sentenceA
stringlengths 2
7.69k
| sentenceB
stringlengths 2
7.69k
| label
float64 0
1
|
|---|---|---|
Whilst I recognise there is uncertainty, I urge firms to explore how different scenarios are relevant to their strategy, to test their specific vulnerabilities and to identify opportunities. Here at the Bank, we have helped create tools to support such analysis.5 And they continue to be enhanced. They include carbon prices consistent with different pathways to net zero to help you identify robust strategies. I encourage you to use them. 5/7 BIS - Central bankers' speeches And the fourth challenge is that system wide change is complex as the actions of one are dependent on actions of others, so it is important to coordinate action throughout the supply chain. Each firm should be stretching its horizons – building capabilities now that enable action to drive long-term reductions in emissions through their value chain. That does not mean immediately ceasing to deal with high emission counterparties and suppliers. That does not necessarily remove emissions, perhaps chasing them into the shadows instead. Rather, economy-wide emissions reductions will come through proactive engagement with counterparties and suppliers, and decisions aligned to the transition over time. This means understanding the needs of firms up and down the supply chain and having difficult discussions about steps to reduce emissions. And smaller corporates will need help from larger corporates and their financiers to develop their climate expertise. The collaboration between GARP and Chapter Zero we see today shows how effective that can be in driving faster progress. | 1/7 BIS - Central bankers' speeches And I finished with a hope that we were fast approaching the third and final phase – with these tools actively used in financial and business decisions to progress an orderly transition to net zero. Since then, a global pandemic, a war and the fastest tightening in financial conditions in thirty years have meant that things have not panned out as we might have expected. Let's take stock of where that has left us. Taking stock My prism on this is as a central banker and regulator, where we have good sight of how the UK's banks and insurers are building their approaches to climate risks. These firms sit at the centre of the economy, and their responses matter. I have seen a step-change in their approach. They are making more serious investments in developing effective capabilities – both to manage climate-related financial risks and to identify opportunities. But are they enough? Let me explore this across four core dimensions: scenario analysis; firm risk management capabilities; disclosure; and green finance. Learning from scenario analysis I'll start first with scenario analysis - an essential tool for understanding the size and pathways of unprecedented and uncertain future climate risks. The Bank has delivered its first climate scenarios exercise, the CBES. In my view this was transformative, both in shining a light on otherwise opaque risks and in building capabilities. | 1 |
It is one of the most robust interbank clearing systems in the world, and is a very important piece of financial infrastructure contributing greatly to financial stability in Hong Kong. But in running the system, the HKMA cannot avoid lending to the banks at the end of the day to effect what are really residual interbank payments. But in providing such liquidity money is created in the form of a larger overnight balance of the banking system that appears not to be directly matched by an increase in the holding of foreign reserves by the HKMA. BIS Review 19/1998 - 11 40. However, the manner in which this “last resort” liquidity is provided does not involve any real conflict with the discipline of the currency board system. Lending through the LAF is organized largely through a repo arrangement of paper issued by the HKMA22. Such paper, in the form of Exchange Fund Bills and Notes, are liabilities of the HKMA which are fully backed by foreign currency assets. The HKMA runs an Exchange Fund debt programme involving the issue of debt instruments of maturity from three months to ten years. The proceeds of such issues have largely been switched into foreign currency assets. In any case, with a real time payment system, overnight lending in the term of repos through the LAF, though essential, is infrequent and the money is to be repaid the first thing in the following morning. | It is obvious that, even after so many years of operating the exchange rate link under the currency board arrangement, the rationale behind the HKMA’s occasional presence in the foreign exchange and money markets, whether or not involving the exercise of discretion in the use of its monetary armoury, does not seem to be clearly understood. Certain of its actions in the markets have been subject to all sorts of interpretations. Yet there is a practical need for the HKMA to be in the markets performing its other functions which do not have any implications on the management of the exchange rate. One example is the investment management of the fiscal reserves. When fiscal surpluses are transferred from the Government’s accounts with the banking system to the HKMA, a shortage of interbank liquidity would be created if the money is not somehow recycled into the banking system. This is sometimes misinterpreted as the HKMA conducting open market operations of a discretionary nature, akin to a central bank engaging in discretionary monetary management, whilst the intention of the HKMA’s presence in the market in the performance of these other functions is, as a rule, to ensure that the monetary base is not affected. There is a need, therefore, to have the circumstances in which the clearing balance of the bank system, the crucial part of the monetary base, will be affected clearly set out for all concerned to see. These are outlined as an annex to this speech. Conclusion 46. | 1 |
Gent Sejko: Including monetary policy and financial shocks and trends in modelling and policy analysis Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Tenth South-Eastern European Economic Research Workshop “Including monetary policy and financial shocks and trends in modelling and policy analysis”, Tirana, 1 December 2016. * * * Dear participants, I am privileged to open the 10th South-Eastern European Economic Research Workshop organised by the Bank of Albania, and welcome all new and returning friends. I would like to congratulate Bank of Albania’ experts that present every year their research works for discussion. This year’s workshop will focus on the main topics that prevail in the economic, political and academic debates in the field of economy, finance and central banking. The topic of this workshop is: “Including monetary policy and financial shocks and trends in modelling and policy analysis". The focus was placed on these topics on the grounds that the central bank and policy decisions should take into account an increasing number of shocks that are arising not only as a consequence of economic, but also of political, legal and regulatory phenomena. The challenges that monetary policy and financial stability are facing reflect the problems of the society in the economic, social and geo-political aspects. These challenges are best reflected in the noneffective functioning of the pass-through mechanism that should transmit and amplify the positive effects of central banks’ decisions. | In the meantime, regulatory and adjustment processes that accompany monetary policy decision-making (especially those that will follow the return of the past to normality) may trigger temporary shocks with effects on both the European economy and the small economies related to it. Again, it is the duty of research to investigate potential shocks and model them in the framework of models corroborating central banks decision-making. This situation is not unique to Albania, but is a global-wide problem. Therefore, we are happy to see here participation from all the regions, whose research will introduce new experiences, of benefit to us not only from their conclusions but also from the methodologies they have applied. Fortunately, the topics that will be discussed address the whole spectrum of central banks’ interest and will enrich our experience with the opinion and focus of your scientific research. I hope you will find Bank of Albania’s experience interesting, informative and valuable for your current and future scientific research. I take this opportunity to thank the regional and European central banks for their high consideration and valuable contribution to the reputation of our research workshop. Finally, I wish you a successful and fruitful Workshop and hope to meet you again in future activities of the Bank of Albania. Thank You! 2/2 BIS central bankers' speeches | 1 |
I want to say a little about the tragic events of September 11th, which have further underlined the complex nature of the world we live in. Second, I would like to look at some of the ways in which formal models of market and credit risk of the type you will be studying here have already influenced the design of our regulatory regimes. Much has been achieved here, but much also remains to be done, and the current state of the art by no means captures every type of risk run by financial firms. So, third, I want to talk about some other safeguards which will continue to be necessary to improve the chances of maintaining financial stability. The Bank of England's role in financial stability The maintenance of stability in the overall financial system is one of the Bank of England's three core tasks - the other two being responsibility for monetary stability, and promotion of the efficiency and effectiveness of the UK financial system. That concern for system-wide financial stability does not reflect a paternalistic belief that central banks know better than the markets - indeed market disciplines have a very important role to play in maintaining stability. Rather, it derives from the fact that some types of problem which initially affect only individual financial institutions may subsequently threaten the stability of the system as a whole. | To address these issues, the Basel Committee has proposed a new Accord which would allow firms to use externally or internally generated credit risk ratings to differentiate more precisely between different risks. There would also be a significant expansion in the recognition of collateral, credit derivatives and guarantees as means of reducing overall risks. These proposals are currently under discussion by central banks, regulators and market practitioners. Given our financial stability responsibilities, the Bank of England has been closely involved in this process. A team led by Patricia Jackson at the Bank has been providing technical and policy support to the Basel Committee, and we hope to have an agreement in the course of next year. The new Accord does not, however, go to the point of recognising VaR-type models for measuring credit risk on portfolios as whole. At present, these models are not judged to be sufficiently robust to form the basis of a regulatory regime. A central issue is the sheer lack of information. Many types of loan have no publicly visible price, so the models lack a large and reliable data base. The behaviour of loans under different scenarios, and the correlations between different assets - both key inputs to any VaR model - have in many cases to be assumed rather than measured. And testing the ex post performance of the models is difficult. Where credit instruments lack market prices, model predictions can only be compared to data in the event of defaults, which are relatively rare. | 1 |
Moreover, banks in emerging markets vary in size, sophistication and systemic significance – some are small and domestically focused, while others have sizeable regional footprints. Most emerging economies are also hosts to global banks, and rely on them to provide trade and project finance, and cross border remittances. Let me emphasise that these differences do not detract from the need to have higher regulatory standards. However, it does mean that in calibrating the details of the rules, we have to take into account these differences, so that financial intermediation is not adversely affected. The Macroprudential dimension 12. Let me now say a few words about macroprudential regulations. Macroprudential regulations relate to the use of prudential tools to promote the stability of the financial system as a whole, and not just that of individual institutions. It recognizes that there are two sources of systemic risks. One, at any point in time, interlinkages and common exposures across institutions can multiply aggregate risks. Two, over time, boom/bust cycles can be amplified and destabilize the entire system. In good times, low volatility and low risk premia induce excessive credit creation and rising asset prices in a process which then feeds on itself. When confidence turns, the credit excesses and asset bubbles unwind quickly, with prices overshooting as they head down, feeding a downward spiral. 13. While macroprudential regulation is not new, the financial crisis has triggered a renewed interest in it. | As regards the economic effects, the recent crisis concerning Ukraine and the consequent imposition of sanctions on and by Russia has so far had limited spillover effects on the euro area economy, either via trade or financial links. However, the Baltic states and Finland are more likely to feel any negative effects than other euro area economies owing to the strong trade ties they have with their eastern neighbours. But on the economic risks, I would like to add that the European “family” provides safety nets to partly offset the negative effects of geopolitical tensions related to Russia and Ukraine. For instance, the European Commission announced support measures to protect food producers affected by Russia’s food embargo. The euro area is a large market that can help Lithuanian producers to make up for losses from the Russian market. Finally, euro area countries can use the emergency liquidity lines provided in euro by their national central banks, which in turn would receive euro liquidity from the Eurosystem, in the event of significant turbulences in the financial sector. Why is lending to the real economy in the euro area sluggish? What else needs to be done in addition to the mix of different measures that the ECB is applying, such as low interest rates (or negative interest rates for bank deposits at the ECB) and the planned asset-backed securities programme? It is true that credit dynamics remain weak. At the same time, recent trends show some positive changes. | 0 |
6 BIS Review 62/2008 Many schemes rely on a mutual responsibility, where the remaining banks will come up with the financing to cover the insured depositors of a failed bank, in some cases relying on a fund which has been built up in advance. This works fine as long as it is only small banks that suffer problems. However, if a larger bank is affected, there is a risk that the problems will spread as other banks are forced to contribute substantial funds from their own balance sheets. Given that many markets are very concentrated, with a few banks dominating the market, the failure of the largest banks will be difficult to finance in these kinds of mutual systems. Particularly vulnerable are the kind of small private schemes which rely solely on the remaining banks coming up with money after a failure. The deposit guarantee can then rather become a destabilising factor without the problem bank necessarily needing to be a particularly important actor in the payment system or on the financial markets. Clearly, you want to avoid a situation where government intervention may be necessary simply because of a poorly designed deposit guarantee system. A solution to the problem was put forward in a Swedish government enquiry a few years ago. The trick is to make the banks internalise the cost of the guarantee not at the industry level, but at the level of the individual bank. | The more promising approach is to invest in the complement of institutions and policies that enable an economy to live more comfortably with openness. Focusing on those measures that will enable an economy to be more flexible and to adapt more quickly to change ultimately will be a more effective policy strategy. It is politically more difficult, but economically more effective than those solutions that seem to offer protection from competition and volatility. Crisis resolution A fourth lesson, or series of lessons, comes from our experience in crisis resolution. The strategies adopted to stabilize markets and then to foster recovery varied significantly across the crisis economies. Each involved a somewhat different mix of policy reforms and temporary financial assistance, tailored to the different conditions that prevailed. Where there was success, the common feature was what Larry Summers called the Powell Doctrine applied to international finance – the overwhelming use of force, with a clear strategy for resolution. The “force” in this sense applied both to the scale of financing made available relative to the need and to the quality of the policy measures. Very substantial resources were deployed in support of the recovery efforts, and a large share of the resources was made available upfront, in order to try to mitigate the liquidity problem and to stem the loss of confidence. | 0 |
