2016 the loan-deposit gap has not narrowed and in fact has widened is quite striking. There are two reasons for this. The first is that average remuneration of loans has been sustained in recent years by the decline in non-performing loans, which has reduced the proportion of loans not earning interest. The second reason is that in February 2016 there was still some margin for decline in the cost of deposits, which averaged 0.35% for outstanding balances and 0.20% for new business. | Yet on the other hand, adopting technological innovation may also mean efficiency improvements for banks, although it is true that in the short term adapting to the new way of providing financial services and managing their assets will entail hefty costs for established banks. For society as a whole, the use of new technologies in finance may mean significant advantages in terms of cost savings and financial inclusion. As regulators, we have to promote the adoption of innovation while continuing to treat all participants symmetrically so that regulations governing the same activities are comparable, irrespective of the type of company providing the services. As I mentioned earlier, the decrease in non-productive assets has been one of the main factors which has contributed to the return to profitability of the Spanish banking system in recent years. Nevertheless, although it has decreased significantly, the share of these assets in banks’ balance sheets continues to be historically high and, consequently, banks should take advantage of this point in the cycle to make further progress in this area. Another important challenge for Spanish banks relates to the need for them to achieve reputational improvements. After the economic crisis, litigation increased notably, resulting in sizeable costs for banks which have a negative effect on their profitability. This increase in legal costs is not confined to the Spanish banking system but has also been observed in other jurisdictions. | 1 |
I will though: update on progress towards a global Insurance Capital Standard; talk about the fledgling UK market for Insurance-Linked Securities and our own new insurers unit; reiterate the messages on underwriting and reserving in wholesale insurance and reinsurance markets from Anna Sweeney’s Dear CEO letter earlier this year; discuss capital management, building on a Supervisory Statement we published in May; share some data we collect on the sensitivity of the capital surpluses of UK life insurers to various market movements and encourage greater consistency in disclosure of such sensitivities by insurers as well as of the drivers of changes in their capital positions over time. Update on progress towards an International Capital Standard The International Association of Insurance Supervisors (IAIS) began work on an international capital 1 standard (ICS) for Internationally-Active Insurance Groups in 2014. A third consultation paper on ICS version 2.0 will close on 30 October. I encourage UK insurance groups to take part in this consultation and in the final round of field testing next year. The Standard will then be finalised ahead of a five-year monitoring period starting in 2020. During this period Internationally-Active Insurance Groups will report a reference ICS confidentially to their group-wide supervisors, including for discussion in regulatory colleges. But it will not be the basis of their regulatory capital requirements. Calculation of the reference ICS and the additional reporting is not meant to be burdensome. | We are also monitoring consumers' needs regarding access to funds, including stimulus payments, through traditional deposit accounts, as well as for individuals without a traditional banking relationship who utilize pre-paid cards. Conclusions Taken together, these steps demonstrate the Fed's strong commitment to help the U.S. banking system support the U.S. economy and protect consumers during the COVID-19 pandemic. We are aware, however, that many low- and moderate-income and minority communities remain severely impacted. The regional partnership between the New York Fed and socially responsible providers of capital continues to inform our understanding of the needs for access to credit for these critical small businesses. We will continue to work with you to ensure that the financial system acts as a source of strength to support all segments of the U.S. economy. Thank you. 1Agencies issue revised interagency statement on loan modifications by financial institutions working with customers affected by the coronavirus 2Federal Reserve provides additional information to financial institutions on how its supervisory approach is adjusting in light of the coronavirus 3Agencies announce changes to the community bank leverage ratio 4The Fed has also taken action to support the provision of credit by larger institutions. | 0 |
