sentenceA
stringlengths 2
7.69k
| sentenceB
stringlengths 2
7.69k
| label
float64 0
1
|
|---|---|---|
The second tool to mitigate the cross-sectional dimension of systemic risk is the so-called “systemic risk buffer” (SRB), intended to tackle those risks not covered by the other buffers. The SRB can be applied to the banking system as a whole, to a sub-set of credit institutions or to one or several sectors of economic activity. Its main characteristics are the extensive range of risks for which it can be used, and the discretionality and flexibility its use allows. 6 Moreover, some of the possible competitive advantage these institutions might have in the funding market can be corrected, an advantage stemming from the fact that investors purchasing their bonds might believe that, in the event of these institutions running into problems, they will be bailed out. Rather, the managers of these institutions might be induced to adopt more prudent risk-taking. 9 Macroprudential tools falling on borrowers Secondly, macroprudential instruments consist of establishing restrictions on one or several of the characteristics of loans granted to debtors. For example, the percentage that a loan represents relative to the collateral backing it or to the borrower’s income can be limited, and the maturity of the loan can be time-limited. The evidence we have shows that lending standards have a very significant impact on the risk of ex-post default by borrowers, in the sense that looser standards (e.g. a higher percentage of the loan relative to the collateral backing it) increase that risk [see Galán and Lamas (2019)]. | 7 And, more recently, 9% of the UK banks’ pre-crisis stock of CRE lending was written off between 2008 and 2014 compared to 0.4% for mortgage lending. Over the past two years, commercial property prices have risen strongly by 18%. Up to the second half of last year, the market seemed to be “simmering” if not “bubbling”. Unlike in previous cycles, however, a much greater proportion of CRE activity has been financed by equity investors, in large part overseas investors, rather than by UK bank lending. The share of equity finance in UK CRE transactions in 2015 is estimated at around 55%, compared to around 30% in 2007 and a peak of around 80% in 2010. So the direct risks to major UK banks from this sector are not as high as one might assume. The fact that there is less UK leverage in the sector does not mean however that a sharp correction in CRE prices poses no financial stability risks. Property is an important source of collateral for UK corporates, SMEs in particular. A sharp drop in CRE values could constrain their access to credit. Recent research by Bank staff found that a one pound rise in the value of a company’s property is associated with around a five to ten pence rise in investment. 8 More broadly, Bank staff estimate that around a quarter of business investment is related to commercial property. | 0 |
“Lender of last resort” assistance, even when it is extended by the central bank, involves the commitment of public money - ultimately taxpayers’ money - and it needs to be justified in terms of the damage that would otherwise result to the financial system and to the wider economy. For this reason the MOU, to which I referred earlier, BIS Review 18/1998 -8- provides that the Bank should always seek the Chancellor of the Exchequer’s explicit prior approval wherever circumstances allowed, or at least his tacit prior approval in emergency situations and where the risks are manageable in relation to the size of our capital. These arrangements ensure that we have the capacity to act to limit systemic damage where that becomes necessary; but they rightly make such intervention subject to appropriate authorisation and accountability, by and to, both the Chancellor and Court. Conclusion Mr Chairman, we have come a long way in the Bank, even since I first joined it some 35 years ago. We tended at that time to explain our role as being the “Banker to the Government and Banker to the commercial and other central banks”. And the truth is that our responsibilities, and the extent of our authority, were never very clear. Today we remain a bank, as we always have been, at the heart of the financial system, as indeed we must in order to carry out our wider functions. | Rather we need effective supervision as well, something that is inevitably harder given the cross border nature of the activity and the potential both for gaps and for different priorities. That creates a need for close cooperation between both home and host supervisors to deliver effective global consolidated supervision of international banks. The changing approaches we’ve seen since the crisis There is a spectrum of approaches that supervisors can take to the supervision of international banks. In the absence of a single global consolidated supervisor, let me describe the two logical extremes. First one can have a model of pure home supervisor responsibility, based on branches of the parent group and where the host supervisor relies completely on the home supervisor. By allowing the most rapid allocation of capital around the globe, this model delivers the greatest benefits. But it simultaneously creates the greatest risks to financial stability in host countries because of the potential lack of clarity of remit, information, and responsibility and powers to deal with the risks international banking brings. Alternatively one can have a pure host-led approach. This would require operations overseas to be undertaken in subsidiaries, with those subsidiaries supervised in the same fashion as domestic banks, in effect treating the overseas entity as independent and standalone. This model reduces the risk of an abrupt cessation of financial services following events overseas and so, at first sight, does a better job of protecting financial stability. But it makes the cost of entry much higher. | 0 |
The Governing Board of the National Bank decides on the medium-term investment strategy for the monetary reserves. Taking into consideration the criteria of security and liquidity, an appropriate risk/return profile is targeted. In addition to the strategic allocation to the individual currencies and investment categories, the Governing Board defines the permissible range for implementation. Department III implements the strategy. Within the defined bandwidths, an internal investment committee decides on positions which deviate from the strategy. In the risk controlling process, compliance with the strategy guidelines and the operative limits as well as the quality of the debtor categories are monitored. Performance is also measured. With the expansion of the investment spectrum to include issuers with lower credit ratings, risk monitoring is gaining in importance. The Governing Board and the Bank Council’s Risk Committee are regularly informed about the results of the risk controlling process. The Bank Council’s Risk Committee assesses risk control and also oversees adherence to the principles of the investment process. 4. Transparency: a further element of good governance The National Bank has an accountability and information obligation not only to the bank authorities but also to the public. Since the monetary reserves ultimately constitute national assets, this obligation also applies to the investment policy. The accountability obligation includes regular reporting on our investment activities. The National Bank already provides information on the structure of its assets in its Annual Report, including details on currency allocation, holdings of individual investment categories, and on the major risk and return indicators. | Cumulatively, these factors can undermine consumer confidence and trust in the industry, with important implications for business growth and persistency. Globally, financial institutions need to get serious about addressing the trust deficit in the financial industry. The hallmark of an industry that engenders trust often goes back to the basics of serving its core purpose, and doing it well. This begins with product innovations that should be aimed at increasing the level of public engagement and interest. The industry must abandon the mindset that “insurance is sold not bought”, and design products that people actually need and want to buy. Such products must also be able to afford protection to the underserved segments of society through affordable and simple product solutions. Such products will be easier to sell, lowering distribution costs and contributing to even lower prices in a virtuous circle that delivers benefits to all parties. The industry also needs to explore new cost-efficient delivery channels. The industry has not done well in this respect. As a catalyst, beginning next year, insurers will be required to offer pure protection products through a direct channel without commissions. The high internet and mobile phone penetration in Malaysia suggests that internet or mobile insurance makes good sense. Other untapped channels include banking agents, retail chains, employers and cooperatives. We expect the industry to fully adopt these channels to diversify delivery of services. | 0 |
It reflects the impact of the Job Support Scheme that shored up local employment; and the border control measures during the COVID-19 pandemic that made the employment of foreigners difficult. Job growth in the financial sector has been consistently strong over the past 5 years A total of 21,000 net jobs were created during 2016-2020, with Singaporeans taking up about 16,000 or about 75% of these jobs. With more financial institutions setting up their regional and global hubs in Singapore today, 40% of financial sector jobs here are primarily international-facing. Half of these jobs are filled by Singaporeans. They include good jobs such as: application developers who develop digital products for overseas markets; private bankers who serve regional clients; and risk managers who monitor risk metrics for the regional or even global business. The employment outlook for the financial sector in 2021 remains positive. Late last year, MAS and the Institute of Banking and Finance (IBF) conducted a survey of financial institutions’ projected hiring from January to December 2021. Close to 800 financial institutions responded, representing about two-thirds of the financial services workforce. Financial institutions are offering 6,500 newly created positions in 2021. These are new jobs created and do not take into account gross outflow of jobs. About 6,000 of the newly created positions are permanent jobs. Half of these jobs are in technology and consumer banking, with the remaining jobs spread across other business lines and functions. | These jobs require strong programming skills and in-depth business domain and system knowledge. There are not enough Singaporeans applying for these jobs in the first place, let alone qualifying for them. Technology will continue to lead hiring demand in 2021, with 1,700 hiring opportunities. So ware engineers account for about 30% of these jobs Business analysts and jobs in digital transformation account for another 25%. Technology jobs in the financial sector can be classified into three archetypes. Tech-Lite. These are mostly entry-level job roles for university - and increasingly polytechnic - graduates to gain hands-on experience in programming work and business domain experience. They make up about 10% of the tech workforce. Tech-Intermediate. These are roles which require good programming skills and understanding of business domains. About 75% of tech jobs in the financial sector are in this category. There is keen competition for these talents not only globally but also across different sectors in Singapore. Tech-Advanced. These are senior leadership roles and in high-value tech functions, accounting for 15% of the tech workforce. Many global financial institutions have chosen Singapore as a hub for such high-value tech work. For example, 70% of Standard Chartered Bank’s global tech leadership and management sits in Singapore. The financial sector’s strong demand for technology talent will persist. MAS estimates that 2,500 to 3,500 tech jobs will be created in the financial sector each year, over the medium term. The competition for tech talent is economy-wide as more sectors embark on digitalisation. | 1 |
Before proceeding, I will emphasize that I am speaking for myself and these views do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. Climate The U.S. economy has experienced more than $ billion in direct losses over the last five years due to climate and weather-related events.1 In addition, climate change has significant consequences for the U.S. economy and financial sector through slowing productivity growth, asset revaluations and sectoral reallocations of business activity.2 For these climate-related risks, a new lexicon has emerged. Physical risk is the potential for losses as climate-related changes disrupt business operations, destroy capital and interrupt economic activity. Transition risk is the potential for losses resulting from a shift toward a lowercarbon economy as policy, consumer sentiment and technological innovations impact the value of certain assets and liabilities. These effects will be felt across business sectors and asset classes, and on the strategies, operations and balance sheets of financial firms. Risk managers must be aware of these risks and develop the tools needed to identify, monitor and manage them appropriately. Physical and transition risks may manifest through traditional risk stripes such as credit, market, operational, legal and reputational risk, but today’s tools are not necessarily well-suited for the unique challenges associated with climate change. Let me mention three of these challenges. First, climate change is a long-term issue where actions today are likely to have an impact over many decades. | Kevin Stiroh: Emerging issues for risk managers Introductory remarks by Mr Kevin Stiroh, Executive Vice President of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, at the GARP Global Risk Forum, Federal Reserve Bank of New York, New York City, 7 November 2019. * * * Prepared for delivery Introduction Good morning and welcome to the GARP Global Risk Forum. The Federal Reserve Bank of New York has been collaborating with GARP on this forum for a decade and it is always a pleasure to participate. This discussion provides real-time insight into critical issues at the center of the practice of risk management. A quick scan of today’s agenda highlights a number of topics of obvious importance—operational resilience, cyclical aspects of risk management, technology and big data. We are all thinking about these issues, and I look forward to your insights. I’d like to briefly discuss two topics where I expect risk managers will increase their focus in coming years—climate change and the cultural aspects of digital transformation. Both issues reflect potentially transformative trends for the economy and the financial system, and I believe they will take an increasing share of your bandwidth over the next decade. In both cases, the relevant questions from a supervisors’ perspective are: what new risks are introduced? How do firms manage them? And how do supervisors view them? | 1 |
Norman T L Chan: Development of e-Cheque usage in Hong Kong Speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Electronic Cheque (e-Cheque) service Launching Ceremony, Hong Kong, 11 December 2015. * * * Ms Helen Wong, Mr Allen Yeung, Mr Wong Kuen-fai, distinguished guests, media representatives: 1. Welcome to the official launch of the Electronic Cheque (e-Cheque) service jointly organised by the Hong Kong Association of Banks and the Hong Kong Monetary Authority. For the first phase of the e-Cheque service, nine banks have started offering the e-Cheque issuance service, while all banks in Hong Kong can already accept e-Cheques deposited by their customers. 2. Traditional paper cheques have been widely used in Hong Kong, but there are limitations. For example, the payer must deliver a physical cheque to the payee, and the payee must also physically deposit the cheque at a bank. These steps involve quite some time. Besides, paper cheques consume a lot of paper and are not environmentally friendly. In view of this, the HKMA began work with the banking industry on developing the necessary infrastructure for the electronic form of cheque service three years ago. Benefits of e-Cheques 3. As e-Cheques have a number of obvious benefits over their physical counterparts, I believe they will become a popular form of electronic payment soon. I. The e-Cheque issuance and deposit service is available via Internet banking platforms and the Hong Kong Interbank Clearing Limited’s portal on a 24-hour basis. | Future changes will not be simple at all, but all of us together, by exchanging experiences and necessities for change, will build a safer environment, which I hope will make future challenges somewhat easier. Granting independence to central banks represents one of the most relevant steps in the financial system reform in the countries of our region, as an important precondition for maintaining inflation under control and becoming an ESCB member. However, our endeavours for the consolidation of the institutional and real independence should be coordinated carefully by taking into consideration the specific features of our economies in transition, and not as a mere implementation of what may seem to be a successful model for the ESCB countries. In this framework, I consider today’s meeting as very important, since the Bulgarian economy and the Bulgarian National Bank have been going through substantial reforms in the context of EU accession. I believe that the challenges that we have faced and those that we will face in the future are more or less the same with those experienced by the Bulgarian authorities, including the Bulgarian National Bank. As a consequence, I think that the bilateral cooperation between our banks carries a high potential, and in the name of my institution, I avail myself of this opportunity to offer maximal guarantees with regard to the fruitful development of these relations. 1/2 Passing into a multilateral framework, I will return once more to the idea that focuses on the institutionalisation of the inter-regional cooperation between central banks. | 0 |
12 This last factor may create a dangerous vicious circle. Against a backdrop in which it is expected that the lower interest rate bound may frequently limit central banks’ capacity to act, economic agents will expect that any inflation deviations above the target level will be swiftly corrected. But not deviations below the target level. In consequence, expected inflation, in terms of the average over a broad period, will tend to move below the target level. Given that in the long run, the nominal interest rate is the real equilibrium rate plus expected inflation, any fall in the latter implies lower nominal rates on average, which means that these will hit their lower bound more frequently. All the above implies less headroom for providing stimulus measures in downturns marked by low inflation. This in turn leads to lower inflation expectations, and thus it continues. Asset purchase programmes, such as the ECB’s APP and PEPP, are an attempt to break out of this vicious circle. These programmes are conducive to lower interest rates on medium and long-term public and private-sector bonds. In this way, although short-term interest rates are limited by the lower bound, the ECB is able to reduce longer-term interest rates, which are often the most relevant rates for determining economic agents’ spending decisions. This is what is known as “flattening the yield curve”. | This was the only way to avoid a sharp tightening in capital markets which, with all certainty, would have fuelled a greater economic contraction and, possibly, a deflationary scenario. A specific additional problem of the euro area was the so-called “fragmentation” in the transmission of the common monetary policy. This means that the financing conditions of governments, and also of firms and financial institutions, vary significantly across countries, as a result, among other factors, of the different sovereign risk premia in the euro area. In fact, the cost of government debt in each country usually acts as a “floor” or “baseline” for 2 corporate and bank debt. Consequently, in those countries whose governments have a better outlook for the repayment of their debt and, consequently, which have more favourable financing conditions, the borrowing costs of firms and households, through bank credit, will be lower. The initial phase of the COVID-19 crisis had an asymmetrical effect on euro area countries. This meant that certain countries, such as Italy and Spain, which already had substantially high levels of public debt, were hit harder by the first wave of the virus both epidemiologically and in terms of their reliance on more vulnerable industries such as tourism and hospitality. Borrowing costs duly rose much more markedly in these countries. Faced with this situation, the ECB Governing Council decided to announce new monetary policy measures with the dual n objective of reducing fragmentation and increasing the accommodative stance of monetary policy. For this reason, we adopted two types of measures. | 1 |
There is, in other words, a degree of flexibility in monetary policy, both upwards and downwards of course, that should not be underestimated. With this comforting thought in mind I would like to thank you all for your attention. BIS Review 113/2008 7 | The economies of Southeast Asia are particularly exposed to such reconfigurations as they have high participation in global value chains, but are located mostly downstream in those value chains, and thereby face higher risks of being left out. • At the same time, greater importance attached to ESG considerations have led to new standards and expectations--new global rules of the game--about how countries can participate in international trade. • For small open economies, the challenge is to find their place in the rapidly evolving international trade landscape. How should they position themselves between the major trading powers? To what extent can regional trading blocs help to increase their voice in the international arena? Where are the best opportunities to plug themselves into a new configuration of global supply chains? • Small open economies can best navigate and benefit from the shifting trade landscape by keeping their outward orientation, strengthening domestic institutions, and undertaking structural reforms that enhance flexibility. This would allow them to harness technology to upgrade their production capabilities and adapt to new trade patterns, including integration into evolving global supply chains. Services trade, especially in intermediate services such as telecommunication services and IT management, offer large growth potential. As world trade bounces back following the pandemic, opportunities for exports of services are likely to exceed those in goods. Active engagement in bilateral and regional free-trade arrangements will also help to diversify the trade base. • Our economies must also quickly adapt to the new global rules of the game. | 0 |
And international cooperation requires that the IMF and the Financial Stability Forum work together to propose a new set of regulations – some of them were already discussed here today, and particularly regulation and supervision of cross-border transactions, which are not directly restricted to one national supervisory authority. The Basel Committee will most likely continue to be the focal point of conducting the implementation of the process. The third topic is the IMF role in supporting emerging and developing countries, which have no financial conditions to address the effects of the financial turmoil on their economies. Traditionally, the IMF has focused on crisis generated in one specific economy or group of economies and in proposing policies to restore that country’s soundness. The problem that we are facing today is that some countries might have a sound policy but were affected by the global systemic crisis. How to react to that? If the crisis is “imported” and the country cannot meet its financing needs, the IMF should provide liquidity and contribute to any kind of anti-cyclical adjustment. In that regard, the authorities of leading economies should usefully consider to allow the IMF to issue bonds. In a moment of de-leveraging, when we are talking about re-leveraging, a leveraged IMF would have increased ability to meet its rising challenges. In regard to the World Bank, it should focus on poor countries, the ones that not only require liquidity or loans, but effectively need financial support. | We are in the very preliminary phase of this discussion and many challenges lay ahead in that regard, particularly deciding what should be subject to international supervision and what should be subject to national or regional supervisory entities. Much of the discussion today evolves around crisis prevention. In terms of crisis resolution, the recommendation is for every country to take all the necessary actions to restore the regular working of its financial system, consumer and investor confidence and the level of economic activity. But every country must act according to its needs and resources. Countries were financial institutions faced severe losses require capital injections, while some countries have to boost domestic demand to compensate for too much dependency on exports. The important point here is to draw a clear difference between fiscal stimulus, liquidity management and monetary policy. 2 BIS Review 147/2008 The difference between liquidity management and monetary policy is not clear for many observers nowadays, but it is nonetheless fundamental. In moments of market disfuntionality, for instance, monetary easing sometimes does not work. It is important to mention that in some circumstances liquidity management is the critical issue. Of course, we should not forget the need for price stability in order to have the basis to restore growth. | 1 |
Conclusion Allow me to conclude. The pandemic has led to an unprecedented economic crisis, followed by a recovery that is still partial and uneven and subject to a great deal of uncertainty, especially against the backdrop of the second wave of the pandemic that we are currently living through. In this case, there has been a forceful European economic policy response. A common response that encompasses not only monetary and macro and microprudential policy, but 10 See speech by the Governor of the Banco de España “Banking resolution: firm foundations for stability”, October 2020. 10 also new fiscal instruments, such as the recovery fund. A response that must be adapted to the course of the pandemic and its effects. In the case of monetary policy, we have already stressed our willingness to recalibrate in December the tools to deal with the new economic challenges, ensure favourable financial conditions and counter the impact of the pandemic on the inflation outlook. Europe’s reaction has meant unprecedented support for domestic economic policies and, in particular, fiscal policy, enabling them to act forcefully. The latter is particularly important since fiscal policy has the most appropriate instruments for tackling the effects of a crisis which has had a very uneven impact across countries, sectors, firms and population groups, and for adapting to a shock whose duration is uncertain. | 18 18 1.2 17 17 Jul. 18 18 (f) Forecast. Source: Bloomberg. Figure 6 MPR expected by the market Interest rate differential between the US and Germany and multilateral dollar (at December of each year, percent) (basis points; index) 3 3 330 June MP Report 2 Fed fund 2 March MP Report 95 2 years 310 94 290 93 270 1 1 Libor 250 0 0 -1 -1 12 14 91 230 10 years 210 Euribor 10 92 DXY (right axis) 16 18 20 190 01.18 18 Source: Bloomberg. 10 90 89 88 03.18 Mar. 05.18 May Figure 7 Nominal exchange rate and multilateral measures (1) Parities against the US dollar (1) (2) (index, 2017-2018=100) (index, 2017-2018=100) 110 110 120 120 105 105 110 Latam currencies 110 (3) MER-5 100 100 100 100 MER 95 95 90 90 80 Commodity currencies (4) Chile 90 TCN 90 17 17 Jul. 18 80 17 17 Jul. 18 18 (1) Dashed vertical line shows statistical cutoff date of March 2018 Monetary Policy Report. (2) Uses April 2018 WEO weights. An increase denotes a depreciation of the currency with respect to US dollar. | 0 |
We’re just adding a bit more fruit juice. Before I conclude, let me make a few comments about the Federal Reserve’s balance sheet. As you are undoubtedly aware, the Federal Reserve dramatically expanded the size of its balance sheet during and following the financial crisis to provide accommodation to support the economy when short-term interest rates were constrained by their effective lower bound. Currently, we are reinvesting maturing Treasury securities and agency mortgage-backed securities repayments to keep the size of the balance sheet generally stable. We have said that we plan to continue this policy of reinvestment until we are well along in the process of normalizing the level of the federal funds rate. As the FOMC has raised the federal funds rate three times, this process seems to have proceeded smoothly so far, prompting renewed interest in our balance sheet and reinvestment policy. The anticipation of and actual announcement by the FOMC of changes in reinvestment policy is likely to push up longer-term interest rates and tighten financial conditions somewhat, just as the earlier purchases pushed down long-term interest rates. To what extent is difficult to judge. Presumably, financial conditions would tighten by more if we were to end reinvestments earlier and more abruptly. This suggests a better course may be to taper reinvestments gradually and predictably. 5/6 BIS central bankers' speeches In addition, because changes in reinvestment policy will likely tighten financial conditions, we will have to take this into account in our interest rate decisions. | William C Dudley: The importance of financial conditions in the conduct of monetary policy Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the University of South Florida Sarasota-Manatee, Sarasota, Florida, 30 March 2017. * * * It is a pleasure to be here today. I would like to thank the University of South Florida for sponsoring this conference. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.1 One aspect of today’s event is the dedication of a financial laboratory to help students learn about financial markets, which I think has great value. Knowledge of how financial markets operate is an important aspect of financial and economic literacy, and it leads to greater financial security over time. For example, one important lesson is that when the promised returns on an investment offering are extraordinarily high, it is because the investment is either very risky or fraudulent. When investing, it is important to remember that if it seems to be too good to be true, it likely is! Today, I want to take the opportunity to talk about the importance of financial markets in influencing the economic outlook and, in turn, U.S. monetary policy. This is a subject near and dear to my heart. | 1 |
Thus UK consumer prices fell significantly during the 1840s, for example, and again in the late 1850s; they also fell through the 1880s (Chart 2). And although real pay tended to grow over time, these deflations were sometimes severe enough to mean that nominal wages declined. Chart 2 Deflations common during Gold Standard Source: ONS and Hills,Thomas, Dimsdale (2010). However, there’s no evidence this had an especially severe effect on the economy. To be sure, lower inflation was associated with weaker GDP growth, lower wage growth with higher unemployment (Charts 3 and 4). But there doesn’t look to be anything particularly bad about negative inflation: as far as one can tell, the economic cost of moving from of zero to –1% (say), whether in price or wage space, wasn’t any worse than that involved in going from 5% to 4% (for example 5). One reason for this may be that people were adapted to the regime – they were used to the idea that prices, and even nominal wages, occasionally declined, and because these things were therefore more flexible, it didn’t take an especially severe recession to get that to happen. 4 The lower bound for nominal interest rates may be relevant in this context too: in the United States wage growth averaged -13% between 1929 and 1932 and, by the time that deflation got going, it would have been impossible to cut interest rates to those sorts of levels. This led to dramatic rises in the burden of debt and rates of default. | Waves of financial innovations from new players, but also from incumbents on the market, create massive changes in the financial industry. In this light, the highlight of the conference is embracing changes, that is opening doors to financial innovations in the payment landscape, while preventing disruptions to the financial markets and to the overall financial stability. New wave of digitalization can have wide ranging positive effects on the economy – it spurs innovation and productivity, transforms public and private services, contribute to higher financial inclusion by reaching underserved households and overall, improve wellbeing of the society as information, knowledge and data become more widely available. Benefits go hand in hand with challenges to jobs and skills needed, to taxation, financial markets, and invite new thinking on how to preserve fundamentals such as privacy and security, as well as how to preserve monetary and financial stability. Financial innovations, underpinned by digitalization, have a potential to gradually reshape the financial sector. “The Pulse of Fintech” report of KPMG1 shows that Fintech investment globally more than doubled during 2018, and reached $ billion. In addition, while new startups sprouted across emerging fintech subsectors, highly mature areas like payments saw some consolidation through mergers and acquisitions of big developed players. Reports also show that highest number of fintech service providers are in the payments, clearing and settlement category, thus, giving them the potential to gradually undertake a paradigm shift in the payment landscape. | 0 |