Let me share with you another observation from Preet Bharara. A common element in many of the frauds his office has prosecuted is the failure of colleagues to call out bad conduct by raising their hands. This is so telling of a culture that condones or promotes misconduct. People see something, but do not say something. And, it is so shortsighted. It prevents problems from being addressed while they are small. By not raising their hands, these colleagues are “quietly adding risk to your books [and] invisibly enlarging your liabilities.”8 They are also tacitly encouraging bad conduct by skewing incentives. There may be many reasons for choosing silence over raising your hand. You may face a conflict of loyalties. It’s uncomfortable to tell on a colleague. You may think that the problem will just go away, or that calling attention to a problem will harm the firm. Raising your hand is difficult. But, it is also absolutely necessary. As rising leaders in the industry, you need to lead by 4/6 BIS central bankers' speeches example. In doing so, you will make it easier for others to follow your lead. My final message is a request that each of you commit to a candid assessment of yourselves, your firms and your industry. For Adam Smith, candid observation was a cornerstone of economic behavior: “We suppose ourselves the spectators of our own behavior, and endeavor to imagine what effect it would, in this light, produce upon us. | I doubt that rules alone can accomplish this. Telling people to be ethical doesn’t make it so. Seeing others engage in ethical decision-making is, by contrast, quite powerful. With that prologue, let me turn to my first message: Stay in banking. This might be a surprising message in light of my introduction. Nonetheless, banking is important work. Society relies on its financial system to “create substantial value for our society.” 3 As investor and author John Bogle has written: “[Banking and finance] facilitate the optimal allocation of capital among a variety of users; it enables buyers and savers to meet efficiently; it provides remarkable liquidity; it enhances the ability of investors to capitalize on the discounted value of future cash flows, and other investors to acquire the right to those cash flows; it creates financial instruments [. . . ] that enable investors to assume additional risks, or to divest themselves of a variety of risks by transferring those risks to others.”4 To fulfill its potential for creating value for society, the financial system needs talented and dedicated people at the helm. This is especially true for banks, which are indispensable to our economic system. As the philosopher Onora O’Neill has observed, banking requires more than just technical competence.5 Bankers must reproduce their efforts and results with reliability. And, above all, bankers must be honest. They must do what they say and say what they mean. This is necessary for the financial system to be viewed as trustworthy. | 1 |
The krone was very stable in the first years following this episode, with small daily fluctuations in the exchange rate. Looking back at developments in the Norwegian foreign exchange market in the 1990s, it appears that no significant change really occurred in 1992. However, there was a marked shift in January 1997. From that time, daily and monthly variations in the krone exchange rate show that the krone is floating. Monetary policy is oriented towards stability in the value of the krone. The Exchange Rate Regulation - which is the mandate assigned to Norges Bank by the political authorities - states that monetary policy shall be aimed at maintaining a stable krone exchange rate against European currencies. Since 1 January 1999, Norges Bank has defined European currencies as the euro. 3 BIS Review 92/2000 The Exchange Rate Regulation takes into account that the krone exchange rate may remain outside its normal range. In the event of significant changes in the exchange rate, Norges Bank shall orient instruments with a view to returning the exchange rate over time to its initial range. Norges Bank considers an exchange rate change to be significant if it influences expectations concerning price and cost developments to the extent that the change in the exchange rate becomes self-reinforcing. | This has partially been driven by the introduction of the risk margin under Solvency II but also by an increasingly competitive marketplace. Indeed, in feedback to the Discussion Paper (DP2/22)[4] we issued in April, firms generally told us they see the continued use of high levels of longevity reinsurance over the long-term as an inherent part of their new business strategy, even after substantial cuts to the risk margin. The PRA is therefore considering how well the resulting risks are managed and mitigated, including risks on recapture. A recapture event requires the insurer to reassume the transferred risk on reinsurer default or if Page 4 legal conditions are breached[5]. Recapture thus necessitates taking control of any collateral assets and separately, putting aside sufficient capital to back the reassumed risk. Firms may argue that they could reinsure the risk to a different reinsurer but with a market dominated by a small number of counterparties whose financial position may be positively correlated, this assumption may be unrealistic. Beyond the risk to individual firms, there is the potential for systemic risk to arise where a large proportion of the UK insurance and pension[6] industry’s exposure to longevity risk is ceded to a small number of reinsurers. Funded reinsurance The second development in the annuities market is an emerging appetite for funded reinsurance. In its most extreme form, this is a fully funded transaction that involves the insurer paying a single, upfront premium which will be invested by the reinsurer to make the annuity payments. | 0 |
With Asian official foreign currency reserves exceeding USD2 trillion, and Middle East oil revenues exceeding USD1 trillion since 2000, the management of surplus savings and reserves in both regions will offer significant investment opportunities. Besides the institutional pool of wealth, the rapidly expanding middle class in both regions is a further trend sustaining the high savings rate and the increased demand for more sophisticated including consumer finance and wealth management. In Asia alone, we now have more than 2.4 million high net worth individuals 5 , not far behind the US with 2.9 million and Europe with 2.8 million, and these Asian individuals control an estimated amount of USD7.2 trillion financial assets. The size of this group in Asia is estimated to be increasing at 7% per year, second only to those in the Middle East, numbering 300,000 and growing at 9% per year. Traditionally, investors in Asia and the Middle East have looked to the developed Western markets to meet their investment needs, in view of the more developed financial markets and the range of asset classes. Increasingly however, there is growing interest and search for improved returns on investment in other parts of the world. This has been a global phenomenon for some years now, characterised by excess liquidity and low yields in the traditional markets. The New Silk Road creates linkages that build on the comparative advantages between Asia and the Middle East Ladies and Gentlemen, Historically, trade and investment in Asia and the Middle East has been linked to the developed economies. | Household saving is now rising rapidly from a negative level. Banks’ willingness to lend to households has stabilised after the tightening last autumn. However, they are still tightening lending to enterprises. Banks are increasing their margins and fees, and require higher equity capital levels of corporate loan applicants. At the same time, funding in the securities market is expensive. The Government Bond Fund facilitates funding primarily for enterprises with a moderate or high credit rating. As a result of extensive official measures the banks now have fairly good access to shortterm and medium-term funding. Norges Bank has supplied ample short-term liquidity to banks. Loans with longer maturities have been widely used, and an increasing number of banks are participating in the credit swap arrangement. We see here an overview of various banks’ and mortgage companies’ use of this arrangement as a percentage of their total assets. So far, there are 15 banks and mortgage companies participating in the arrangement. Several participants report that the credit swap arrangement is a good source of funding in today’s market. The government receives, which is reasonable, compensation for making Treasury notes available. The rate has been in the order of a half per cent. With a large volume of Treasury notes in circulation, we see the possibility of the formation of an interbank market for loans in NOK, where government securities are used as collateral. In the event, this would provide the Norwegian money market with greater insulation from the shifting weather conditions in the US dollar market. | 0 |
23.06.2020 The main post-pandemic challenges for the Spanish economy Appearance before the Parliamentary Committee for the Economic and Social Reconstruction of Spain after COVID-19 – Congress of Deputies Pablo Hernández de Cos Governor 1. Introduction Ladies and gentlemen, I appear before this Committee to set out what should be the guiding principles, in the opinion of the Banco de España, of Spain’s economic policy strategic priorities at present. Before elaborating on these priorities, allow me to convey my praise and gratitude to Spanish citizens for their exemplary behaviour in the especially difficult circumstances we have faced in recent months. Naturally, my support also goes out to all those who have lost loved ones as a result of the pandemic. The crisis has disrupted economic activity on a massive scale. To such an extent that, on all available forecasts, this year will see the biggest declines in GDP recorded in peacetime. As I argued in my appearance last May before the Parliamentary Economic Committee, the severity, temporariness and global nature of this shock initially warrants forceful economic policy measures that are time-limited and internationally coordinated. The goals of this shock therapy should be to lessen the effects of the pandemic in the short term and provide for an exit from the lockdown of the past few months with the least economic harm possible. Broadly, the response of the authorities - with measures I described and assessed in the aforementioned appearance - has been significant. | The measures that can still be used are often described as unconventional in order to distinguish them from the customary instruments. Most central banks in advanced economies make use of these unconventional measures. While the Federal Reserve and the Bank of England are chiefly focused on ensuring a more expansionary monetary policy, the goals of the European Central Bank (ECB) and the SNB are somewhat different. In the case of the ECB, its unconventional measures are directed against disruptions in the transmission mechanism of monetary policy arising out of the deterioration in government finances and credit conditions in the single currency area. The SNB, for its part, took a stand against an unwarranted tightening of monetary conditions as a BIS central bankers’ speeches 1 result of the strength of the Swiss franc – a strength whose origin was to be found in international developments. Unconventional measures mainly take one of the following three forms – forward guidance regarding the future path of policy interest rates, quantitative easing (QE), or foreign exchange market interventions.1 What is involved here, and what do we hope to achieve? In the case of forward guidance, the central bank provides explicit information on the expected movement in short-term interest rates. To a certain extent, central banks had already provided such indications previously. This applies, in particular, to countries that communicate their monetary policy on the basis of an inflation forecast conditioned on a given interest rate path. | 0 |
On the other hand, they may lead to creation of bubbles that down the road may burst. Against this background, at the last meeting of G20 finance ministers and central bank governors it was acknowledged that technological innovation may be conducive to higher efficiency and inclusiveness of the financial system. Many risks, however, were also pinpointed with their proliferation – consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. In this changing and challenging environment, staying aside is not an option for the Republic of Macedonia. To tackle the rising challenges, we have already drafted a new Law on payment services and payment systems (in cooperation with the Ministry of Finance) which transposes the PSD2 as well as other European Union relevant directives and regulations in the payments area. The new payment regulation aims to boost the competition in the traditionally bank dominated payments market by opening the entrance for FinTech companies which can provide innovative payment services as well as establish and operate new payment systems. At the same time, we assert our focus on maintaining financial stability by enhancing the resilience of payment market infrastructures which are being assessed against the Principles for Financial Market Infrastructures. | The improvement reflects the expansion of domestic demand - that is increase in consumption and private investments - whereas foreign demand appears weak and fiscal policy continues the consolidating trend. The new information obtained in the first half of the year is in line with this judgement. The intensity of supply shocks, which led to the rapid decline in inflation over the first half of the year, seems to decrease. Inflation recorded a slight increase in May, reaching at 0.7%. This performance confirms our judgement about the transitory nature of the abovementioned shocks. However, our analyses confirm that the balance of inflationary pressures is still weak. Economic activity remains below potential, suggesting that the return of inflation to target will be a gradual and medium-term phenomenon. Our monetary policy has assumed a stronger stimulating stance over 2016. After two consecutive cuts in April and May, the key interest rate currently stands at 1.25%. The strengthening of the monetary stimulus has led to lowering the interest rates across all segments of the financial market, thus stimulating the increase in consumption and private investments. The Bank of Albania deems that the financial setting - characterised by low interest rates and ample liquidity - should encourage banks for a more positive approach towards lending. Banking sector’s soundness indicators have been improving, in response to economic activity recovery and other measures undertaken by Albanian authorities. Liquidity and capitalisation indicators maintain good parameters, whereas the stock of nonperforming loans - albeit fluctuating - has been put under control. | 0 |
2 0609 1208 0608 1207 0607 1 1206 0609 1208 0608 1207 0 0607 -2 1206 1 0606 -1 1205 2 0606 3 0 1205 1 Source: Bloomberg, CBRT. Monetary policy response After commenting briefly on inflation developments, I would now like to cover the policies pursued by the Central Bank during the last quarter. Anticipating that inflation would decrease sharply following the last quarter of 2008, when the global financial crisis deepened, the Central Bank of Turkey (CBRT) focused on alleviating the potentially harsh impact of the global financial crisis on the domestic economy. Throughout this process, the CBRT has delivered sizeable cuts in policy rates, while providing liquidity support to facilitate the smooth operation of credit markets. In this respect, the CBRT continued to cut interest rates in the third quarter, bringing the cumulative rate cuts to 1000 basis points since November 2008. Therefore, the CBRT lowered policy rates more than any other emerging market central bank since the intensification of the global crisis (Figure 13 and 14). | Therefore, such labour market reforms can help with containing the level of private and public debt by increasing household incomes via enhanced job creation owing to better matching of job seekers with vacancies. Third: An acceleration of fiscal policy reforms such as the enactment of a fiscal responsibility and budgets systems law, so as to ensure medium and long term fiscal sustainability. These stipulate a medium-term orientation as regards budget formulation and provide for binding expenditure ceilings. For example, the annual growth rate in total public expenditure must not exceed the growth rate of potential GDP, unless corrective measures on the revenue side are introduced to compensate the higher growth rate of expenditure. In this respect, such policy frameworks can directly tackle the level of public debt by promoting lower public deficits. I will not leave out the banking sector reforms: having effective foreclosure and insolvency frameworks and actively and efficiently managing Non Performing Loans should be encouraged in order to tackle elevated risks related to high levels of private debt. However, the adoption of an improved insolvency framework will not be in a position to achieve its full potential if its application is impaired by inefficiencies in the judicial system. 3/5 BIS - Central bankers' speeches Let me now give some remarks on the situation in Cyprus. Public debt increased rapidly during the economic crisis of 2012-2013, going from 65.8% of GDP at the end of 2011 to 112% in June 2014. | 0 |