The issue of when this will happen does not have to do with either the actual level of unemployment or the number who were employed when activity last peaked in the late 1980s. It depends instead on how serious any bottleneck problems are becoming and how strong those with jobs consider their bargaining position to be in wage negotiations. Briefly, then, important factors in the assessment of the risks of inflationary tendencies are how well the labour market is functioning and how quickly resource utilisation is rising. Monetary policy contributes to stability In an upward cyclical phase, the move towards a situation where the tensions in markets for goods, services and labour threaten to gain the upper hand and jeopardise price stability is a gradual process. That makes it difficult to tell exactly when the imbalances constitute a genuine problem. Observers and those who decide economic policy have to assemble the pieces of this puzzle. In an economy that is approaching a strained situation in resource utilisation, signs that imbalances are beginning to build up will appear with increasing intensity and frequency. As more and more pieces of the puzzle fall into place, they ultimately provide a basis for action. The whole of this process is complicated by the time lag before monetary measures elicit effects. Our premise is that the full effect of an interest rate adjustment materialises after one to two years. So measures taken today would not have their full effect until some time during 2002. | Not because I have dramatically revised my assessment of inflation prospects but rather because resource utilisation is still rising and a shift can be discerned in the risk spectrum. We will have to bear these things in mind so that the development of production and employment can remain stable. 3 BIS Review 109/2000 | 1 |
Prasarn Trairatvorakul: “Challenges and Opportunities” Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the German Business Talks event, Bangkok, 28 February 2012. * * * Good evening, Ambassador Rolf Schulze, Distinguished guests, Ladies and Gentlemen, I would like to thank the German Embassy for inviting me to give the key-note speech at the German Business Talks event. Germany is by far the biggest trading partner of Thailand within Europe, accounting for over 20 per cent of total trade volume between Europe and Thailand. With the increasing presence of German multinational corporations in Thailand, I hope that our businesses will become more integrated and continue to prosper together into the future. In this session, I would like to focus on two key issues. The first concerns the future challenges facing Thailand. The second issue is about the Bank of Thailand’s (BOT) role in meeting these challenges. Let us begin with the challenges. On the external front, the global economy is beset by substantial risks and uncertainties. Major advanced economies are still grappling with fragile recoveries. In the US, despite some recent positive news from the labor market, economic activity continues to be weighed down by substantial debt over-hang. This inhibits a full recovery in the housing sector and consumer spending, which together form the backbone of the US economy. In the euro-area, everyone here is obviously keenly aware of the unfolding sovereign debt crisis. | Such an environment will also make the process of adjustment and economic transformation easier. In this respect, I believe that we have the right monetary framework to best 2 BIS central bankers’ speeches achieve this. The BOT’s inflation targeting framework has served us very well since its adoption over 10 years ago. Apart from serving as an anchor for macroeconomic stability, the BOT can also undertake steps, or act as a catalyst for the necessary changes, that will serve to enhance Thailand’s competitiveness and augment economic adaptability. Most directly, the BOT can strive to enhance the effectiveness of the financial sector in serving as intermediaries of capital. Our current strategy is to broadly deliver tangible improvements in four key dimensions. First, encourage financial innovation and the expansion of available financial instruments. Second, broaden the choice available to firms and households in terms of financial services. Third, reduce the cost of these financial services. And finally, improve access to them. To this end, the BOT has embarked on a multi-pronged approach that involves a number of strategic plans. Chief and foremost is the second Financial Master Plan. This plan, which takes into account major global developments such as regional integration and global regulatory reform, will further this vision of a modern and inclusive financial sector landscape. At the same time, we are pursuing ways to improve financial system infrastructure, including through upgrades to the payment systems to promote more efficient settlement of private sector transactions. | 1 |
And whilst the CP is not Covid related, its relevance is clear: small and growing firms must plot their path out of the current stress – through the Covid-fog back onto the mountain path – in order to continue contributing to the health of the financial system and of the economy, and supporting competition in financial services as they do so. Proportionality and rock-faces A key part of our approach to facilitate effective competition has been to ensure our rules and requirements are proportionate to the size and complexity of firms. For example: We have defined a more limited set of expectations required of banks as they enter base camp. In particular we have created a mobilisation phase where firms are authorised with restrictions, enabling them to attract the necessary capital and make the necessary investments at the very start of their journey to becoming a fully functioning bank; In 2017 we started looking at a refined approach to assessing capital adequacy across Pillars 1 and 2A in the round for firms on the standardised approach, meaning as of end-June 2020 25 smaller firms had had their Pillar 2A add-ons reduced by an average of 1.44% of risk weighted assets; and We introduced a simplified Internal Ratings Based (IRB) credit risk model application process for smaller banks, with three models approved under this process so far and eight more in the 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 application pipeline. | But we still expect