Since 2015, cybersecurity issues attract an increasing level of attention, and regulators have produced a large number of regulatory texts, both at national and international levels. This was called for to trigger the appropriate response and efforts from the industry. It helped the sector to reinforce its safeguards. Nevertheless, we must ask ourselves whether the multiplication of new regulations can have a counterproductive effect. From the panelists’ interventions, two issues need to be addressed: • First, we should avoid the possible proliferation of texts by standardsetters for banking, payments, securities services, insurance and/or financial markets. The FSB has already provided such evidence in a stock-taking exercise performed in 2017. Regulators are paying attention to cyber risks, and while they share the same objectives, regulatory texts tend to differ across regulators and as a result add to firms’ burden in terms of compliance with these various regulations, with Page 3 sur 6 little marginal gain. Clarity would be enhanced by reducing the multiple variations in the formulation of requirements across institutions. In turn, regulators’ efforts would be streamlined and their experts employed more effectively. How can we better coordinate regulation? Obviously, a “principle-based” regulation on cybersecurity is preferable, rather than increasingly prescriptive standards, too rigidly “rules-based”. Supervision completes regulation. Principle-based regulation would give supervisors some room for manoeuvre to modulate their expectations to the risk profile of the institutions. • But then, we should also pay attention to the risk of regulatory arbitrage. Regulatory differences can create opportunities. | Lee Hsien Loong: Financial centres today and tomorrow: a Singapore perspective Address by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the International Monetary Conference, Singapore, 4 June 2001. * * * Mr Sandy Warner, President, IMC Ladies and Gentlemen: Introduction I welcome all the delegates to this first IMC of the new century. Please allow me to share with you a Singapore perspective on financial centres as they are and as we expect them to be in the years ahead. In the last few decades the pattern of international financial activity has undergone major changes. Starting with a high concentration in a very small number of financial centres, activity then spilt over to more locations. But now with globalisation revolutionising the financial industry, and expanding the worldwide network of financial markets and activities, paradoxically the trend again seems to be towards concentration, with fewer mega financial centres, complemented by smaller centres with more specialised focuses. In Europe, London is the premier full-service centre, with others like Frankfurt and Zurich occupying strong niches - Frankfurt in the derivatives business and Zurich in private banking. In America, New York is pre-eminent with Chicago playing a specialised role in financial futures, and Boston in asset management. Both London and New York are not just continental but global financial centres, where the top financial institutions have congregated and capital markets run broad and deep. | 0 |
The pace and sequencing of financial liberalisation are critical: • The pace of liberalisation should proceed in accordance to the country’s stage of development. Progressive liberalisation at a steady pace is better than a ‘big bang’ approach. • And financial reforms must be sequenced appropriately in order to ensure the stability of the financial system. Let me highlight three factors that must be in place for successful financial liberalisation: • sound regulation and supervision; • a strong core of local banks; and • a selective admission policy. First, regulation and supervision. Financial crises following rapid liberalisation are often caused by excessive risk-taking by financial institutions against a backdrop of weak prudential regulation and supervision. The quality of prudential oversight, risk management, and corporate governance must keep pace as the financial sector grows. 2 BIS central bankers’ speeches Second, a core of strong local banks. Sound banking systems need strong anchor players who are well-regulated, rigorously supervised, and able to take the long-term view, so that their interests are closely aligned with that of the domestic economy. • This is why Singapore phased its liberalisation measures progressively, to give the local banks time to adjust so that they can compete effectively, while maintaining the stability of the financial system. • It may be necessary to facilitate the consolidation of a fragmented local banking system to form a core group of strong local banks that are able to compete. | The lessons from the development history of many economies are compelling: financial liberalisation is integral to the development process but this liberalisation must be carefully sequenced if crises are to be avoided and the benefits of liberalisation maximised. In general, domestic financial reform should precede full capital account liberalisation. Let me conclude. Myanmar has embarked on a momentous journey to strengthen and develop its financial sector. Liberalising the financial sector is not a question of whether but how. MAS, through its growing partnership with the Central Bank of Myanmar, is happy to contribute to this effort where it can. We have been deeply engaged in many training programmes and stand ready to share our experiences where relevant. Singapore wants Myanmar to succeed and prosper, and realise its huge potential. I wish you fruitful discussions. BIS central bankers’ speeches 3 | 1 |
4 When the Reserve Fund “broke the buck” after Lehman’s failure, there was a run by institutional investors. The industry had to be given access to central banks’ liquidity facilities to contain the vortex. Many banking groups running supposedly arms-length money funds injected “capital” into their funds to keep them afloat. Yet the funds had not been consolidated, and their bank sponsors had not had to hold capital against such implicit support. Echoing the concerns that Paul Volcker is reported to have expressed at internal Federal Reserve meetings around thirty years ago, 5 the Bank of England believes that Constant-NAV money funds should not exist in their current form. They should become either regulated banks or, alternatively, Variable NAV funds that do not offer instant liquidity. Meanwhile, so-called “enhanced return" funds should surely have to make clear what they are and what they are not. Offering 300bp (or whatever) over LIBOR is to offer a risky investment. There is nothing wrong with that. But securities regulators should ensure that the marketing and distribution is appropriate. “Money fund” does not seem to be quite the right label. For both those riskier funds, and Variable NAV money funds, investors would clearly be exposed to risk, just as in mainstream equity and bond mutual funds. Finance companies My second example is so-called finance companies. They are prominent in, but by no means unique to, the US. Some operate globally. | In other words, across the system there was too great an element of banks (and dealers) having shed credit portfolios only so long as they could sustain their own repo financing. Meanwhile, firms such as AIG and funds of various kinds had bought ABS and CDOs financed by short-term repo, so that they held portfolios of household and corporate loans financed at very short maturities – just like a bank, so the argument goes. When the crunch came and ABS asset values fell, some of these firms and funds could not rollover their funding. In the case of some dealers and AIG, end of story. Indeed, towards their end, some could not even repo-out US Treasuries to raise cash! The chain of financing was too long and too fragile to prove resilient under stress. 9 The Securities Lending and Repo Committee is a UK-based committee of international repo and securities lending practitioners and representatives of trade organisations, together with bodies such as Euroclear UK and Ireland, the UK Debt Management Office, the London Stock Exchange and the FSA. It is chaired and administered by the Bank of England. The terms of reference can be found at: www.bankofengland.co.uk/markets/gilts/slrcterms.pdf. 10 For example, see Gorton G B (2009), “Slapped in the Face by the Invisible Hand: Banking and the panic of 2007”, paper prepared for the 2009 Federal Reserve Bank of Atlanta Jekyll Island Conference. 6 BIS Review 6/2010 What are the lessons? | 1 |
The Executive Board decided at its meeting in April that the time was not yet ripe for this. But nor could we exclude the possibility that this might be possible further ahead, if the economic situation were to deteriorate more than we were assuming. During our discussion of this type of unconventional measure at our most recent monetary policy meeting I pointed out that the Riksbank is already implementing extensive measures through its lending to the banks. These measures will continue as long as is necessary. I also considered that it was not necessarily the case that we would need to take the same measures as, for instance, the Federal Reserve and the Bank of England. There are several different reasons for this. The companies in these countries are more dependent on market funding, while in Sweden the banks are the most important source of funding. I also said that we had not yet seen the full effect of the radical interest rate cuts we had made, which contributes to an even greater uncertainty in the question of whether further stimulation through unconventional measures is needed. When we meet in July we will present our forecasts for the economy and the repo rate over the coming three years and discuss once again whether there is a need to carry out other measures than those we have already carried out. We must always maintain the best possible level of preparedness to deal with various situations that might arise. | There is also a lack of information allowing an assessment of the firms that could be most adversely affected by the transition and it is not easy to determine the exact consequences of the different future scenarios. Nevertheless, I believe that the banking sector should, to a large extent, already be considering transition risk. We should not forget that analysing the business environment is an essential part of the risk assessment and management that banks must carry out and that, unlike other ‘transitions’ prompted by sudden changes in technology or behaviour, the transition to a decarbonised economy has been announced and reported on. In order to foster robust management, a series of expectations from both the Single Supervisory Mechanism and the Banco de España, within the remit of their supervisory competences, on the appropriate measurement and management of these risks within the sector is expected to be published soon. Allow me to briefly refer to our work as macroprudential supervisor. I am sure you will agree that, in order to be able to conduct this type of supervision, we need to assess financial institutions’ exposures to high-carbon emitting activities, perform stress tests for the financial system as a whole and define the scenarios and methodologies that serve as a guide for banks. In this regard, in order to analyse the risks associated with climate change and environmental degradation, we are developing an internal methodology on the basis of the stress tests applied to the Spanish banking system every year. | 0 |
So is this the new paradigm of known-unknown? That is, we know what the major drivers of change are, but we cannot forecast outcome. So the key strategic challenge is how to deal with Known-Unknown. For the short-term, the key priority is dealing with the fragile and volatile global economy. Stability is the priority for banks and regulators. The strategic policy question is how to get the right balance between risk and return, stability and growth. Weaker banks will retrench, leaving rooms for the few stronger banks to take up market share. In Asia, we have seen banks from the Asia-Pacific, notably Japanese, Chinese, and Australian banks moved into market space where European and U.S. banks have retracted. ASEAN banks are also shifting strategy to play a greater role to support their conglomerates in the regional expansion. If this regional banking trend continues, what are the implications for banks, regulators, and central banks? While the region has so far remained relatively resilient to the first round impact of European bank deleveraging, there is significant concern about the second round impact through the slowdown in global trade and economy that will impact growth. Another known-unknown in the short-term is the impact of interaction of various traditional and non-traditional policy measures, such as monetary policy, prudential policy including macroprudential. As a result of this crisis, the acceptable policy space has been significantly widened, for example, macroprudential policy now includes sectoral measures such as those to prevent property bubbles or to control adverse impact of capital flows. | While these measures have merits in safeguarding financial stability, they could have complex and cross-border impact. Even on the monetary policy front, unconventional measures are becoming more conventional. Central banks in the major economies have increasingly used unconventional monetary easing. Though necessary to stabilize their economies at this juncture, these policies have side effects of large and volatile capital inflows into Asia. This BIS central bankers’ speeches 1 further complicates safeguarding of financial stability in other countries including Asia, and could, in turn, trigger some countries to resort to macroprudential measures themselves. Thus, in terms of policy space, we are dealing with a new paradigm of expanded policy tools, with new transmission mechanism, and requiring their own policy framework and governance. So we need to recognize the need for cross-border coordination as well as flexibility in execution given emerging uncertainty. Turning to the more medium-term structural issues, major regulatory reforms especially Basel III, Financial Stability Board reforms, and Dodd-Frank Act are still a known-unknown. We do know that they are designed to redress weaknesses that caused the crisis by enhancing capital and liquidity, while addressing the problems of procyclicality, and too-big-to-fail of SIFIs. For this, their merits are well recognized. But these reforms will reshape the global financial landscape and raise cost of financial intermediation. They will also have implications for cross-border level playing field, regulatory arbitrage, and alter risk profile of banks. | 1 |
Irma Rosenberg: Rising commodity prices Speech by Ms Irma Rosenberg, First Deputy Governor of the Sveriges Riksbank, at SEB, Stockholm, 9 May 2008. * * * A challenge for the central banks What have we been able to read in the news in recent months? Let me give some examples. Mining companies have begun prospecting for ore in many parts of Sweden, particularly in the Norrland region. Municipalities which have long experienced problems with emigration, such as Pajala, are now facing a more positive situation. Optimism has increased. Increased trade barriers are being reported in some parts of the world. But this is not a question of what has been the usual case, where countries protect domestic industries by limiting certain exports. Instead they have introduced high charges to prevent exports of foods such as grain and rice. We have also been able to read about demonstrations and food riots in poor countries such as Haiti, Cameroon and Burkina Faso. The UN food organisation FAO has also warned of social and political unrest in several countries. Why am I taking up these examples? What have they got in common? Well, they are the result of one and the same phenomenon – that world market commodity prices have almost exploded in recent years. The high metal prices have made it profitable to search for ore and extract metals that earlier would have been left in the ground. | The EBA is also working on guidelines on the transition plans to be drawn up by credit institutions. 17 lhttps://www.bde.es/f/webbde/INF/MenuVertical/Supervision/Normativa_y_criterios/Recomendaciones_BdE/Banco_ de_Espana_supervisory_expectations_relating_to_the_risks_posed_by_climate_change_and_environmental_degradati on.pdf 18 https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr201127~5642b6e68d.en.html 19 https://eur-lex.europa.eu/eli/reg_impl/2022/2453/oj 20 https://www.eba.europa.eu/eba-publishes-its-roadmap-sustainable-finance In recent years, supervisory efforts in this field have also stepped up. For example, with the ECB thematic review,21 carried out in 2022, on compliance with supervisory expectations and the climate risk stress test22 whose results were published in the summer. These exercises showed that although banks have made progress in including these risks in their day-to-day management, there is still much to be done. I will now briefly mention the key aspects of these two exercises. Thematic review The thematic review23 shows, among other aspects, that more than 80% of institutions recognise that climate risks have a material impact on their risk profile and that, in consequence, they have begun to include climate-related risks in their risk management framework. For example, they have mapped risk exposures and allocated responsibilities within their organisation, set risk indicators (KPIs) and begun to develop qualitative mitigation strategies. However, these measures are still not considered sufficiently sophisticated and, in addition, there is still a considerable shortage of granular data. Indeed, less than 10% of institutions use sufficient forward-looking data to manage this risk. Both the ECB and the national supervisors hope that by the end of 2024 institutions’ practices in this area will be fully aligned with supervisory expectations. | 0 |
Overall, we expect price stability to be maintained over the medium term, and the current monetary policy stance remains accommodative. The stance, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely. Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.3% quarter-on-quarter increase in euro area real GDP in the third quarter of 2010, recent statistical releases and survey-based evidence for the fourth quarter and the beginning of the year continue to confirm the positive underlying momentum of economic activity in the euro area. Looking ahead, euro area exports should benefit from the ongoing recovery in the world economy. At the same time, taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to improve the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors. In the Governing Council’s assessment, the risks to this economic outlook are still slightly tilted to the downside, while uncertainty remains elevated. | On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances. With regard to price developments, euro area annual HICP inflation was 2.4% in January 2011, according to Eurostat’s flash estimate, after 2.2% in December. This further increase was broadly anticipated and largely reflects higher energy prices. Looking ahead to the next BIS central bankers’ speeches 1 few months, inflation rates could temporarily increase further and are likely to stay slightly above 2% for most of 2011, before moderating again around the turn of the year. Overall, we continue to see evidence of short-term upward pressure on overall inflation, mainly owing to energy and commodity prices. Such pressure is also discernible in the earlier stages of the production process. These developments have not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. | 1 |
This has been justified by saying that it might cause more confusion than clarity about the grounds for the policy. That has not been the Riksbank’s experience. Our view of inflationary pressure in the Swedish economy is published on a quarterly basis. The clear presentation gives observers a chance of understanding and questioning our assessments. As new information becomes available, moreover, they are in a position to relate it to our earlier assessment and continuously form a fairly good picture of how interest rates are likely to move in the future. BIS Review 76/1999 2 The publication of our inflation assessments has also facilitated decisions in recent years to raise or lower interest rates. In that the grounds for our actions are clearer, there is less risk of our being accused of heeding extraneous considerations, a worry that featured in the European discussion last autumn. It is my belief, however, that the ECB will become more open about its economic assessments as it settles more comfortably into its forecasting process and inflation assessment. Another difference in transparency concerns access to discussions at the decision-making meetings. The ECB has chosen not to publish any minutes. An important argument for this policy - and one that I find understandable but debatable – is that minutes disclosing how individual members voted might occasion a greater element of national considerations. | New conditions have been created not only for households and firms in the euro area and adjacent countries but also for economic policy. Sweden is by no means unaffected by this change, even though we are outside the euro area at the start. Economic development in the euro area is crucial for Sweden’s economy. As a member of the European Union, moreover, we are involved in many of the contexts where policy is formed. We have also undertaken to conduct our policy in accordance with the rules that have been established for the Union. Against this background it is important that we are engaged in the discussion of economic policy in Europe. My purpose today has been to highlight a number of issues of importance for the European debate. I have tried to describe how the ECB works, the rules that have been built up for fiscal policy and so on. I have also said something about events in the past six months and discussed some of the problems as I see them. One thing is certain: the euro’s introduction does not constitute the final step in the integration of Europe. The single currency will raise new questions that will be answered by degrees through the cooperation between the countries of Europe. It is important that Sweden takes an active part in that debate. BIS Review 76/1999 6 7 BIS Review 76/1999 | 1 |
In this context, the idea of a global currency did not prosper in the academic debates – and even less so in policy discussions. One recent exception stands out, to which I would like to pay a special tribute. In 2010, Michel Camdessus launched the Palais Royal initiative. This initiative sheds light on the shortcomings of the International Financial System, in particular its global governance and an overreliance on a single central currency. The initiative suggested a greater role for SDRs and enhanced cooperation between the World Bank, the IMF and the G20. However, other major projects have in parallel been assigned higher priority for instance the successful creation and development of the euro - or have been dictated by necessity - for instance the strengthening of the global financial safety net (GFSN) induced by the great financial crisis and then the Covid crisis. That said, there have been significant progress such as the increase of IMF resources, the two special drawing rights (SDR) allocations (including the last one of 650 billion USD in 2021) and the creation of the Resilience and Sustainability Trust (RST) on the 1st of May by the IMF, which will help deliver the G20 commitment to rechannelling at least 100 billion USD of this allocation to the countries in need. 2. The dangers of a fragmented financial system Page 3 sur 7 But there are dangers ahead. | The market value of households’ financial and housing assets has fallen by over 10% over the past two years. Does this mean that there is some form of hole in households’ balance sheets that will weigh on the recovery as they seek to repair it? 2 This increase reflects purchases of assets. It does not include the returns from these investments. BIS Review 114/2009 3 Any real or perceived need for households to rebuild their balance sheets may play an active role in determining their levels of spending. 3 For example, the cost of financing debt and the uncertainty about future employment prospects may make households reluctant to exceed a certain level of net borrowing. In this case, the deterioration in the financial position of some households may cause them to spend less in order to repay debt or increase savings. The “payback period” I mentioned earlier. This possibility has focussed much recent attention on the state of households’ balance sheets. But standard measures of households’ financial position – such as the ratio of debt to assets – may exaggerate the severity of the problem. That is because these conventional measures suffer from a “missing” asset and a “missing” liability. Let me explain. The “missing” liability is the cost of purchasing a house in the future. This argument is directly related to the redistribution argument I discussed earlier. | 0 |
I have always stressed that the phasing-out would be timely and gradual. It must be timely, because one should exit neither too early, nor too late – any ex ante bias is not justified. The phasing-out must be gradual, because the situation is improving only gradually and downside risks remain. Last Thursday we took a decision to initiate the gradual phasing-out of some of the extraordinary liquidity measures, as they will not be needed to the same extent as in the past. This will avoid distortions associated with maintaining non-standard measures for too long. It is important to avoid a situation in which banks are heavily dependent on exceptional central bank financing. In the context of a stabilisation in the money markets, incentives have to be strengthened for banks to restructure their balance sheets through recapitalisation. In addition, a timely and gradual phasing-out should help activity in the money market and strengthen peer monitoring among banks. It was against this background that the Governing Council decided to adjust the design of some of our refinancing operations. We will continue to fully accommodate banks’ liquidity needs at fixed interest rates in all our main refinancing operations for as long as is needed – and at least until mid-April next year. We thereby continue to provide liquidity support to the euro area banking system so as to facilitate credit provision to the euro area economy. But as regards our one-year operations, we decided to not engage in further one-year operations beyond the December operation that was already announced. | Economic activity in the third quarter is estimated to have increased by 0.4% compared with the previous quarter. In 2010 we expect to see a moderate recovery. This is in line with the latest Eurosystem staff projections, which were published last Thursday. However, this expectation remains surrounded by a high level of uncertainty. In the view of the Governing Council, the risks to the outlook remain broadly balanced. As regards price developments, inflation and inflationary pressures have remained low over recent months. In line with our expectations, inflation rates turned positive again in November, reaching an estimated 0.6%. Looking ahead, we expect inflation to remain moderate over the policy-relevant horizon, in line with a relatively slow recovery in demand. Indicators of inflation expectations over the medium to longer term remain firmly anchored, in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. Our monetary analysis confirms the assessment of low inflationary pressures over the medium term. In particular, we see that money and credit expansion continues to decelerate. In the case of loans to households, the latest data provide further confirmation of a levellingoff at low rates of growth. The growth of loans to enterprises follows turning-points in the business cycle with some lag. The still subdued levels of production and trade, coupled with broader uncertainty regarding the business outlook, will dampen firms’ demand for bank financing also in the coming months, especially for short-term loans. | 1 |
The equity prices of banks tumbled, falling 86% on average for the major UK banks between February 2007 and March this year (Chart 4). In money terms, that is a loss of market capitalisation of around £ equivalent to 20% of annual UK GDP. Underlying these price falls was a generalised loss of trust between banks and investors in banks, such as sovereign wealth funds and mutual funds. What explained this wholesale loss of trust? In the run-up to the crisis, banks’ business models were increasingly predicated on making loans for onward sale. Loans became tradable securities and long-term relationships gave way to short-term transactions. The perils of this practice were well understood by Michael Marks, founder of Marks and Spencer and of course one of the region’s greatest-ever entrepreneurs: “You either make things or you sell them. Don’t try both”. Banks tried both, making loans with an eye to subsequently selling them. This had unintended, but in fact entirely predictable, consequences. Without skin in the game, banks’ due diligence became slipshod. The quality of tradable loans fell as their quantity rose. Investors in these securities were not as canny as the landlady of the Esk Inn: they purchased them in size even though “they knew nought about them”. By the time the penny had dropped for these investors, the pounds had not taken care of themselves. | General Meeting of the OCBF 17 June 2022 Economic and financial situation and outlook in the context of the war in Ukraine Speech by Denis Beau, First Deputy Governor Ladies and gentlemen, I am delighted to be with you today on the occasion of your Annual General Meeting. Last year, I spoke before you about the outlook for the euro area economy in the wake of the health crisis. Since then, new lockdowns in China and especially the war in Ukraine have created new shocks for the European economy and financial system. Today, I would like to share with you our analysis, at the Banque de France and the ACPR, of the outlook and the resulting short-term, macroeconomic and subsequent macrofinancial risks, which guide our actions as a central bank and supervisor in our mission to preserve monetary and financial stability. I will end my remarks with the longer-term challenges we collectively face, associated with climate change and the digitalisation of finance, which should not be overshadowed by the war in Ukraine and its consequences. These challenges still require resolute and immediate action from all of us, and in this context I will say a few words about the role we can play as supervisors and central bankers to help banks in their transition to a sustainable economy and digitalised finance. 1. | 0 |
The payments system we live with today is a complex mix of national and cross border systems originally designed for a safer, slower, less complex, more segmented financial world. While many improvements have been made to this system over time, it is important that we work to strengthen further the core infrastructure of the payments system. We also need to promote further evolution in the framework of supervision and regulation of our more complex and integrated global financial system. To paraphrase Bob Rubin in a different context, we need a framework for supervision and regulation that is “as modern as the markets” and that stays abreast of the pace of change and innovation. Perhaps the greatest challenge we face – in macroeconomic policy and in financial supervision - is a challenge of imagination: How do we best prepare for the low probability of an extreme event; a crisis not captured by past experience? How do we generate the will today to build a greater degree of insurance against a more uncertain future, particularly if the risk of adversity seems remote and the immediate future looks strong? We can take considerable reassurance from apparent moderation in overall macroeconomic volatility recently, and from the ease with which our system has handled recent stress. Prudent macroeconomic policy actions will increase the likelihood that these beneficial circumstances will continue. But we cannot know with confidence that the future will bring an enduring reduction in volatility and risk, and it would be imprudent to plan for such a world. | But we need to be careful to give the world confidence that we will conduct policy in a manner that will keep inflation expectations stable, at low levels. Second, to fiscal policy. We now face a substantial and unsustainable gap between our fiscal commitments and our resources, not just over the longer term with respect to Social Security and Medicare, but also with respect to budget projections for the coming ten years. Reducing this gap to a more sustainable level is vital. The decisions we make this year and over the next few years will be important to building more confidence that we have the will to act in a manner commensurate with the challenge. Achieving a substantial and sustainable reduction in our fiscal imbalance is important to decrease the risk of lower future growth in private investment which could dampen future productivity gains. Reducing our fiscal imbalances is also important for reducing the risk of adverse shocks to financial markets, and for maintaining the willingness of investors to invest in our economic future. Improving the credibility of our commitment to this fiscal challenge is the most important contribution we can make towards improving the chance of a more benign adjustment in our external imbalance. Third, the U.S. and the major economies have an important role to play in guiding further evolution in the international monetary system. Policy makers in Asia are well aware of the complications and costs involved in sustaining their current regimes. Many are moving toward more flexibility in their exchange rate regimes. | 1 |
Economica, 85: 735-770; B. Richter, M. Schularick and I. Shim (2019), The costs of macroprudential policy, Journal of International Economics, 118: 263282; Ampudia, M., M. Lo Duca, M. Farkas, G. Perez Quiros, M. Pirovano, G Rünstler, and E. Tereanu (2021), On the Effectiveness of Macroprudential Policy, ECB Working Paper Series 2559. Behncke, S. (2022), Effects of macroprudential policies on bank lending and credit risk, Journal of Financial Services Research. Ibidem. banks (cf. slide 2). As a consequence, banking sector resilience to shocks is now much larger than before the GFC. Stress tests conducted by many central banks indicate in fact that bank capital is likely to be sufficient to cover potential losses under severe stress scenarios. 9 At the SNB, we also regularly conduct stress tests for the Swiss banking sector. Results, reported in our annual Financial Stability Report, suggest that most banks have adequate capital buffers to absorb losses under adverse scenarios, in particular also in the event of an abrupt and steep interest rate rise combined with declining real estate prices. This implies that banks could withstand the shock, and still fulfil their key role as credit providers to the real economy. The coronavirus pandemic has highlighted the importance of banking sector resilience. Despite the elevated uncertainty prevailing at the onset of the pandemic, market participants remained confident in the banks’ ability to absorb potential losses resulting from the pandemic and to continue at the same time to fulfil their role as credit providers. | 2 Instruments Macroprudential authorities have a wide range of instruments at their disposal to achieve these objectives. In order to contain the build-up of vulnerabilities, authorities can rely on instruments that aim to keep borrowing at sustainable levels. Examples of these so-called borrower-based instruments are restrictions on the loan-to-value (LTV) or loan-to-income (LTI) ratios, as well as specific requirements on loan maturity and amortisation. Specifically, these instruments limit borrowing from households who have insufficient personal equity, or whose income would not be able to cover debt payments if interest rates were to rise beyond a certain level. As a result, these instruments should reduce overall credit growth and, indirectly, house price growth, thereby containing the build-up of vulnerabilities. In order to strengthen banking sector resilience, macroprudential authorities can rely on instruments that directly target bank capital, the so-called capital-based instruments. These instruments increase bank capital above minimum capital requirements. In other words, they create a safety buffer that serves as a shock absorber in times of stress. Important instruments in this category are capital buffers that depend on a bank’s size (e.g. buffers for global systemically important banks). In addition to these structural instruments, authorities can rely on an instrument that depends directly on the level of cyclical risks in credit markets, namely the countercyclical capital buffer (CCyB). The idea behind the CCyB is that banks should build up capital gradually as cyclical risks in credit markets increase, thereby strengthening their resilience. | 1 |