Since the second half of 2018, when we enhanced our forward guidance on interest rates (and especially since the monetary policy meeting of the Governing Council in March 2019), the reassessment by investors of information regarding the outlook has led them to expect a somewhat longer horizon over which rates are more likely than not to remain unchanged. Accordingly, the EONIA forward curve has shifted down substantially over recent months (see Chart 3). 5 / 19 BIS central bankers' speeches In light of this endogenous adaptability of the state-contingent leg through investor behaviour, occasional gaps may emerge vis-à-vis the date-based leg, since the latter can only be recalibrated at each Governing Council monetary policy meeting. In March and June 2019, the Governing Council assessed that the risks to price stability warranted a recalibration of the datebased leg, thereby conveying the Governing Council’s updated assessment of the direction that the ECB’s key interest rates will have to follow. The Governing Council now expects to keep policy rates unchanged “at least through the first half of 2020”. It should be fully understood that a change to the date-based leg is not intended to ratify market views. Rather, it provides information on the Governing Council’s assessment of the rate path that, given the evolving state of the economy, we view as the likeliest to be realised. Finally, the inherent flexibility in our forward guidance framework always allows for additional enhancements to ensure that inflation remains on a sustained adjustment path. | Moreover, by helping to spread market and credit risks more widely, they may increase the resilience of large banks. 2 Unlike regulated investment funds, HLIs can use leverage without any restrictions; in other words, they can borrow to increase the capital available for investment. If a HLI had capital of USD 1 and borrowed a further USD 1, it could invest a total of USD 2. In this example, leverage would be 1. In other words, leverage is the ratio of debt to equity capital. 3 McCarthy, 2006. 4 Financial Stability Forum, 2007. 5 De Nederlandsche Bank, 2007, table 1. 2 BIS Review 74/2007 HLIs have proved to be quite robust to stock market drops. In stress situations in the last decade, the HLI industry incurred less losses than stock indices. The exception was the Russian crisis in 1998 with the collapse of LTCM. 3. Are HLIs a threat to financial stability? In this section I analyse first, whether HLIs represent a direct risk to financial stability and second, whether there are transmission channels through which HLIs could indirectly weaken either systemically important banks or the banking sector as a whole. As already mentioned, the size of the HLI industry is comparatively small, from both an individual and an aggregate point of view. Moreover, the HLI industry is highly segmented and there is a broad range of different investment strategies. | 0 |
Mugur Isărescu: Monetary policy during transition. How to manage paradigm shifts Presentation by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the Annual Conference of the European Association for Banking and Financial History, organised by the European Association for Banking and Financial History and the National Bank of Romania, Bucharest, 7–9 June 2012. * * * Ladies and Gentlemen, I started my career back in August ’71, the day after President Nixon announced the suspension of gold-convertibility of the US dollar and the introduction of a 10 percent surcharge on American imports, thus marking the dismantling of the Bretton Woods System. We all know what happened next: in an attempt to preserve a system of fixed exchange rates, the Smithsonian arrangement – which set a fluctuation band of +/–2.25 percent – was introduced in December 1971. It only lasted for six months, so that during 1972–73 fixed exchange rates were replaced by floating regimes in most economies around the world. Exception made the countries of the European Economic Community, which decided to implement a joint floating arrangement and introduced rather funny concepts such as the “snake in the tunnel”. Those were also years of intellectual controversy – I remember reading alternatively the Newsweek articles of Samuelson and Friedman, one preaching the virtues of Keynesian policies, while the other praised free markets and non-intervention. I witnessed the end of an era and the dawn of another. | But, borrowing from the central bank is just a single transaction and the Treasury could use it immediately for making payments. Second, because of the limitations of the tax bases in developing countries, there is resource paucity for governments to undertake much needed infrastructure projects. Hence, it has been argued that the governments in developing countries could initiate the development efforts by mobilizing resources through inflation. The initial inflation so created would get reversed once the new economic development increases the production of goods and services and raises the market supply. So, inflation would become a self-destroying process and, therefore, it is argued that there is no danger of using inflation for economic development. Third, taxes are mandatory payments and therefore, there is resistance on the part of tax payers to pay the taxes. Because of the pressure coming from the lobbying groups, political authorities too sometimes are unwilling to raise the tax rates to generate higher tax revenue. However, the resistance of the citizens to inflation tax is virtually nonexistent. This is because no one realizes that they are paying a tax to the government, when the prices move up. Any resistance by them is not against the 2 BIS Review 64/2007 inflation tax per se, but against the inflation. That again takes place after sometime when they have been very badly hit by inflation. Fourth, inflation is said to be bringing about some salutary effects to an economy from the point of view of its long term growth. | 0 |
Ideally all of these issues would be addressed in a cooperative and symmetrical way, as part of the overall agreement the UK will strike with the EU-27. Whatever is agreed, there are risks to financial stability both in the transition to the new relationship and in the new steady state. These risks include disruption of services, a further weakening of investment banking profitability and the potential for greater complexity in firms’ legal structures. Increased complexity would place greater demands on firms’ risk management and on supervisory oversight, and pose challenges for effective resolution. We expect firms to plan accordingly. So today, Sam Woods, the CEO of the PRA, is writing to all firms with cross-border activities between the UK and the rest of the EU asking them to inform us of their own planning in response to the UK’s decision to leave the EU. These include, for example, subsidiaries of US investment banks based in London doing business throughout the EU under passporting arrangements, as well as UK banks doing likewise, and branches of institutions from other EU states operating here in London. The main purpose of this letter is to ensure that all firms are making, and stand ready to execute in good time should the need arise, contingency plans for the full range of possible scenarios. The FPC will oversee this process of contingency planning to mitigate risks to financial stability. 13 Asking firms to plan thoroughly is the hallmark of the prepared and professional approach we take to promote financial stability. | 13 The statement is available at http://www.bankofengland.co.uk/publications/Documents/news/2017/008.pdf. 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 VII. Conclusion The UK has been at the forefront of efforts to make the global financial system safer, simpler and fairer. Recognising our role as guardians of the leading international financial centre, we have gone further than these minimum global standards. These efforts ensure that the world’s largest international financial centre both protects and serves the UK economy. And they mean that others can rely on us as a pillar of strength for the international monetary and financial system. As the FPC has made clear, we won’t turn our backs on these hard won gains. There should be no bonfire of financial regulation. But we will be dynamic – learning by doing and making adjustments, as necessary, to optimise our efforts without compromising on the level of resilience the world’s leading international financial centre demands. We will ring fence our banks to protect the core retail financial services they provide to households and companies. We won’t allow undercapitalised, opaque financial institutions to operate freely within our borders. But, while we won’t hesitate to do what’s necessary to protect the UK real economy, we will also work tirelessly for a responsible and open financial system that benefits all. A decade of hard fought financial reform creates enormous opportunities. It is all too easy to give into protectionism, but the road less taken is often the most rewarding. | 1 |
They will become genuine stations of information gathering about the economic and financial activity of the region, being preceded by further analyses and studies. This research work will serve not only to a more explicit monetary programming but also to the modernization of transmission elements of this policy from the higher authority to the lower authority and vice versa. I estimate that this initiative of the Bank of Albania to monitor the economic activity not only in the metropolis but also in other regions of the country would be of particular interest for all the interested groups. Further, I would like to add some other comments on the latest developments of the banking system, which I deem have created good premises for a real expansion of this business, an expansion that will positively impact on the performance of business activities. After completion of the Real Time Gross Settlement (RTGS) system, the Bank of Albania inaugurated some times ago the initiation of a very important project on the Automated Electronic Clearing House (AECH). The operation of this new system will considerably increase the payment speed for the customers, knowing that the lack of this element has maintained businesses far from banks. I take this opportunity to make businesses aware of the advantages of the operation of this system, as both systems together will help reach the international standards of ATM and AIPS (automatic and electronic payment equipments), per population number. | Ardian Fullani: Monitoring of the economy to be conducted not only in the metropolis but in the regions as well Article from Mr Ardian Fullani, Governor of the Bank of Albania, published in the Ekonomia newspaper, 21 January 2005. * * * Our economy has long ago been integrated in a continuous process of quality and quantity development, including an increasingly wider geographical expansion. Both Communities, bank and business, need to cooperate more closely with each other. In order that this cooperation becomes more efficient, we deem, as Bank of Albania, to play our active role not only through establishing a safe macroeconomic environment, but also by providing a range of other operations that will encourage lending activity of the banking system from one side and impact a more correct tendency of business toward more reliable projects and investments, on the other side. To this end, we estimate in our short-term and medium-term programs to give our regional branches spread throughout the country a different role from the one they played till now. We deem appropriate it’s time now for our branches not to be simply cash storerooms and distributors. Also, we shall try to renounce some operations of non-central banking nature, which gradually shall be absorbed by commercial banks. Our goal is these branches be changed into an advanced model of the Bank of Albania presence throughout various regions of the country. | 1 |
Tier 1 capital also included so-called “hybrid” capital instruments – debt that was supposed to convert to equity to absorb losses. However, the ability of these instruments to absorb losses proved to be illusory. Moreover equity itself was distorted by factors such as the inclusion of deferred tax assets – tax credits that could only be realised when a profit was made and so of no use in a crisis. And banks were slow to recognise losses – leading capital ratios to be overstated. And, as to banks’ assets, the major banks were, by 2008, using their own models to assess the riskiness of much of their portfolios for regulatory capital purposes. From their origin in the late 1980s, the international capital adequacy standards – the Basel standards – had BIS central bankers’ speeches 1 focussed on risk adjusted capital. This was based on the sensible principle that the level of a bank’s capital should reflect the riskiness of its assets. As the Basel standards developed, banks were increasingly, first for the trading book in 1996 and later, through the move to Basel 2 in 2008, for the banking book as well, able to use their own modelling to assess the riskiness of their assets. Again, there was logic in this. It replicated for regulatory purposes the way the banks themselves managed risks. | I do think the reforms already made to the capital adequacy and liquidity frameworks have improved markedly the robustness of the system. A leverage ratio, if and when it is introduced in the UK alongside the risk-weighted approach, would in my view make the capital adequacy regime for the banking sector appreciably stronger by guarding against model risk. And, as regards the non-bank financial sector, what some would classify as “shadow banking” – I also think we are starting to see some positive momentum towards the development of diversified credit channels in the UK and the EU – though there is a great way still to go. At the same time, the financial regulatory community is keeping a pretty close watch as to whether risks are migrating from the bank to non-bank sector and building up elsewhere. The FPC recently made its first analysis and assessment of risks in the UK outside the regulated banking system. That assessment was made difficult by generally incomplete data in this area, which we are starting to correct. But it concluded that, based on its current risk assessment and policy initiatives underway internationally – including through the FSB work on shadow banking that is coming to completion this year – it did not currently see a case for recommending changes to the UK regulatory framework. I am afraid, for financial stability, that is as good as it gets. The financial sector evolves at a phenomenal speed. Risks can change and build very quickly. | 1 |
However, it would be odd indeed if a regulator (or a firm for that matter) were to change their view of conditions in the real world because of a change in regulatory regime. Clearly, despite the lofty ambitions of European legislators, the move from Solvency I to Solvency II doesn’t change how long people will live for, or the probability of a North American windstorm. So our beliefs about the nature of the risks to which insurance companies are exposed will persist as we move into the new regime. But the regime requirements are different, and we will embrace that change. People should not confuse these two things. Adapting to the new regime Solvency II introduces some important reforms to modernise the regulatory regime for insurers in the UK. But a sudden implementation of these changes by firms, and particularly on the life side given the introduction of the risk margin, is unlikely to promote either of the PRA’s objectives of safety and soundness and policyholder protection. We believe the opposite – that an orderly transition should support those objectives, because much life insurance business (and particularly those lines of business most impacted by the risk 1 2 Fuller explanation of the new Solvency II regime BIS central bankers’ speeches margin) is long-term in nature. This business will continue to exist – and will therefore be regulated – under the new regime, despite having been priced on a set of assumptions derived under the existing regulatory regime. | It is based on sound principles, such as market-consistent valuation of the balance sheet and a risksensitive approach to determining capital – many of which are embedded within Solvency II. The success of these principles was demonstrated by the resilience of the sector during 2008 But Solvency II moves beyond our current regime. So although there has been no change in our view of the type of risks that firms are exposed to, and we do not intend to use Solvency II to increase the aggregate level of required capital across the industry, this is not the same as saying that the surplus capital positions of individual firms will not change with the arrival of Solvency II. It is a different regime, with a different shape to ICAS. Firms will therefore see movements in their regulatory capital positions. For some firms these positions will be tighter, for others looser. This brings me to the second myth: that we intend to re-create the ICAS regime under the guise of Solvency II. Let me be clear: Solvency II will be the foundation of our supervisory approach and we will fully embrace the change that accompanies it. Although Solvency II BIS central bankers’ speeches 1 incorporates many of the features of ICAS, the shape of the new regime is different. The EU is moving to a harmonised, risk-based, transparent, and “going concern” regime. This means some significant changes to the shape of the balance sheet and our assessment of financial resources. | 1 |