new banks to maintain capital resources to support their business for 12 months ahead (whilst remaining above the operating expenses buffer), the reason for which brings me to the second change; Scanning the Horizon, 24/05/19 – https://www.bankofengland.co.uk/speech/2019/sam-woods-building-society-association-annualconference-london 8 6 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 6 Whilst we recognise that obtaining regular new capital is often necessary for new and growing businesses, we are calling an end to ‘just in time’ capital planning. Instead, we expect any new equity to be injected well before a firm hits its buffers and for there to be a path to the point at which the bank will be self-sufficient in capital generation. If we observe evidence of ineffective capital planning, we will increase our supervisory intensity and consider whether further action is required. It is unsustainable for a firm to remain near base camp making losses forever. And persistent problems mean we may need to shift our focus to considering other routes down the mountain (as I will explain later); and finally Growing banks are expected to develop their stress-testing capabilities so that they are ready to transition to full stress-test based buffer requirements once they reach maturity (typically but not necessarily five years after authorisation without restrictions). This has the potential to result in a sizeable step-up in capital requirements, for which firms need to be prepared. | 1 |
Some observers draw parallels with earlier revolutions in economic history, for example the introduction of steam-engines in manufacturing in the 18th century and the breakthrough for the combustion engine and electric motors in the late 19th century. A closer look at these two earlier industrial revolutions shows that in Sweden the impact of the steamengine was delayed. Developments here had more to do with the transformation and commercialisation of farming in connection with land reforms. It simply took time to build up the institutional arrangements that made a widespread use of steam-engines possible. Sweden did not begin to participate in the first industrial revolution until the middle of the 19th century, when the construction of railways gave steam locomotives a crucial part to play in the new form of communication. At the time of the second industrial revolution, however, when the conditions for production were changed again by the petrol engine and the electric motor, Sweden was in a better position to reap the benefits. In that the social structure was more suited to adopting and utilising the new technology, the pace of modernisation was faster. Production became increasingly efficient as the industrialised society took shape. Electrification, motor vehicles and aviation all left their mark on developments in much of the 20th century. At the same time, it was probably not the new inventions as such that provided the conditions for the rapid economic growth in the 19th and 20th centuries. | Distinguished delegates, part of the reason for the resilience of Zambia’s financial sector were the comprehensive financial sector reforms that have been systematically undertaken after the banking sector collapse in the second half of the 1990s. These reforms were promulgated under a Financial Sector Development Plan (FSDP) that was implemented to address weaknesses in the financial sector, identified in a Financial Sector Assessment Programme (FSAP) conducted by the International Monetary Fund (IMF) and the World Bank in 2002. Zambia’s reforms included the following: the increase in capital requirements for banks; consolidation of the supervision of bank and non-bank financial institutions under the Bank of BIS Review 63/2010 1 Zambia; legislative reform that gave the Bank of Zambia powers to deal with failing institutions; and the promulgation of corporate governance guidelines including the conduct of outreach programmes on good corporate governance practices for the financial sector and the introduction of credit reference services. The Bank of Zambia is continuing with its work to improve the financial sector and enhance the role of the financial sector in the development of the country through the implementation of the second phase of the Financial sector Development Plan, FSDP II. The FSDP II will focus more narrowly on issues of competition within the financial sector and extending financial inclusion. | 0 |
First, we have less of a handle on their impact than we do changes in short-term policy rates and, as I just indicated, that impact may well be less when markets are functioning normally. Second, if the central bank routinely deals in large quantities of government debt, it may find itself more open to pressure from the fiscal authorities, while market participants are more likely to fear that the debt will be permanently monetised. That brings me naturally to the topic of unwinding our present large stock of asset purchases. We have committed to maintaining the stock, including reinvesting the cash flows associated with maturing gilts, at least until the first rise in Bank Rate. But at some stage thereafter, as part of the transition back to normality, we expect to start running down the portfolio and withdrawing the associated bank reserves. In principle, we could do this just by letting the gilts mature. However, as Chart 5 demonstrates, it would take a long time to run off organically in its entirety because of the relatively long average maturity of the gilts held: the weighted average maturity of the portfolio is more than 12 years. So more active sales may be