So as members of the Monetary Policy Committee we see it as more important than ever to make visits such as this so that we can talk to businesses face to face about the conditions they are experiencing on the ground. And every month our Agents in the regions, including the North West, give us a comprehensive report based on a large number of meetings with contacts in all sectors of the economy. 2009 is certain to be a difficult year for the UK and the global economy more generally. In the United Kingdom, we expect the sharpest fall in output for decades while on some measures, retail prices are likely to fall for the first time in almost half a century. We are not alone in our difficulties. Most of our major trading partners are also entering recession. A decade or more of remarkable macroeconomic stability; the Great Stability as economists called it, has come to a shuddering halt. These exceptional developments have led already to exceptional policy measures. Here in the United Kingdom, the government has set in train a fiscal expansion and has stepped in to support the banking system and lending. And earlier this month, we reduced official interest rates to an historic low of 1.5%. Similar measures have been taken overseas. | Data on new orders suggest that output is likely to fall sharply in the first quarter of 2009 as well as in Q4 of last year; further declines in output, if not at the same pace, are likely beyond then. The widening margin of spare capacity will act as a significant drag on costs and prices. Coupled with the deflationary impact of falling commodity prices and the cut in VAT, CPI inflation will continue falling over the year and may go well below the target rate of 2% despite the impact of sterling’s depreciation on import prices. With its inclusion of mortgage interest and other housing costs, the change in the RPI is expected to turn negative. The downturn itself has set powerful contractionary forces to work. Over-indebted households and companies will be pulling back on spending to try and pay down those debts. Although the recent falls in commodity prices will help to mitigate some of the downward pressure on household income, rising unemployment is not only constraining the spending of those losing or not finding jobs but is likely to boost precautionary saving across the household sector. And falling property prices are reducing activity in the housing market and the construction sector. With credit hard to come by, companies will find it difficult to fund new investment projects and few companies would be likely to invest large sums of money even if they could raise the funds. Commercial property prices are still falling rapidly. | 1 |
Via this re-evaluation, negative rates loosen the perceived lower bound on the future distribution of short-term interest rates.4 Through this mechanism, negative interest rates have a marked impact on transmission, particularly in the euro area, as they push down the short and medium segment of the risk-free curve, which for the most part is the segment of the curve that determines the pricing of loans to non-financial corporations. It follows that control of this segment of the curve directly influences the level of lending rates. To illustrate the effectiveness of negative policy rates, ECB staff undertook a counterfactual exercise. They constructed the forward curve that would prevail in a scenario without either the negative interest rate policy or the forward guidance on the future path of the policy rates. As shown in Chart 2, the forward curve derived from the overnight index swap curve would be pinned at a higher level and would be distinctly steeper (the dashed blue line on the right) than the forward curve that we observe today (the red curve). 3 / 19 BIS central bankers' speeches While this mainly serves as an illustration, as it is based on a number of assumptions and input parameters, it is indicative of the sort of tighter interest rate constellations that the euro area economy would face in the absence of this important policy tool. Our negative policy rate thus contributes substantially to providing monetary accommodation. | Finally, I am pleased to see many old friends of the HKMC supporting this new issue. I would like to thank the HSBC and Bank of China (Hong Kong) for underwriting a portion of the bond issue as well as placing the notes. Taking this opportunity, I would also like to thank the other placing banks, namely, Bank of America (Asia), Bank of Communications, Bank of East Asia, Chiyu Bank, CITIC Ka Wah Bank, Dah Sing Bank, DBS Bank, Hang Seng Bank, Fubon Bank (Hong Kong), Liu Chong Hing Bank, Nanyang Commercial Bank, Shanghai Commercial Bank, Standard Chartered Bank (Hong Kong), Wing Hang Bank and Wing Lung Bank, for their participation in this bond issue. With their extensive branch networks, and sophisticated telephone banking and the Internet banking facility, I look forward to another successful retail bond issue by the HKMC. Thank you. BIS Review 55/2005 1 | 0 |
At such a meeting, Malta's method of participation in ERM II, including the central parity rate, would be agreed. The way would then be open to join the mechanism. ERM II is characterised by a standard fluctuation band of +/- 15 per cent per cent. How relevant do you expect such a band to be for Malta? The system allows so much flexibility to ease the burden of transformation and structural reforms in those Member States which still have a relatively long way to go before they reach average EU levels of development and whose exchange rate may not yet, therefore, have reached an equilibrium level. The standard band represents the maximum exchange rate flexibility that can be availed of, depending on individual country circumstances. The existence of the bands should not, therefore, give rise to the expectation that the exchange rate will automatically fluctuate to this extent. In the case of Malta, for example, the economy has already achieved a relatively high level of real and nominal convergence and one would, therefore, expect that the daily rate should remain close to the central parity rate. Indeed, given the crucial role that exchange rate stability plays in the highly open Maltese economy, and the significant credibility attained by the Maltese lira under the existing basket peg, the authorities would like to preserve the important positive effects of the current arrangement, namely exchange rate stability, during ERM II. Will participation in ERM II entail a change in the level of the lira/euro exchange rate? | But they necessarily remain our best judgements and that, of course, leaves us vulnerable to assertions that we do not give sufficient weight to this or that factor. For what it is worth, at the time of our last forecast in November, our central projection – on the assumption of 6% interest rates – was for output growth of around 2½% over the next couple of years, with RPIX inflation remaining modestly below target this year but rising to 2½% in 2002. There was, of course, a good deal of uncertainty around that central projection, as there always is, for the reasons that I’ve tried to explain. But on the basis of that forecast the short answer to the question: can our steady economic progress be maintained over the next couple of years is a cautious “yes”. Since that forecast was completed things have gone in different directions. The prospect for external demand has somewhat weakened and so too has the oil price. There are mixed messages relating to 2 BIS Review 1/2001 tightness in the labour market, but earnings growth has so far remained reasonably well contained - as it must continue to do. On the domestic demand side, private consumption growth has remained stronger than we had supposed, while the growth in private investment has been weaker; meanwhile it is not clear that underlying public sector demand has – at least yet – picked up as rapidly as planned. The exchange rate has fallen, and so, too, have market interest rates. | 0 |
Legislation in 1942 followed the then German model, particularly in making the Bank of Japan subservient to the Ministry of Finance; and after the war, there was American influence. 1 Rosa Maria Lastra, “Central Banking and Banking Regulation”, LSE Financial Markets Group, 1996, page 285. BIS Review 33/1997 -3- In Figures 1 and 2, I have attempted to capture some of the distinctions between these leading central banks. (Because I am concentrating on distinctions, I have omitted common tasks - such as the issuance of banknotes and acting as banker for government - which are carried out by virtually all central banks.) Figure 1 shows the UK’s “scores” in five areas, while Figure 2 adds in, by way of comparison, the other G5 countries. Mapping the distinctions is not an easy task. For instance, though in Germany a government office is responsible for banking supervision, it is central bank staff who undertake much of the day-to-day work of monitoring individual banks. In France, supervision is the responsibility of the Commission Bancaire, but its secretariat is effectively part of the Banque de France, and the Governor chairs it. And in Japan, the central bank closely monitors the large banks, though the responsibility for supervision formally rests with the finance ministry. | (The UK is also unusual in that foreign exchange reserves, and any profits earned on them, belong to the government rather than to the central bank, although the Bank of England does of course have responsibility for managing the reserves). European integration 3 Maxwell Fry, Charles Goodhart and Alvero Almeida, Central Banking in developing countries, Routledge, 1996, pages 97-99. BIS Review 33/1997 - 10 - Looking at the European continent as a whole, it is interesting that, whereas the common history of central and eastern European countries over the last half century has produced broadly similar central banks in the different countries - at least in those which are contemplating accession to the European Union - the central banks of the existing member states are a disparate bunch. What remains to be seen is how far the advent of Economic and Monetary Union may induce more homogeneity and, indeed, reduce costs. It ought to be the case, after all, that one monetary policy is cheaper to administer than 15, or 25. The European Central Bank will appear a much more concentrated creature than the central banks we have been looking at. It will be responsible for the issuance of euro banknotes (known to the cognoscenti as bridging finance) but beyond this, in terms of the diagram I have been using, the ECB will be almost uni-dimensional (figure 7). According to the Maastricht Treaty its independence in setting interest rates will be unparalleled. | 1 |
At the moment, the likelihood of an international financial crisis seems slight, and so does the likelihood of contagion effects to Sweden. There is a major difference between the banks that have been affected and the Swedish banks, which have high profitability, good liquidity and relatively large capital buffers. There is thus a high threshold for the problems to spread to Sweden. However, the financial system is closely interwoven at a global level, and there is every reason to be vigilant. The Riksbank monitors developments around the clock and we have a continuous dialogue about the situation with the other members of the Financial Stability Council. I shall return to developments on the financial markets later on. What I mainly want to talk about today is what has been most in focus in my first months on the job, namely monetary policy and inflation. The monetary policy decision in February was the first made by the Riksbank under the new Sveriges Riksbank Act. It may therefore be appropriate to begin with a few words about what the Act means for the Riksbank's monetary policy framework. After that I would like to give my view on inflation, the economic situation and monetary policy and also go into more detail on why it is so important that inflation comes all the way down and stays close to the Riksbank's target of 2 per cent. This may not be obvious to everyone – after all, it has been thirty years since we were last in a similar situation. | For an independent central bank to be perceived as legitimate in a democracy, it must be granted a clear mandate against which its performance can be assessed. However, the environment in which central banks operate is highly complex, and conditions can change rapidly. For this reason, mandates usually only sketch out a framework for central banks’ operations. This gives them much-needed flexibility in difficult situations. As a counterweight to its independence, a central bank has a duty to report on its actions, and the results. Indeed, the SNB has regularly provided detailed reports on matters relating to both monetary policy and financial stability. For example, it has explained the rationale behind deciding to discontinue the minimum exchange rate or introduce the negative interest rate, and how these measures have helped it to fulfil its mandate. As regards financial stability, the fact that macroprudential instruments often have powerful distribution effects speaks against handing over the entire responsibility for such instruments to the central bank. In contrast to monetary policy, these measures are sometimes targeted at specific sectors and groups, and thus also have fiscal implications. In Switzerland, macroprudential tasks have therefore been divided up between the government, the financial market supervisory authority and the SNB. The SNB is responsible for assessing the systemic importance of banks and financial market infrastructures, and plays a key role in the deployment of the countercyclical capital buffer. 1/1 BIS central bankers' speeches | 0 |
The HKMA endorsed this consensus and issued a circular in June 2004 requesting banks to implement such security measure by June 2005 for high-risk retail Internet banking transactions (such as fund transfers to non-designated accounts). Two-factor authentication is a security measure recognised by the information security industry to combat Internet banking frauds. In addition to the normal login ID and password, a customer needs a second factor which is in his or her physical possession for additional identity verification. This second factor should be difficult to be stolen together with the customer’s login ID and password by fraudsters over the Internet. We believe that this is an effective way in tackling the latest Internet banking frauds such as fake bank websites, phishing e-mails and Trojan software. We understand that a number of banking supervisors in other financial markets are currently reviewing the implication of the latest Internet banking frauds and consulting their banks in relation to the adoption of two-factor authentication for Internet banking. Hong Kong is one of the first places to offer such security measure to bank customers. So far the implementation of two-factor authentication has been progressing satisfactorily. All banks offering high-risk retail Internet banking transactions will allow customers to apply for two-factor authentication from next month. Individual banks may offer different two-factor authentication methods to customers. Three common methods being adopted by banks in Hong Kong are digital certificate, security token-based one-time password and SMS-based one-time password. | To help you better understand the various methods, we will have a brief demonstration to illustrate these methods towards the end of the press conference. A series of promotional activities will be launched by the banking industry and individual banks from June 2005 onward to help customers to fully understand this security measure. Mr He will highlight the key features of the consumer education programme to you. Two-factor authentication strengthens the security controls of Internet banking and protects bank customers from Internet banking frauds. We are confident that with the joint efforts of the banking sector, bank customers, the Police and the HKMA, Internet banking will continue to flourish under a safe and sound environment in Hong Kong. BIS Review 44/2005 1 | 1 |
For instance, a nominal interest rate of 2% when expected inflation is 4% is much more expansionary than a nominal interest rate of 1% in a noninflationary setting. Given that the prices that determine inflation are partly rigid, the central bank may influence the real interest rate by adjusting nominal rates. Before the onset of the financial crisis, the central bankers’ handbook prescribed that if the economy was overheating and prices and wages were under upward pressure, the central bank should raise nominal interest rates above inflation expectations, thus tightening real rates and cooling down the economy. And vice versa, in a downturn, with falling prices and rising unemployment, it was thought that the central bank should cut nominal interest rates, thus reducing real rates and stimulating aggregate demand. 12 Conceptually, central bankers tried to keep real interest rates at a level — known as the “natural rate of interest” — that held GDP at its potential level and inflation stable at around its target.7 The natural rate of interest cannot be observed directly and can only be estimated, with some degree of uncertainty, using econometric techniques.8 According to available estimates, in recent decades the natural rate of interest appears to have progressively declined in the advanced economies. This is attributed to demographic factors, such as population ageing, or technological factors, such as lower productivity growth, which have changed the balance between the supply of savings and investment demand. | However, these values are far below the objective of price stability, which is defined as inflation of below, but close to, 2% in the medium term. The latest data, referring to the February estimate, for the euro area’s Harmonised Index of Consumer Prices show a year-on-year increase of 0.9%, the same figure as in January. The smaller drop in energy prices appears to have been offset, in the context of rising oil prices, by moderation in the core component (which excludes energy and food). The latter fell by 0.3 pp with respect to January to 1.1%. This outcome was determined in particular by temporary factors, such as the updated HICP weights, which since January are based on 2020 consumption patterns and which, although they will have a very marginal downward moderating effect on the year as a whole, will have a considerable impact on short-term inflation dynamics, making them difficult to interpret. Also, the pandemic containment measures appear to be changing the seasonal sales calendar in various countries. The situation I have just described is, therefore, one of a fragile, uneven and uncertain recovery in the euro area, where some of the downside risks for our short-term baseline scenario, which were identified just a few months ago, appear to be materialising. Against the current backdrop of uncertainty surrounding both the course of the pandemic and the speed of the vaccination campaigns, the best contribution that economic policy can make is to instil confidence and certainty. | 1 |
David Clementi: The City and the Euro: innovation and excellence Speech by Mr David Clementi, Deputy Governor of the Bank of England, at the City Seminar on 'London into the 21st Century' at the Palace Hotel, Tokyo on 13 February 2001. * * * Introduction The City of London is, and always has been, a centre of innovation and excellence. I want to talk to you today about the City's role in the euro markets as an example of how London proposes to maintain its standing and reputation for innovation and excellence in the 21st century. For me, it is a great pleasure to be able to talk to you about this here in Tokyo. There are historic links between Tokyo and the City of London, and I am glad that these links are continuing to flourish. We welcome the fact that so many important Japanese financial institutions are represented in London; and, of course, that UK-based financial institutions have operations here in Tokyo. It is not surprising that there are such strong links between Tokyo and the City of London, because London is one of the three global financial centres, alongside Tokyo itself and New York. Tokyo and New York are global centres because of their large domestic markets. Unlike Tokyo and New York, London's primary focus is international. London is much the largest international financial centre in Europe. Historically, London developed as a financial centre because of the international role of the pound sterling. | Industry platforms such as VBI-COP and the JC3 could potentially play a central role to ‘intermediate’ the data. As a first step, conversations between the Islamic banking and takaful operators to identify impact-driven and innovative financial solutions under VBI and VBIT, can take place to facilitate respective outreach to the underserved or unbanked population. Outside the financial sector, FIs can embark on collaborations with organisations sharing similar sustainability aspirations including state religious authorities, waqf institutions, business industry associations and advocacy groups, or non-governmental organisations who are at the heart of the vulnerable communities. For example, FIs can collaborate with government agencies and utility companies to support the consumers’ shift to energy-efficient residential homes or vehicles. Beyond the existing sustainable financial products offering preferential rates for the purchase of electric vehicles (EV) or green residential properties, more can be done to raise consumer awareness and to develop complementary infrastructure namely, charging stations. Initiatives such as the development of the VBIAF sectoral guides which are now underway for the manufacturing, construction and infrastructure, as well as oil and gas sectors, is a step in the right direction to streamline the cross-sectoral understanding of sustainability issues, thus allowing for better coordination of efforts to address sustainability risks throughout the value chain. In conclusion, it is our fervent hope that with sustainability, an innovative and collaborative mindset, we can come to develop value-driven solutions and discover new avenues for synergistic collaboration. | 0 |
Debt markets are profoundly disrupted and international movements of capital have been highly volatile over the last two years. Fifth remark. The intervention capacities of central banks are of course limited. They can remedy temporary market disruptions and situations of illiquidity caused by uncertainty. Recently they have intervened to an unprecedented extent, as reflected in their balance sheets. But they cannot permanently substitute financial markets and banks when financial intermediation malfunctions. Likewise, low or zero interest rates can contribute to stabilising BIS central bankers’ speeches 1 the economy in periods of crisis, but if maintained over a protracted period, they can create distortions, encourage the formation of bubbles and create risk for long-term investors. Indeed, on this topic, I would like to make one observation. The question of monetary financing of deficits was raised by David Thesmar. Such financing cannot in any way resolve the problem of the dislocation between savings and investment, either at the national level or at the global level. Some central banks have developed large-scale public debt acquisition programmes. They have done so for reasons relating to immediate macroeconomic stabilisation... to go beyond the zero-interest rate limit. The Eurosystem as well intervened on a much smaller scale when malfunctioning debt markets prevented the effective transmission of monetary policy impulses. There is not a single central bank that is seriously considering the monetisation of deficits with the more or less declared intention of reducing the weight of debt via inflation. | But despite these differences, a common theme arises: emerging markets dependent on the production and export of raw materials (Russia, Brazil and South Africa serve as good examples) are less resilient than countries dependent on vigorous labour force and innovations (exemplified, within BRICS, by China and India). There are also differences in resilience among the “emerging” countries of Central Europe. During the Great Recession, Poland – a big country (by Central European standards), less open and with greater potential for catch-up growth – proved to be the most resilient. The Czech Republic was also quite resilient (it experienced its own banking crisis in the late 1990s, with banks becoming more conservative and risk-averse in consequence). Hungary and Slovenia proved less resilient, and in these countries the government had to intervene in the financial market. In the case of the Czech Republic, the fact that our host financial sector was more resilient to shocks than its home countries was the reason why we never joined the Vienna Initiative. The resilience of emerging economies is now under the spotlight also because we remember the effects of the 2013 taper tantrum. That year, many emerging countries experienced a huge outflow of capital, while at the same time some other countries like the Czech Republic and Poland were effectively trying to discourage foreign short-term capital from coming in. This discouragement was accompanied by interest rate cuts and other forms of monetary easing in general. | 0 |
27 For example, Goodfriend and King (2016), p. 98, write as follows: “We do not think it sensible to extend the objective of the central bank to include numerical targets for employment and output. The experience of forward guidance in both United States and United Kingdom suggest that attempts to use numerical values for these variables can crumble in the hands of policymakers within a short period of time.” 28 See Woodford (2012). 29 See Stein (2014), Billi and Vredin (2014) and IMF (2015). 30 See Bryant, Henderson and Becker (2012) and Acharya (2015) for different arguments. BIS central bankers’ speeches 13 factors, on how well the price stability objective has been met and on how effective macroand microprudential policy are when it comes to promoting financial stability. Flexible inflation targeting involves, as I stated earlier, the central bank allowing certain deviations from the target in order to take, for example, output, employment or financial imbalances more into account. But this flexibility is not just something that is there, one has to accumulate it. A prerequisite for using the policy rate for something other than stabilising inflation is that confidence in the inflation target is firmly rooted and that it works as a nominal anchor in the economy. The higher the confidence in the inflation target, the more consideration the central bank can show for aspects other than inflation – the more flexible monetary policy can be. | The test is whether member countries are ready to make genuine commitments to each other. Without that the institutions lack any real purpose. So the subject of my talk today is why we need rules of the game to govern globalisation, and the institutions that are necessary to oversee those rules. 2. Is the post-war settlement still relevant today? At the end of the Second World War, a new global order was put in place by the United States, Britain and their allies. One of those primarily responsible, US Secretary of State Dean Acheson, described his time as being “present at the creation” of a new global order. A range of new international institutions was created – the United Nations, the two Bretton Woods institutions (the IMF and World Bank), the OEEC that implemented the Marshall Plan (and later became the OECD) , NATO, and GATT (which has subsequently been succeeded by the World Trade Organisation). Those institutions are now, for the most part, past their 60th birthdays. And there has been much heartsearching over the past few years as to their role and governance. Unless the spirit of the original founders is rekindled, there is a real danger that the present institutions will wither on the vine leaving us with a more unstable and fragile international environment. As Martin Wolf pointedly wrote, “To defend a liberal world economy is not to defend the International Monetary Fund, the World Bank, the World Trade Organisation or any specific institution. | 0 |
Audience Member: Greetings, good morning to – or good afternoon to you and your guest. Now while it would be interesting to speak of why the New York Fed and the Atlanta Fed are differing on their economic forecasts, that might be interesting, but I want to speak to something far more local. Far more local. This community, and communities like this, were devastated, were ravaged – and I could use a stronger word – during the financial crisis of 2008. We’ve never recovered from this. The black community lost approximately 50% of its wealth in four years. 50% of the wealth accumulated from slavery till today lost in four years. No one, of course, was ever jailed for these things, no one was ever – very little punishment, if anything, was done. I understand that while you may want to do or feel strongly it’s not the purview of the Federal Reserve – I understand that. Using your researchers at Liberty and other parts of your organization, I need to know what laws that I can put on the books to protect communities like this. We’re about to go back into another phase of exotic mortgage-lending, and I will humbly differ with you on Glass-Steagall, of course. We’re about to go into another phase of exotic lending. They call it exotic lending. We call it predatory lending, and we pay for it. We can expect that again. | But, as a French and European citizen, I cannot help and feel proud of having one the two main currencies in the world. In sum, benefits of the euro include a high degree of credibility of monetary policy reflected in the level of long-term interest rates; diminished exchange rate volatility; completion of the single market and encouragement to cross-border trade. None of this, of course, can be taken for granted. Benign conditions currently prevailing on financial markets can be reversed. Shocks may be coming, which would impact negatively European economies. Despite some signs of cooling, imbalances are still building up, especially in the housing sector, fuelled by a dynamic expansion of credit, although in no way comparable to those in some other developed economies. But I have the strong conviction that we are fully equipped to deal with any contingency, and, provided the necessary structural reforms are undertaken, keep the economy on a path of growth and stability. BIS Review 51/2007 1 2) How have those successes been achieved? A lot comes, in my view, from the institutional and operational framework in which monetary policy is developed and implemented. The independence of the ECB and of the 13 participating NCBs is enshrined in the Treaty. They are institutionally, operationally and financially independent from European Community institutions and national governments. We have a clear and transparent definition of price stability: inflation below but close to 2% over the medium-term. The monetary policy framework of the Eurosystem is “medium-term” oriented. | 0 |
Prasarn Trairatvorakul: From here to there – transition in emerging markets Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, delivered in the Thailand@Harvard Series, Harvard Kennedy School, Boston, Massachusetts, 7 October 2013. * * * Distinguished guests, ladies and gentlemen, It is a pleasure for me to be back here at Harvard and to have a chance to contribute to the Thailand@Harvard series. Boston has certainly changed a lot since I graduated over 30 years ago. But the warmth and sense of intellectual purpose that I still feel here makes it all seem like yesterday. And by that I don’t necessarily mean the stress of studying for my general exam! Later this week I will be attending the Annual Meetings of the IMF and the World Bank. Undoubtedly one of the key issues that will be discussed is the recent growth slowdown in many emerging market economies. Certainly, among market commentators and in policy circles, the medium-term growth prospects for China, India, Brazil and other emerging economies have become the talk of the town. And it will be the focus of my remarks today. What happens in emerging markets matter. Together, they account for more than half of world GDP.1 Since the early 2000s, when Jim O’Neill at Goldman Sachs coined the acronym BRIC for Brazil, Russia, India and China, emerging markets have powered global economic growth. By mid-2009, these economies were growing 7 percentage points faster than the G7 economies and contributed around two-thirds of world output growth. | Greece is hot and has plenty of sunshine. Yet the Dutch can produce 70kg of tomatoes per year in a square metre of his temperature controlled greenhouse whilst Greek and other Mediterranean grower get approximately 7kg through traditional open-air 1 In purchasing power parity terms. BIS central bankers’ speeches 1 plantations. Ironically, in the summer Greece imports tomatoes from Holland because local farmers are unable to grow enough during the hottest time of the year. Natural and geographical constraints can be overcome. Japan and Singapore also spring to mind as countries that have made much of their limited resources. Critical to longrun growth is how you make use of and develop your resources. Doing so requires constant reshuffling of factors of production. Workers, capital, and land has to be devoted to activities that generate the most value added for the economy. In other words, growth requires structural change. Advanced economies are simply not blown-up versions of developing economies. They are structurally different. Development entails more than just aggregate growth. It requires significant transformation in the productive structure of the economy. In Thailand the average worker in the manufacturing sector is roughly 10 times more productive than those in agriculture. Yet, the latter employ about 40 percent of our workforce compared to 15 percent in manufacturing. It is easy to see that simply moving workers from agriculture to industry can lift our income tremendously. | 1 |
Instead, just as CCPs were part of the solution when it came to counterparty credit risk, they can play a role in helping to solve the liquidity risk we have seen recur in each recent episode of stress. In particular, CCPs can: ensure that IM is sufficiently conservative in good times that it reduces the need for wild swings once a crisis hits; and ensure that participants have sufficient information, data, and tools to anticipate what margin calls might look like under stress, and how pro-cyclical they may be. Importantly, tackling the side effects will also require addressing participants’ preparedness to meet stress margin calls. While CCPs can play a part in the solution, this is not something CCPs can solve on their own. We also need to take a hard look at the ability of non-banks to insure against severe but plausible liquidity stress. The international work to look at these issues[8] is welcome – it offers opportunities to address them in a way that preserves and enhances the role of CCPs. If done right, it can help to address the lessons of the COVID and Russian invasion market turmoil, while ensuring that market participants have incentives to centrally clear their derivatives trades in good and bad times. (2) The past is not always a good guide to the future Markets, especially those for physical commodities, can behave in unexpected ways. Let me give you just a few examples. | The FTSE All-Share index fell over 10% on 12 March, the largest one-day fall since 1987. Other markets also saw shocks beyond or close to the largest in history. 2. FSB (2017) Report on effectiveness of derivatives reforms . 3. By March 2020, 60% of credit default swaps were cleared, and 80% of interest rate contracts, up from about 10% and 40% respectively in 2008. 4. Review of margining practices (bis.org) 5. From Lender of Last Resort to Market Maker of Last Resort via the dash for cash: why central banks need new tools for dealing with market dysfunction (bankofengland.co.uk) 6. VM calls were six times larger compared to normal levels on 1 March 2022 £ compared to a five-fold increase on 18 March 2020 £ VM calls at the most affected clearing services were as high as 35 times normal levels (LME Base). 7. Total IM requirements of UK CCPs peaked at around 30% higher relative to their pre-stress levels in Q1 2020. The peak aggregate increase in Q1 2022 was 13% (relative to 1 February 2022). 8. Review of margining practices (bis.org) 9. Joint statement from UK Financial Regulation Authorities on London Metal Exchange and LME Clear | Bank of England 10. This is different to climate change, where it is possible to model how the future will be different to the past and this is informing the pricing of risk today – but there is no obvious way to identify future market shocks and volatility robustly. 11. | 1 |