The National Bank of Romania invites you to an anniversary concert performed by exceptional artists of the “George Enescu” Philharmonic Orchestra, conducted by the renowned conductor Horia Andreescu. We will also be delighted by the talent and virtuosity of a young pianist, Andrei Licareţ. All these artists will give us a great joy in this splendid hall of the Romanian Athenaeum with a programme comprising well-known musical compositions from the national and international repertoire, selected from the “Eastern flank” of the European Union: Enescu, Smetana, Chopin, Bela Bartok, Grigoraş Dinicu. I thank you once again and I invite to take the floor Mr Jean Claude Trichet, the President of the European Central Bank, a close friend of the National Bank of Romania. 2 BIS Review 114/2010 | Thanks to productive collective action by the private sector in dialogue with U.S. and international authorities, an initial set of 18 GSIBs and other large dealer banks have adhered to the 2014 International Swaps and Derivatives Association (ISDA) resolution stay protocol covering OTC bilateral derivatives in connection with last year’s G-20 summit. Under the protocol, counterparties agreed to the cross-border enforceability of existing statutory stays on resolution-related early termination and other default rights in OTC bilateral derivatives contracts. With support from the U.S. and other key jurisdictions, the FSB subsequently called on all GSIBs and other firms with significant derivatives exposures to adhere to the protocol by the end of 2015. In addition, the FSB requested that such contractual terms be incorporated into other financial contracts with resolution-related termination features−such as contracts relating to repo and securities lending arrangements. This goal has been accomplished this past week, and represents another positive milestone in improving cross-border resolvability. Importantly, both the proposed U.S. long-term debt requirement and provisions in the resolution stay protocol support resolution under both Title I and Title II of the Dodd-Frank Act. While we should recognize the extent of progress that has been made to set the basic foundations for the cross-border resolution of a GSIB, it is equally important in my view to recognize the significant challenges that still remain, and the important work that still needs to be carried out by both firms and authorities. | 0 |
Jean-Claude Trichet: A few remarks on communication by central banks Keynote address by Mr Jean-Claude Trichet, President of the European Central Bank, at the 25th HORIZONT Award Ceremony, Frankfurt am Main, 16 January 2008. * * * Ladies and gentlemen, It is with great pleasure that I have accepted the invitation from HORIZONT on the occasion of the 25th anniversary award ceremony. I am honoured to see so many distinguished guests from the German media and communications industry in the audience. The longstanding tradition that this event enjoys demonstrates that media and communications play an important role in all aspects of modern societies, including, though perhaps more recently, that of monetary policy. In today’s address, I should like to talk about the challenges facing central bank communication, from a central banker’s perspective. International, and, in particular, European media and many other intermediaries play a decisive role in the process of disseminating information about the ECB’s monetary policy. Media coverage of monetary policy actions is an important channel of the ECB’s communication strategy, and thus an important factor for our policy’s success. In the euro area, currently comprising 15 member countries (with the accession of Cyprus and Malta on 1 January 2008) and beyond, national media have retained their important role in making the central bank’s actions and its objectives understood by national audiences. In my address, I will first elaborate on how central banks in general communicate, and then explain how the ECB addresses its audience. | 8/9 In the framework of the Eurosystem, an in-depth review of risk assessment processes is under way, aiming to ensure that all relevant factors – such as environmental ones – are taken into account for prudent central bank portfolio management. Consideration and application of these criteria is without doubt a new development, and also for central banks. In September, for instance, the Banco de España made its first green investment, participating in a fund launched by the Bank for International Settlements (BIS) that invests entirely in green bonds. With this type of initiative the Banco de España aims to include environmental sustainability goals in its reserve management. This is consistent with its membership of the NGFS, which less than two weeks ago published a Sustainable and Responsible Investment Guide for Central Banks’ Portfolio Management. Conclusions I wish to conclude by emphasising, once more, how important it is that the financial sector contribute to the collective effort that meeting the goals set in the Paris Agreement represents. The decarbonisation goals set by the Commission for 2050 pose a major challenge. 2050 may seem a long way off, but if we wish to meet these goals it is clear that the public at large, firms, banks, governments and public authorities will all have to start addressing the challenge today, with a sufficiently ambitious but also realistic approach. The path ahead, to incorporate environmental risk into internal control and management, is a considerable one and we, as supervisors, also have much work before us. | 0 |
Christian Noyer: “Noyer heralds new era for eurozone and for France” – Interview in Euroweek Interview with Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, in Euroweek “France in the Capital Markets”, 25 February 2013. * * * EUROWEEK: You were frequently quoted in 2012 as saying that the eurozone was moving in the right direction. Do you feel vindicated by the recent strength of the euro and the performance of the eurozone’s financial markets? Noyer: Things have clearly improved, but this should not come as a surprise. It’s clear that markets lagged a bit before taking stock of what has happened, but looking back, enormous progress has already been made on all levels. This is true in terms of policies aimed at the restoration of sound public finances in many, if not all, eurozone countries as well as in the field of structural reforms. For example, we have seen very extensive progress in areas like pension reforms in France and Italy, banking reform in Spain and labour market reforms across much of southern Europe and France. We have also seen great progress in terms of surveillance – not just surveillance of fiscal policies, which is a must in the context of the European monetary union, but also surveillance of competitiveness which is the basis for structural reforms. | So the concept of bail-in after all the equity holders and the subordinated debt holders have been wiped out, could involve the transformation of senior debt into equity or semi-equity in a going concern bank. In such a case, it is a very good and important concept. To my mind, bail-in should be part of the extra powers given to the supervisor. That is the only way we can reassure investors that it will be used only when it is absolutely needed to avoid a bankruptcy. That means that ultimately it is in the interests of senior bondholders to know that they won’t be penalised just because it’s beneficial for other stakeholders, but because it can’t be avoided. This is why it is essential that this power should be in the hands of the supervisor. But bail-in needs to apply to the whole of the senior debt. I’m not completely convinced that there is merit in having specific bail-inable instruments like CoCos. This is because either it makes the basis of the bail-in very restricted and may not be sufficient in many instances so that in the end you may need recourse to a second layer. Or, if it is a big amount, it can be extremely costly because of the specific risk, and therefore it may be better in that event to move directly to equity. | 1 |
This occurred, in part, because of the rise in gasoline and food prices that pushed up consumer price inflation last quarter and reduced the amount of income available for other household purchases, a pattern that continued to be evident in retail sales for April. High energy prices have contributed to weaker consumer confidence, which also may have negatively affected consumer spending. However, the weakness of real output growth in the first quarter probably will prove temporary. Although manufacturing production fell in April, largely because of supply disruptions associated with the earthquake in Japan, business survey indicators, including the New York Fed’s own Empire State Manufacturing Survey, generally continue to signal growth, suggesting that production should soon return to more robust growth. And financial conditions have continued to improve, albeit gradually. The temporary reduction in payroll taxes and other fiscal measures also are providing support to demand. In addition, demand abroad – particularly in Asia – remains robust, supporting our exports. Most importantly, the labor market has shown further improvement, as demonstrated by the latest employment report. Although payroll job growth has been subdued during most of this recovery, the latest figures show the economy added 244,000 jobs in April – and an average of 233,000 over the past three months. While the unemployment rate – which is based on a different survey – ticked higher last month to 9 percent it is nonetheless 0.8 percentage points lower than it was in November, a relatively rapid decline by historic standards. | During the boom period from 2000 to 2006, home prices more than doubled in the Poughkeepsie area and increased by 150 percent around Kingston – exceeding the U.S. rise of roughly 90 percent and the average rise of roughly 50 percent that prevailed in our region. The price declines in the bust period, from 2007 to 2009, were somewhat less severe than the nation, falling by roughly 20 percent in both areas, compared with 30 percent nationally. Recently – and this is a hopeful sign – home prices in both areas have steadied. Next, how are families in the Hudson Valley doing in restoring their finances? During the recession, all across the nation, debt delinquencies soared and many families found that they needed to reduce their debt to a sustainable level. We keep track of the credit conditions in the Second District – including the average debt that people in area carry and whether they are current with their payments – using the Federal Reserve Bank of New York’s Consumer Credit Panel. In the Hudson Valley, debt per person with a credit report is now down by 5 percent from its peak level in 2008. As of the first quarter of this year, debt was continuing to fall modestly. At the same time, delinquency rates continue to rise. The proportion of debt that is at least 90 days delinquent has risen from 2 percent in 2005 – which was low for New York – to 9 percent currently, matching the delinquency rate statewide. | 1 |
These trends are being further supported by enhanced linkages in the payment systems to facilitate the intermediation of funds in the region. The economic transformation of Malaysia will move us to the next level of development. Malaysia has been a middle income country for almost three decades, having benefited considerably from rapid industrialisation and integration with the global economy. Moving into the next stage of economic development, the domestic economy will change to a productive structure that is more innovation-driven and knowledge-intensive, with the services sector assuming an increasingly dominant role in the economy. In this next decade, the services sector is expected to account for about two thirds of the economy, with growth focused on higher value added activities. To support and drive this transformation, a new blueprint for the financial services sector is being developed by Bank Negara Malaysia. The blueprint will chart the next phase of the evolution of the financial sector, with the aim of positioning the financial sector, including Islamic finance, not only to become a catalyst to the transformation process, but also having the flexibility to respond to the key trends that are emerging. In essence, we need to evolve a financial system that best serves Malaysians in this new environment. As the global financial services industry going forward strives to regain thrust and confidence, the starting point in Asia is to build on the solid foundations put in place during the decade following the Asian financial crisis. | First, domestic demand, supported by the large and fast-growing middle income and young population in the region, will increasingly have a greater role in driving economic growth in Asia. This would contribute towards a greater balance between domestic and external sources of growth. Second, the diversification of external markets will accelerate, towards greater economic inter-linkages with emerging economies in other parts of the world. Part of this trend includes the creation of the ASEAN Economic Community by 2015 in which ASEAN will transform into a single market with free movement of goods and services. This will include the lifting of restrictions to the flow of capital in the region. And third, is the greater financial integration within Asia that will result in an increased part of the savings in Asia being reinvested in Asia. The new spending patterns as incomes rise in the region will drive the modernisation of the retail sector across the region. Financial services to the household sector will become increasingly important in this new environment. Reforms to pensions and retirement benefit systems will be key to providing a more comprehensive social safety net, thus reducing the need for high precautionary savings and encouraging consumption. In addition, the large trade sector in Asia and large capital investments required to move towards higher valueadded activity will also provide an expanding market for financial services. The more regionally integrated financial system will allow firms and investors increased options in the regional financial markets for financing and investment. | 1 |
Together, these developments bode well for the macroeconomy, suggesting that U.S. households can return to more normal patterns of borrowing to smooth consumption and to invest in autos and houses. Still, despite the return to more normal patterns of borrowing, it is worth pondering the significance of the recent change in the composition of household debt as student loans have grown to be the second-largest category of household debt after mortgages. While these loans provide critical access to schooling, they may constrain the consumption choices of young people, especially those who graduate in periods of poor employment prospects. BIS central bankers’ speeches 7 8 BIS central bankers’ speeches BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches BIS central bankers’ speeches 13 14 BIS central bankers’ speeches BIS central bankers’ speeches 15 16 BIS central bankers’ speeches BIS central bankers’ speeches 17 | SPEECH The path ahead Speech by Christine Lagarde, President of the ECB, at “The ECB and Its Watchers XXIII” conference Frankfurt am Main, 22 March 2023 The euro area has been hit by an inflation shock, which is now working its way through the economy. While headline inflation is likely to decline steeply this year, driven by falling energy prices and easing supply bottlenecks, underlying inflation dynamics remain strong. In such an environment, our ultimate goal is clear: we must – and we will – bring down inflation to our medium-term target in a timely manner. But to achieve this goal we need a robust strategy, which takes into account the high levels of uncertainty we are facing today. As John Maynard Keynes once observed, “it would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain”. In current conditions, a robust strategy calls for a data-dependent approach to making policy and a clear reaction function so that the public understands the sources of information that will be important to us. To that end, our future policy path will be determined by three factors: our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. At the same time, I have made clear that there is no trade-off between price stability and financial stability. | 0 |