called for at some stage, 2 For the United Kingdom, see: Michael Joyce, Matthew Tong and Robert Woods (2011), “The United Kingdom’s Quantitative Easing Policy: Design, Operation and Impact”, Bank of England Quarterly Bulletin, 51(3), pp.200–212. | The first is to make the size of the arrangement larger and more meaningful with respect to possible needs of members. The second is the simplicity of the activation process, especially for the first tranche. This is important for giving assurance to participating members that liquidity will be made available in a timely manner. And the third is the objective of turning CMI into a multilateral facility at a later stage. This last feature, if realized, will provide the region with its own financial arrangement that can help expand the region’s capability in safeguarding financial stability. lt goes without saying that a move to emphasize greater resource commitment by members will entail substantial strengthening in the current regional surveillance process. This is a development that we all should welcome. Strengthening the surveillance process should in fact be a key prior condition for expanding the CMI because it will help make the CMI process credible while reducing the risk of moral hazard. CMI is currently under review. I hope some of the points I have touched upon will be further explored. But whatever the outcome of the review may be, I am confident that it will signify another important step forward for regional financial cooperation. My second thought is on the region’s bond market. Economists in the region have long made known their views that Asia is a region with surplus savings, but the financial surplus of Asia has not been effectively utilize for the benefits of the economies in Asia. This is clearly a missed opportunity. | 0 |
The firming of the recovery is attributable in no small measure to markedly expansionary macroeconomic policies which, in many countries, have resulted in significant increases in public and private debt levels. Against a background of very generous monetary policies and ample global liquidity, the financial markets saw asset price rises and very low interest rates, which also helped anchor the pick-up in demand. Risk premia diminished on both private-sector bonds and on the sovereign debt of emerging markets, which received greater capital flows. As a result, the economic recovery and the soundness of financial markets fuelled one another, in a virtuous circle that has broadly been maintained in the opening months of 2004, although recently a rise has been seen in long-term interest rates and in emerging markets’ sovereign risk premia. Latin America was the emerging region which encountered most difficulty in joining the upturn in the world economy in 2003. Crises in certain countries and bouts of financial instability in others have prompted heavy exchange rate depreciations and upward price pressures in recent years. Against this, the authorities reacted with more restrictive demand-side policies that set back any take-off in their economies. As these policies have eased, and as external financing conditions have improved and the increase in commodity prices firmed, the Latin American economies have attained progressively higher growth rates, particularly as from the closing months of 2003. However, certain factors of vulnerability remain in the area. | As pointed out in the Annual Report, it is particularly important to push ahead with labour market reform (in the areas of wage negotiation and hiring), improve the workings of the housing market (and of the related land market) and continue with the liberalisation of the network industries. Measures are similarly required to foster the incorporation of technological innovation in productive processes and to improve the stock of infrastructure and of public capital. The current house price situation means that urgent action is needed to overcome the restrictions on the supply of land via more flexible town planning to make building land more readily available and to improve the workings of the rental market. Finally, although the improvement of the services sector depends on many structural considerations, the importance of more flexible retail trade regulation for price formation and the economic system’s overall efficiency should not be overlooked. In short, without making any attempt to cover the entire scope of the economic policy requirements in the present situation, I do feel it is important to emphasise that fiscal stability and structural reforms can provide an appropriate means of addressing risks arising in relation to competitiveness and to the growing indebtedness of the non-financial private sector, which are the ones that could jeopardise the continuity of real convergence. Financial system 2003 brought an improvement in the situation of the international financial markets and, in this favourable setting, the financial institutions of a good number of countries reported better results and higher profitability. | 1 |