That is, not to introduce large changes in the aggregate amount of capital currently held in the banking system while at the same time to provide tangible incentives for banks to adopt the most advanced and sophisticated approaches to capital adequacy. As we near completion of the New Accord, I am reminded that the tremendous progress we have made is a reflection of the steadfast commitment that so many have put forth to see the revision process through to its completion. The success of the New Accord will be directly attributable to the enormous support and assistance provided by both bankers and supervisors. Yet a Chinese proverb reminds us that, "On a journey of one hundred miles, ninety is but halfway." I suppose the last miles of any marathon are the toughest to finish. The wisdom of that proverb is borne out by the critical nature of the tasks ahead of us to complete, and then to implement, the new capital framework. Adopting the New Accord will be a challenging but also an exciting undertaking for us all. The potential benefits are many - including improving the management of risk, enhancing transparency and promoting greater financial stability. In short, this new framework will make all of us - bankers, supervisors and others - better at what we do. Thank you very much. | As a result, the household sector’s financial condition today is in unusually good shape for this point in the economic cycle. In relative terms, household indebtedness is low, and—thanks in part to low interest rates—debt service burdens relative to household income have fallen to levels not seen since at least the early 1980s. As we will show in today’s presentation, compared to 2008, a greater proportion of overall debt today is now held by older households that have higher and more stable incomes and more experience as borrowers, on average. Consequently, a much larger proportion of debt is currently held by borrowers with higher credit scores. The resulting higher overall debt quality is reflected in historically low overall delinquency rates. Transition rates into new delinquency are below the levels of the early 2000s, and foreclosure and bankruptcy rates in 2016 are the lowest since our data series began in 1999. Notwithstanding this overall rosy picture, the improvement in aggregate debt quality and performance conceals important underlying changes in debt holdings that could be consequential, with implications for the housing market and for consumer spending over the longer term. While older borrowers hold more debt of all types, there has been a significant shift among younger people toward student debt and away from mortgage and other debt. Student debt has increased more than fivefold over the past 14 years, with more young adults taking out loans and borrowing larger average amounts. And, while debt delinquency rates overall have fallen, those for student debt have remained elevated. | 0 |
Most things suggest that traditional demand policy is not capable of lowering unemployment appreciably. Most economic observers also expect that even with decent growth, unemployment will remain high in the coming years. Whatever the causes of the high unemployment, an important key to turning this tendency lies in the functioning of the labour market. I have not considered conceivable specific measures, such as stimulating private sector employment, contributing to efficient wage formation and encouraging individuals to look for and accept jobs and maintain and develop their competence. I believe that, as Assar Lindbeck pointed out recently,10 the problem of unemployment in Sweden and, indeed, in the whole of Western Europe has to do with a great many factors connected with how the labour market functions. Although the most effective measures cannot be identified for certain in advance, the central concern is the workings of the labour market and thereby also the labour market organisations. This applies to employer and employee representatives alike. The climate in the labour market will be of significance for the possibility of bringing the high unemployment down. One issue is whether a mood of mutual understanding can be created so that employment has priority in wage setting. An important lesson seems to be that Sweden ought not to opt for a standard in wage formation that matches the average level in Western Europe; such a relatively high level could impede a reduction of unemployment. The model should rather be the Netherlands. | D iagram 5 G D P 1970-96 U SA, EU , N etherlands and Sweden Index 1970=100 2 20 2 00 1 80 1 60 2 20 2 00 USA EU N e the rla n ds S we de n 1 80 1 60 1 40 1 40 1 20 1 20 1 00 1 00 80 80 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 1996-97 O E C D fore ca s t S ou rce : E U R O S T A T It is important, I think, to underscore that, notwithstanding the marked differences in employment, GDP growth does not differ substantially between the United States, the EU area, the Netherlands and Sweden. Therefore it is not high demand generated by a more expansionary monetary and fiscal policy that can account for the creation of so many new jobs in the United States or, in the past decade, in the Netherlands. This is an indication that structural factors lie behind the development in Western Europe as a whole. An important part seems to be played, not least, by wage formation. The weak growth in Sweden is also evident from Diagram 5. This is another interesting observation in the present context. | 1 |
4 [15] after, in 1668, Stockholms Banco was nationalised and Sveriges Riksbank was established.3 Other countries followed suit and established similar note-issuing institutions. A prominent one was the Bank of England, founded in 1694 to assist in financing England’s participation in the Nine Years’ War. For centuries, the Bank of England was a privately-owned company with the exclusive right to issue banknotes. Being publicly backed, the notes did not take long to become a trusted and widely used means of payment in London. They should soon also serve other purposes as I will explain shortly. Sadly, the very first deputy governor of ‘the Bank’, my British counterpart three hundred-odd years ago, Michael Godfrey, did not experience that. Long-distance payments were still a mess, and in 1695, this brave man was on duty to pay the troops in Flanders. Invited for dinner by the king, the two men decided to visit the nearby trenches by Namur, in modern-day Belgium. Here, Mr Godfrey literally forgot to keep his head down when cannonballs were fired. Times and duties of central bankers have changed, I note with great relief. Outside England, multiple issuers of banknotes were allowed, with the United States as a prominent example. The latter’s monetary history is rich and dramatic. One particular period was the ‘free banking era’, prompted by President Jackson’s refusal in 1832 to renew the charter of the only nationwide bank at the time. As a result, note-issuing banks mushroomed, and hundreds of notes circulated around the country at varying discounts. | And for those individuals with an account, cross-border payments are still slow, expensive, and not very transparent. This is why the G20 countries have developed a comprehensive programme aimed at enhancing cross-border payments. The programme is organised as a roadmap containing 19 building blocks, where 16 are focused on enhancing current systems. Building blocks 17, 18, and 19, on the other hand, look at possible ways to explore future, not yet fully operational, means to enhance cross-border payments: multilateral platforms, stablecoins, and CBDCs. I am very much involved personally in this work as I chair the ‘Future of Payments’ working group that comprises these three building blocks. The roadmap is the modern version of the Postgirot intervention – on a global scale – if you like. The public sector – dissatisfied with the current situation – takes action to guide, but also push the private sector. I want to be clear about this: this is an area where the public and private sector have to work together. Cross-border payments are heavily reliant on harmonisation, standards, and 11 See Petition to the Swedish Riksdag 2018/19:RB3 The state’s role on the payment market, https://www.riks- bank.se/globalassets/media/betalningar/framstallan-till-riksdagen/petition-to-the-swedish-riksdag-the-statesrole-on-the-payment-market-summary.pdf 14 [15] trusted legal foundations. These are areas where the public sector has a lot to offer, but ultimately, it is the private sector that has to deliver the services towards the end-users. | 1 |
BIS Review 71/2004 5 This was already in hand when the Chancellor of the Exchequer commissioned Chris Allsopp, a former member of the MPC, to assess how well the ONS’s provision of statistics matched the needs of policymakers. The Allsopp Report, published earlier this year, has recommended some fundamental changes to the way that key economic data are put together. These concern regional and service sector data; and the ONS’s capacity to respond to changes in the structure of the economy. First, Allsopp recommends that the national statistical system should be reoriented to produce better quality regional data. This is likely to involve, for example, establishing an ONS office in every English region – not dissimilar to the Bank’s Agency network. The ONS’s main business surveys are also to be expanded to obtain greater regional coverage. For example, the Annual Business Inquiry - a major workhorse of economic statistics, which provides detailed information on, for example, employment, production and investment – is likely to be trebled in size. Monetary policy operates at the level of the whole economy, and cannot target particular regions or countries of the UK. But to the extent that better measurement and understanding of regional activity leads to improvements in the quality of UK national statistics, as the Allsopp Report expects, this development will improve the information base on which monetary policy is founded. | Without going into detail at this stage, I will just mention: • the work on the regulatory framework applicable to systemic banks, which will be pursued with the idea of taking into account that, owing to their size relative to a domestic market, certain banks can generate major systemic risk in a given country; • the finalisation of liquidity regulation, which must revisit the stress test scenarios applied to banks’ assets and liabilities as well as the scope of assets deemed to be liquid; • the adaptation of the French regulatory framework for all of the institutions that are currently credit institutions according to our national definition but which will lose this status under the new European definition, which is much more restrictive; • the overhaul of the banking crisis resolution mechanism, with the French mechanism – in anticipation of the forthcoming European projects – not having been updated to integrate the more powerful crisis management instruments resulting from the G20 guidelines; BIS central bankers’ speeches 3 • the deliberations, in both the European and French frameworks, about better organisation of banking activities and of the relationships between investment banking and retail banking. The ACP will ensure that there is coherence between these different initiatives so as to avoid any unanticipated negative impacts. *** Before handing over to Jean-Philippe Thierry, I would like to stress that, although the difficult macroeconomic context persists, I remain confident about the robustness of the French financial sector. | 0 |
The credit conditions facing emerging economies have tightened, which is causing financial, exchange-rate and inflationary difficulties in those where vulnerabilities built up during the boom. Special attention deserve the economies with high external financing needs, including not only emerging ones but also some in peripheral Europe. Finally, there is still the risk associated with the complex fiscal and financial situation of the Eurozone. Add to this the 4 BIS central bankers’ speeches intensifying geopolitical tensions in the Middle East, which could significantly affect the oil price, causing negative effects on world growth and higher pressures on fuel inflation. In Chile, although the economic slowdown is underway, it is possible that final demand, particularly private consumption, continues to adjust at a slower-than-desired pace, increasing the risk of higher inflation and a constant or growing current-account deficit. The risk of a wider current-account deficit would increase in a scenario of further deteriorated terms of trade. However, as we have pointed out before, this deficit comes largely from investment flows into the tradable sector – especially mining – financed by foreign direct investment. The recent slowdown of investment and the exchange rate depreciation are some of the adjustments needed. Moreover, the evidence shown in a box in this Report suggests that the mining investment cycle is maturing. This will moderate domestic demand and pressures over internal resources, the labor market and imports of capital goods. Meanwhile, the startup of mining projects has driven volume exports up. | Accordingly, our baseline scenario has revised the growth outlook for the world and our trading partners for 2013 and 2014 slightly downward (table 1). The portfolio realignment originating in the transition to a more balanced configuration of the external scenario has not been without volatility, which again was evident in the weeks before the close of this Report. Although the authorities of the U.S. Federal Reserve (Fed) have pointed out that the unconventional stimulus program will be withdrawn gradually – helping to tone down the reaction of the markets – most recently volatility has been on the rise. Capital flows to emerging economies have retreated and become costlier, especially in the most vulnerable economies. The U.S. dollar depreciated against the currencies of developed economies, but appreciated in the emerging world. As I said at the beginning of this presentation, the latter has complicated macroeconomic management in some countries because of its inflationary and financial effects, and has led to reverse previously adopted exchange rate interventions. In the developed markets, long-term interest rates have risen again, internalizing that the Fed will soon begin reducing its asset purchases. In Chile, since our June Report, domestic output and demand have continued with the gradual normalization process that began this year, growing less than in 2012 for the second consecutive quarter. In the second quarter, GDP expanded 4.1%, confirming the slowdown (figure 2). | 1 |
Likewise, bringing the safety car in when the danger is passed will also have an impact. These can be difficult judgments to make. They need to be coordinated with the Monetary Policy Committee so that the latter can take them into account in steering demand in the economy as a whole. But the focus of the FPC is financial stability risk: ensuring the system is robust to stress and taking steps to make periods of stress less likely and less severe. That is its comparative advantage. I want to finish by setting out two recent examples of how the Committee approaches this task: first, the stress test of the major UK banks which is currently in train, and second, the action the FPC announced last week on the housing market. In April, the Bank of England launched a stress test of the 8 major UK lenders, as part of an EU wide exercise. Stress testing is one of the tools developed in the aftermath of the financial crisis to test the resilience of the financial system. In essence, a stress test sets out a so called “adverse scenario” in which the economy gets into trouble and financial risks materialize. Together with the banks, we can then look to see how they would cope with a scenario like this. Of course, supervisors in the UK have regularly stress-tested individual banks. But this is the first time that we will test all the major lenders at the same time. | The Supervisory 12 BIS Review 154/2010 Council continues to have a mix of administrative and supervisory duties, but its tasks were delimited by the Act of 1985. 40 The Supervisory Council shall supervise the Bank’s activities and ensure that the rules governing the Bank’s operations are observed. The council has its own secretariat, adopts the annual accounts of Norges Bank and approves its budget. The Bank continues in part to be the Storting’s bank. A substantial change has taken place over the past decade in that the Supervisory Council shall no long submit a report on its activities to the Ministry of Finance, but directly to the Storting. This is a partial reversal of the change to the Act that was made in 1949. In my judgement, the tasks of the Supervisory Council could be broadened. Among other things, it should be able to play a greater role in appointments to the Executive Board and Bank management, for example, through a formal right to make recommendations. 41 This could give the Supervisory Council an even greater sense of ownership over the organisation and strengthen their sense of commitment. In central banking circles it is easy to confuse independence, expertise and long-termism with infallibility. 42 Central bank independence in the use of instruments is contingent on central bank transparency and disclosure of the background for its decisions. This provides a basis for evaluating the Bank’s decisions. Moreover, the central bank is accountable. | 0 |
The fixings, provided across many different currency pairs, were used in many different ways – including for multicurrency portfolio valuation and for the valuation of key financial market indexes. In regard to the WMR 4 p.m. London fixings, the group identified important changes to strengthen the construction methodology and reduce the scope of potential manipulation. Specifically, it recommended that the length of time over 8 See the U.K.’s Fair and Effective Markets Review Final Report for related insightful discussion on fixed income, currency and commodities (FICC) markets. Available at: http://www.bankofengland.co.uk/markets/Documents/femrjun15.pdf. 9 In the United States, the CFTC has regulatory responsibility for most FX products. 10 The WMR London fixing is now subject to regulatory oversight by the Financial Conduct Authority (FCA) in the U.K., in addition to the FSB initiatives. See the FCA’s report Bringing additional benchmarks into the regulatory and supervisory regime, https://www.fca.org.uk/news/ps15–06-additional-benchmarks. BIS central bankers’ speeches 5 which the fixing was calculated be extended. In addition, it recommended that this fixing incorporate price feeds and transaction data from a broader range of sources. These recommendations resulted in changes to the WMR calculation methodology, which were implemented in mid-February of this year. The FXBG also identified a series of recommendations to strengthen market conduct and reduce the scope for manipulation and mistreatment of customer flow and information. For example, the recommendations encouraged greater clarity around fixing transactions through transparent pricing for such transactions and by establishing a clearer separation of fixing transactions from other types of activity. | 2 BIS 2013 Triennial Central Bank Survey. The Triennial Survey is coordinated by the BIS under the auspices of the Markets Committee (for the foreign exchange part) and the Committee on the Global Financial System (for the interest rate derivatives part). The latest survey of turnover took place in April 2013. Central banks and other authorities in fifty-three jurisdictions participated in the 2013 survey. They collected data from about 1,300 banks and other dealers in their jurisdictions and reported national aggregates to the BIS, which then calculated global aggregates. The survey, among other things, provides data on turnover, instruments, counterparties, and currencies, which are referenced in this speech; http://www.bis.org/publ/rpfx13fx.pdf. 3 SIFMA US Bond Market Trading Volume; http://www.sifma.org/research/statistics.aspx. 2 BIS central bankers’ speeches Changes to market structure The foreign exchange market is a dynamic market with a long history of change and innovation. Today, I would like to focus on two of the more significant recent changes in the market’s structure: first, the broadening of participation, and second, how execution is taking place within the market. Participation in the FX market The broadening of participation in the foreign exchange market is one reason why growth in FX trading volumes has far outpaced growth in global trade. The BIS Triennial Survey on foreign exchange market activity provides evidence of the degree to which this expanded participation is taking place. 4 Traditionally, volumes in the foreign exchange market were dominated by what is known as the inter-dealer market – trading between dealers. | 1 |
In 1998, the early days of the Great Moderation, GDP-at-risk was benign – that is, even in a tail outcome the level of GDP was expected to be higher three years out. Through the next decade, though central case GDP grew steadily, risks were gradually building. By 2007 a fifth percentile draw was expected to leave GDP 3.5% lower three years out. As the crisis hit, GDP-at-risk shrunk rapidly as risks crystallised. Since then, risks have been relatively stable reflecting post-crisis balance sheet repair, the implementation of comprehensive macroprudential frameworks, and relatively subdued economic activity (Chart 6). Chart 6: Risks grew during the Great Moderation but are now standard 2007 Latest Probability density 1997 0.14 0.12 0.10 0.08 Risks increasing 0.06 0.04 0.02 0.00 -10 -8 -6 -4 -2 0 2 4 6 8 Cumulative GDP growth over 3 years (%) 10 12 14 [Chart 6 uses same data as Chart 5. For each distribution, shaded area denotes the tail; the line marks the 5th percentile]. 14 All speeches are available online at www.bankofengland.co.uk/news/speeches 14 2. Impact on growth The second set of differences between macroprudential and monetary policy concern the interaction between their objectives and growth in the short and long terms. Both monetary and macroprudential objectives apply at all times. | Jacques Necker, who had been born in Geneva, was Minister of Finance under Louis XVI. After the French Revolution, Geneva began to evolve into an important wealth management centre. 1 In 1857, the first Swiss stock market was founded in Geneva, before those in Zurich and Basel. The Geneva stock market soon ranked fifth among European stock markets. Geneva remains one of the major world financial centres today, particularly when it comes to private wealth management. 2 The financial sector in Geneva is an engine for the regional economy. In 2014, around 120 banks were based in Geneva. The financial sector creates a significant part of cantonal value added and is a major employer. 3 A strong financial sector, such as that in Geneva, makes a substantial contribution to economic growth. It is therefore a crucial foundation, both for the regional economy and for the Swiss economy as a whole. A robust financial sector is also very important for the Swiss National Bank (SNB). The SNB interacts closely with the financial sector, and in particular with the banking sector. I will talk about this later. In my presentation, I will begin by explaining how the SNB and the financial sector are interlinked. Then I will discuss the importance of an independent monetary policy in providing stability as a long-term asset. However, in the short term, this long-term stability may generate costs. I will then explain the SNB’s current monetary policy and our reaction to international developments. | 0 |
At the same time, euro area labour markets have been characterised by favourable trends in the last few years. Since 1999 the euro area has witnessed an increase of more than 12 million in the number of people employed and a substantial decline in the unemployment rate from 10% to 7.9% on average in 2006 and 7.2 % in March 2007. Looking forward, it is important that this favourable trend in labour markets continues, so contributing to the diminishing of unemployment as well as a prolonged and robust economic growth. In this respect, the Governing Council of the ECB considers decisive that the social partners continue to meet their responsibilities. Wage agreements should avoid wage developments that would eventually lead to inflationary pressures and harm the purchasing power of all euro area citizens. Beyond this, it is important to point out that particular wage agreements should take into account price competitiveness positions, the still high level of unemployment in many economies and productivity developments across sectors. Wages should be sufficiently differentiated across countries and sectors to reflect these factors. More specifically, moderate wage developments in the euro area as a whole reflect an aggregation of diverse wage developments across euro area countries with important implications for cost competitiveness. Indeed, over longer horizons we observe that euro area countries that have been able to preserve a low level of unit labour cost growth have also experienced significant gains in employment. | It is aiming at preserving and improving the situation of employees and of all our fellow citizens in the euro area. Such a responsible policy directly benefits those who are unemployed by significantly improving their employment possibilities. It benefits all our fellow citizens by supporting the purchasing power of their income, thus preserving the well-being of euro area households. And it contributes to meeting one necessary condition for sustainable long-term growth and active job creation in the euro area, which is price stability. Naturally there are also a number of other factors that are contributing to sustainable growth and job creation, in particular sound public finances and, as I already said, structural reforms that enhance competition, increase productivity and foster economic flexibility in order to elevate the growth potential of our vast euro area economy. Augmenting the growth potential of Europe is a major goal for all of us. Background information Table 1: Compensation per employee growth (whole economy) across euro area countries 2 BIS Review 52/2007 Table 2: Unit labour costs growth (whole economy) across euro area countries Table 3. Labour productivity growth in the euro area countries BIS Review 52/2007 3 Table 4. Employment growth in the euro area countries Table 5. Unemployment rates across euro area countries 4 BIS Review 52/2007 | 1 |
We cannot write a rule to take care of every situation that may occur, and as a forward looking supervisor we are applying judgement in conditions of uncertainty about the future. How firms deal with the uncertainty of the future will also shape their culture. I firmly believe that what we can best do in this area is to provide a clear sense of direction and guidance through open communication starting with those of us at the top, in which we are clear on what we expect of firms. Open and transparent communication of this sort should then be supplemented by the clear understanding that we will all stick to the script. Trust is important. Consumers need to be confident in the firms that they choose to use, and inevitably trust is an important part of that confidence. Likewise, as supervisors, our judgements are inevitably conditioned on whether we can trust the people with whom we deal. Good culture is a product of trust and it matters a lot for both prudential and conduct regulators. Culture is everywhere and nowhere in firms; everywhere in the sense that it is shaped and determined by all the features of the firm – its people, organisation, reward structures etc; and nowhere because culture is not a tangible thing sitting on a shelf that can be prodded and changed of itself. | It is understood that the previous mitigants and supporting measures taken by central banks, including the Central Bank of Kuwait, are were to survive coronavirus induced health/economic crisis, and had been unwound once they were no longer needed. The challenges and risks seen today differ from those we experienced during the past two years, and require attention, monitoring of their impacts on our economy and banking and financial sectors, and applying the appropriate measures and policies to face them. Among such risks is deceleration of the global economic growth. IMF forecasts in July indicated a decline in growth to 3.2% in 2022 and 2.9% in 2023, driven by several shocks, most notably is deceleration of the American and Chinese economies, Russian-Ukrainian conflict, the geopolitical risks in Southeast Asia, the elevating tensions between China and Taiwan, continued supply and demand imbalance as a result of disruption of supply Page 3 of 4 chains of many basic commodities (mainly food and energy), risks of the continuous rise in global commodity prices and decade-old high inflation rates, especially in USA and major European economies. To contain the prolonged and far-reaching rise in inflation rates, many central banks tightened their monetary policies, by withdrawing the stimulus packages they had taken to withstand the negative impacts of the pandemic, reduced asset purchase programs, and increased interest rates. Such actions are expected to result in inevitable economic costs and we, however, hope that these would not adversely affect our economic sectors, banking and finance in particular. | 0 |
Interest rates in France are also among the lowest in Europe: the average nominal rate on new bank loans is currently less than 2% compared with 5% in 2007. Lastly, SMEs generally have little difficulty obtaining investment loans: according to the Banque de France’s survey, in the third quarter of 2015, 92% of loan applications were accepted (i.e. at least 75% of the amount requested was granted), although there is still room for improvement in the case of VSEs. At the same time, bond financing is increasing. The trend towards the diversification of debt financing appears to be more marked in France than in neighbouring European countries, with companies increasingly turning to capital markets to meet their funding needs. The disintermediation rate, that is the share of bond financing in overall corporate debt, has risen from 24.2% in 2008 to 38.6% in 2015, compared with respective rates of 14.1% and 13.5% for Germany and Italy. Nonetheless, in France, market financing is mainly the preserve of large corporations, accounting for some 70% of their total financial debt, compared with 25% for mid-caps and less than 5% for SMEs. Yet forcing them to switch to disintermediated financing would make little sense: this diversification of funding has to remain optional, driven by demand from companies themselves, rather than being imposed according to a set timetable and predefined objectives. 2 BIS central bankers’ speeches c) The priority of increasing equity funding can be achieved via several channels. | François Villeroy de Galhau: Innovation and change Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Annual Exchange Conference “Innovation and change”, Paris, 19 January 2016. * * * Ladies and gentlemen, It gives me great pleasure to respond to Stephane Boujnah’s invitation and take part in this annual conference, the subject of which is key to the French economy today. Our economy, which is at the frontier of technology, must be able to innovate continuously – and thus change – in order to improve its growth prospects. As a result, business investment, which is one of the keys to innovation, must be able to find new financing. This does not mean that traditional financing through bank loans is no longer necessary, far from it. It means that funding must become more diverse in order to meet companies’ financing needs, regardless of their size, age or sector. And of course, in this area, Euronext and the entire financial community have a vital role to play. But before addressing in more detail the financial levers of business investment, I would first like to talk about the economic levers that precede the need for financing. I. In economic terms, how are France and the euro area currently faring, and how can we move things up a gear? | 1 |
This is why the most recent FOMC statement clearly stated that underlying inflation was running somewhat below levels consistent with the dual mandate. There are a range of options we could pursue if we judged it worthwhile to go even further in communicating our objectives and intent. We could be even more explicit with regard to the inflation rate that the Committee views as compatible with price stability, for instance, by stating an explicit inflation objective as is common practice in other advanced economies. This could help anchor inflation expectations at the desired rate. It would also clarify the extent to which the current level of inflation falls short of that rate. If we were to go down this path, it would be important to note that any provision of more information on our inflation objective would not be a signal that the inflation element of the dual mandate had become more important than the full employment objective. Instead, it would principally reflect the fact that inflation being “too low” (just like inflation being “too high”) is an impediment to achieving the full employment objective of the dual mandate. If we judged it desirable, we could go still further and provide more guidance on how monetary policy would react to deviations from any stated inflation objective. One possibility would be to keep track of inflation shortfalls when the federal funds rate is constrained by the zero bound, as is the case today. | Andrew G Haldane: Banking on the state Paper by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, and Mr Piergiorgio Alessandri, based on a presentation delivered at the Federal Reserve Bank of Chicago twelfth annual International Banking Conference on “The International Financial Crisis: Have the Rules of Finance Changed?”, Chicago, 25 September 2009. Contributions and comments were provided by Paul Doran, Marius Jurgilas, Samuel Knott, Salina Ladha, Ouarda Merrouche, Filipa Sa, William Speller, Matthew Willison and Nick Vause. * 1. * * Introduction Historically, the link between the state and the banking system has been umbilical. Starting with the first Italian banking houses in the 13th century, banks were financiers of the sovereign. Sovereign need was often greatest following war. The Bank of England was established at the end of the 17th century for just this purpose, financing the war debts of William III. From the earliest times, the relationship between banks and the state was often rocky. Sovereign default on loans was an everyday hazard for the banks, especially among states vanquished in war. Indeed, through the ages sovereign default has been the single biggest cause of banking collapse. 1 It led to the downfall of many of the founding Italian banks, including the Medici of Florence. As awareness of sovereign risk grew, banks began to charge higher loan rates to the sovereign than to commercial entities. | 0 |