Evidence shows that, apart from their medium-term effects, structural reforms may have significant favourable effects in the short term, in so far as their introduction may make agents more confident that the foundations for growth are being made more solid and flexible. Such an improvement in expectations may also help to bring forward certain spending decisions, such as investment projects aiming to exploit the new opportunities that these structural changes may give rise to in the future. Now is therefore the time to stress the essential role played by the institutional framework and policies that provide incentives to facilitate economic adjustment. In this respect, as I have already mentioned, obviously not all agents have the same degree of responsibility when facing a period of difficulty, the authorities being the main agents responsible for shaping this combination of positive incentives. Given that the decisions of the private sector (households and firms) depend significantly on the institutional framework and incentives, their role in the adjustment (especially that of households) is highly constrained by the framework in which they operate. This is perhaps the main thing that the authorities should take into account in their response to a period of economic difficulties, both when managing budgetary policy and when designing their regulatory and market-organisation policies. It is necessary to analyse, at all times, whether the policies proposed provide the appropriate incentives for agents to adapt to the adjustment, increasing the probability that the economy will return to a growth path in the medium term. | The cost to income ratio of the Cyprus Banking Sector, which amounts to 76 percent as at June 2022, is significantly higher than the respective EU average of 63 percent. Investment in technology can become the catalyst in the effort to strengthen efficiency and build sustained profitability, which will ultimately bridge the gap with the rest of the EU area banks. The second challenge relates to the risks of climate change. The ongoing effort to reduce the dependence on Russian energy may increase the transition risks and as such banks must enhance and adapt their climate risk mitigation strategies. The fact that certain banks have started making tangible steps in this regard is a positive development, but they are still early on the learning curve and behind their European peers. They must act faster and more decisively to meet our expectations of incorporating climate-related risks into their overall risk management frameworks, which will ultimately also target their clientele and the submission of detailed climate related information in order to feed the banks' risk management processes. Professional accountants also have an important role to play in this overall transformation of the economy by providing relevant advice to their customers to set up the appropriate management information systems that could enhance the relevant disclosures. And this takes me to the third challenge which is the overall interaction of credit institutions with their clientele. It is in the interest of both clients and banks to cultivate a relationship of mutual respect and trust. | 0 |
This trend has leveraged on the respective comparative advantages in countries of the region. Malaysia 's distinct capabilities in a wide number of areas has increased its participation in this process. In addition, increased economic integration following the rise of intra-regional trade and investment has brought mutually reinforcing benefits in terms of the expanding regional opportunities. The strengthened corporate sector has also led to increased direct investment abroad by Malaysian companies. Going forward, developments in the Malaysian economy will also benefit from the Ninth Malaysian Plan. A major strength of the Malaysian economy has been its economic flexibility. Significant changes in the structure of the economy continues to take place. The manufacturing sector has continued to move up the value chain while the services sector has gained increasing prominence, with its share of GDP rising from 45% in 1995 to almost 60% today. The role of private consumption in the economy has also been enhanced, supported by steadily rising incomes, low unemployment, and access to the financial system. Of importance is the recovery of investment activity. In addition, the small and medium-sized enterprises (SMEs) have increased their role in the domestic economy. New areas of growth are also emerging, ranging from the shared services and outsourcing industry to agrobusiness, biotechnology and Islamic finance. The flexibility of the economy to continually adjust to new areas of activity has been an important factor contributing to the dynamism of the economy. About a year ago, Malaysia took the opportunity to transition into a more flexible exchange rate regime. | This would also include new growth areas such as micro-financing or agricultural lending. The aim is to produce niche players delivering specialized value added products and services that will be able to cater towards specific segments of the market and over time, and thus develop a more comprehensive financial system that would contribute towards the development of a more diversified economy. Given the background of emerging economies, the transition to a more liberalised environment would indeed demand appropriate sequencing of measures and careful management of the liberalisation process that are guided by broad principles that would ensure that there are benefits and opportunities brought about by the liberalisation process. The financial sector is an important and strategic sector that has a significant role in supporting the economic growth and transformation. Liberalisation needs to commensurate with the pace of economic development and strength of the regulatory structure to avoid destabilising effects on the stability of the financial sector and the overall economy. Key considerations for the strategic opening up of the financial sector would be to steer the financial sector towards increased competition whilst ensuring domestic financial institutions are not marginalised by the liberalisation process. Liberalisation should instead serve as a catalyst for domestic banks to further improve their performance and enhance efficiency and capabilities in order to sharpen their competitive edge and elevate themselves to a level that is at par with the international players. | 1 |
Some central banks tried to target monetary aggregates, others to peg nominal exchange rates, and others to use an eclectic mix of indicators. Two decades ago, some central banks started conducting monetary policy targeting a specific value or range for the rate of inflation. This trend started with New Zealand in 1990, and was followed by Canada, the United Kingdom, Australia and Sweden in the early 1990s. This is a case in which policy development led academic advances. Progress in the academic front provided further impetus to the adoption of inflation targets as new models were developed to provide the theoretical underpinnings of inflation targets and the basis to conduct empirical work (Galí and Gertler, 2007). BIS central bankers’ speeches 1 This view was further justified by the success of monetary policy around the world in providing stability, not only in the inflation front, but also in activity and employment. The evidence that output volatility declined significantly in the US since the mid eighties was first reported by Kim and Nelson (1999), and later called the Great Moderation by Stock and Watson (2003).1 Several factors could be behind this fact, such as technical progress, better policies, deeper financial markets, and sheer good luck. Although there is no final verdict, there is evidence that points to the role of better macro policies (Galí and Gambetti, 2009). | In addition, the latitude of changes in regulation is much more limited than that of interest rates. A more constructive approach may be to design rule-based countercyclical regulation with a clear purpose to minimize the risk of financial crisis. Nevertheless, we still need to learn more about the interactions between monetary and financial policies. Final remarks A natural reaction to a crisis is to think that everything is wrong and that all must be changed. Emerging markets, and in particular Chile, performed well during the crisis, and above all during the recovery. Therefore, a first lesson must be on the factors that produced these good results, and macroeconomic management was certainly central to the rapid recovery. The financial system was resilient, which shows that the regulatory framework was appropriate. However, our role is not to congratulate ourselves for our achievements in the past, but to look at strengthening our macroeconomic framework. As development proceeds, new challenges arise due to financial innovation, and it is extremely important to look for lessons while the crisis unfolds, to take advantage of financial development without risking financial stability. There is a need to study the interactions between monetary and financial policies further, especially given the challenges stemming from the global outlook. Implementing monetary policy in a flexible inflation targeting framework has shown its benefits; incorporating financial frictions and the appropriate policies should help us to navigate better in a very uncertain world. | 1 |
However, unlike regulations or supervisory standards, compliance with the best practice standards developed by our committees is not mandatory for the broader market. Furthermore, there may be instances where implementation may vary given the diversity of entities in the market and the different profiles of market engagement. This is particularly relevant for the global FX market, with its range of market participants. 21 Central banks play an important role in convening industry stakeholders to develop high standards of behavior that promote fairness and integrity, and in pushing the industry to affirm them. Nonetheless, central banks are not acting as regulators when they sponsor these committees, even when they have relevant regulatory powers. Since best practice standards that are articulated by the committees that we work with are not, in and of themselves, binding, promoting their adoption is both challenging and important. We work on a number of fronts in this effort. We strive to engage a wide diversity 18 See “The Introduction of the TMPG Fails Charge for U.S. Treasury Securities” for more information. 19 The New York Fed has organized workshops and conferences on reforming culture in the financial services industry. Additionally, several executives have spoken publicly on the topic. See here for more detail. 20 The G30, the Basel Committee, the European Systemic Risk Board, and the FSB have issued papers on culture, governance, and misconduct risk. The Bank of England’s Fair and Effective Markets Review called for higher conduct standards for the fixed income markets. | The central bank of the Netherlands – De Nederlandsche Bank – has developed new approaches for the supervision of corporate culture and decisionmaking. 21 The MPG is working with the BIS FXWG to develop market-based adherence mechanisms for the FX Global Code. 6 BIS central bankers’ speeches of market participants as we develop best practices. This is to ensure that the practices reflect all relevant segments of the market and to promote buy-in and thus foster their adoption. As I mentioned before, both the TMPG and the FXC are expanding their membership such that a range of market participants feels vested in their missions. In addition, we engage with other sectors of the marketplace, such as trade associations and infrastructure providers, to educate them about best practices that have been developed and facilitate their potential adoption of aspects of them. When central banks operate in the markets ourselves, we expect the best practices to apply. This has two aspects. First, we align our own practices to the best practices, except where it would inhibit our policy functions. As a corollary, we expect those institutions that choose to become our counterparties to comply with the best practices as well, so that when we transact, we do so with the confidence that our counterparties are adhering to these standards of behavior. Finally, we keep supervisors, regulators and other official sector bodies, inside and outside our four walls, abreast of the work of our committees. | 1 |
Within this framework, compared to the previous report, the revised forecasts are based on a deeper contraction in 2009, and a global recovery that will be visible by mid-2010, rather than at the beginning of 2010. I would like to clarify that the word “recovery” in this Report refers to “a significantly positive growth in economic activity in year-on-year terms”. 14 BIS Review 67/2009 Table 3: Forecasts for Annual Growth 2009 2010 Previous Forecast New Forecast Previous Forecast New Forecast IMF World 0,5 -1,3 3,0 1,9 Developed Countries -2,0 -3,8 1,1 0,0 USA -1,6 -2,8 1,6 0,0 Eurozone -2,0 -4,2 0,2 -0,4 Developing Countries 3,3 1,6 5,0 4,0 Total OECD -0,4 -4,3 1,5 -0,1 USA -0,9 -4,0 1,6 0,0 Eurozone -0,6 -4,1 1,2 -0,3 World -0,2 -2,1 2,0 1,9 USA -1,8 -2,7 2,3 1,8 Eurozone -1,4 -3,4 0,8 0,3 OECD Consensus Forecasts Source: IMF World Economic Outlook, January and IMF World Economic Outlook, April. OECD Economic Outlook, 2008/II, December and OECD Economic Outlook, Interim Report, March. Consensus Forecasts, January and Consensus Forecasts, April. | Jean-Claude Trichet: Introductory remarks at ETUC Congress Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the 11th ETUC (European Trade Union Confederation) Congress, Seville, 22 May 2007. * * * Let me begin with a few remarks about the importance of price stability for the welfare of euro area citizens. The successful maintenance of stable prices and longer-term inflation expectations that are securely anchored at levels consistent with price stability is a necessary condition for attaining sustainable growth in economic activity and sustainable employment creation. Looking back over the period since the euro was launched euro area inflation has indeed been very close to 2% on average. Stability-oriented monetary policy has therefore directly improved the well-being of euro area citizens, inter alia, by supporting the purchasing power of their income and savings. While single monetary policy continues to deliver on its mandate, the euro area economy also faces significant challenges that point to the need for structural reforms. Among these challenges, improving the productivity performance of the euro area is particularly important: at the level of the euro area as a whole, the average annual increase of labour productivity declined from 1.6% between 1991 and 1998 to 0.8% between 1999 and 2006, whereas it increased in the United States from 1.3% to 2.2%. Pursuing structural reforms is also essential to maintaining the competitiveness of the euro area as a whole and to translating the opportunities brought about by globalisation into achievements. | 0 |
Barbon developed the argument that wealth creates demand and he extolled conspicuous consumption: he wrote that “a poor man wants a Pound; a rich man a Hundred”. Clearly, Barbon never quite imagined that one day investment bankers would take his idea to a whole new level. And, finally on Barbon, he was around at the time of the founding of the Bank of England. Indeed, the records suggest that he very much wanted the Bank of England not to be founded, and instead that his own idea of a national Land Bank should have received the favour of the Crown and Parliament. That did not happen, and so I guess that Barbon would not be happy on finding out that the Bank of England will, over three hundred years later, take on regulating his industry of insurance. But then his writings suggest that Barbon was no fan of regulation. From my perspective this is a very exciting time because after nearly three years of work on a wide range of subjects covering the legislation, the new model of prudential supervision, our staff, property, IT and other things, we can see the new Prudential Regulation Authority starting to take shape for real. We are in the process of moving into our new home at 20 Moorgate. There were several reasons why we chose a City location. | The nagging concern is whether this determined pursuit of macro-economic stability will be maintained - whether in fact the degree of macro-economic convergence that has been achieved is likely - in the terms of the Treaty - to be “sustainable”. A particular worry is that macro-economic stability, on its own, is not enough. It has not been enough to prevent the progressive emergence of very high, and very different, levels of unemployment in a number of the major Continental European economies. Unemployment has been for some considerable time, and it remains, much the most urgent and important economic issue confronting us in Europe. I do not suggest for a moment that the right answer would be to abandon macro-economic discipline and revert to old-fashioned demand management policies. In anything other than the very short term that would be likely to make matters worse. I share the broad consensus view that Europe’s unemployment problems originate essentially in rigidities on the supply-side of the economy. The point is that unless we are all more successful in bringing down this structural unemployment, through micro-economic policies designed to improve structural, supply-side flexibility, then some countries could find it difficult to continue to live with a common macro-economic discipline without significant tensions. | 0 |