Changes in unemployment appear to have a fairly immediate impact on wage growth. Chart: Wage growth and domestic inflation Not unexpectedly, there is also a close statistical relationship between wage growth and the rise in prices for domestically produced goods in the CPI7. It appears to take about one year for changes in wage growth to feed through to inflation. Such observations of data provide a picture of some of the interrelationships in the economy, but they say little about causality or how interest rates feed through to the economy. Correlations are nevertheless interesting as a background for the analytical tools that are used in interest rate setting. Chart: The interest rate is an endogenous variable Historically, the interest rate has been set in response to various developments and shocks. In this respect, the interest rate is an endogenous variable. The relationship between the interest rate and other key variables has through history also been influenced by shifting monetary policy objectives. If the interest rate is raised today in response to an unexpected change in price and cost inflation, a fall in capacity utilisation must be expected. However, if the interest rate is increased in response to an unexpected pickup in demand for goods and services, the path will be a different one. In historical data, a higher interest rate can go hand in hand with both lower growth and higher growth. It is therefore demanding to identify the effects of interest rate changes when studying historical data series. | A temporary reduction in the degree of financial integration may result in some “sand in the wheels” of capital movements and reduce the speed of capital inflows and outflows, allowing some further degree of monetary policy independency. This is behind the idea of using capital controls in some emerging market economies. Although even the IMF has supported the idea of using capital controls under extreme circumstances (Ostry et al., 2010), the empirical literature has found only partial evidence of its effectiveness.3 Finally, the validity of alternative tools to deal with episodes of unsustainable capital inflows may be particularly important when the concerns about real exchange rate volatility are relatively high. For instance, in export-based economies with imperfectly developed financial markets, exchange rate fluctuations and persistent episodes of appreciations may result in sustained damages to the productive structure. In such situations, targeted and limited exchange rate interventions may help reduce temporary pressures and at the same time build up international reserves, which act as precautionary savings and self-insurance against the potential consequences of a sudden capital outflow. This has been the route followed in Chile, since the concern about the external scenario has not been the rise in capital inflows, but rather the pressures on the exchange rate and the need to have an adequate level of international liquidity. | 0 |
Tax-exempt funds are regulated in the same way as prime funds, and they have largely behaved similarly to prime funds following MMF reform. In these remarks, “prime” refers to both prime and tax-exempt funds. 15 In particular, when a fund’s weekly liquidity falls below 30 percent, its board has the discretion to introduce a fee of up to 2 percent, to impose gates for a maximum of ten business days, or both; when a fund’s weekly liquidity falls below 10 percent, its board is required to introduce a fee of 1 percent unless the board decides to introduce a fee that is higher (up to 2 percent) or lower, or no fee at all, whichever is in the fund’s best interest. Gating is always discretionary. 16 MMF reform did not make prime MMFs less safe by standard definitions; indeed, by requiring prime MMFs to adopt a system of gates and fees and a floating NAV, the SEC’s intention was to make them safer. 17 Indeed, both regulatory changes increase the information sensitivity of investments in prime MMFs by increasing the set of states of the world that are material to the payoff (and therefore, on which agents can have asymmetric information). 18 This shift appears to be persistent; consistent with the fact that the regulation has altered the money-like characteristics of prime funds, outflows from prime to government funds have not reverted. | But, as we have gotten closer to the range of estimates of neutral, what appeared to be a bright point of light is really a fuzzy blur, reflecting the inherent uncertainty in measuring r-star. 4 More than that, r-star is just one factor affecting our decisions, alongside economic and labor market indicators, wage and price inflation, global developments, financial conditions, the risks to the outlook… the list goes on and on. I’ve talked a lot about normalizing our policy around interest rates. In addition, about a year ago we started the process of gradually reducing the Fed’s balance sheet as we work to unwind the 2/4 BIS central bankers' speeches asset purchase policies put in place during the crisis. In the now-standard Fed practice of communicate, communicate, and communicate, we published detailed plans well in advance on how we would gradually and predictably reduce the balance sheet.5 This process has proceeded smoothly without creating undue market disruption or volatility.6 With balance sheet normalization well underway, the Fed is studying the question of what exactly the new normal looks like. We have indicated that we plan to shrink the balance sheet to the smallest size consistent with the efficient and effective conduct of monetary policy—and that, in the long run, the asset side of the balance sheet will consist primarily of Treasury securities. 7 That’s our strategy, but its execution will depend on the operating framework of monetary policy, among other factors. Here, the Fed basically has two choices. | 0 |