25 The declining cost of technology has also been a key driver of the rise of electronic trading in recent years. Almost 60% of trade in foreign exchange is now executed electronically and close to 50% in repo. BIS Review 130/2007 3 26 Automated and algorithmic trading strategies are becoming more widespread across asset classes. The London Stock Exchange (LSE) reports that the proportion of the order flow on the exchange that is automated has risen from negligible amounts just four or five years ago to approaching half today. This not only has implications for the scale of trading activity – volumes have tripled on the LSE’s SETS system over the past five years – but also the design and location of the trading infrastructure. For many algorithmic trading strategies, processing speed is critical. The faster systems can process trades in just one or two milliseconds: a tiny fraction of the blink of an eye. But ultimately speed and thus the ability to gain a competitive advantage depends on proximity to the platform; hence, the old geographical pull of markets has begun to re7 emerge with exchanges selling space near their trading platforms to those who want to be first in the queue. 27 Many new entrants to the trading arena are therefore competing with incumbent exchanges on the basis of processing speed. These new platforms are also looking for lower cost post-trade solutions. | 4 I would like to take some time this afternoon to explore some of these issues, many of which will resurface over the course of this two-day conference. 2. Early demands: the historical context 5 First some history. How did central banks come to assume their “central” role in the financial infrastructure? 6 Internationally, Venice claims a key role in the story, but I will start later with the activities of goldsmiths in 17th century London. Starting from their custody business, goldsmiths began to settle transactions between merchants, across their books or via the transfer of deposit receipts – the early bank notes. Merchants were thereby able to settle obligations with one another without having to carry, count out and value coins: a welcome development, considering that a £ sterling bag of silver coins – a commonly used value for notes – weighed over 30 pounds (14kg for those in the audience baffled by imperial measures)! 7 Over time, so as to accommodate transfers between customers of different “banks”, the banks started accepting claims on each other and, once they found ways to settle these claims, established the first British interbank payment systems. 8 So what were these early settlement mechanisms? At first, banks started settling interbank claims using gold and silver coins. But these were in short supply and, again, costly to transport and exchange. 9 Banks thus eventually innovated by switching to settlement in assets convertible into gold and silver. | 1 |
The frustrating thing is that, with the best will in the world, there was not much that either we at the Bank or the UK Government could have done to ward off the pressures on UK manufacturing, which had their origins abroad. It's fairly obvious where we are talking about the global slowdown - with negative growth last year of about ½ % in Japan and very slow growth of just 1¼ % in the US and 1½% in the Eurozone. We can go to international meetings and encourage the respective authorities there to stimulate their economies, but there is nothing that we can do about it directly ourselves. It's perhaps less obvious that we cannot influence the exchange rate. Many people think that we could weaken sterling against the euro quite simply by cutting our interest rate relative to the interest rate in the eurozone. But it's not as simple as that. The US has reduced its interest rate far more aggressively than the ECB over the past year or so, but the dollar is actually stronger against the euro than it was to begin with; and the same is true, to a lesser degree, of ourselves, here in the UK, with sterling also stronger against the euro (though weaker against the dollar) than it was a year ago. So there was nothing much - as I say - that we could have done directly to affect these depressing effects coming from the global economy and the resulting weakness of external demand on the UK. | And provided it does not happen too abruptly, that would be the best possible outcome. But if consumer spending were not to moderate of its own accord, we would, in the context of strengthening external demand, clearly need at some point to consider raising interest rates to bring that moderation about. I don't suggest that the timing of any such move is imminent - that will obviously depend upon the timing and the strength of the recovery abroad and on the strength of domestic demand as we move forward. BIS Review 19/2002 3 And that, Subhash, is of course my answer to your second question - "what precisely will happen to interest rates?" In case any of you are confused, I think that what I said was that interest rates will rise - unless they fall or stay the same! Mr President, there is no doubt that the past year or so has been a difficult time for the world economy which made life increasingly difficult for the internationally-exposed sectors of our own economy. We are not yet altogether out of the wood, but there is increasing light between the trees. I am "cautiously optimistic" that the overseas environment will improve as we move through 2002, and that by this time next year we here in the UK will have seen a return to somewhat stronger and better balanced growth, with unemployment not far above its recent lows, and with continuing low inflation. | 1 |
The development of securitisation has spurred the demand for new types of instruments. This demand led the financial system to generate new assets even at the cost of extending credit to ever riskier sub-prime borrowers. This, for a time, helped sustain a rapid increase of real estate prices which in turn stimulated the growth of mortgages. BIS Review 76/2010 1 The main causes of the crisis therefore lie in the growing “real” imbalances and the uncontrolled development of financial innovations. Overall, these combined evolutions led to a generalized increase in leverage and financial fragility. Against this background, it is quite unlikely that too accommodative monetary policies played a central role in the crisis. Some analysts have pointed out to what they see as an “asymmetric response” by monetary authorities to asset price increases: Central Banks would not lean against asset price bubbles, but were prepared to clean the consequences after they burst. However, we need to ask ourselves whether the unusually rapid credit growth in the years preceding the crisis should not rather have called for complementary policy actions on the supervision side. Some attempts were made in the Eurosystem. In particular, the Bank of Spain enforced dynamic provisioning to curb domestic credit expansion. But the crisis hit globally nevertheless and it raises several challenges for authorities in charge of macroeconomic policies. II –Managing the crisis Starting in august 2007, Central Banks were confronted with major and unprecedented tensions. Increasing uncertainty led to liquidity hoarding by financial institutions. | During the Russia crisis in 1998, for example, the models could not predict that the Russian government would default on payments – this type of event is generally very difficult to build into a model – and the slump in prices this would lead to on many markets. Nor could they predict that liquidity would decline so severely that the banks were unable to sell their securities without this leading to a slump in prices. Asset prices that had earlier moved in the opposite direction and thereby reduced the total risk in the portfolio were now suddenly moving in the same direction. The risks were thus much greater than the models had indicated. These rapid adjustments in market prices with reduced liquidity are one scenario we have repeatedly pointed to as a risk scenario in our assessments of financial stability. If the risk premiums are too low on asset prices in the financial markets, changes in expectations can lead to instability with large price fluctuations and reduced liquidity. If prices of various assets covary to a greater extent than before, the financial agents’ risk exposure could increase rapidly. The fact that many investors have gone over to new types of asset could in this situation lead to declining interest in these assets and to liquidity partly or wholly disappearing from some markets. The events following the collapse of the US hedge fund LTCM in autumn 1998 are an example of this. Do the risk models take these difficulties into account? Yes, or at least in theory. | 0 |
In 2012 three pre-existing sets of international standards were replaced with the Principles for Financial Market Infrastructure (PFMIs). 13 Crucially, the PFMIs embed the principle that firms providing systemically important financial market infrastructure have a responsibility to be ‘systemic risk managers’ – that is not only managing the risks to the firm but the risks to the system more broadly. I want to look today at three challenges that are increasingly prominent in this world of international financial market infrastructure – Operational risk, especially cyber Prudential risk The regulation and supervision of cross border infrastructure. There are other challenges, not least the challenges posed to existing business models by new and potentially disruptive technology. But I want to concentrate on the first three because these are front and centre for those charged with ensuring financial stability. Operational Risk It may appear strange to focus first on operational risk. When we think about financial stability, we usually think first about risk taking, about leverage and credit cycles and about banks, booms and busts – risks that one might call prudential. But in essence, financial stability is about ensuring the financial system can operate to service the real economy and is resilient to all types of shock. 12 Using initial margin as a proxy for the amount of risk managed, activity at UK CCPs has more than doubled in the last three years, from £ in January 2014 to £ in December 2016.The use of supervised payments systems has also increased significantly. | Global pipes – challenges for systemic financial infrastructure Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee Official Monetary and Financial Institutions Forum, London Wednesday 22 February 2017 1 All speeches are available online at www.bankofengland.co.uk/speeches It is said that the first 500 years of an institution’s life are the most difficult. By that reckoning, the Bank has 177 years to go before we reach less challenging times. But at least, with 323 years behind us, we can draw both inspiration and warning from those who have gone before us. In difficult times, I certainly take both from my predecessor, Michael Godfrey. Godfrey was one of the three co-founders of the Bank in 1694 and its first Deputy Governor. But his tenure was short. While on Bank of England business in Flanders, in 1695, he sought a meeting with King William III. William was at the time engaged in the 9 Years War and busily laying siege to the town of Namur. Keen to demonstrate his loyal and fearless service, Godfrey ignored his monarch’s warning that as a central banker in a war zone he should keep his head down. His head was promptly removed by a French cannonball. So when faced with today’s challenges, Godrey’s fate reminds me that previous inhabitants of this post have seen more testing times. | 1 |
Denis Beau: The industry of confidence - how to build the financial sector of tomorrow Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the FINTECH R:EVOLUTION 2021, Paris, 14 October 2021. * * * Ladies and Gentlemen, First of all, I would like to thank France Fintech and its chairman Alain Clot for inviting me to take part once again in this major annual meeting of the French fintech industry: Fintech R:evolution. At the Banque de France and the ACPR, we believe it is essential to maintain a sustained and high-level dialogue with all the innovative players in the French financial sector and, more importantly, to contribute, in our own right, to the vitality of the French fintech ecosystem. It is therefore with satisfaction that I observe, year after year, the strengthening of the ties and trust between the Banque de France and France Fintech. After the partnership concluded two years ago, the year 2021 marks a new step since we are co-organising this week dedicated to fintechs, the French Fintech Week. I see this as a concrete illustration of "team spirit", which is an asset of the French financial centre and which I believe should be maintained and developed. With this in mind, I would like to share with you some observations on the ongoing transformation of the financial landscape, on its consequences for our role as central bank and supervisor, and finally on the challenges that we must not miss collectively. 1. | I have in mind, in particular, the framework for the development of decentralised finance (Defi), for which the usual regulatory frameworks come up against the absence of easily identifiable issuers or providers in an environment governed by protocols executed automatically without intermediaries, and the absence of an appropriate jurisdiction for the services offered. In order to build trust in the financial industry of tomorrow, we therefore need to follow together a two-pronged learning curve: exploring the transformation potential of new technologies on the financial sector, and identifying the regulatory, governance and best practice principles that must accompany this transformation. In this respect, I cannot emphasize enough the relevance for us of the experiments that we have recently conducted with the sector, for our activities of putting into circulation the currency that we issue as a central bank, as well as for our activities as supervisor of banks and insurers. The Banque de France thus performed nine experiments with “wholesale” central bank digital currency between mid-2020 and today. As for the ACPR, it conducted this year, following the publication of its July 2020 report on the governance of algorithms which outlines the principles of the proper use of AI in the financial sector, its 1st Tech sprint to test the market in practice on the concept of algorithm explainability. | 1 |
The economy is currently in excellent shape and has clearly strengthened during the past two years. At the monetary policy assessment at the end of 2004, we had suspended a normalisation of the interest rates after previously having lifted the three-month Libor from a low point of 0.25% to 0.75% in June and September. The three-month Libor remained at that level up to December 2005 when we made the decision to resume the normalisation process, given the improved economic outlook. Today's decision – an interest rate hike for the fifth time in succession – confirms the stance we have taken. International environment The change in the international environment with the most tangible impact since the monetary policy assessment in September concerns the price of oil. The current oil prices are clearly below the highest level of 78 dollars per barrel of Brent crude which was reached in August. Will we see higher oil prices again? There is no real conclusive answer to this question. What we have witnessed is nonetheless the longest interruption of a rising trend since the beginning of 2004. This decline will weaken inflation in most countries in the year ahead. However, the economic impact of the reduced oil prices is likely to be low, if we bear in mind that the oil price is still approximately three times higher than it was five years ago. At least the oil price has not put any additional damper on the economy since the last monetary policy assessment. | The fact that the U.S. economy has continued to grow at around a 2 percent pace in 2013 despite this quite intense fiscal restraint provides evidence to the second key point, which is that the private sector of the economy has largely completed its healing process and is now poised to ramp up its level of activity. Key measures of household leverage have declined and are now near the lowest levels they have been in well over a decade. Household net worth, expressed as a percent of disposable income, has increased back to its average of the previous decade, reflecting rising equity and home prices and declining debt. Recently, banks have eased credit standards somewhat after a prolonged period of tightness. As a result, we are now experiencing a fairly typical cyclical recovery of consumer spending on durable goods. For example, sales of light-weight motor vehicles have increased steadily over the past four years, reaching an annual rate of 15.7 million in the third quarter of 2013, though sales in September and October have been somewhat below that average. Similarly, after five years in which housing production was well below what is consistent with underlying demographic trends and the replacement demand for houses, it now appears that we have worked off the excess supply of housing built up during the boom years of the last decade. | 0 |
The sectoral contributions to this rise in debt are roughly equally split between households, companies, the financial sector and governments. The accumulation of debt has perhaps been greatest within the financial system. Among UK and US banks, leverage has increased dramatically over the past century. The ratio of assets to equity rose from single digits at the start of 20th century to over twenty by its end. 5 Despite recent capital raising, banks’ leverage remains high absolutely and relative to the past, at between 20 and 50 times equity (Chart 9). 2 Laffer, A (2004), “The Laffer Curve, Past, Present and Future”, available at www.heritage.org. 3 Krugman, P (1989), “Market-based Debt Reduction Schemes”, in J Frenkel (ed. ), Analytics of International Debt, IMF. 4 McKinsey’s Global Institute (2010), “Debt and Deleveraging: the Global Credit Bubble and its Economic Consequences”. 5 Haldane A G (2009), “Banking on the State”, available at www.bankofengland.co.uk. BIS Review 10/2010 3 Among households, debt-to-income ratios have risen materially over the past twenty years. In the UK, household debt-to-income ratios rose from around 100% in 1988 to a peak of around 170% in 2008. In the US over the same period, the household debt-to-income ratio rose from 80% to 135%. From different starting points, similar trends are evident in Spain, Canada and South Korea. Most households in these countries still have significant net wealth, however; in the UK, total assets are five times household debt. Those debt trends are repeated in parts of the corporate sector. | Among UK companies, debt as a fraction of companies’ total financial liabilities has risen from around 20% in 1988 to around 34% today. In certain sectors, the run-up in debt has been more dramatic – for example, among US and UK commercial property companies whose leverage has more than doubled in the past decade. It is also true of some companies subject to leveraged buy-outs including, of course, Liverpool Football Club. Finally among sovereigns, the picture up until recently has been benign with public debt flat relative to GDP. But the crisis means that picture is set to change dramatically. Among the G7 countries, the IMF forecast that public debt ratios will rise from around 80% of GDP in 2007 to around 125% by 2014. In the UK and US, public debt ratios are forecast by the IMF to double, mirroring the pattern following past financial crises. 6 Taking together the debt position of the financial sector, households, companies and sovereigns paints a sobering picture. Total debt ratios relative to GDP rose significantly in all ten countries studied by McKinsey’s, from an average of around 200% in 1990 to over 330% by 2008. 7 Over the same period, UK debt ratios more than doubled, from just over 200% to around 450% of GDP. To date, servicing these debts has been cushioned by policymakers’ actions. | 1 |
The new Payment Systems Act will unify all relevant regulations currently specified under different laws and enforced by various different agencies. In addition, the Bank of Thailand will support the government’s initiatives to promote nation-wide electronic payment system, including, for instance, the development of “Any ID” payment infrastructure, and the promotion of debit card usage for payment and transfer of welfare benefits. On connectivity, the establishment of Qualified ASEAN Banks, or QABs, will allow Thai banks to expand regionally, while welcoming foreign banks in the region to conduct businesses in Thailand. Bilateral negotiations with several countries have been planned and I expect some arrangements to be made by the end of next year. The Bank of Thailand will collaborate with other central banks in the region on the promotion of local currency settlements for trades and investments. The appointment of cross-currency dealers to act as clearing agents for the Baht and the Ringgit should be done by the first quarter of next year, while negotiations with other countries are ongoing. We are conscious of the rules and regulations which may hinder the development of regional trades and investments, and we are working carefully to remove obstacles without compromising stability objective. The joint initiatives by the government and the Bank of Thailand regarding treasury centers have generated interest among large companies applying for a license. These treasury centers can purchase or sell foreign currencies and hedging instruments for companies within their groups, thereby aiding in foreign exchange and liquidity risk management. | In fact, the share of exports to CLMV in our total exports is now on par with the share of our exports to the major trading partners such as the US, Europe, and Japan. Thailand’s exports to the US are also poised to become firmer as the US economy continues to see improvement in its recovery. Our exports of vehicle parts, electronic-appliance parts and electronics to the US have expanded in the past few months, and are likely to continue their growth momentum in 2016 in line with the US economic recovery. Nevertheless, some structural limitations still weigh on long-term growth. The recovery of the export sector will continue to be impeded by a shift in the global trade structure. Some of our products such as apparels and garments have seen a continuing decline in competitiveness, while some others are falling out of technological trend. Simply put, the Thai economy is like a car whose engine is in need of an overhaul. We need structural adjustments in growth drivers to enhance our competitiveness and sustainable economic growth. The private sector needs to invest in new production technology, and improve product quality in response to changes in global demand and consumer preferences. As Mohamed A. El-Erian, then CEO of PIMCO, once said “structural challenges require structural responses”.1 In this context, we welcome many new initiatives by the government to stimulate public and private investment and upgrade Thailand’s value chain. | 1 |
Bank governance would be a wealth-weighted democracy, a hybrid of the mutual and joint-stock models. This would help put risk incentives in the right place, while enhancing diversity within the financial system.16 (d) Performance and remuneration The behaviour of the financial system would be improved by an alternative set of performance metrics. The ideal metric would be less focussed on a narrow subset of the balance sheet (such as equity) and do a better job of adjusting for risk (than ROE). One metric satisfying those criteria would be return on assets (ROA). This covers the whole balance sheet and, because it is not flattered by leverage, does a better job of adjusting for risk. It would be a relatively small step for banks to switch from ROE to ROA targets in their capital planning and compensation. Yet the effects on risk-taking and remuneration could be large. Imagine if the CEOs of the seven largest US banks had in 1989 agreed to index their salaries not to ROE, but to ROA. By 2007, their compensation would not have grown tenfold. Instead it would have risen from $ million to $ million. Rather than rising to 500 times median US household income, it would have fallen to around 68 times.17 Conclusion The words “bank” and “bankrupt” have common etymological roots, dating from the 13th century. In the 13th century, it was bankers bankrupting banks. In the 21st century, bankers are still bankrupting banks. But it is no longer just banks. | The collapse of the City of Glasgow bank in 1878 shifted the debate decisively Bagehot’s way. In one sense, this failure was evidence of the power of unlimited liability: no depositor lost a penny. But 80% of the bank’s shareholders were bankrupted and many made destitute. As the Economist observed at the time, “the share lists of most of our banks exhibit a very large – almost an incredible – number of spinsters and widows”.6 Bagehot’s incentive problem was real. Public and parliamentary opinion quickly shifted. The Companies Act 1879 facilitated conversion to limited liability. Between 1849 and 1889, the number of unlimited liability British banks fell to just 2.7 Even then, some of the incentive benefits of unlimited liability were preserved. Shareholder vetting remained in bank deeds. And in place of unlimited liability, UK banks moved to a regime of extended liability. This was the contingent capital regime of its day. Extended liability typically had two elements – reserve liability and uncalled capital. Under reserve liability, existing shareholders were liable for additional capital in the event of bankruptcy. By 1884, British banks had reserve liability of around three times their paid-up capital.8 This placed them on a similar footing to US banks, which had adopted a system of double liability in 1863.9 Reserve capital was augmented by a pool of uncalled capital. This could be tapped preinsolvency at the discretion of bank management. On average between 1878 and 1913, UK banks had uncalled capital larger than their called capital (Grossman and Imai (2011)). | 1 |
French competitiveness has in particular been impacted by wage increases and catch-ups associated with the reduction in the working week, while Germany has experienced several consecutive years of real wage cuts. From this point of view, it is likely to be positively affected by a strict application of the revaluation rules for the minimum wage. In addition, industrial output has virtually stagnated over the past six years, in spite of efforts aimed at making the French economy more attractive. France is not the only European country in this situation. Industrial output in Italy is also fl at, while that of the United Kingdom has dropped by 5% despite its buoyant economic growth. At the same time, however, industrial activity in Germany and Spain has grown by 15% and 10% respectively. It is as if the French economy had been hit by a “shock” hindering its ability to react to an increase in domestic and, especially, world demand. We need to take a look at the origins of this shock. Corporate investment hardly seems to account for this shock, given that it has risen by the same proportion in France and Germany in recent years (12% in 4 years). Other gridlocks, that are less clearly definable, are therefore hindering the industrial sector’s reaction capacity. Although it is currently impossible to clearly identify them, labour market rigidities have probably played a major role, especially on the supply side. | Nevertheless, several risks should be highlighted: that of a sudden drop in US consumption in the wake of the problems in the property market; that of a sharp increase in commodity prices; that of a return to volatility on financial markets, after several exceptionally calm years; and, linked to the latter, that of a disorderly adjustment of exchange rates triggered by the build-up of international imbalances. The second concern relates to the extremely rapid growth of monetary and credit aggregates in the euro area. The annual growth rate of M3, which was below 6% in 2004, gradually accelerated and currently exceeds 10%. Loans to the private sector also continue to expand by more than 10%. Structural changes in money and credit demand – linked to financial BIS Review 92/2007 1 innovation – may partly account for this acceleration. However, these developments must be closely monitored in view of their implications for monetary stability and that of financial systems. During 2004 and 2005, household borrowing was the primary source of credit growth; in 2006, this was replaced by lending to enterprises, in line with the economic recovery and the rise in – often highly leveraged – company buyouts. The strong profits and financial soundness of firms facilitate and sometimes encourage increased borrowing, which is then presented as “optimising” their liability structure. But balance sheets are weakening and difficulties could appear in the event of a turnaround in the business cycle. | 1 |
Instead, what it would require is a self-generated sea-change in the structure and strategy of banking. So what changes in structure and strategy might be desirable? Without suggesting definitive answers, let me discuss three areas where further debate might be useful: banks’ size in 10 David Tuckett provides a fascinating account of the crisis and its aftermath using psychological theories and evidence (“Addressing the Psychology of Financial Markets”, Institute for Public Policy Research, May 2009). 11 “Is the US Sub-Prime Crisis So Different? An International Comparison”, Carmen Reinhart and Kenneth Rogoff (2008), NBER Working Paper No.13761. BIS Review 108/2009 5 relation to the services they provide; banks’ strategy in relation to their resilience; and banks’ governance in relation to the incentives this creates. • Structure – size versus service provision Economies of scale typically arise in the production of goods and services which are homogenous and replicable. Henry Ford applied this principle to car manufacture through his Ford Motor Company, established almost a century ago. It was a success. That model has since served many industries well. But manufacturing loans is not the same as manufacturing cars. Loans are neither homogenous nor replicable. Making loans relies on bespoke, customer-specific information. This information is not obtained by computer algorithm or credit rating agency but through a banking relationship, ideally a long-term one. Despite the advent of social networking, economies of scale are not something we typically associate with long-term relationships. | Jon Nicolaisen: How important is it for a nation to have a payment system? Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at Finance Norway's payments conference, Oslo, 14 November 2019. * * * Please note that the text below may differ slightly from the actual presentation. The payment system and Norges Bank A nation needs to have a well-functioning payment system. Without fast, inexpensive and secure payments, a modern society grinds to a halt. Users today have access to payment methods that are dependent on large-scale IT systems to process payments efficiently. We need to ensure that the payment system can adapt to new technologies and meet the needs of business and consumers in the future. The Storting (Norwegian parliament) has assigned Norges Bank the task of promoting an efficient and secure payment system. This is clearly spelled out in the new Central Bank Act, which enters into force at the turn of the year. Norges Bank is the operator of the payment settlement system and supervises interbank payment systems. These operational roles may take on greater importance in the coming years. Let me point out two trends. First, we note increasing vertical integration in the payment market. Customer interface services are becoming more tightly linked to the underlying infrastructure. We saw an example here in Norway when Vipps merged with BankID and BankAxept. There is also a tendency for common contractual arrangements that were previously situated with industry organisations to be relocated to product companies. | 0 |
David Carse: Anti-money laundering and the role of supervision Speech by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong Institute of Bankers, Hong Kong, 23 August 2002. * * * Ladies and Gentlemen, Introduction I welcome the opportunity to talk to the Institute on the subject of the fight against money laundering and the role that supervision plays in this. This is a good time to speak on this subject since we are currently reviewing our 1997 anti-money laundering guideline in the light of the latest developments in this area. I will use this speech to highlight some of the issues that we are addressing. It is also a useful occasion for me to remind the bankers gathered here today how important it is to combat money laundering. This should really go without saying and I do not intend to dwell on it too much. The key message is that authorized institutions (“AIs”) should view anti-money laundering systems as an essential means of self-preservation - and not as a nuisance or an unnecessary expense that is imposed upon them. The events of 9/11 have heightened the international concern about money laundering. There is less and less patience with jurisdictions, and their banks, that do not comply with the international standards laid down by bodies like the Financial Action Task Force (“FATF”). The FATF has begun to “name and shame” jurisdictions that it regards as non-cooperative countries and territories (“NCCTs”) in tackling money laundering. | Such NCCTs will be subject to sanctions if they do not come into line. Moreover, banks from NCCTs are caught under the newly enacted US Patriot Act. Such banks, and any others regarded as higher risk from a money laundering perspective, will be subject to increased scrutiny by their US correspondent banks and the US authorities. At worst, higher risk foreign banks could eventually find themselves shut out of the US payments system. Hong Kong has a good reputation internationally as a financial centre that takes seriously the need to combat money laundering. I am sure that you will agree that we all have a vested interest in keeping it that way - which means that we need to keep in line with international standards as they evolve. The role of the HKMA The role of the HKMA in this is to work with the other relevant authorities in Hong Kong - the Commissioner for Narcotics, the law enforcers and other regulators - to ensure that we have an effective framework to deter, detect and report cases of money laundering. Our particular responsibility relates to AIs. It is our job to verify that AIs have adequate policies, procedures and controls in place to enable them to: • identify suspicious customers and transactions; • report suspicious transactions to the Joint Financial Intelligence Unit (“JFIU”); and • assist the law enforcement authorities through providing an audit trail. | 1 |