We must not forget that inflation forecasts are made under great uncertainty and that inflation is affected by unpredictable factors. Nevertheless, during the 10 years we have employed inflation targeting, the average inflation rate has remained very close to the target level. To summarise, we can observe that the growth rate for 2003 was weaker than we had expected in 2002. The inflation rate, however, was more or less as expected. It is possible that we became slightly too pessimistic with regard to economic activity in 2003. When we made our monetary policy decision in December the international upturn appeared to have been confirmed, and there were also signs that the Swedish economy was strengthening. Inflation had developed roughly as we had calculated in earlier forecasts. Although energy prices did not fall as far as we had calculated, domestic inflationary pressure excluding energy prices proved to be lower than expected, probably because of the weak labour market development and good productivity growth. The falling import prices had an even more significant effect on inflation. We assumed in our inflation forecast for the coming years that import prices would cease falling and instead begin to rise gently as international economic activity improved. The forecast for domestic cost pressure was adjusted slightly downwards as this was expected to show only a slight increase during the forecast period. | • The management of the Fund is delegated to Norges Bank. The Bank’s task is to implement the investment strategy and exercise ownership rights. Norges Bank also provides professional advice to the Ministry on investment strategies. Norges Bank has built an organisation with emphasis on investment returns and based on three fundamental principles: Accountability, transparency and professional standards. Norges Bank manages parts of the funds internally, while parts are managed by external managers appointed by the Bank on a commercial basis. Transparency and disclosure of information are key features of the Fund. All investment principles and guidelines as well as strategic advice and second opinion reports are made public. We publish quarterly reports on Fund performance, which are presented at press conferences. The Fund’s annual report discloses a list of every single investment held at the end of the year, and also provides an overview of corporate governance work, including voting at general meetings. Initially, transparency was aimed at building confidence among Norwegians, but we have also seen that our policy of transparency is highly appreciated internationally. The Fund’s investment strategy is to maximise financial return with moderate risk. The longterm strategic allocation is defined in terms of a benchmark portfolio, which consists of equities and fixed income instruments. Equities account for 60 per cent of the Fund's strategic benchmark portfolio, while fixed income instruments account for 40 per cent. | 0 |
However, there are lessons and experiences on many different levels and my intention is instead to apply the more unpretentious strategy of “starting in my own backyard”. More specifically, what I intend to do is to review three aspects concerning developments in Sweden since the financial crisis, give my personal reflections on them and indicate what lessons I think there are to learn. Such a review need not be as self-indulgent and provincial as one might fear, but should be of rather general interest. There are clear links between developments in Sweden and the current international debate on monetary policy. Furthermore, Sweden has for some reason often been one of the first countries to face various new situations that have had to be dealt with. And even though other countries have yet to encounter the challenges already faced by the Swedish economy, they may have to do so sooner or later. 3 The three aspects I would like to discuss are the following: • The Riksbank is one of relatively few central banks that have explicitly used the policy rate to try to counteract the build-up of financial imbalances – a policy that is usually called “leaning against the wind”. It is probably the only central bank that has had to abandon this policy, temporarily at least, in order to focus fully on the inflation target. | In the four years since our last gathering, we were hit by a sequence of global shocks, unprecedented in their diversity and density of occurrence – first the pandemic, then the energy crisis, the full-fledged war on European soil and the refugee crisis, and all coupled with the long-standing and ongoing climate crisis. These shocks further triggered some major structural changes – the pandemic speeded up digitalization and changed the working habits all over the globe, but also led to severe global supply disruptions. On top of that, the war led to global trade and investment fragmentation, 1/4 BIS - Central bankers' speeches and further exacerbated inflation pressures, thus forcing the central banks to aggressively raise interest rates. Quite a different world than when we last met here on a similar occasion. As stressful and demanding these recent years have been, for policymakers and economists they were also a lifetime opportunity for learning important lessons. In times like these we often say: "Don't waste a good crisis.". From each and every of them we can learn something and by doing that we can benefit. When it comes to these recent crises, I would highlight three key lessons we should take away – resilience, adaptability, and cooperation. First, on resilience. We live in an increasingly shock-prone environment in which unpredictability is becoming the norm. Who would have thought in 2019 that we would have a pandemics and major war in Europe in next three years? | 0 |
The NGFS have started to explore this, but more work will be needed as the impacts of climate change and the transition to net-zero start to come into sharper relief. At the Bank, the Monetary Policy Committee (MPC) recently had its first informal discussion on the macroeconomics of climate change, and climate is an increasingly important part of G7 discussions between central banks and finance ministries. But more work and discussion is needed. Specifically, there is particular value in: (1) further integrating climate and macro modelling; (2) understanding and sizing related transmission channels; (3) going beyond the aggregate impacts to understand sectoral implications; and (4) assessing how the transition might affect the demand and supply sides of the economy. What is increasingly clear is that the effects of climate 3 See A first assessment of financial risks stemming from climate change: The main results of the 2020 climate pilot exercise, ACPR, May 2021 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 change and the transition to a net-zero economy will manifest over time - so analysis needs to span the short, medium and long-term to capture fully these effects. Let me now turn to how we are embedding climate risk management in the financial firms that we regulate. We have worked to deepen our understanding of risks to the financial system and build resilience to climate change both at the macro and micro prudential level. | In addition, this year COP26 has an ambitious agenda that spans all of the areas that I have spoken about today – in particular establishing a better understanding of best practice, and fostering greater technical cooperation. The Glasgow Financial Alliance for Net Zero (GFANZ)12 initiative will do this by bringing together over 160 firms (responsible for assets in excess of $ trillion) for the first time. Such technical collaboration and cooperation is no less important among central banks and supervisors. The NGFS with the scope of its membership is key to that exchange of knowledge. The Bank has widely shared what we have learnt and we will continue to do so.13 The creation of the Central Banks’ and Supervisors’ Climate Training Alliance (CTA) will also further support technical cooperation and assistance on climate risks. Let me conclude. In spite of the Covid-19 pandemic, central banks have continued to make progress in responding to climate change, but we know there is still work to be done. The next stage of our journey will require us to deepen our analysis, evolve our approaches and further our collaboration. The coming year will be critical for all of us on this journey – in allowing us to better convert climate change risks into something that we can tackle for real. 12 13 See New Financial Alliance for Net Zero Emissions Launches, UNFCCC, April 2021 See Centre for Central Banking Studies, Bank of England 7 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 7 | 1 |
SPEECH DATE: 31 May 2017 SPEAKER: Deputy Governor Cecilia Skingsley VENUE: SEB, Stockholm SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 [email protected] www.riksbank.se The central bank in an innovative and fast-paced world1 On 22 July 1668, a Stockholm court sentenced a bank director to death. The bank director’s name was Johan Palmstruch, and he was the founder of the first bank in Sweden, Stockholms Banco. A few years earlier, Stockholms Banco had suffered an acute liquidity shortage when a confidence crisis arose regarding the banknotes issued by the bank. When the bank was unable to pay its depositors, it was simply taken over by the then Riksdag of the Estates, and later became the precursor to Sveriges Riksbank. Palmstruch was thus condemned to death unless he reimbursed the bank's creditors, which he of course was unable to do. The Council of the Realm eventually converted the death sentence into a prison sentence. And later, after the Chancellor Magnus Gabriel De la Gardie rushed to the defence of the deposed banker, Palmstruch was finally granted a pardon. De la Gardie also happened to be one of the bank's largest borrowers. It was possibly the Chancellor's guilty conscience that made him advocate milder treatment of Palmstruch. Not long after he was released, more precisely on 8 March 1671, Palmstruch died of natural causes. | This can in turn give rise to an acute threat to financial stability and ultimately to the economy as a whole – not only in Sweden but also in our neighbouring countries, where Swedish banks have operations. Via FX swaps which have maturities of different lengths. These must be renewed gradually and their prices alter. 6 5 [14] There is a process consisting of many stages behind the lending for Swedish mortgages and corporate loans. In this process, both the Swedish banks and their counterparties on the foreign exchange market are dependent on the funding in foreign currency functioning constantly. Different currencies in the banks’ balance sheets (a simplified example) How can we then best manage the banks’ increased liquidity risks in foreign currency? A natural starting point is that the banks – just like other private commercial actors – should manage their liquidity risks themselves. They therefore need to insure themselves by having enough liquidity reserves and sufficiently stable funding in foreign currency. This reduces the risk that the government will have to intervene in the event of a crisis. Hopefully, it also gives the authorities a little more time to take in the whole situation and to find an appropriate solution if problems nevertheless arise. A liquidity buffer can to some extent also be regarded as a “deductible” that can at least on the margin reinforce the banks’ incentives to manage their liquidity risks. | 1 |
So much so, that their journey towards an open capital market has seemed, at times, a nightmare. The core of the problems faced by a number of emerging markets has been the sharp reversal of capital flows. Between 1996 and 1998, the reversal of capital flows to the five Asian countries primarily affected (Korea, Thailand, Indonesia, Malaysia and the Philippines) was of the order of $ billion, equivalent to 12% of the pre-crisis level of GDP. These reversals imply equal and opposite swings in the current account. To turn a large current account deficit into a substantial surplus within two years almost certainly requires a recession. In 1998 real GDP fell by 6% in Korea, by 9% in Thailand, by 14% in Indonesia, by 7% in Malaysia and by 1% in the Philippines. Moreover, the reversal of capital flows to emerging markets means that the industrialised countries must in aggregate run a larger trade deficit. The distribution of that increase in the collective deficit has already led to a debate about domestic policy, making it harder to resist the ever present protectionist pressures, especially in election years. So rapid reversals of capital flows bring substantial economic costs. Capital flows also bring real economic benefits. They enable savings in one country to finance more profitable investment in another. That was a key feature of the world economy in the nineteenth century. Such flows also facilitate the transfer of knowledge and expertise. | Seeing the extensive works put on by our staff and partners and many prominent leaders and individuals in attendance this morning make me certain that we are on the path towards fulfilling our goals. Ladies and gentlemen, To attain the overall improvement in productivity, immunity, and inclusivity, the Bank of Thailand is committed to supporting adoption of financial technology by financial institutions and promoting fintech innovation while ensuring that key risks can be contained. Throughout the next two days I look forward to personally interacting with all participants, to learn and find ways we can collaborate for the benefits of the Thai and regional financial industries and our fintech ecosystems. Thank you very much for participating in our very first Bangkok FinTech Fair. I wish you all a successful and fruitful event. 7-7 | 0 |
Against this background, the step we are taking today, which is designed to intensify the exchange of views between the authorities and the financial services industry and to deepen the examination of common concerns, assumes even greater importance. Participation in the work of the Forum for Financial Stability should, therefore, prove to be of mutual benefit. From the point of view of the Central Bank of Malta, it should also enable us to refine our analytical work, whose conclusions have since 2009 been published in our annual Financial Stability Report and the mid-year Update. The Report contains insights into the main vulnerabilities of the domestic financial system and into any latent risks, whether in the system itself or in the external environment. It also assesses the robustness of the financial 2 BIS central bankers’ speeches system and its resilience to particular stress events. By publishing its findings, the Bank aims to foster a constructive dialogue among all stakeholders with the ultimate objective of strengthening the financial system. The quality of the Bank’s assessments, however, depends on access to timely and reliable market intelligence. For, while the statutory data submitted regularly by reporting institutions is thoroughly analysed, this is insufficient to provide a holistic assessment of emerging risks. Financial stability is a forward looking concept. Risks, moreover, may materialise suddenly or with little warning. This is where market intelligence plays an important role. | We have jointly undertaken a series of “constrained” bottom-up stress tests across a number of banks and last year we participated in the EU-wide stress test stress test. This year the Bank is assisting the MFSA in the stress test exercise being conducted by the newly established European Banking Authority. Together, the Bank and the MFSA now need to build upon this positive track record. The recent changes in the nature and size of the domestic financial system and in the external environment with which it increasingly interacts, in fact, suggest that the time has come for the existing model of cooperation to be further refined and strengthened. The need to increase the effectiveness of the institutional arrangements for the preservation of financial stability is also related to Malta’s aspirations to consolidate its position as a successful financial centre. The financial services industry has grown considerably, particularly since EU membership in 2004. Today there are 25 licenced credit institutions, 14 of which with a majority shareholding from other EU countries. But the fastest growing sector has been the funds industry, with more than 400 funds registered, many having redomiciled from other jurisdictions. There has been a similar growth in the insurance business with 50 operators here today. In the process, Malta has become a very important centre for captive insurance in the EU. This increased visibility brings with it the responsibility to ensure that our financial system does not serve as a channel through which risks are transmitted to other countries. | 1 |
The G-7 intends to continue to review the topic of HLIs, which will be of assistance as we urge countries to implement sound practices in this area. I would not want to characterize or opine upon the efforts of any one jurisdiction; many countries’ efforts, like ours, are underway only recently and need time to develop and take hold. There probably will be differences in the degree to which supervisors in different countries address the questions I have discussed today – if only because the intensity of HLI activities varies among countries. But on the whole, I believe that supervisors in major countries will follow up on the recommendations issued by the Basle Committee. BIS Review 36/1999 4 Direct Versus Indirect Methods of Addressing HLI Safety and Soundness Many governments have considered or will consider the advantages and disadvantages of imposing direct regulation on the HLI industry. The Basle Committee report discussed that issue and concluded that concentrating on the behavior of banks and other counterparties doing business with HLIs would yield effective and more immediate results. A common element of many HLIs is that they are structured in ways that minimize their exposure to supervisory oversight and costs. Thus, many have chosen to organize themselves legally in jurisdictions that offer modest supervision and low taxes. Am I pleased that so many HLIs are organized legally in what many would characterize as tax havens? No. | At the same time, the rising importance of services has impinged on the inflation process. Services prices tend to be more rigid than goods prices because they embody a larger share of labor input, and wages tend to be sticky. This may have contributed to inflation having become more persistent. At the same time, the digital revolution has driven the prices of many modern services, such as telephone calls, news, and entertainment to essentially zero. 4 The upshot is that the link between inflation and domestic measure of economic slack, as traditionally captured in the Phillips curve, has weakened and disappeared altogether in some cases. In terms of growth, slowing global trade and the rise of services implies slower and less capital intensive economic growth. For highly open economies, slowing world trade has undermined export as a growth engine. At the same time, the transition to services has also contributed to the growth headwinds given that modern services is less labor and capital intensive than manufacturing. Think of Google’s 40,000 workforce compared to General Motors’ 800,000. Or the fact that Uber is the world’s largest provider of auto transport without owning any cars. Or that AirBNB is one of the world’s biggest provider of accommodation without owning a single hotel. Given that investment is a relatively interest rate sensitive activity, to the extent that the transition to services has dampened investment, it may have also made the economy less responsive to monetary policy. | 0 |