Such measures should prevent adverse effects on the monetary policy transmission mechanism stemming from the ongoing tensions in parts of the euro area financial markets. They should in particular mitigate the effects of strains in financial markets on the supply of credit to firms and households. First, several measures have been enacted to ensure that banks maintain access to funding markets. We have decided on three-year refinancing operations to support the supply of credit to the euro area economy. These measures address the risk that persistent financial markets tensions could affect the capacity of euro area banks to obtain refinancing over longer horizons. Earlier, in October, the Governing Council had already decided to have two more refinancing operations with a maturity of around one year. Also, it was announced then that in all refinancing operations until at least the first half of 2012 all liquidity demand by banks would be fully allotted at fixed rate. Funding via the covered bonds market was also facilitated by the ECB deciding in October to introduce a new Covered Bond Purchase Programme of € billion. Funding in US dollar is facilitated by lowering the pricing on the temporary US dollar liquidity swap arrangements. These measures should ensure that banks continue to have access to stable funding, also at longer maturities, which gives them the opportunity to continue lending to firms and households. Second, some banks’ access to refinancing operations may be restricted by lack of eligible collateral. | In the span of a decade, social media has become a bona fide global marketplace, marketing tool, recruitment platform and social scene. All this points to the double-edged nature of globalisation: While it may have brought people closer together, it also introduces the challenge of promoting greater appreciation of cultural, ideological and sociopolitical diversity. Conclusion Globalisation, once envisioned to be a beacon of unity, has fueled increasing polarisation in recent years. Let’s remind ourselves that in this globalised world, it is important for the contented to appreciate the struggles of the discontented. And, for the discontented to not lose sight of the potential that globalisation holds. And for all of us, to remember – that 75 years after Bretton Woods – the creation of a safe, fair and mutually beneficial global system is still not an easy pursuit. It is, nonetheless, a necessary one. Once again, I would like to welcome everyone to Sasana Kijang. The World Bank, a product of 3/4 BIS central bankers' speeches Bretton Woods, along with the IMF and WTO, has brought to Malaysia an amazing gathering of thought leaders and experts on globalisation from all over the world. The next two days will indeed be a fine example of globalisation in action. Let me end with a passage from John Maynard Keynes which I think is appropriate for the occasion. “Yet the new economic modes toward which we are blundering are, in essence of their nature, experiments. | 0 |
Our aim is to maintain a resilient insurance sector which does not pass risks back to policyholders when they crystallise. Solvency II: a stocktake For the uninitiated, Solvency II is a new regulatory regime for insurance companies across the EU, introduced on 1 January 2016 after years of wrangling. There is now a lively debate about how the new regime is working out here in the UK. It seems that almost every day the specialist press contains new opinion pieces from industry insiders or consultants about how Solvency II is constraining their business or turning out not to be as bad as feared. There is also the important review by the Treasury Select Committee, at which I gave evidence recently. And very occasionally others outside the magic circle of insurance enthusiasts (of which I count myself one) take a passing interest. Inevitably, on a subject as complex as Solvency II, there will be a wide range of opinions. And I think that a degree of constructive tension between regulator and regulated firms is a sign of a healthy and properly functioning relationship. But in any debate it pays to consider both sides. So what does the insurance industry think about Solvency II? Unsurprisingly, there is a range of views. Lord Turnbull, former board member at Prudential, was unequivocal in his comment that Solvency II was “an absolutely dreadful piece of legislation”. | Insurance supervision at the PRA Speech given by Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority London Business School 20 March 2017 I am grateful to Dan Curtis for his help in preparing this speech. 1 All speeches are available online at www.bankofengland.co.uk/speeches Good morning. The UK has a world-leading insurance sector which provides a wide range of vital services to the real economy and society. It promotes growth and employment, has proved its mettle in turbulent times and the country can be proud of it. A necessary precondition to such success is world-class insurance supervision. That is what we aim to deliver at the PRA. Like insurers, our job is to be forward-looking and prudent about risk. Where we differ from private firms is that we do this motivated solely by the public interest. The recent debate about insurance regulation – while timely and important – must seem to some like a cacophony of acronyms, statistics, models and assumptions. But strip this back and you’ll see there is an essential, irreducible human core to it all. Some of the oldest and most vulnerable in our society have invested their life savings into long-term annuity contracts. By pooling and transferring many kinds of risks – from cyber to marine – insurers provide cover which is essential for economic activity. And by protecting for critical illness or personal accident, insurers commit to being there when you need them most. | 1 |