Thus, how much one pushes on the short-term interest rate lever depends, in part, on how financial market conditions respond to such adjustments. Imagine driving a car where the connection between the gas pedal and the engine speed was variable and uncertain. The driver would have to constantly monitor and adjust the pressure on the gas pedal to achieve the desired speed. Similarly, we will have to monitor and adjust short-term interest rates to achieve financial market conditions consistent with achieving our labor market and inflation objectives. All else equal, less responsiveness implies larger interest rate adjustments and vice versa. Quickly, let me give two examples that illustrate how variable this linkage can be. First, during the 2004–07 period, the FOMC tightened monetary policy nearly continuously, raising the federal funds rate from 1 percent to 5.25 percent in 17 steps. However, during this period, 10-year Treasury note yields did not rise much, credit spreads generally narrowed and U.S. equity price indices moved higher. Moreover, the availability of mortgage credit eased, rather than tightened. As a result, financial market conditions did not tighten. As a result, financial conditions remained quite loose, despite the large increase in the federal funds rate. With the benefit of hindsight, it seems that either monetary policy should have been tightened more aggressively or macroprudential measures should have been implemented in order to tighten credit conditions in the overheated housing sector. | At the same time, and particularly taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors. In the Governing Council’s assessment, the risks to this economic outlook are still slightly tilted to the downside, with uncertainty remaining elevated. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other BIS central bankers’ speeches 1 commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances. With regard to price developments, euro area annual HICP inflation was 2.2% in December, according to Eurostat’s flash estimate, after 1.9% in November. This was somewhat higher than expected and largely reflects higher energy prices. Looking ahead to the next few months, inflation rates could temporarily increase further. | 0 |
Fraziali Ismail: COVID-19 and climate responsibility, commitment, and collaboration change, collective Closing remarks by Mr Fraziali Ismail, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at Malaysia Showcase during Climate Week NYC 2020, New York City, 17 September 2020. * * * From time to time, we chance upon heart-warming stories of how seemingly small and random acts of kindness, result in something miraculous. I am talking about stories like Jadav Payeng, an environmental activist and forest worker from India, who planted a tree almost every single day for 40 years. Jadav was only 16 when he started working with the district’s social forestry division in a tree plantation drive. Upon completion of the 5-year project, Jadav chose to stay and continued on his quest to save his island. This led him to single-handedly create a real man-made forest, the Molai Forest, which houses several species of animals and thousands of trees that is now almost as big as New York’s Central Park. We also marvel at Afroz Shaz, who began picking up trash on Versova Beach in Mumbai, and inspired thousands of volunteers to join the cause. Versova’s dramatic transformation from filthy to fabulous went viral in India, with praises to Afroz and the volunteers for helping to restore the beach that was previously polluted by 15 years of piled up rubbish. | Of equal importance is our resolve to build their capacity to become effective agents of change in facilitating transition towards a low-carbon economy. A common language to categorise economic activities to help facilitate financial flows towards activities that would support the transition to a lower carbon economy, is therefore paramount. For this purpose, the Bank issued the Climate Change and Principles-Based Taxonomy Discussion Paper in December 2019. The taxonomy is now undergoing further refinements, and a pilot implementation for selected financial institutions will commence this month. Collaboration On to my final C, “collaboration”. In his quest to clean up Versova beach, Afroz Shaz would not have been as successful had he acted alone. He had help from organisations and volunteers from over 12 countries. The Versova Beach clean-up was one of the largest citizen initiatives the world has even seen. In the same vein, the Bank values contribution and collaboration with various stakeholders. This includes the financial industry in planning an orderly transition towards a more climate-resilient economy. The Joint Committee on Climate Change (or “JC3”) was set up in September 2019 as a platform for financial regulators and financial institutions in Malaysia 2/3 BIS central bankers' speeches to work together to deepen our understanding on climate risks and develop tools to effectively respond to those risks. The JC3 is chaired by the Bank and Securities Commission Malaysia, with Bursa Malaysia and 19 financial institutions as members. | 1 |
It could amplify the moral hazard problem: if the bank wins, its shareholders - as well as its traders under their bonus packages - pocket the profit, and if it loses, the regulator/tax-payer ends up with the bill. A penalty would not act as a deterrent to a bank prepared to gamble its capital because that bank would not be affected by such a penalty when it was ‘down and out’. Furthermore, regulators could over time become less familiar with banks’ risk management systems, which might make them less effective in a crisis. Early supervisory intervention is more difficult if supervisors only become aware of problems ex-post, after the limit has been breached. It may be possible to devise an approach to pre-commitment which avoids these potential handicaps. But for the time being our attitude remains somewhat hesitant. Finally, a discussion about rules is not complete without touching on the question of a ‘level playing field’; an odd analogy, I think, since in field sports there is no such thing. If there were, why would teams change ends at half time? (In American football, of course, teams change ends three times - and in baseball they resolve the problem by running round in circles.) When banks and securities houses do similar business it seems only fair to apply similar capital rules. But while this is true at the margin, when we look at the total business of banks and securities houses, the picture is still vastly different. | BIS Review 21/1997 -7- HM Treasury Insurance Supervisor Insurance Companies Consolidated Securities and Investments Supervisor(s) Investment Firms, Markets and Exchanges Bank of England Banks This last is not a trivial point, since the cost and disruption caused by reorganisation would be considerable, and higher in proportion to the degree of change. The process would inevitably generate uncertainty among firms and the public, and make the regulatory system more difficult to manage in the meantime. This argues for building on the present arrangements, if at all possible, rather than beginning again with an entirely new structure that could take years to settle down. Furthermore, what matters to the financial system, and to the public, is that regulators are effective. Effectiveness necessitates good communication, consolidated supervision and close co-operation to maintain protection across the piece. Whether structural change (including bringing functions together under one umbrella) would improve communication and co-operation and so increase effectiveness, is a key question, and the answer is far from clear. We have been making considerable efforts recently to enhance communication between different supervisors in the UK. That has involved, as you would expect, the usual paraphernalia of Memoranda of Understanding. But, in addition, we have sought to achieve cross-membership of some of our most important institutions. For example, Sir Andrew Large, the Chairman of the Securities and Investments Board, has become a member of the Bank of England’s Board of Banking Supervision and, reciprocally, I have joined the SIB. | 1 |
The diversity project Speech given by Andrew G Haldane, Chief Economist, Bank of England Opening remarks given at the Investment Association Launch of the Diversity Project Tuesday 8 November 2016 1 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 1 Let me start by congratulating Helena for launching the Diversity Project. It is a great initiative. The UK’s financial services industry is a world-leader in a great many respects – and long may that remain the case. Yet when it comes to issues of diversity it is often a laggard. For example, recent work by PWC has shown that the gender balance in Financial Services diminishes sharply with seniority. Despite women making up 60% of all employees, only 25% make it to middle-management and only 19% to more senior roles. 2 This is deeply disappointing. But it also presents the industry with a real opportunity to make some great strides forward. I hope the Diversity Project under Helena’s leadership, and the announcement of Jayne-Anne as the Government’s new Women in Finance Champion can help seize that opportunity and propel financial services into a leadership role on diversity too. When I asked a colleague what I should talk about today, she said I needed to have a personal story. That was an immediate challenge. As a white, middle aged, middle class, man working for an Establishment institution, I am not exactly part of a disadvantaged minority. Or am I? Diversity, like beauty, is much more than skin deep. | Conclusion Ladies and Gentlemen In conclusion, prospects for Asia continue to remain positive. Asia can expect to continue to remain the fastest growing region in the world. The economic and financial sectors in the region have now strengthened significantly and are better positioned to mobilize the region’s surplus capital to provide BIS Review 43/2003 5 broader, deeper and more liquid sources of financing to facilitate the region’s growth. The new emerging trends in the region point to increased economic and financial integration. This is reinforced by greater regional co-operation. All this would result in an Asia that is a more mutually-reinforcing region of growth. In the process, the Asian region would emerge as a stronger engine of growth which in turn can facilitate more balanced growth in the world economy. 6 BIS Review 43/2003 | 0 |
The ones already developed over many years and which the crisis is now leading us to adapt, or the new ones under scrutiny, are only meaningful and will only produce their desired effects if they are applied by all countries and, needless to say, first of all by those that negotiated them. From that viewpoint, the adoption of the Basel II framework by the United States looks to be one of the most important and urgent issues. It is also very important to improve and harmonise accounting standards. The views of G20 countries sometimes differ as to the role of accounting. For instance, one contentious issue is marking-to-market and the extent to which fair value accounting should be applied. It is vital that the accounting choices of standard setters better take on board the financial stability dimension, since they have an impact on the latter. Lastly, the crisis has also highlighted the limitations of self-regulation; it is also essential that the regulation of all systemically important institutions and markets be proportional to their potential impact on financial stability. However, in order to implement such an approach, agreement would have to be reached at the international level on a standard definition of the systemic nature of an entity, which clearly does not depend on its size alone. Moreover, the consistency and the appropriate balance of such potential specific rules with the general rules must also be ensured. | The promotion of more effective international cooperation on training and skills development to meet the changing demands of the industry, more comprehensive strategies on talent development and greater mobility that is consistent with the realities of the global economy will support such talent development. Despite these demands, under investment in learning remains in a significant proportion of financial institutions. This is largely due to the focus on keeping short term costs low. This has however resulted in drawing talent from the existing pool which has in turn resulted in rising costs of talent. Surveys suggest that the biggest skills and knowledge gaps faced by financial institutions are in knowledge of regulatory standards, communications, management skills and risk assessment and management. Professional and technical skills, particularly in the middle to senior levels, are still very much needed in many parts of Asia. These skills shortages will intensify as financial institutions expand their operations. Strategies for talent management and development must therefore change if financial institutions want to be competitive and well positioned to adjust and adapt to the changing conditions. The Asian Institute of Finance (AIF) was initiated by Bank Negara Malaysia and established jointly with the Securities Commission in [2009] to respond to the growing needs of the financial industry for high quality and efficient training opportunities that would develop indemand skills. | 0 |
If they are not, the model will break-down out of sample, as did the (deductive) DSGE model and the (inductive) Google flu model. A gaming environment could be used to understand behaviour in a way which placed fewer restrictions. People’s behaviour would be observed directly in the act of game-playing which, provided this behaviour was a reasonable reflection of true behaviour, would give us new data. Because this is a virtual rather than real world, with shocks controlled and regulated, that could make it easier to address issues of causality and identification in response to shocks, including policy shocks. There are already multi-person games with primitive economies attached to them, which allow goods and monies to change hands between participants. These include EVE Online and World of Warcraft. Some economists have begun to use gaming technologies to understand behaviour. 52 For example, Steven Levitt 53 (of Freakonomics fame) has used gaming platforms to understand the demand curve for virtual goods. The idea here would be to use a multi-person dynamic game to explore behaviour in a virtual economy. This would include player interactions – for example, the emergence of popular narratives which shape spending or saving. And it could include player reactions to policy intervention – for example, their responses to monetary and regulatory policies. Indeed, in the latter role, the game could serve as a test-bed 54 for policy action – a large-scale, dynamic, digital focus group. | There is also scope for greater leverage on the advances of technology and new institutional arrangements that can enhance operational excellence, particularly distribution channels for extending outreach to the range of users from households to microenterprises and small and medium scale enterprises. In addition, innovations in Islamic financial solutions will need to take into account the higher regulatory expectations for more transparency, and the need for the effective management of risks and capital. This involves strengthening the resilience of the Islamic financial system in alignment with the evolving international regulatory developments thus raising the bar of industry performance. The IFSB has made significant advancements in leading the efforts to review specific measures put forward by the Basel Committee for possible adoption in Islamic finance. Further to this is the imperative to cultivate a strong risk culture within institutions. Reinforced by a robust shariah governance framework, it will ensure that innovation for furthering the development of Islamic finance is harnessed within the boundaries of the Shariah, which would avert overzealous innovative activities that could undermine financial stability. Let me conclude my remarks. Much has been achieved, both in terms of the role and contribution of the IFSB, and the advancement made by Islamic finance in this recent decade. This has been an outcome of cumulative efforts to strengthen the foundations of the Islamic financial system. | 0 |
That can, nevertheless, still leave room for tension between the need to moderate the upswing in domestic demand in order to meet the Government’s inflation target (of 2½% or less) not this year, but in 1998 and beyond on the one hand, and unwanted strength of the exchange rate on the other. There is no easy monetary policy answer to this dilemma. How far it persists depends upon just why the exchange rate suddenly strengthened as it has; and that is not easy to explain in terms of developments in the UK alone. Some of the suggested influences may well prove to be exaggerated or indeed reversible. This may be true, for example, of the rise in the oil price. It may be true, that expectations about a prospective relative rise in UK, and US, interest rates, reflecting the relative strength of our cyclical positions compared with those in Japan or continental Europe, are overdone, and they should in any event reduce as recovery takes hold in those other countries. And present market perceptions of the euro as a potentially weak currency if the Maastricht convergence criteria are not rigorously enforced, may also come to be seen to be exaggerated. There is in fact some suggestion, in currency options prices, that markets see a larger downside than upside risk to sterling against the DM in the course of this year. In the meantime, policy judgments are likely to remain unusually difficult. | If there is one message that a wider public audience takes away from my remarks this morning, I hope it is that. Returning inflation to its 2% target is at the heart of the MPC’s actions over the past 10 months. Ceasing asset purchases; starting to raise Bank Rate; beginning to shrink the asset portfolio; considering starting to sell gilts acquired via QE: all these actions serve to tighten monetary conditions and weigh against inflationary pressures. Of course, there is always the question of whether these actions should have come earlier or been more aggressive. In assessing these claims, we need to be wary of hindsight bias, and recognise the benefits of adopting a measured, determined and purposeful approach to the transition from the very accommodative policies introduced during the global financial crisis and maintained more or less ever since. But now that the initial stage of that transition have been successfully navigated, an immediate issue for monetary policy makers is whether the pace of policy tightening now needs to change. In May, inflation reached 9.1%. [4] The MPC forecasts a further rise to around 11% later in the year, once rises in international commodity prices stemming from Russia’s invasion of Ukraine pass through to UK utility and food prices. For an MPC member charged with achieving the inflation target of 2% – someone in ‘the price stability business’, if you like – this is obviously a very unsatisfactory situation. | 0 |
Those purchases are currently under way at a pace of £ If we continued at that pace the programme would be complete by the start of November 2021; for that reason, and assuming no material worsening in market functioning, I would envisage some further slowing in pace at some point in the remainder of the year. I continue to see the current stance of policy as appropriate, given the current degree of uncertainty around the health and economic outlook. In particular it remains appropriate for policy to lean strongly against downside risks to the outlook, to support the economy and act as a bridge to help to ensure that weakness in the economy is not amplified by an unwarranted tightening in monetary conditions. I was very conscious in November of the uncertainties and downside risks to the economy and the need to manage those. According to the data published by the ONS last Friday, the UK economy contracted by around 10% in calendar year 2020; a larger one year fall has not been seen for over three centuries (Figure 8). The February MPR forecasts GDP will fall by 4% in 2021Q1, the current quarter, due to the ongoing effects of the pandemic and the renewed lockdown in response to it. With the exception of 2020Q2, when GDP fell by 19%, this would be the largest quarter-on-quarter fall in GDP since the general strike in 1926Q2, based on peacetime estimates. | The first authorised in Bulgaria providers of the two new payment services started their activities in 2020. In conclusion, we can sum up that the trends in Europe are related to the development of a single European payments infrastructure based on common standards and instruments, aiming to ensure a pan-European scope and reach. Instant payments, which are in a process of introduction also in Bulgaria, open banking, and the increasing use of mobile technologies are topical issues both in the country and in the European Union, issues that we will continue to talk about. The payment services in Bulgaria are evolving in line with the dynamic processes in Europe, gathered around digitalisation, new technologies, and the ensured security of the payment process. 1 Contactless Payments on consumer off-the-shelf devices (COTS) and Software Based PIN Entry on COTS 2 Payment Card Industry Security Standards Council (PCI SSC) 3 Commission Delegated Regulation (EU) 2018/389 of 27 November 2017 supplementing Directive (EU) 2015/2366 of the European Parliament and of the Council with regard to regulatory technical standards for strong customer authentication and common and secure open standards of communication (RTS on SCA and CSC) 4 www.eba.europa.eu/regulation-and-policy/payment-services-and-electronic-money/eba-working-group-on-apis- under-psd2 5 Opinion of the European Banking Authority on obstacles under Article 32(3) of the RTS on SCA and CSC 6 www.eba.europa.eu/single-rule-book-qa 3/3 BIS central bankers' speeches | 0 |
In addition, expectations for increased investor demand for euro-denominated investments, together with the possibility of reduced participation by speculative and arbitrage trading accounts, are likely to have an effect on spreads of fixed-income securities to Treasuries. Traders in various fixed-income markets already have begun to note increased levels of spread volatility and expectations for higher absolute spreads relative to historical levels in response to these market dynamics. In this environment, managing market risk will become more difficult as the nature of fixedincome spread products changes. As we recently have learned, spread relationships that had endured for many years can break down suddenly, thereby increasing the already complex task of hedging positions. The increase in the liquidity premium for on-the-run Treasury securities last fall resulted in increased hedge-related activity in both the interest-rate swap and Treasury futures markets. Traders have continued to explore the usefulness of non-Treasury fixed-income securities as hedging vehicles. Risk managers must, therefore, be especially rigorous in analyzing their firms’ positions and hedging strategies, particularly when historical experience may not be as predictive a guide as it once seemed to be. I am encouraged by some recent market efforts to improve risk management practices. In lending, the risk-return discipline has been greatly enhanced at some international banks. These institutions have introduced measures to compare credit spreads with historical loss rates on well defined categories of credit. They also have enhanced the methods they use to assign internal risk ratings to individual credit exposures. | When economic agents also understand Norges Bank’s response pattern in connection with events in the economy, market expectations concerning the interest rate will change as a result of economic news and to a lesser extent as a result of Norges Bank’s interest rate decisions in themselves. Norges Bank reduced the key rate at the monetary policy meeting on 17 September 2003. Short-term interest rates showed little change since the interest rate decision was expected by market participants. At the same time, the Bank changed its bias concerning future inflation. At the monetary policy meeting in August, the Bank stated that, with an interest rate of 3 per cent, the probability that inflation two years ahead would be lower than 2½ per cent was greater than the probability that it would be higher. Following the meeting on 17 September, the Bank stated that, with an interest rate of 2.50 per cent, the probability that inflation two years ahead would be higher than 2½ per cent was the same as the probability that it would be lower. Expectations concerning future short-term interest rates rose slightly, probably as a result of the change in Norges Bank’s bias concerning future inflation. This was perceived as new information by market participants. The yield curve was therefore a little steeper following the monetary policy meeting. 4 6 Svensson, L.E.O. (September 2002), "Monetary Policy and Real Stabilization". Princeton University BIS Review 46/2003 The market’s expectations concerning future short-term rates can be reflected in forward rates. | 0 |
Perhaps it is because we now find ourselves confronted by a pandemic and climate change, and relying greatly on original thought, and scientific innovation, that Turing's values and achievements resonate so strongly with us today. Banknote character ‐ speech by Andrew Bailey | Bank of England Page 2 Banknote features And we’ve tried to reflect those many achievements on this new note, which I’m very pleased to now unveil. Turing is perhaps best known for his code breaking work at Bletchley Park during World War Two. Here, far from being the solitary genius he is sometimes caricatured as, Turing led a team of codebreakers who designed a machine which could be used to decipher German military codes, something once thought impossible. This machine was known as The Bombe, and the technical drawings for it are featured here on the note. Until Turing and his colleagues invented this machine, British Intelligence had employed codebreakers to crack these German cyphers manually. But the sheer complexity of the codes meant they had little success. The early computers which Turing helped design would decipher some of these codes in as little as 15 minutes, giving the allied forces an invaluable military advantage. Historians have credited this work that Turing led at Bletchley Park, with shortening the war by as much as 2 years, saving many millions of lives in the process. But Alan Turing’s contributions to the field of computing start even before his wartime efforts. | Thus, the stand alone approach was in many ways the only practical choice at the time the initial supervisory stress tests were conducted. A final set of design choices affecting how stressed capital ratios are measured involves the actual models that produce the estimates of net income and capital. The models used in the CCAR and DFAST supervisory stress tests are developed and implemented by supervisors – they are almost entirely independent of stress test models used by banks. This is something that has evolved over time. The SCAP results were based on a variety of sources, including projections made by the banks, simple supervisory models, and historical data on bank performance. The blending of sources reflected that the SCAP was the first broad-based supervisory stress testing program, conducted in a crisis environment, with significant learning along the way. Over time, supervisory estimates have become increasingly independent from the projections made by banks. Supervisors and economists in the Federal Reserve System have developed models to capture the impact of the stress scenarios on various elements of net income, including different categories of loans and securities, interest and non-interest income, non-credit expenses and balance sheet evolution, as well as the flow through of net income to regulatory capital. This was a policy choice intended to provide consistency of treatment across banks involved in the stress tests and to counteract any incentives banks might have to understate the impact of the stress scenario. | 0 |
But, in contrast to that prophecy, at the end of the day the countries that did not have to bail out any of their financial institutions were, with one exception (Malta), located typically in the CEE region. So it seems to me that GDP per capita, human development and industrial tradition are not the criteria driving the market’s classification of “emerging” economies. Should euro membership automatically make a country “developed”? In other words, does giving up independent monetary policy make a country more “stable”? But why, then, isn’t Bulgaria considered a developed country, when it holds a fixed exchange rate against the euro? Why not Kosovo and Montenegro, which have adopted the euro unilaterally? Much space has been devoted to the so-called decoupling debate, in which many experts 1/2 BIS central bankers' speeches claimed that emerging countries were less affected by the global financial crisis. But with the benefit of hindsight, we now know that the GDP declines in emerging countries were, on average, just as steep as those experienced by developed countries. A part of the explanation, once again, lies in the confusing taxonomy: we see huge differences among individual emerging countries as well, even within BRICS. I suggest an analogy to the decoupling debate: we are now observing a “BRICS decoupling” to the power of two: only China and India have shown robust growth since the Great Recession. Russia, Brazil and South Africa have been stagnating, each for its own specific reasons. | The SFBC is mainly responsible for the supervision of banks and institutions, while the National Bank is entrusted with overseeing payment and securities settlement systems and promoting the stability of the financial system. Our activity in this area focuses on analysing the structures, the behaviour and the results in the Swiss banking system. Up until now, the National Bank was known primarily for its banking statistics. Furthermore, it frequently conducted and published banking surveys. We are now increasingly turning our attention to the analysis of topical issues, including a periodic analysis of the situation in the financial system. In so doing, we concentrate on those aspects which are relevant for assessing system stability. For this reason, banks are the main focus. Developments in the insurance world jeopardise system stability only indirectly at the most, e.g. in the case of a financial conglomerate. The situation in the Swiss banking sector The Swiss banking sector found itself in a hostile environment in the past few months. There was a slowdown in economic development. Hope for a prompt recovery was dampened. The number of corporate bankruptcies increased substantially compared with the previous year. Uncertainty surrounding company profits hit the stock markets with full force. As elsewhere, Swiss stock prices dropped significantly amid high volatility. While the Swiss market as a whole (SPI) lost 22% from the beginning of the year, the SPI banking index weakened by 30% and the share index of insurance companies plummeted by as much as 47% (as of 9 December 2002). | 0 |
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. | Ravi Menon: The work of the NGFS in four emerging issues in climate change Opening remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore and Chairman, Network for Greening the Financial System (NGFS), at the NGFS Workshop, Singapore, 26 April 2023. *** Good morning, ladies and gentlemen. I am delighted to welcome you to the inaugural NGFS Workshop in Singapore. We held our annual NGFS Plenary meeting yesterday. We discussed how the NGFS can continue to push the envelope in greening the financial system: to strengthen the resilience of the financial system to climate and environmental risks and; to encourage financing flows to support the transition to a net-zero world. The NGFS is well-placed to do this – we are a coalition of 125 central banks and financial regulators from over 90 jurisdictions. Our size enables us to make an impact globally and our diversity enables us to harness multiple perspectives. The work we do is not only important but urgent. Climate change is already happening – its physical manifestations are becoming increasingly evident – especially here in Asia. We are already seeing unprecedented heat waves, floods, and agricultural degradation. One of the key roles of the NGFS is to build capacity and capabilities among central banks and supervisors to deal with the climate challenge. This inaugural NGFS Workshop, with more than 150 participants from over 60 institutions, will discuss cuttingedge economic and financial issues related to climate change and nature loss. | 0 |
In particular we need much stronger cross border crisis planning – a subject on which I have been chairing a group under the FSF. This has been bedevilled, in practice, by the sheer lack of information and time to consult widely in the heat of a crisis. That we can do something about. I hope we will agree two things to put to the G20 summit – a statement of principles on how countries should cooperate in planning for and handling crises in cross border institutions and a programme to put in place better arrangements for information sharing and cross border dialogue on the largest banks in the world. Building on the core international colleges of supervisors we would aim in peacetime to establish a shared information base among the relevant authorities and jointly to think through the implications of failure for different countries. That would at least give us the basis for considering a coordinated solution in wartime. In time we should also try to establish greater harmony on national resolution regimes which is on the Basel Committee’s agenda. Lesson 4: Develop a new generation of macroeconomic models So far I have concentrated on lessons for financial policy but this recession has also set some challenges for the economics profession and cast doubts on the macroeconomic modelling. In truth, much of my critique of the models that financial institutions use to calibrate risk could equally be levelled at the workhorse DSGE models that most economists and central bankers use to describe and forecast macroeconomic developments. | For example, we published analyses of the vulnerabilities in our Financial Stability Reviews in 2006 and 2007 and highlighted the declining price of risk, the build up of global imbalances, the growing dependence of banks on wholesale funding, and the risk that structured credit markets could seize up in a downturn. When we took that message to Chief Executives of banks in London and New York, they generally accepted the analysis and agreed that a correction was bound to come. However, almost to a man (and they were all men), they took comfort from the sophistication of their risk management systems and hedging strategies. They were confident they could ride out the storm. But as it turned out their systems were preparing them for a shower not for a hurricane. The limitations of their risk models were cruelly exposed in August 2007. One CFO remarked last year “We were seeing things that were 25-standard deviation moves, several days in a row”, which in plain English means that according to their models, the outright impossible was happening on a daily basis. According to the Value at Risk (VaR) benchmark for example – which measures the amount an institution stands to lose on its portfolio given an abnormal movement in market prices – there shouldn’t have been a big problem But that was partly because recent experience grossly underestimated what the truly abnormal really was. | 1 |