Another positive development for both the U.S. and the global economy is the sharp decline in energy prices. Let’s start with the U.S. perspective. Despite the impressive recent gains in natural gas and crude oil production, the U.S. still is a net importer of energy. As a result, falling energy prices are beneficial for our economy. In economist parlance, falling energy prices are a positive “terms of trade” shock for the U.S. Over the near-term, this will lead to a significant rise in real income growth for households and should be a strong spur to consumer spending. Since energy expenditures represent a higher proportion of outlays for lower income households, falling energy prices disproportionately raise their real incomes. Also, because such households are more liquidity constrained, with budgets that often bind paycheck to paycheck, they have a higher tendency to spend any additional real income. As a result, much of the boost to real household income from falling energy prices is likely to be spent, not saved. More broadly, the decline in energy prices also will be supportive to the global growth outlook in two other ways. First, by pulling down inflation in many countries it will spur more expansive monetary policy. We are already seeing this response in Europe and Japan. Second, the decline in energy prices is also likely to ease the global fiscal stance. Over the near-term, for oil exporting governments, falling revenue will not be fully offset by reduced expenditures. | Second, when interest rates are at the zero lower bound, the risks of tightening a bit too early are likely to be considerably greater than the risks of tightening a bit too late. A premature tightening might lead to financial conditions that are too restrictive, resulting in a weaker economy and, in turn, an aborted lift-off. This would be problematic in that it would harm the Fed’s credibility and, more importantly, would be difficult to rectify. The U.S. experience during the Great Depression and the Japanese experience over the past two decades illustrate the risks of raising interest rates too soon, especially when inflation is running below the central bank’s objective. Finally, given the still high level of long-term unemployment and the outlook for inflation, there could be a significant benefit to allowing the economy to run “slightly hot” for a while in order to get those that have been unemployed for a long time working again. I believe this can be done without jeopardizing our price stability objective. If the long-term unemployed are not employed relatively soon, their job skills will erode further, reducing their long-term prospects for employment and, therefore, the productive capacity of the U.S. economy. This would be a very unfortunate outcome for them, their families and the country. Market expectations that lift-off will occur around mid-2015 seem reasonable to me. | 1 |
People with a foreign background in Sweden have found it difficult to get a foot-hold in the labour market. Employment among people with a foreign background is around 30 per cent lower on average than among native Swedes. Were the employment rate for this group to be as high as the average for Sweden's population, employment would rise by 96,000 people. Finally, the decisive factor for the labour supply is how many hours we work. The number of hours worked has fallen recently for several reasons: overtime has declined, part-time work has increased and absence to care for own children has also risen. But the single biggest reason and consequently the most serious problem in Sweden is sick leave. Both the number and length of absences due to sickness have risen sharply in recent years, thus entailing a reduction in working hours per employee. Three years ago the number of hours worked increased by 2.7 per cent. Last year the number decreased by 1.2 per cent. Larger proportion of elderly entails increased demands The age composition will place great demands on welfare services, increasing further the need for labour. In Sweden the number of people that are judged to require extensive care, i.e. those that are 85 years or older, will double up to 2035.1 This is expected to result in greater pressure on the public finances since the costs for care rise steeply in line with increasing age. | BIS Review 124/2006 3 • Anglo-saxon countries which are very good at producing financial assets have already shown enormous imbalances, with US current account deficit and housing market bubbles as the headline examples; • emergence of (long lasting) asset bubbles and drop in inflation (and possibly even emergence of deflation) are market mechanisms to bridge the asset gap; • bursting an asset bubble makes asset shortages problem worse; • while financial markets development moves ahead (think about large listings in China, improving corporate governance or rapid development of credit derivatives) it is unlikely that excess demand for assets will be eliminated soon, as it seems to have a structural origin, related to demographics (aging), or to higher uncertainty for corporations operating in more competitive global economy in XXI century, which probably explains why profits to GDP ratio is at 40-years high and investments fail to recover to pre-Asia-crisis and pre-dot-com-boom levels It does matter to what view of the world you subscribe, as it dramatically alters the subjective likelihood of competing scenarios for 2007. As PIMCO Michael Gomez puts it in September emerging markets note titled “Is it safe?” 19 : “EM has historically been vulnerable to deteriorating economic and financial conditions in the United States and other developed countries. | 0 |
The Monitor provides an overview of developments in the shadow banking sector, with focus on assessing potential risks to financial stability. It is intended to foster progress of the debate on related issues and hence targets a broad readership. The overall mission is to eliminate potential blind spots on the macroprudential map and to connect all the dots. To achieve that, we need both an analytical framework underpinned by sufficiently high quality data, and a policy framework which enables us to target risks in different parts of the financial system in a consistent manner. The resilience of a specific part of the financial system needs to be linked to its potential impact in terms of the systemic risk it could generate for the financial system as a whole. We may also need to develop a wider financial stability toolkit. This would, for instance, include |6 top-down stress tests for asset managers and central counterparties, and recovery and resolution frameworks for the insurance sector and central counterparties. The ESRB is very well placed to play one of the leading roles here, due to its mandate, the broad expertise of its membership and its inclusive working methods with a wide range of the relevant stakeholders interacting. The long and winding road from global to national regulation I have been speaking about CRR/CRD on and off here for the past few minutes, but let me just elaborate a little bit more from another angle. | Malaysia's Islamic finance journey Let me now turn to Malaysia's journey in the development in Islamic finance. Islamic finance in Malaysia first started as a strategy for greater financial inclusion, so as to have a greater outreach to the underserved segment of society to basic banking and insurance products that are compatible with Shariah principles. After three decades, the Islamic financial industry in Malaysia has evolved as an integral and competitive component of the overall financial system that operates in parallel with the conventional financial system. The Malaysian Islamic financial system is founded on three major strategies. Firstly, the Islamic financial system has been evolved as a comprehensive financial system that is diversified in terms of its institutions, markets and players. The Islamic financial system comprises the Islamic banking institutions, the takaful industry, the non-banking institutions and the Islamic money and capital markets. The supporting financial infrastructure includes the robust regulatory and supervisory framework that is reinforced by the legal and Shariah framework, the payment and settlement systems and the mechanism for the liquidity operations by the Central Bank. The assets of the Islamic banking system now comprise 16% of the market, while the takaful sector has garnered 7% market share. Significant progress been achieved in particular in the Islamic capital market where the outstanding amount of Islamic private securities amounted to USD79 billion or 54.3% of the total outstanding private securities in the market. | 0 |
The reliance on retail deposits has been a major source of funding for the domestic banks. These remained stable during the period of financial turmoil. In other countries, banks that relied heavily on wholesale funding sources came under severe stress as interbank markets dried up and the cost of funding increased significantly. As I mentioned earlier the Eurosystem has stepped in with ample liquidity, and the Central Bank of Malta, as an active member of the system, stands ready to fulfil its intermediation role within the local banking system. Nevertheless, it is firmly my view that domestic banks should continue to operate along the lines of their traditional business model. This method of doing business has certainly protected them from the vagaries of the wholesale funding market. In this context, I would like to emphasise once again that the Central Bank will not be supportive of banking institutions that operate in Malta and seek central bank liquidity as their primary source of funding their loan and investment activities. When a banking institution funds its purchase of high yielding assets from short term sources, it is not only exposing itself to losses on the asset side but also to adverse changes in its funding costs, particularly at a time when historically low interest rates are in effect. For this reason, the Central Bank expects such institutions to look primarily to the markets for their funding requirements. I am pleased to note as well that the domestic banking system continues to be characterised by relatively high liquidity levels. | For the remaining five external members, the propensity to be in the minority has been very similar to the Bank executive (excluding the Governor), with dissenting as a proportion of total votes at 12% and 11% respectively. Moreover the differences in votes have been small. On only four occasions has the difference between the highest and lowest interest rate voted for exceeded 25 basis points, and, interestingly, all four were between August 1998 and April 1999, a period of great uncertainty about whether there would be a downturn in the world economy that did not in fact materialise. Since then differences of view have 5 4 Hall (1971), “Decisions, decisions, decisions”, Psychology Today, November. BIS Review 34/2002 never exceeded 25 basis points. The average difference between the interest rate cast by the member voting for the highest average level of rates and the member voting for the lowest average level of rates is less than 15 basis points! Such a small difference hardly corresponds to a major difference of view about the outlook for inflation. 3. Third, has the Committee explained clearly the reasons for its decisions? Transparency has been at the centre of the monetary policy framework since 1992 when it was recognised that clear explanations of policy would help to anchor inflation expectations on the target. The first major step in enhancing transparency was the Bank’s Inflation Report, which first appeared in February 1993, and was subsequently enhanced by publication of the minutes of the meetings between the Chancellor and Governor. | 0 |
The forward exchange and options markets have expanded in recent years. A deeper market reduces transaction costs and it is easier to find counterparties. This has provided companies with greater scope for hedging against exchange rate risk. Instruments that reduce the risks associated with a floating krone are increasingly being used, also in Norway. Hedging against fluctuations in the krone involves costs for businesses. A krone that is stable - but too strong - also entails costs to the economy in the form of low activity. Similarly, a krone that is stable but weak - is a source of high inflation. Petroleum revenues generally provide substantial, but uneven currency inflows into Norway. The currency flows might have resulted in a strong krone and large variations in the exchange rate. This tendency is countered, however, when the annual use of petroleum revenues over the central government budget is predictable and independent of annual revenue flows, and the remaining revenues are saved and invested abroad. The capital outflows through the Government Petroleum Fund contribute to both curbing the appreciation of the krone and maintaining its stability. Higher oil prices have resulted in higher current account surpluses. In isolation, this contributes to strengthening the krone. However, higher surpluses are being offset by higher long-term capital outflows through the Government Petroleum Fund. In addition, the oil companies primarily invest their cash surplus abroad. Foreign trade figures indicate that mainland imports have increased sharply in recent months. This increases demand for foreign currency. | Svein Gjedrem: Monetary policy and the krone exchange rate Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Annual Meeting of ACI Norge - The Financial Markets Association, Oslo, 26 August 2004. The text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 11 August, Inflation Report 2/04 and on previous speeches. The Charts in pdf-format can be found on the Norges Bank’s website. * * * In most countries, price stability, or low and stable inflation, is the objective of monetary policy. The historical experience of Norway and other countries shows that high and variable inflation results in considerable fluctuations in output and employment. In addition, a fall in the level of prices could easily accompany a period of decline. The first explicit inflation target was introduced in New Zealand in 1990. Canada followed in 1991, the UK in 1992, and Sweden and Australia in 1993. Norway introduced inflation targeting in the spring of 2001. Approximately 20 countries currently use inflation targeting in their monetary policy. In this context, I would like to mention that the central bank of Sweden was able to draw on its own experience from the 1930s when it sought to motivate and firmly establish inflation targeting during the 1990s. Admittedly, Sweden did not have an inflation target but a price target for monetary policy in the period 1931-1937. | 1 |