I am not saying that we should only focus on the Northern Province, even the Southern Province. We have a branch in Matara, but I think there is a lot of work to be done. I recently visited areas around Hambanthota, and I find that the potential there really, is still not exploited. There are a few factories here and there, few agricultural projects that we are funding, but we are nowhere near the sort of potential we can achieve particularly since so much infrastructure has been installed in that area and built in recent years. I think that infrastructure is not being used. We have the rather comic situation today where an airport is being used to store paddy because of a mismatch of the needs of that airport to be economical with the needs of the broader economy which has other pressing problems to be achieved. So this is a classic example how we have to put on our thinking caps and come up with solutions for the government. One big advantage that we have is that central bankers have through the decades, manned very important government institutions. Even when I look today, institutions as varied as the Ministry of Defense, the Ministry of Finance and such like have very senior central bankers working there in some form or another. And even in the legal sector, the Attorney General’s Department is working very closely with us. | Nor can it mean that we set interest rates simply by reference to those prevailing elsewhere. It is naïve to complain that our interest rates are twice those in Europe without recognising that we are operating closer to capacity than is the case in the Eurozone as a whole – or that unemployment there is running at twice the rate in this country even if – and I agree – much of that difference is to be explained by structural, supply-side, rigidities rather than simply cyclical divergence. No-one, Mr Chairman, is more conscious of the limits to what we can hope to achieve through monetary policy than I am. But operating within those limits, we have been able to achieve greater macro-economic stability, reflected in the rate of inflation, than we have seen for a generation. And that stability, together with the improved supply-side flexibility of the economy, has delivered a rate of unemployment in the economy as a whole that, despite the recent modest upturn, is still close to the lowest rate we have seen in almost 20 years. And what is true for the UK as a whole is true for most of the individual regions of the economy. That includes the West Midlands, where, on a claimant count basis, unemployment at 4.8% is actually only marginally above the national average and still just about the lowest it has been since 1980. Macro-economic stability cannot solve all our problems. | 0 |
For example, Adrian and Shin (2008) demonstrate that the balance sheets of US broker/dealers expand when monetary policy is accommodative. 6 Similar evidence is provided for the US repo market by Gorton and Metrick (2009), who found that activity started to increase significantly from 2001 – that is, at a time when monetary policy in the US was relatively loose following the bursting of the dot-com bubble. 7 Acharya and Schnabl (2010) provide similar evidence related to the asset-backed commercial paper (ABCP) market. 8 In summary, if the process that has been set in motion under the aegis of the G20 has the potential to place a whole new segment of finance under regulatory scrutiny and oversight, the new collateral-based finance can give a central bank stronger influence over financial and macroeconomic conditions more broadly. 5. Monetary policy in a high-debt environment I mentioned earlier that collateral is likely to play a growing role in the functioning of capital markets. Demand for collateral is thus likely to increase. But, given the collapse of securitisation activity during the crisis, we could imagine that the current decline in the creation of securitised assets might become a permanent feature of the new landscape. There will be fewer ABSs created out of bank books. Sovereign debt will certainly be widespread. It will probably replace ABSs in the collateralisation of secured lending. Unlike in the past, the risk characteristics of this type of debt instrument will be more graduated than was considered possible only few years ago. | Mario Draghi: Euro area economic outlook, the ECB’s monetary policy and current policy challenges Statement by Mr Mario Draghi, President of the European Central Bank, prepared for the Twenty-Eighth Meeting of the International Monetary and Financial Committee, Washington DC, 12 October 2013. * * * I would like to focus on the euro area economic outlook, the ECB’s monetary policy and current policy challenges. Economic activity in the euro area bottomed out in the first half of the year and is expected to strengthen gradually in the period ahead. Recent economic indicators, which have been predominantly positive, support expectations of a modest and gradual recovery. Output is expected to recover at a slow pace, driven by a gradual improvement in domestic demand supported by the ECB’s accommodative monetary policy stance and a gradual strengthening of external demand. Furthermore, the improvements in financial markets seen since August 2012 appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect the economic outlook. Other downside risks include higher commodity prices in the context of renewed geopolitical tensions, weaker than expected global demand and slow or insufficient implementation of structural reforms in euro area countries. | 0 |