These, and the series of internationally agreed standards for payments, securities, foreign exchange settlement systems set by central banks, securities regulators, and the private sector, have engendered a remarkable set of changes to improve safety and soundness and operational resilience in this increasingly global system. These are the types of efforts where the return is almost never quantifiable, for the pay-off comes in the avoidance of crisis and a better balance between efficiency and risk. By reducing settlement periods and moving more of the world to real time gross settlement, delivery versus payment and payment versus payment systems, these changes have made a major difference. They have significantly improved the capacity of the financial system to absorb shocks, to handle stress, and to reduce the risk of broader damage or contagion from financial failure in any part of the system. This is and must be a collective effort. It requires collaboration between the official sector and the private sector here in the United States and in the other major economies. And it requires collaboration among the major central banks. Because of the shared interest of participants and the central banks in finding the right balance between efficiency and risk, and because of a widespread recognition of the more integrated nature of national financial systems, success in this area would not have been possible in the past and will not be possible in the future without continued close cooperation between the official and private sectors, within and across national borders. | We believe the systemic importance of the payments infrastructure means that central banks and system participants have a common interest in acting together to address the evolving risks. Let me identify some of the major priorities we see in this area that require further collaboration. Higher standards for the core of the system During the past few years, central banks and securities commissioners have developed new standards for the design, operation, and oversight of payments and securities settlement systems. These new standards have been proposed for incorporation in the Federal Reserve’s Policy Statement on Payments System Risks. We are in the process of working, together with other U.S. supervisory and regulatory agencies, to assess the extent to which the affected U.S. systems meet these new standards. We feel that it is especially important for the entities that form the heart of payments and settlement systems to work toward higher standards for safety and soundness and operational resilience. Given the increased scale of activity handled by these entities, the greater concentration among the major participants, and the increased exposure to cross-border activity, these systems today need to meet a more exacting set of standards, and of course this is also true for entities that are less systemically important. More specifically, we would like to see a greater focus on strengthening risk management practices and ensuring that the financial resources of system operators are adequate to deal with the risks to which they are exposed. | 1 |
The weakness of the recovery has led some people to suggest that we could increase the effectiveness of quantitative easing by directing the money used to buy the gilts to buying private sector assets instead, or else to inject purchasing power more directly by passing it directly to households in the manner of Friedman’s famous helicopter. Such options can always be split into two legs: a fiscal leg, involving some bond-financed public expenditure and which ought to be subject to the control of the Chancellor and the Treasury; followed by a second monetary, or financing, leg in which the Bank buys the corresponding quantity of government debt on the secondary market and is just conventional quantitative easing. Viewing it this way is, I believe, helpful as it allows one to focus on the merits of the alternative use to which the funds are put. For instance, the easiest way to implement a “helicopter drop” would be to increase tax allowances temporarily. But the life cycle/permanent income model of consumption behaviour suggests that one should expect the vast majority of such a temporary windfall to be saved rather than spent. It certainly is not the obvious way to try to boost demand, unless one can direct the additional income to credit-constrained consumers who are more likely to spend it. In any case, the design of any fiscal intervention does not need to be tied to the question of how the financing is split between money and bonds. | On top of that, the financial crisis has most likely resulted in some deterioration of the capacity of the financial sector to generate export earnings, creating a need for an additional expansion in the rest of the tradable sector of the economy. Generating this shift in the composition of activity requires a real depreciation of sterling. While that has happened – the real effective exchange rate for sterling is almost 15% below its pre-crisis level – it will inevitably take time for resources to transfer to the tradable sector from the domestically-facing sector. Moreover, weak growth in most of the other advanced economies has not provided the best of backgrounds for such a re-balancing. The bottom line of all this is that considerable real adjustments are called for. These real adjustments – balance sheet repair and the sectoral reallocation of resources – inevitably take time. It is against this background that monetary policy needs to be set. On the one hand, a highly stimulatory policy stance can encourage households and businesses to bring forward expenditure, boosting demand and mitigating the destruction of the economy’s supply capacity that can result from a prolonged period of weak demand as firms are driven out of business and the skills of unemployed workers atrophy. On the other hand, such policy can also delay the transition to a new growth path if it slows the process of balance sheet repair and inhibits the process of “creative destruction” as unprofitable firms are closed and the liberated resources shifted to the expanding sectors. | 1 |
Regulation may be self-imposed, or, as is usual, by a third party. The Government may intervene in a market or industry in the form of law, administrative rules, taxation or moral suasion. Self-regulation could be imposed through industry associations and codes of conduct. The regulatory framework will shape market behaviour. Therefore, the design and practice of the regulatory framework determines the efficiency and performance of the regulated market. Why Regulations? There are a few theories that attempt to explain the existence and forms of regulation, including: - the competition for regulation theory suggests that there exists a market for regulation, in which consumers and producers compete. Regulation will serve the interests of those who are willing to offer the most for the regulation. Since regulation can be regarded as a public good, the free-rider problem suggests that the benefit to the individual consumer is likely to be small relative to the producer. Therefore, producers will have more incentive to try and obtain favourable regulation through industry associations. A countervailing force is therefore the consumer lobby; and capture theory suggests that producers capture regulatory agencies and control them in their own interests. Vested interests reinforce the regulatory framework to BIS Review 55/1997 -2- support their interests, but the danger is that such behaviour would result in non-competitiveness in the international market, leading to long-run social loss. | References: Bank for International Settlements, “Report on Financial Stability in Emerging Market Economies”, April, 1997 Bullock, Alan, Stallybrass Oliver and Trombley Stephen, The Fontana Dictionary of Modern Thought, Fontana Press, 1988 Commonwealth of Australia, “Financial System Inquiry: Final Report Overview” - the Wallis Report -, Australian Government Publishing Service, March 1997 Dale, Richard, Regulating the New Financial Markets, Proceedings of a conference “The Future of the Financial System” held at the H.C. Coombs Centre for Financial Studies, Kirribilli on 8/9 July 1996, Economic Group, Reserve Bank of Australia Davies, Howard, Market and Regulatory Structures in a Global Environment, speech at the Federal Receive Bank of Atlanta’s Financial Markets Conference, February 1997 Goodhart, Charles, Some Regulatory Concerns, LSE Financial Market Group, An ESRC Research Centre, Special Paper No. 79, December 1995 Greenspan, Alan, Remarks at the Spring Meeting of the Institute of International Finance, Washington DC, April 1997 Hoenig, Thomas M., “Rethinking Financial Regulation”, Federal Reserve Bank of Kansas City, Economic Review , Second Quarter 1996, Vol.81, No.2 BIS Review 55/1997 -9- Lindgren, Carl-Johan, Gillian Garcia, and Matthew I. Saal, “Bank Soundness and Macroeconomic Policy”, International Monetary Fund, Washington, DC , 1996 Sheng, Andrew, “Bank Restructuring: Lessons from the 1980s”, World Bank, 1996 Sheng, Andrew, “Managing Derivative Market Risks”, Hong Kong Monetary Authority, January, 1997 The Palgrave Dictionary of Economics Footnote: I am grateful to Carmen Chu for research assistance in the preparation of this paper and to Raymond Li and Osbert Lam for useful comments. BIS Review 55/1997 | 1 |
The UK’s Senior Managers Regime (SMR) gives teeth to voluntary codes by incentivising firms to embed them and by reestablishing the link between seniority and accountability. The Bank’s findings suggest that the global macroprudential responsibilities of AEs will likely extend to the oversight of market-based finance given its potential for major cross-border spillovers. 28 See Carney, M (2017), ‘True Finance – Ten years after the financial crisis’. 20 All speeches are available online at www.bankofengland.co.uk/speeches 20 Reinforcing the best of resilient non-bank financial intermediation Over half of investment funds have a structural mismatch between the frequency with which they offer redemptions and the time it would take them to liquidate their assets.29 Under stress they may need to fire sell assets, magnifying market adjustments and triggering further redemptions – a vicious feedback loop that can ultimately disrupt market functioning. Two-thirds of investment funds with structural mismatches are domiciled in the US and Europe so, as is the case for banks, ensuring leverage and liquidity risks are managed in funds investing abroad is both a national asset and a global public good. System-wide stress simulations are currently being developed, including at the Bank of England, to assess these risks.30 And authorities are beginning to consider macroprudential policy tools to guard against the build-up of systemic risks in non-banks. Regulators currently have far less sight of risks within funds compared to the core banking system, particularly synthetic leverage arising from funds’ use of derivatives. | One way of answering this question is to look at the macro picture and determine the trend rate of GDP growth that would be commensurate with such a strong increase in corporate earnings. This is also pertinent in the context of the current discussion about a “new economy” that is perceived as being capable of higher productivity growth and thereby an upward shift in potential GDP growth. A simple growth model shows that in order to justify a P/E ratio between 30 and 35, the growth trend for total factor productivity would have to move up almost 3 percentage points.4 That in turn implies 4 The feasibility of a higher future increase in corporate earnings can be analysed with a simple model where GDP growth is determined by the inputs of capital and labour together with the efficiency with which these resources are utilised in production. Using a simple Cobb-Douglas function, the rate of increase in the return to capital can be derived as gR=gA+(1-a)(gL-gK), where gA, gL and gK are the growth rates for total factor productivity, labour and capital, respectively. The relevant factor in the present context is the return to capital (the flow of income to owners of the capital stock in relation to the value of the stock) because this should be linked to the growth of corporate earnings. | 0 |
Increasingly not. Where firms fail to provide their own authoritative disclosures, customers, investors and rating agencies will attempt to construct their own. And that’s not good for your financial health: because disagreement between different measures of a firm’s climate performance, whether driven by poor data or otherwise, increases equity risk premia, and hence the cost of raising investment finance.15 It increases the overhead from dealing with investor queries or resolutions on ESG issues, which have risen this year despite the Covid-19 pandemic.16 And it will leave you scrambling when disclosure becomes mandatory. The FCA is already consulting on proposals that firms listed in the UK will be expected to make a TCFD disclosure.17 And the EU Taxonomy Regulation will make green revenue and expenditure disclosures obligatory for those falling within its jurisdiction. Setting out pathways to mandatory TCFD disclosures should be a priority for public authorities; in the UK this is being explored by the Government-led taskforce on climate disclosure.18 If that gives the case for disclosure in principle, what makes a good disclosure from the perspective of effective capital markets functioning? | GDP outcomes and forecasts Annual percentage change 6 6 5 5 4 4 3 3 2 2 1 1 0 mar-00 0 mar-01 mar-02 mar-03 mar-04 mar-05 mar-06 mar-07 Sources: Statistics Sweden and the Riksbank BIS Review 138/2007 7 Figure 2. Employment outcomes and forecasts Annual percentage change 4,0 4,0 3,0 3,0 2,0 2,0 1,0 1,0 0,0 0,0 -1,0 -1,0 mar-01 mar-02 mar-03 mar-04 mar-05 mar-06 mar-07 Sources: Statistics Sweden and the Riksbank Figure 3. CPIX outcomes and forecasts Annual percentage change 3,5 3,5 3,0 3,0 2,5 2,5 2,0 2,0 1,5 1,5 1,0 1,0 0,5 0,5 0,0 0,0 -0,5 mar-00 -0,5 mar-01 mar-02 mar-03 mar-04 mar-05 mar-06 mar-07 Sources: Statistics Sweden and the Riksbank 8 BIS Review 138/2007 Figure 4. Productivity outcomes and forecasts Annual percentage change 5,0 5,0 4,0 4,0 3,0 3,0 2,0 2,0 1,0 1,0 0,0 0,0 -1,0 -1,0 -2,0 mar-01 mar-02 mar-03 mar-04 mar-05 -2,0 mar-07 mar-06 Sources: Statistics Sweden and the Riksbank Figure 5. | 0 |
For instance, according to a recent working paper of the Peterson Institute, in order to have an expected fiveyear loss rate of 0.5% or lower, the European entity could securitise 50% of a country’s debt or 25% of its GDP.13 Capital Markets Union, financial integration and economic growth A European safe asset is crucial for the CMU project which in turn important for economic growth. A big and liquid market, both of debt and equity, would spur innovation and enable the development of an efficient venture capital market. This relates to the importance of boosting the euro area’s capacity to engage in activities conducive to innovation and productivity growth. In the years since the Great Recession, the pace of productivity growth in Europe has been persistently slow. In fact, European productivity growth had already started to stagnate during the mid1990s.14 While some economists have argued that this is all part of a global secular decline in growth, driven by factors such as an ageing population and growth convergence across emerging markets,15 others believe that scientific progress will keep pushing the technological frontier forward.16 In any case, it is vital that we have financing mechanisms in place in Europe that can support science and technology’s contribution to economic growth. One powerful way in which policy can assist this process is by stimulating the emergence of deep and integrated European capital markets. | But we do have the consolation of knowing that there is a good chance that those who have perpetrated or adopted those misperceptions may have lost a lot of money as a result - if they were brave enough to put their money where their mouth was. Perceptions of the euro I shall turn now to the euro. I would be deceiving you if I said that the euro, as seen from Hong Kong, enjoyed a particularly positive image at present. Arguably one could expect no better for a currency which has lost around 18% of its external value in little over a year, regardless of whether this was judged to be the result of the strength of the US dollar rather than any intrinsic weakness of the euro itself. It is worth noting, however, that the euro was launched at a time when the Euroland currencies were particularly firm against the dollar - having climbed, in the case of the Deutsche mark, by almost 50% since its low point in 1985. Against this background, and the widening of interest differentials in favour of the dollar in recent months, the direction of the euro’s movement is, with hindsight, hardly surprising. BIS Review 23/2000 2 The depreciation of the euro is of course a fact, and it is perhaps the only concrete basis for the scepticism that one hears being expressed about the euro. | 0 |
In parallel, investors have become more reluctant to invest in the banking sector when profit expectations are low, making it difficult for banks to raise new funds. Banks’ soundness therefore tends to be more correlated to economic fluctuations than in the past, contributing to the amplification of the credit cycle. • Accounting regulations so far may also contribute to amplifying credit cycles to some extent. In most financial centres, current provisioning behaviour does not allow banks to take a forward-looking view of their risks, as accounting and tax rules only accept loan-loss provisions for impaired loans. Such a regulatory environment may amplify the credit cycle, contributing to low provisioning and over-lending during upswings and paving the way to sharp corrections during downswings. Using full fair value accounting for loan portfolios might further amplify credit cycles by increasing the volatility of banks’ earnings. • Prudential rules may also have been unable so far to always prevent these developments. Current capital adequacy rules are not risk-sensitive; as a result, credit 2 BIS Review 41/2001 deterioration does not require additional regulatory capital unless loan losses erode the capital base under minimum requirements. As most banks – particularly large ones – have capital far beyond the prudential minimum requirements, they can bear a reduction of their capital base without being compelled to restrict their credit granting. Therefore, capital ratio is not pro-cyclical as such. | Current accounting and tax frameworks hamper the widespread adoption of dynamic provisioning by requiring that risks on specific loans be identified prior to provisioning. Discussions among accounting standard-setters, tax authorities and regulators are essential to encourage such a reform. • Globalisation and the development of financial markets have created a real need for reliable information and harmonised accounting practices. We fully support such trends towards increased transparency. But, it is nonetheless vital to ensure that, when applied to banks, some of the new widespread accounting practices neither distort the presentation of banks' individual situations, nor disrupt their management practices. A “full fair value” approach assumes that a “fair value” can be determined for all financial instruments; but this does not necessarily apply to banking activities, since loans and deposits are essentially neither liquid nor tradable. Using the full fair value approach for the banking book might result in sharp swings in banks' earnings and prompt banks to curtail their lending activity. This approach might further amplify the credit cycle and could potentially affect financial stability. This is the reason why an increasing number of bank regulators are not in favour of this approach as regards banking book. Let us now focus on asset prices moves. Financial authorities might reflect on some ways to foster behavioural diversity in financial markets. As we have seen before, a series of factors, such as short-termism, mimetic behaviour or index management, have tended to make “contrarians” less pro-active on financial markets. | 1 |
These doubts are founded on an incorrect understanding of the guarantees that are requested by the national central banks to protect against the risk that central bank liquidity is not repaid. In particular, the discount applied to the nominal value of credit claims provided as security in refinancing operations is very high. This means that, for credit claims deposited as collateral with a nominal value of € the national central banks accepting the new collateral provide, on average, the equivalent of around € in liquidity. This discounting represents a powerful method for absorbing the credit risk involved in such operations. It is also worth highlighting the fact that the main elements of risk control continue to be shared by the Eurosystem: the criteria for acceptance and measures for controlling risk are approved by the Governing Council, which is also responsible for the continuous monitoring of the effectiveness of all of the measures for mitigating risk. With regard to the third point, it is undeniable that, in some countries in particular (especially Spain and Italy), banks used some of the liquidity acquired via the three-year long-term refinancing operations for temporary investments in government bonds. Today, central banks do not have an instrument for the precise and targeted allocation of credit to a sector or in favour of a specific financial use. | 6 ]In a recent paper entitled “A monetary policy strategy in good and bad times: lessons from the recent past”(ECB Working Paper, No 1336, May 2011), S. Fahr, R. Motto, M. Rostagno, F. Smets and O. Tristani simulated a “counterfactual” monetary policy strategy which did not include credit and money among its variables of observation and reaction. The authors found that as a consequence of the shock caused by the collapse of Lehman Brothers, the euro area would have entered into a protracted period of deflation and the level of GDP at the end of 2010 would have been 2 percentage points below that which was observed. 6 BIS central bankers’ speeches The two long-term refinancing operations achieved the purpose for which they were intended. In an environment of a near-shutdown of private credit markets, banks were not able to refinance their assets and were unable to maintain their level of exposure to households and businesses. The extensive long-term refinancing allowed for the partial and temporary substitution of private credit with central bank money and thus avoided a disorderly process of credit to the economy running dry. Nevertheless, these operations were not without their criticism. These can be summarised in three points: 1. The growth in liquidity following the two operations will ultimately lead to inflation; 2. The Eurosystem’s balance sheet is exposed to unprecedented and uncontrollable risks; 3. | 1 |
4 BIS Review 24/2008 Chart 1: Credit spreads: levels and volatility(a) Basis points 300 Chart 2: Global RMBS, CMBS and ABS issuance $ billions Basis points 1600 (b) Spread (rhs) Volatility (lhs) 1400 250 1200 200 3,000 ABS excluding MBS RMBS Non Prime RMBS Prime CMBS 2,500 2,000 1000 150 800 1,500 600 100 1,000 400 50 500 200 U 0 0 0 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 98 99 00 01 02 03 04 05 06 07 08 Sources: Merrill Lynch and Bank calculations. (a) Option-adjusted spreads over government bond yields and 90-day annualised historical volatilities. (b) 31 Dec. 2006. Source: Dealogic Chart 3: Housing problems spread to banks(a) Chart 4: 3-month LIBOR spreads over expected policy rates(a)(b) Index 104 Price / Index 140 Basis points 120 102 120 100 100 100 80 98 80 96 60 94 92 ABX index (BBB 2006H1) (rhs) Global bank equity index (rhs) Case Shiller US property index (lhs) 90 Jan. Apr. Jul. Oct. Jan. Apr. Jul. | John Gieve: The return of the credit cycle – old lessons in new markets Speech by Sir John Gieve, Deputy Governor of the Bank of England, at the Euromoney Bond Investors Congress, London, 27 February 2008. The original speech, which contains various links to the documents mentioned, can be found on the Bank of England’s website. * * * Introduction The turmoil in credit markets since August has been novel in some ways; but in others, the longer it has gone on the more familiar it has seemed. It has been looking less and less like the crystallisation of a “tail” risk – the “unprecedented and unforeseeable” event described by Northern Rock directors – and more and more like the unwinding of a wider credit boom during which risk premia had become unsustainably compressed. The excesses may have been most obvious in the complexities of structured credit and the sub-prime sector but they have not been confined to them. As in previous banking cycles, a period of strong growth, low interest rates and rapid increases in asset prices lead to over confidence and bad lending at the top of the cycle; defaults, deleveraging and retrenchment follow in the downswing. But the way this old story has unfolded through the new credit markets has sprung some unpleasant surprises, including the speed with which losses in just one market in one country – the housing market in the US – have disrupted wider credit markets in all advanced economies. | 1 |
And are the authorities in the latter countries prepared to relinquish the responsibility for an essential part of their financial system to the home country of the parent bank? These are not just abstract issues, as can be seen from the fact that Nordea, domiciled in Sweden, is now the largest bank in Finland and that Swedish banks own the major part of the banking systems in the Baltic states. Thus, it seems that the supervision of international bank groups could lead to problems of coordination and duplication. On the whole, there appears to be no lack of incentives to supervise cross-border banking operations. The problem is rather that in certain cases the rule system prevents the most active countries for exercising supervision, so that this is liable to fall between two stools. On the other hand, an excessively generous right to supervise can lead to the burden of supervision being unduly heavy for individual banks. That could hamper integration as well as efficiency. Formalising crisis management is more difficult than other parts of the work on stability. Discussing crisis management can be perceived as sensitive and troublesome because to some extent it concerns the state’s willingness to assist the financial sector with liquidity. The dividing line between whether or not this should be discussed openly often runs between countries that have experienced a financial crisis and those that have not. Those which have lived through a crisis are generally in favour of a transparent process. | The work on financial stability is undertaken in three main ways. One concerns the rules and regulations that set the bounds for the operations of financial companies. Another is the continuous surveillance of the system that is performed by Finansinspektionen (Sweden’s Financial Supervisory Authority) as well as by the Riksbank. Thirdly, the state needs to be able to manage any crises that nevertheless occur. The work on stability calls for highly developed cooperation between the Finance Ministry, Finansinspektionen and the Riksbank. The laws governing financial operations are enacted by the Riksdag, with the finance ministry as an important agent. More detailed regulations are issued by Finansinspektionen, which also monitors their observance. The Riksbank’s contribution to the work on rules and regulations consists in the first place of submitting opinions; in addition, the Bank participates in international efforts to develop the regulatory framework. The role of the Riksbank in surveillance work is central and focuses on the functioning of the financial system as a whole and the risks that may arise. The identification of risks in the system as a whole means, moreover, that the individual institutions and the financial infrastructure have to be scrutinised. It is primarily Finansinspektionen but to some extent also the Riksbank that need to keep a continuous eye on the individual banks. Due to the central functions of the banks, a crisis in the banking system might swiftly have serious consequences for the payment system as well as for the supply of credit. | 1 |
This is to supplement the central banks’ instruments in such a way that – alongside the maintenance of price stability – central banks can also make a greater contribution to financial stability than they have done in the past. The specific tools being referred to here are the macroprudential instruments that have attracted increasing interest in recent years, and that have been introduced in many countries. Such instruments can be used in a supplementary manner, as required. In the case of Switzerland, the SNB has a statutory mandate to pursue a monetary policy serving the interests of the country as a whole, to ensure price stability and in so doing, to take due account of the development of the economy. Within this primary framework, it also has the task of contributing to the stability of the financial system. There is no contradiction between these tasks if target hierarchy is observed. As far as financial stability is concerned, the SNB works closely together with the Swiss Financial Market Supervisory Authority and the Federal Department of Finance to create a regulatory environment that promotes stability. The SNB concentrates on the macroeconomic and macroprudential aspects of regulation. For the macroprudential tasks, a new instrument was created this year – the countercyclical capital buffer. According to the relevant regulation, this buffer can be activated by the Federal Council following a proposal by the SNB. | The other method, applied by the majority of central banks including the Riksbank, is to forecast how the economy will evolve over the next couple of years and adjust monetary policy accordingly. One complication here is that something unexpected can always happen, causing the economy to move in a different direction than that expected. For this reason the central bank must take account of different risks when setting the policy rate. The forecasts are produced by experts through the use of various statistical methods and models. The results are often presented in the shape of a main scenario and one or more alternative scenarios. A monetary policy that is based on forecasts requires more information about the economy than a rule-based policy, and according to its critics there is a risk that forecasters will overestimate their ability, perhaps leading to poorer results than would have been the case with a less complicated approach. Advocates of the method, on the other hand, say that we should make full use of the knowledge that we nevertheless have. Since a forecast-based monetary policy requires the analysis of many more variables than is the case for a simple rule, it is more difficult for external players to predict how the central bank is going to act. For this reason a forecast-based policy places high demands on the bank’s openness and transparency in relation to external parties, as well as on its ability to communicate. There are also other advantages associated with a forecast-based monetary policy. | 0 |
Stefan Ingves: Strengthening bank capital – Basel III and beyond Keynote address by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at the Ninth High Level Meeting for the Middle East & North Africa Region, jointly organised by the Basel Committee on Banking Supervision, the Financial Stability Institute and the Arab Monetary Fund (AMF), Abu Dhabi, United Arab Emirates, 18 November 2013. * * * As prepared for delivery Good morning everyone, and thank you for the opportunity to speak about what – among the myriad of recent regulatory initiatives – has probably been the most important: strengthening bank capital. Strengthening bank capital is not simply about asking banks to hold more capital. Rather, it is a broader objective that involves ensuring the functioning of the entire capital regime. The Basel Committee’s approach has therefore been to work extensively on the consistent implementation of the regulatory capital framework. The ultimate goal is to implement Basel III so that it strengthens the quantity, quality, consistency and reliability of bank capital ratios around the world. Quantity and quality of capital As you know, a set of requirements designed to raise the quantity and quality of bank capital lies at the heart of the Basel III reforms. Not only were minimum capital requirements raised, but the increases in capital requirements were focused on where they were needed most: in going-concern loss-absorbing capital, or Common Equity Tier 1. | This means that, if such effects materialize, they can only rely on their own mechanisms, resources and instruments, which may prove not up to the task, a situation not unlike the one in some of the Eurozone countries during the recent crisis – the very event the Banking Union idea sprang from. The strong presence of foreign banks in the banking systems of non-euro area countries also generates opportunity costs for not participating in the single resolution mechanism. A solution for dealing with an ailing bank, which takes into account only home country’s interests, is definitely a sub-optimal outcome from the perspective of a host country. What I can say based on Romania’s recent experience during the Cypriot crisis is that, even though in the end the issue of the Romanian branch of the Bank of Cyprus was solved in a satisfactory manner, having in place a single resolution mechanism would have considerably improved the situation by enhancing home-host coordination during the resolution process and by preventing the restriction of access of Bank of Cyprus’ Romanian depositors to their funds. Open issues regarding the Banking Union An open issue regarding the single resolution mechanism refers to the treatment of residual losses to be covered from public funds before the required amounts have accumulated to the single resolution fund. | 0 |
Here in the UK, the Bank of England has adopted a new code for banks prescribing deferred variable performance payments, introducing the ability to reduce deferred bonuses when subsequent performance reveals them not to have been fully deserved, and paying bonuses in stock rather than cash. The deferral of bonuses awarded today allows them to be reduced before they are paid if evidence emerges of employee misconduct, error, failure of risk management or unexpectedly poor financial performance by the individual, their team or company. We are continuing to refine our approach. The Bank has just completed a consultation on a requirement for variable remuneration to be clawed back after payment and will consult later in the year on new standards for bonus deferrals. These provisions will apply not only to employees who are judged culpable directly, but also to others who could reasonably have been expected to identify and manage risks or misconduct but did not take steps to do so, and senior executives who could reasonably be deemed responsible by establishing the culture and strategy of the organisation. Where problems of performance or risk management are pervasive, bonuses should be adjusted for whole groups of employees. Of course, no compensation package can fully internalise the impact of individual actions on systemic risks, including on trust in the system. 19 To do so, market participants need to become true stakeholders. That is, they must recognise that their actions do not merely affect their personal rewards, but also the legitimacy of the system in which they operate. | In addition, unprocessed food prices have continued to exert some upward pressure on overall price increases in recent months. Excluding the more volatile HICP components of energy and food, the rate of increase in consumer prices in March remained at 1.1% - i.e. unchanged from the rate observed in February and marginally lower than that recorded at the turn of the year. In conclusion, at this point in time the general outlook for price stability remains favourable. Although the lower effective exchange rate of the euro and the rise in oil prices may lead to some upward pressure on headline HICP inflation in the coming months, the current economic situation is likely to contribute to containing this upward pressure. At the same time, current monetary developments and other available indicators do not point to inflationary risks over the medium term. On the basis of this assessment the Governing Council decided to keep the ECB’s interest rates at their current levels. In addition to reviewing the main monetary, financial and other economic indicators, the Governing Council considered a report prepared by the ECB’s Banking Supervision Committee on “The effects of technology on the EU banking systems”. The report assesses the extent to which technological developments have taken place and are expected to occur in the EU banking systems, the main categories of banking risks affected by these developments and the strategic responses that EU banks are devising. The Governing Council agreed to publish the report, which will be made available in due course. | 0 |