The factors underlying this evaluation can be listed as follows: (i) Analyzing the supply-side sources of growth, continuance of productivity gains, which is a key element of non-inflationary growth, enables the reduction in unit labor costs, thus restricts the impact of the rises in other costs. (ii) The demand-side sources of growth points to an increasing share of investments in the GDP. The ongoing strong growth trend in investment expenditures limits inflationary pressures through its support for the increases in partial labor productivity via capital deepening. Accordingly, the composition of domestic demand secures the simultaneous achievement of rapid growth and disinflation. (iii) Although the strong position of the YTL against foreign currencies is a factor that supports domestic demand growth, it restricts the impact of rapid growth on prices not only by its direct effect on prices but also by stimulating investment demand, which in turn induces productivity gains. Graph 13. Output Gap (Percent) 6 4 2 0 -2 -4 -6 -8 06-I 05-III 05-I 04-III 04-I 03-III 03-I 02-III 02-I 01-III 01-I 00-III 00-I -10 Source: CBRT. Despite the fact that the recent data provide signals for an ongoing strong course of domestic demand, within the framework of non-inflationary rapid growth analysis explained above, the output gap is expected to support the disinflation process in the first half of 2006 as well. Nevertheless, our view that the contribution of supply-demand conditions to the disinflation process has diminished is still valid. | For instance, the impacts of differentiation in productivity ratios in the tradable and non-tradable sectors compared to the Euro zone on relative prices and real exchange rate behavior in the process of convergence with the European Union are analyzed in one of the boxes. Moreover, in addition to the box in which international gold prices and the impacts of these on the CPI are analyzed, the Report also contains a box in which the targets and realizations relating to inflation and Net International Reserves are evaluated within the context of IMF conditionality. Distinguished Guests, After this general overview, I would like to summarize the evaluations and the inflation forecasts of the Central Bank in the latest Report, which will be published on our web site today. Inflation developments In the first quarter of 2006, the fall in inflation displayed a slowdown tendency in line with our predictions in the previous Inflation Report and the annual rate of increase in consumer prices was realized as 8.16 percent as of the end of March 2006. This slowdown stems from the base effect created by the price increases that have realized at historically very low levels due to the reduction in the Value Added Tax (VAT) rates of food, health and education items made in early 2005 (Graph 1). Graph 1. | 1 |
Mr Heikensten discusses monetary policy aspects of Sweden’s position “inside EU, outside EMU” Speech given by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, at a seminar arranged by Handelsbanken Markets, Stockholm, on 10 September 1999. * * * First a word of thanks to those who arranged this seminar for inviting me to take part. The agenda covers many important issues that all deserve a thorough discussion. Sweden’s relationship with the European monetary union is one of them. Today I shall be considering four matters: the feasible timetable in the event of full participation in EMU; Sweden’s performance as regards the criteria for joining the euro area; considerations concerning the rate for the krona’s conversion to euro; and, finally, something about how economic policy should be formulated in the meanwhile in the event that we do join the monetary union. When could we join? The timetable in the event of our participation in the monetary union is set both by decisions in Sweden and by negotiations with the existing euro countries. As regards the domestic process, in December 1997 the Riksdag (Sweden’s parliament) decided that Sweden would wait and see, but that the door to future participation is not to be closed. Players in the financial markets, along with other observers, are now trying to work out whether this door will be opened wide and, if so, when that is likely to happen. | This will be done on the basis of examinations of the Swedish economy by the EU Commission and the European Central Bank (ECB). Those assessments will be discussed by the finance ministers of the member states, who will then hear the opinions of the EU Parliament and the heads of state or of government before arriving at their decision. When that decision has been made, the member states must also agree on the time that Sweden should have for completing the necessary preparations. The countries that participated from the start have been given a transitional period of over three years from the euro’s introduction in January 1999 until it completely replaces the national currencies not later than June 2002. That a similar arrangement would apply for Sweden is, however, not certain. If we consider that our preparations can be completed more quickly, perhaps we could ask for a shorter interval. 1 BIS Review 96/1999 Do we meet the entry criteria? The Commission and the ECB will be examining the Swedish economy with reference to the criteria that were included in the Maastricht Treaty. Those criteria are for inflation, long-term interest rates, the exchange rate, the government budget balance and government debt. There are also specific requirements as regards central bank legislation. The principle of equal treatment will apply; that is, the basis for the assessments is to be the same as for the initial group of euro participants. That means that some conclusions can probably be drawn from the examinations in May 1998. | 1 |
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