Measuring productivity in service industries is difficult. The chart shows that according to the national accounts, productivity growth is very volatile. If we smooth the data somewhat, it appears, however, that productivity growth has been relatively high through the 1990s, following low growth at the end of the 1980s. At the very end of the 1990s, however, productivity growth was weak. 10 BIS Review 47/2001 One source that may be used to analyse developments in distributive trades is Norges Bank’s database Sebra which contains figures for all limited companies that have turned in valid accounts to the Brønnøysund Register. The figures, from 1988 to 1999, show that profitability in this industry has been positive since 1993. Both measures of profitability show a slightly falling trend from the peak year 1994 to 1998. In 1999, it appears that profitability improved again. The increase in profitability from the end of the 1980s to the mid-1990s reflects a structural development in the industry since the 1980s. The most important changes were the emergence of chains and the development of shopping centres. When the upturn came in the mid-1990s, a better structure was in place. Both the chains and the shopping centres have increased their market shares. This structural development has probably made it possible to maintain satisfactory profitability at the 2 same time that profit margins have declined. Operations became more efficient. Profitability has been satisfactory despite lower mark-ups on the cost of goods. In 1998 and 1999, however, profit margins increased somewhat. | A track record of low inflation over several years has provided Norges Bank with a 2 BIS Review 47/2001 better basis for implementing monetary policy. The new guidelines do not imply a significant change in the conduct of monetary policy. The key rate is set on the basis of an overall assessment of the inflation outlook. Higher interest rates curb demand for goods and services and reduce inflation. Lower interest rates stimulate economic growth. Lower interest rates have the opposite effects. If evidence suggests that inflation with unchanged interest rates will be higher than 2½ per cent, the interest rate will be increased. If it appears that inflation with unchanged interest rates will be lower than 2½ per cent, the interest rate will be reduced. There is symmetry here. It is equally important to avoid an inflation rate that is too low, as it is to avoid an inflation rate that is too high. A change in interest rates is not expected to have an immediate effect on inflation. Our analyses indicate that a substantial share of the effects of an interest rate change occurs within two years. Two years is thus a reasonable time horizon for achieving the inflation target of 2½ per cent. Hence, the key rate is set with a view to achieving an inflation rate of 2½ per cent two years ahead. | 1 |
Lushnja is one of the main regions of the Albanian agriculture the recovery of our economy should start from – and holding this meeting here today is not mere coincidence. 2 BIS central bankers’ speeches Bank of Albania’s analyses have been paying increasing attention to developments and related perspectives in this sector. As we speak, 47% of the Albanian population and around 49% of the labour force lives in rural areas and engages in agriculture-related activities. According to the latest data for 2012, around 24% of the land area is used to cultivate different agriculture cultures. However, despite the vast resources concentrated in agriculture and the important role it plays as the main source of income for a considerable part of the population, only 20% of gross added value comes from this sector. The low share in economy in proportion to the considerable number of the population involved in agriculture indicates the low productivity in this sector. The latest data show that the exports of “food, beverages and tobacco” account for 6.2% of total exports. Livestock and agricultural products share 0.78% and 2.3% in total exports, respectively, whereas agroindustry shares 3%. Fier district represents a considerable part of production factors in agriculture. The latest data show that Fier shares 18% in total agricultural land, thus being classified as the district with the highest share in the country. In 2012, more than 56 thousand farms were registered in Fier, the highest number on a country-level. | It is simply a case of adapting the implementation of this strategy to an environment characterised by interest rates close to zero and a Swiss franc once again in the role of a safe haven. Contrary to certain reactions aired in the media, the action to counter the rise of the Swiss franc against the euro is not a form of competitive devaluation, which would inevitably work against the interests of our country in the long run. Rather, it is a key operational tool which, under the given circumstances, helps us perform our mandate with regard to price stability, in other words to preserve our economy from both inflation and deflation. The outlook for 2009 The year 2009 will see the steepest decline in Switzerland’s GDP since 1975. Exports, normally the driving force of our economy, will continue to be weak, and the lack of confidence in the corporate sector will weigh on investment demand. Moreover, all signs point to a further slackening of consumption in view of growing uncertainty about households’ purchasing power. All in all, the outlook for the near future is anything but bright. Switzerland does not constitute a special case – all industrialised countries are faced with a similar downturn, especially those with high exposure to foreign trade. | 0 |
The ultimate goal of entry into the euro area is an ambitious one and, for this reason, it is necessary to start preparing for this prospect well in advance. Broadly speaking, the prospect of EU membership should encourage accession countries to make all the macro and microeconomic adjustments necessary to join the euro area. In this way, EU accession may set in motion a virtuous cycle of long-term 4 BIS Review 92/2001 sustainable economic growth. As the experience of current euro area participants shows, accession countries may encounter difficulties, and even sometimes feel frustration, during the different stages of this process. However, these difficulties should not discourage accession countries from going ahead with the project of entry into EU and, later on, the euro area. Undoubtedly, EU enlargement poses great challenges to both the accession countries and to the European Union itself. Creating the right economic and political conditions and adjusting the European institutions for the eventual integration into the EU of all accession countries is certainly an enormous task. However – and here I come back to what I mentioned at the beginning of my speech – the project of European integration should not be regarded just as a stimulating exercise of facing up to never-ending “challenges ahead”, but rather as a historic opportunity to deepen and extend the idea of Europe. | In our experience, inflation targeting is capable of producing a sufficiently strong nominal anchor for the economy, and consequently also of stabilising the exchange rate, obviously in the absence of large external shocks. Hence, in favourable circumstances, inflation targeting will allow us to achieve price and exchange-rate stability simultaneously. Should circumstances become less favourable, the simultaneous achievement of both will be difficult no matter which monetary strategy is adopted. That is why we do not consider ERM2 to be a policy regime superior to the current regime. In line with this stance, we have agreed with the government to stay out of the ERM2 mechanism for the time being. We plan to introduce ERM2 after conditions for meeting all Maastricht criteria within a two-year timeframe have been established. There is still a number of issues to be discussed, let me address two of them. First, is inflation targeting compatible with ERM2? Second, what is the impact of policy debate about the modifications to the SGP on our forthcoming effort to meet the Maastricht criteria? As far as the compatibility of the two regimes is concerned, namely inflation targeting and ERM2, the specific arrangements have not yet emerged from our ongoing debate. We believe that relying on the economic analysis and intuition rather than on background legal documents as a guide, there is no need to modify the current strategy significantly. It will be able to deliver both price and exchange-rate stability. However, monetary policy alone cannot guarantee the smooth progress of adopting the euro. | 0 |
Gent Sejko: Bank of Albania – strengthening governance and recent other challenges Introductory statement by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2015 to the Parliamentary Committee on Economy and Finance, Tirana, 29 March 2016. * * * Honourable Chair of the Parliamentary Committee on Economy and Finance, Honourable Members of the Committee, It is my special pleasure to present, in this hearing session with the Parliamentary Committee on Economy and Finance, the Annual Report of the Bank of Albania for 2015. In 2015, the Bank of Albania has worked to successfully fulfil its objectives stemming from the Law “On the Bank of Albania”, as well as all the other obligations arising from relevant sublegal acts and relations with our international partners. I would like to start my presentation, focusing on the activity of the Supervisory Council of the Bank of Albania. 1. Decisions of the Supervisory Council At the beginning of 2015, the management team of the Bank of Albania was rendered complete. Thus, thanks to the support of the Assembly of the Republic of Albania, the vacant positions in the Supervisory Council were completed, the Governor, the Second Deputy Governor and Inspector General of the Bank of Albania were appointed. During 2015, the Council met 15 times and approved 98 decisions. Of them, 63 consisted in acts approved for the first time, and 35 in amendments to existing acts. | Following are some of the strategic objectives of the Bank of Albania: - maintaining price stability around 3%; - strengthening financial stability; - strengthening banking supervision; - enhancing financial market security and efficiency; - enhancing and approximating institutional capacities to the European model. To materialise the strategy, the medium-term budget has been prepared for the financial management of the institution in the upcoming three years. Approval of the new organisational structure of the Bank of Albania The new structure of the Bank of Albania adapts the activity of its units to the needs and new process imposed by economic developments and changes in the banking legislation. Moreover, it aims at improving the institution’s management and strengthening the internal control. The establishment of the specialised unit to monitor and manage the operational risk is a crucial step in this regard. Also, the new structure aims to strengthen the vertical and horizontal control in compliance with international best practices, models and standards. Strengthening cash security and management systems The Supervisory Council and other administrative structures have reviewed the entire regulatory framework for the security and protection of physical values and information at the Bank of Albania, enhancing both human and technology-related elements. A series of decisions have been made to strengthen the security measures and physical monitoring of the premises where cash is stored and processed, in the form of banknotes and coins. | 1 |
Today I intend to take up a couple of questions that I consider relevant to both the debate in Sweden and the international debate. The first question is what role monetary policy should play with regard to promoting financial stability. This is a question that is still raised as one of the most important ones in the international discussions on possible changes in the inflationtargeting framework, although in many countries this has been overshadowed by the recent low inflation figures. A second question that, for natural reasons, is always topical when discussing whether the inflation-targeting policy needs to be modified is whether the level of the central banks’ current inflation targets – usually around 2 per cent – needs to be changed. This is also something that has been discussed quite a lot by academics and in various policy forums since the financial crisis. Internationally, the discussions have focused BIS central bankers’ speeches 1 on the question of whether the target should be raised, while in Sweden the focus has instead been on whether the target has been set too high. I intend to address the arguments for both points of view and to give my own views on the subject. Should monetary policy take financial imbalances into account? But let me begin with the question of monetary policy and financial stability. One lesson from the financial crisis is that price stability is not sufficient to ensure financial stability in the economy. | They say that it is not merely that the world has suffered an unusually large financial crisis and is now having to deal with the repercussions. Moreover, there is an underlying structural development that has meant that large parts of the world have entered a state of so-called secular stagnation. What this normally means, expressed simply, is that the neutral, or natural interest rate – the interest rate that has neither an expansionary nor a contractionary effect on the economy – has fallen and become very low, perhaps even negative. It may be difficult for monetary policy to stimulate the economy sufficiently in this type of situation, as it requires that the real interest rate – the nominal interest rate minus inflation – to be lower than the neutral one. Achieving this becomes more difficult when the nominal interest rate is at the “near zero lower bound” and when inflation is low and falling, which keeps the real interest rate up. 16 If the neutral interest rate is persistently low, monetary policy will more often hit the “near zero lower bound”. 17 However, it is an open question whether the world is suffering from the prolonged but nevertheless transitory after-effects of an unusually widespread crisis or is caught in a more lasting state of secular stagnation. 18 The difference between introducing a target and changing it The arguments in favour of raising the inflation target may appear fairly convincing on paper. But there are considerable practical objections. | 1 |
As already announced, the remaining denominations in the series will be issued at half-yearly or yearly intervals, with the next one being the 10-franc note. The appearance, design elements and other information relating to this denomination will be communicated on 11 October 2017, and issuance will begin a week later, on 18 October. I’d like to thank everyone who helped prepare the ground for the successful launch of the new 20-franc note – as well as those involved at all other stages of the process – for their hard work. Page 3/3 | Recently some funds have invested in “alternative” assets such as hedge funds, private equity and infrastructure, and structured credit. Shares in closed-end funds are traded like other equities. The funds may issue their own debt to obtain leverage. They may also issue different classes of shares with different entitlements to income or capital receipts from the underlying investments. CP (Commercial paper) conduit. A SPV that issues CP backed by financial assets originated by one or more sellers. They are generally supported by liquidity facilities provided by their sponsor or a third-party bank. DPC: Derivative product company. A bankruptcy-remote structure that houses credit risk from long-dated derivative transactions. They are typically wholly-owned subsidiaries of financial services companies. In general, DPCs sit between their sponsor and an external counterparty in derivative transactions and protect the counterparty from the potential default of the derivative seller (the sponsor). Monoline insurance companies. Monoline insurance companies provide protection against a specific type of risk (typically credit risk). Originally developed in the 1970s to provide US municipal bond holders with credit guarantees (or BIS Review 44/2007 7 “wraps”), over the past few decades they have diversified into the ABS and CDO markets (particularly the highly-rated senior tranches). SIV: Structured Investment Vehicle. A SPV that funds a diversified portfolio of highly rated assets by issuing short-term commercial paper, medium-term notes etc. In general, there is a maturity mismatch between their assets and liabilities. They aim to generate a positive spread between their return on assets and funding costs. | 0 |
What then is the role of central banks in this new financial landscape, where institutional investors and other nonbank financial institutions hold a larger share of assets and a larger share BIS Review 108/1998 –3– of credit risk than they ever have before – and where an increasing share of conventional credit risk is intermediated through the capital markets? I would argue that the role of a central bank in this new environment is very much in keeping with its traditional responsibilities. Central banks in all countries fundamentally care about the flow of credit in their economies, whether this credit flows from banks, nonbank financial institutions, or institutional investors. Why is this so? The answer is simple. It is because the credit intermediation process is ultimately what determines how well our economies function and therefore how well our economies are able to grow and allow their citizens to prosper. When the credit intermediation process does not work well, when there are disruptions to the supply of credit to the economy, as history has amply shown, the costs for our businesses and our people can be enormous in terms of lower output and fewer jobs. A well-functioning credit intermediation process is, in short, critical to the sustainability of any economy’s success. It is for these reasons that central bankers are interested in the flows of credit from the global securities markets, just as we have needed to know about the flows of credit from the banks whose operations we are charged with overseeing. | Conclusion In conclusion, my goal here today was to leave you with several things we need from you to help us achieve a stronger supervisory framework for foreign banks operating in the U.S. and also recognize that there are things that supervisors need to continue to work on to strengthen our oversight of global firms. We want to ensure we are doing everything we can to be an effective host supervisor, including ensuring consistency and equivalence in how we approach all global firms. We also have a responsibility to facilitate, to the greatest extent possible, the job of the home country supervisor, and we expect the same from our supervisory colleagues around the world who are our eyes and ears on the ground in those other jurisdictions. While this is very important in our routine day-to-day operations, it becomes even more important in effectively dealing with crisis situations. We have a common interest – a safe and stable global financial system. In pursuing this common interest, there are three fairly simple – yet important – things we need you to do: • ensure robust communication with host supervisors; • continue to build out your risk reporting and broader MIS capabilities; and 4 BIS central bankers’ speeches • encourage deeper and more intensive dialogue among your senior leaders and directors with key host supervisors. | 0 |
A series of measures are eliminating toxic forms of shadow banking like these ‘constant net asset value’ money market funds.18 As a result, markets are safer to navigate. Shadow banking of old is transforming to more resilient market-based finance of today. So what need is there to dive into liquidity mismatch in investment funds? It’s certainly the case that any remaining risks are much smaller and more subtle than those around money market funds. Since the crisis, funds have flowed into open-ended investment funds that make no promise of redemption value: the investor bears the risk from the outset. They have few of the problems of the crisis money market funds. But these funds are increasingly invested in less liquid assets while continuing to offer next day redemption to investors. The share of corporate bonds held in open-ended funds in the UK and the Euro Area has increased by 70% since the crisis (slide 13). And their structure may create incentives for their investors to redeem in a stress, forcing fire sales of illiquid assets. I emphasise ‘may’ because we have not seen this on large scale in the past. Nevertheless, our duty is to ask whether we could see it in the future. The possibility at least arises because the price offered to redeeming investors is the ‘net asset value’ of the fund, calculated from quoted market prices of the assets they hold. Such quotes normally reflect standard trade sizes and prevailing market conditions. | Panel Remarks: The Fed and Main Street during the Coronavirus Pandemic - FEDERAL RESERVE BANK of NEW YORK SPEECH Panel Remarks: The Fed and Main Street during the Coronavirus Pandemic "Supervisory and Regulatory Action to Support the Economy and Protect Consumers" April 23, 2020 Posted April 24, 2020 Kevin Stiroh, Executive Vice President As prepared for delivery Good afternoon. Thank you for your critical work and for participating in this important forum on "The Fed and Main Street during the Coronavirus Pandemic." The COVID-19 pandemic is impacting all of us – first and foremost from a health perspective, but clearly in terms of social and economic impacts. As has been discussed extensively today, this impact has fallen heavily on low- and moderate-income and minority communities across all three dimensions. I'll speak about what the Federal Reserve is doing to support the economy and to protect consumers and small businesses through supervisory and regulatory actions. I'll note that these action are focused on supervised banks and do not address the significant challenges faced by those households and businesses outside of the traditional banking sector and served by socially responsible capital providers such as community development financial institutions (CDFIs), non-profits, foundations, and impact investors. Before proceeding, let me emphasize that I am speaking for myself and that these view do not necessarily reflect those of the Federal Reserve System or the Federal Reserve Bank of New York. | 0 |
But you can I think see a broad-brush correspondence between these high-level developments and the more specific trends in the UK’s clothing and textile sector. Until the early to mid-1970s import penetration was roughly stable and real clothes prices fell at the relatively gentle pace of 1% or so a year (Charts 3 and 4). We’ve seen the same broad stability, in both trade and prices, in the years since the financial crisis, during which global trade growth has also slowed. But the years in between saw a marked rise in import penetration and very rapid declines in real UK clothes prices, particularly over the second half of that period. 2 Tariffs began to fall in the 1950s, container ships, which materially reduced shipping costs, were first developed later that decade, and the first regional trade agreements (notably the EEC) were made in the 1960s. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 Chart 3: Import penetration started growing in Chart 4: Real UK clothes prices fell steeply 1970s, rose strongly in 90s, stable post-crisis between mid-1970s and the crisis 35 clothing and textile imports, % of consumption 30 25 20 15 10 1965 1970 1975 1980 1985 1990 1995 2000 Source: ONS and UN Comtrade Database Source: ONS Cumulatively, those declines were pretty spectacular. Even in nominal terms, clothes in the UK were on average cheaper in 2008 than they had been in 1975 (Chart 5). | https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R1024&from=en 9 See Recitals 7 and 12 and sub-recommendation B3 of “Recommendation of the ERB of 22 December 2011 on the macro-prudential mandate of national authorities” (ESRB/2011/3): https://www.esrb.europa.eu/pub/pdf/recommendations/ESRB_2011_3.en.pdf 10 See Recital 24 of Regulation No 1092/2010 of the European Parliament and of the Council on European Union macroprudential oversight of the financial system and establishing a European Systemic Risk Board: The ECB and the national central banks should have a leading role in macro-prudential oversight because of their expertise and their existing responsibilities in the area of financial stability. National supervisors should be involved in providing their specific expertise. The participation of micro-prudential supervisors in the work of the ESRB is essential to ensure that the assessment of macro-prudential risk is based on complete and accurate information about developments in the financial system. Accordingly, the chairpersons of the ESAs should be members with voting rights. One representative of the competent national supervisory authorities of each Member State should attend meetings of the General Board, without voting rights. In a spirit of openness, 15 independent persons should provide the ESRB with external expertise through the Advisory Scientific Committee. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:C:2016:202:FULL&from=EN 5/9 the banking sector should be activated or deactivated. Accordingly, other sectoral financial regulators are given responsibilities for activating their own tools. | 0 |
In the UK, the inflation-targeting regime requires the MPC to specify the horizon over which it expects inflation to return to target if it deviates by more than one percentage point. In its Open Letter earlier this year, the MPC stated that it judged it appropriate to set policy so that inflation would likely return to target within two years. That was intended to provide a clear horizon for the MPC’s actions and as an anchor for inflation expectations.16 A third potential source of policy insurance comes from making clear that, were it necessary on inflationary grounds at the two-year horizon, monetary policy could be eased further. If monetary policy were perceived to be constrained to the downside – for example, because of the zero lower bound on interest rates – that could affect agents’ perceptions of the distribution of inflation risk, which would be skewed to the downside. At the time of its Open Letter, the MPC stated that it had a variety of tools available to ease policy, should that prove necessary. That included re-starting asset purchases (Quantitative Easing or QE) and cutting interest rates from their current level of 0.5% towards zero. The latter reflected a re-assessment by the MPC of the relative costs and benefits of a rate cut. Back in 2009, the MPC’s judgement was that the benefits of cutting rates below 0.5% were probably outweighed by their costs, in terms of the negative impact on financial sector resilience and lending. | When making that assessment, we have to take into account that Iceland’s recession was the result 2 BIS central bankers’ speeches of two stories: the macroeconomic boom-bust cycle in a small, open, and financially integrated economy, and the rise and collapse of three cross-border banks operating on the basis of EU legislation. The first is familiar, and Iceland was already on its way into a recession as a result of it when the banks collapsed. The second was unique at the time, as it occurred during the first international financial crisis since the birth of the EU single market. Iceland lost around 12% of GDP from peak to trough during the recession. But the recovery began in the middle of 2010, and the Central Bank forecast from February is that Iceland’s economy will grow by just over 2% this year. The recovery has already reduced the seasonally adjusted unemployment rate from over 9% at the peak to around 4½%. New banks, smaller and domestically oriented, have been rebuilt. But there are still significant legacy issues and challenges, including capital controls and inflation expectations well above target. Source: Philippon (2008): The Evolution of the US Financial Industry from 1860–2007. Source: Philippon and Reshef (2008): Wages and Human Capital in the US Financial Industry 1909–2006. BIS central bankers’ speeches 3 Before I close, let me expand my scope again and say a few words about possible broad long-term future trends regarding the relative size and importance of the financial sector. | 0 |
But that is rarely possible in practice, other than perhaps a very short distance ahead. 8 See Woodford (2012). 9 See Carney (2012). 4 BIS central bankers’ speeches The difficulty of utilising this particular policy channel is probably not a great issue in normal times. But it looms larger when policy is constrained by the zero lower bound on interest rates. In such circumstances – and assuming that alternative policies, such as quantitative easing, are unavailable or ineffective – an ability to exploit this policy-expectations channel becomes much more valuable, as the commitment to hold policy loose in the future feeds back onto aggregate demand today by reducing expected future real interest rates. This comes about both through a low future nominal interest rate and a higher future rate of inflation because policy is held “loose for long”. The intent of such a loose-for-long strategy is in some ways similar to quantitative easing, as both reduce interest rates further down the yield curve. But the former does so by changing the path of risk-free rates at the near end of the yield curve, while the latter operates mainly through variations in the term premium further out along the yield curve brought about by changes in relative asset supplies. Moreover, the loose-for-long approach partly works by raising future inflation, which is not an objective of quantitative easing. | Moreover, it is worth noting that since the MPC’s mandate dictates that we should support growth and employment provided that it does not conflict with achieving the inflation target, we are in any case charged with seeking to eliminate that part of the shortfall in nominal demand that is associated with an output gap, or that can be eliminated without generating inflationary pressure. Second, hard-wiring in higher inflation for a while is not without risk. In many economic models – including the one I used earlier – it is only the real interest rate that matters: it is irrelevant whether a lower real interest rate comes about through a lower nominal interest rate or a higher inflation rate. In the real world, inflation erodes the real value of cash, nominal bonds and fixed-interest debts. In itself, that may reduce the impact on demand of the promise to keep policy loose for long. But it is also apt to breed suspicion of a deliberate attempt to inflate away debt burdens, and may thus lead to inflation expectations becoming de-anchored. This is a serious risk: we should not forget the high levels of unemployment in the 1970s and 1980s associated with bringing inflation expectations back under control. Third, maintaining low interest rates even after the economy has recovered carries financial stability risks. My baseline simulations suggest that the period of very loose policy is already quite extended. | 1 |
In a turbulent economic situation, we were uncertain whether our model was the right one for the Norwegian economy and wanted to guard against model misspecifications. In an economy where unemployment is around 3 per cent and inflation is on target, setting the interest rate as low as zero was regarded as going too far. A practical approach to model uncertainty is to cross-check using simple monetary policy rules such as the Taylor rule (criterion 5). In addition to the basic Taylor rule, we usually employ a variation of this rule involving external interest rates, and a rule where the output gap is replaced by GDP growth. A mechanical application of the Taylor rule would have resulted in a forecast approximately as indicated by the blue line in the diagram, i.e. considerably higher than the interest rate path that was chosen. A higher interest rate path would also have resulted in more negative output and inflation gaps. Achieving the inflation target would have taken ten years. 2 See Holmsen et al. (2008) for a discussion of the implementation and communication of optimal monetary policy. 2 BIS Review 110/2009 An interval for the interest rate is determined based on the criteria, where optimal policy (with interest rate smoothing) defines the lower boundary and the Taylor rule yields the upper boundary. After an overall assessment, the interest rate forecast indicated by the red line was selected. The interest rate decision, in Norway as elsewhere, is based on discussion by a board. | These new measures led to an average annual growth of 7.5% over the four years, 2010 to 2013 and thus, the vicious cycle was converted into a new virtuous cycle, with inflation in single digits, shrinking debt to GDP ratios, and low interest rates. In 2009, Sri Lanka also faced another major challenge: the threat to its external account. The effect of Global Financial Crisis had impacted Sri Lanka, and large scale overseas bond redemptions had resulted. It was soon clear that some external support was required to stave off this challenge, and Sri Lanka decided to avail itself of the IMF facilities via a stand-by arrangement (SBA). The key BIS central bankers’ speeches 1 objective of the SBA was for Sri Lanka to build up its foreign reserves to more comfortable levels to meet the uncertain global environment. The issue however was that the IMF, in its conventional wisdom, was insisting that Sri Lanka sharply depreciates its currency in order to curb its trade and current account deficits which, in their view, would help the country to build up reserves. The IMF also held the view that Sri Lanka must significantly increase government revenue by raising taxes. In theory and normal circumstances, IMF’s suggestions may have had merit. However, the Sri Lankan authorities who had a deep practical understanding of the socio-economic challenges facing Sri Lanka, held a different view. | 0 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.