The balance of risks between not relaxing the non-internationalisation policy on the one hand, and lifting some specific restrictions in a progressive manner on the other, has shifted. With a more mature financial industry and a more internationalised economy, corporate players and financial institutions have a greater need for Singapore dollars and its derivatives for commercial transactions. At the same time, the economy and financial system have grown and become more resilient and our ability to manage the exchange rate has strengthened. This is why MAS has liberalised the non-internationalisation policy, leaving only the most essential restrictions in place. This has enabled the bond market to take off, with foreign players raising Singapore dollar bonds, but swapping the proceeds into a foreign currency before taking them out of the country. We will continue to fine-tune the non-internationalisation policy from time to time, but the policy is no longer a significant constraint on the development of our capital markets or financial sector. Financial supervision MAS has also, since 1998, been reviewing and updating its approach to regulating and supervising the financial sector. First, we have instituted a fundamental shift in emphasis away from “one-size-fits-all” regulation of institutions to risk-focused supervision, and from merit-based regulation of products to a disclosure-based regime. Second, we have embarked on a programme to liberalise access to all parts of the financial industry to stimulate greater competition and dynamism. | Due to their specificities, stablecoins are a novelty in tune with some markets’ needs. In the context of the economy’s digitalisation, the past decades have shown how Fintechs as well as Bigtechs have aimed at taking advantage of the latest advances in web-based technologies, notably blockchain, to provide new payment credit and investment services. Often, they propose to achieve this through the creation of various new assets (coins, tokens, stablecoins, with or without smart contracts). We all have in mind the first generation of crypto-assets such as Bitcoin and Ethereum, initially designed to be instruments of exchange in the digital world but suffering from a number of limitations, not least severe price volatility and a lack of guarantee of their convertibility and security. A second generation is emerging in the form of « stablecoins », such as the JP Morgan Coin, UBS’s Utility Settlement Coin or Facebook’s Libra. They share many of the features of crypto-assets but seek to stabilise the price of the “coin” by various means. They might therefore be more capable of contributing to the enhancement of payment systems, with a potentially global reach, especially those sponsored by large technology or financial firms. In the retail market, stablecoin-based solutions seek to address evolving consumer preferences towards instantaneous, continuous, and standardized payments, as consumers become ever more mobile. | 0 |
Nonetheless, while we do not think that the policy rate should be part of a macroprudential framework, we cannot completely rule out its use with financial stability considerations when facing a critical situation. The second question refers to the institutional framework for decision making regarding macroprudential policies. In this regard, a first issue relates to who should make decisions 1 Lim et al., 2011; Tovar Mora et al., 2012; Claessens et al., 2013; Kuttner and Shim, 2013; Bruno et al., 2014; Zhang and Zoli, 2014; Akinci and Rumsey, 2015; Cerutti et al., 2015. BIS central bankers’ speeches 3 regarding macroprudential policies at a system-wide level. A second issue refers to the decision making process within the central bank in relation to the macroprudential tools within its mandate. The aftermath of the financial crisis of 2008 has been widely active in institutional design around the world; particularly in countries were the crisis imposed large losses on taxpayers. There is a wide variety in the way decision making about macroprudential policies is organized, and to the extent to which decisions are mandates or recommendations. In the United Kingdom, a specific committee – the Financial Policy Committee – was set at the Bank of England with the responsibility for delivering financial stability through macroprudential regulation. Decisions by this committee, which is chaired by the Governor of the Bank and where the Treasury has voice but not voting rights, are mandatory for the prudential regulator (the Bank of England). | Economic history is full of episodes in which a preemptive rise in rates had a negative economic effect on the real economy, but was not effective in controlling financial speculation and asset price inflation (the Great Depression being perhaps the most salient). Nor is it clear that raising interest rates will necessary work in containing the expansion of the financial system: after all, a larger interest rate differential also attracts foreign capital. This force can be of particular importance in EMEs, often subject to carry-trade strategies which can lead to strong currency appreciations in countries that raise rates and create additional problems. Secondly, credibility and transparency are key assets in the design and implementation of an inflation targeting regime. It is hard enough to communicate the logic behind MP decisions that seek solely to stabilize inflation around our stated target, given the complex interrelations between shocks, transmission mechanisms, and model uncertainty that central banks have to deal with. However, after long years of sticking to our framework and showing consistency between our actions and our inflation objective, we have built a reputation which is essential for isolating longer-term inflation expectations from transitory shocks (both external and internal), which as we all know facilitates the job of central banks enormously. We worry that adding to this framework a second objective of financial stability will most likely create an important degree of confusion and discretion, putting our transparency and credibility at risk. | 1 |
Putting on a new lens: Exploiting mainstream innovations with a financial inclusion focus Today, financial innovations have penetrated, and continue to permeate almost every aspect of financial activity. This has been driven by faster computing speed, lower cost of storage and faster problem-solving capabilities. BIS central bankers’ speeches 1 Technology is being used by financial institutions to improve operations – from improving customer experience to constructing better models to manage risks more efficiently and effectively. In many cases, strategic partnerships with fintech companies have been established to achieve similar outcomes. The advent of robo-advisers and algorithmic underwriting are some of the examples. These developments have largely evolved within the mainstream customer segments and have proven to be effective. Clearly, opportunities exist to leverage on capabilities that are already in place to create specific applications for financial inclusion. With proven application, the prospects for achieving greater scalability, faster time to market and increased take-up are correspondingly greater. For years, financial institutions have invested heavily in technology that has helped improve the collection and mining of financial and non-financial data to gain richer insights into customer preferences and behaviours. These same capabilities create immediate opportunities to identify specific barriers to financial inclusion for different target groups whose needs are shaped by very different priorities, experiences, values and norms. For example, cultural biases can be an important factor that is not fully appreciated and understood as a factor that limits higher levels of financial inclusion among women. | Among lower income groups, a more granular level of analysis on income patterns is needed to structure solutions that address the irregularity in loan repayments. Financial inclusion for the ageing population is another critical area that requires more understanding. It is important that new products, delivery channels and technologies also work well for our senior citizens that are financially excluded. Many financial products and services offered today have age limits that create barriers to access financial services. This ought to be changed to ensure inclusive financial systems for the ageing population segment. Technologies that enable better data collection and analytics can support deeper research to fill this gap while mitigating the risks to providers of financial solutions. Beyond data applications, opportunities exist in other areas. For example, distributed ledger technology eliminates the need for centralised transaction validation and shortens the settlement chain, effectively lowering costs of real-time remittances. By incorporating adequate Know-Your-Customer (KYC) requirements, distributed ledger has the potential to address de-risking. Robo-advisers could potentially be adapted to increase financial literacy and support customers in less accessible locations. The adoption of open Application Interfaces (API) facilitates a sharing environment whereby improvements build on existing innovations could shorten the time to market for more offerings. These are just a hint of many more examples that can be examined. What is needed is a rethinking of today’s most promising financial innovations for applications and new gains in financial inclusion. | 1 |
The chief executive? Peter Robinson. The company? Liverpool FC. Perhaps banks should have heeded the message. If they had, this crisis might have felt rather different. If UK banks had reduced dividend payouts ratios by a third between 2000 to 2007, £ billion of extra capital would have been generated. 13 Had payouts to staff been trimmed by 10%, a further £ billion in capital would have been saved. And if banks had been restricted from paying dividends in the event of an annual loss, £ billion would have been added to the pot. In other words, three modest changes in payout behaviour would have generated more capital than was supplied by the UK government during the crisis. Opportunistic behaviour is also needed to repair banks’ liquidity positions. Reversing the fall in the maturity of banks’ balance sheets will require a front-loaded terming out of their debt liabilities. There is some evidence of banks doing so. But given the scale of the refinancing mountain, this will be an uphill struggle. There is also some evidence of companies tapping capital markets opportunistically to help repair their balance sheets. Corporate bond issuance by non-financial companies during 2009 was around $ trillion globally, the highest on record. Manchester United have 10 Cameron, A (1995), “Bank of Scotland 1695-1995”, Mainstream Publishing. 11 Modigliani F and Miller M (1961), “Dividend Policy, Growth and the Valuation of Shares”, Journal of Business, 411–33. | Periodically, the FOMC publishes participants’ projections for several key economic variables. Our latest forecasts were made in early November. Our outlook then was for real GDP growth to be around 1.75 percent in 2011 and then rise to 2.75 percent in 2012. Though an improvement, this 2012 pace is not far above most analysts’ views of the potential rate of output growth for the economy. Thus, such growth rates are not strong enough to make much of a dent in the unemployment rate and other measures of resource slack. Indeed, the FOMC’s latest forecasts are for the unemployment rate to remain above 8.5 percent through 2012 and to fall only to about 8 percent in 2013. As I just noted, the somewhat firmer tone of recent economic data suggest some welcome traction, but the data are not strong enough, or uniform enough, to assert that momentum for growth is building. The headwinds that we face are still substantial. Moreover, the problems in Europe now loom larger. Careful analysis suggests that the direct impact of slower European growth on U.S. net exports likely would be small. However, there 2 BIS central bankers’ speeches is a risk that substantial financial disruptions in Europe could impinge on the cost and availability of credit in the U.S. or induce a new wave of cautious behavior by households and businesses. | 0 |
[9] Tentative evidence of the sharp sell-off in March corroborates the view that leverage has probably also been a source of procyclicality during the pandemic. Investment strategies reliant on low market volatility have possibly played a significant role in this. [10] These strategies have grown rapidly in recent years. Globally, there may be funds with assets under management worth around $ billion invested in some 100 risk parity funds, a well-known hedge fund strategy for multi-asset funds. These volatility-targeting funds typically use leverage when market volatility is below target, as it was before the pandemic, and they have to liquidate leveraged positions when market volatility surges. This probably amplified selling pressures in March. ECB simulations demonstrate that a strict risk parity rule would have called for a large unwinding of leveraged investments when cross-asset correlations surged earlier this year (see left chart slide 8). As volatility spiked and diversification benefits from cross-asset exposures vanished, volatility-targeting investors were prompted to sell assets and reduce leverage (see right chart slide 8). [11] The new portfolio would have had a cash share of nearly 25% as a result. Notably, asset sales would have extended to all asset classes in the portfolio, including the supposedly safer ones, in line with what we observed in the spring. Margin calls and demand for liquidity The third factor relates to margin calls. Margining requirements are an important safeguard to reduce counterparty credit risk. But they also increase liquidity risk, particularly when liquid asset holdings are inadequate. | Initial and variation margins collected by four European central counterparties together increased by around € billion during the peak of the crisis (see left chart slide 9). Total variation margins posted by euro area investment funds rose more than fivefold over the same period and exceeded pre-pandemic cash positions for more than one-quarter of funds with derivative exposures. [12] To meet margin calls, some euro area insurers and pension funds that make extensive use of interest rate swaps and foreign exchange derivatives liquidated shares held in money market funds (MMFs). [13] There was a striking correlation between margin calls and MMF outflows over the entire period of market stress (see right chart slide 9). [14] Systemic risks due to interdependencies Taken together, low liquidity buffers, pockets of leverage and rising margin calls gave rise to perilous price spirals and contagion that threatened to destabilise the entire financial sector through network effects. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201119_1~4a1ff0daf9.en.html 3/7 20/11/2020 COVID-19 and the liquidity crisis of non-banks: lessons for the future Insurance corporations, for example, not only rely heavily on MMFs for their liquidity management, they also hold over 25% of their assets in investment fund shares. This meant that pressure on investment funds in March negatively affected insurers’ profitability. For the United States, Darrel Duffie and others have provided evidence that the dislocations in the US Treasury market can in part be accounted for by non-banks heavily relying on government bonds for their liquidity risk management. | 1 |
Luis de Guindos: International spillovers of monetary policy and financial stability concerns Speech by Mr Luis de Guindos, Vice-President of the European Central Bank, at the conference “The ECB and its watchers XX”, Frankfurt am Main, 27 March 2019. * * * Introduction It is a great pleasure for me to speak at this year’s ECB Watchers Conference. Given the topic of this session, I will start by referring to our recent findings on international spillovers of monetary policy and the related financial stability concerns for the euro area. I will then focus on our financial stability assessment at the present juncture. In doing so, I will briefly refer to an analytical tool we have employed to monitor and assess the banking system’s resilience. Globalisation has not only caused inflation and output to become increasingly synchronised across countries. Equity prices and financing conditions have become more synchronised, too. Most of this synchronisation stems from (common) global shocks, but the effects of international spillovers of monetary policy are less obvious. In my talk today, I will touch upon issues surrounding these international spillovers, and whether they are of concern for the financial stability of the euro area. In a globalised and financially integrated world, spillovers from the monetary policy of one country to other economies are unavoidable. We can identify at least three international transmission channels: 1. The “aggregate demand” channel, through which monetary policy affects domestic demand and, thus, the demand for foreign goods. 2. | For example, Ehrmann and Fratzscher (2005) estimate that, over one day, about one-third of US Treasury bill rate changes feed through to euro area interbank rates, but that beyond this US monetary policy has no significant impact on the euro area. Neely (2015) finds spillovers of a similar magnitude. Curcuru et al. (2018), in contrast, find that during a one-day period, ECB announcement surprises spill over to US Treasury yields in a similar manner as Federal Open Market Committee announcement surprises spill over to German Bund yields. 2 See, for example, Kim (2001), Georgiadis (2016), Chen et al. (2017) and Iacoviello and Navarro (2018). The 5/6 BIS central bankers' speeches results for conventional and unconventional monetary policy are similar. Rogers et al. (2014) and Chen et al. (2016) provide evidence on large spillovers from the Federal Reserve’s unconventional monetary policy to the euro area. 3 Ca’ Zorzi et al. (2019) and Jarociński and Karadi (2018) draw a distinction between monetary policy surprises (the so-called shocks) and other surprises, such as news effects. 4 Spreads relative to speculative bonds (below BBB rating), averaged over all maturities. 5 Corporate bond spreads increase by about 10 basis points and stock markets decline by about 50 basis points in response to a monetary policy shock that increases one-year government bond yields by 2 basis points. 6 See Ca’ Zorzi et al. (2019). 7 See Miranda-Agrippino and Rey (2018). | 1 |
This is the fourth edition of this Conference organised by the European Institute of the Mediterranean, with the support of the Banco de España, to discuss economic and financial matters in the Mediterranean region. The three previous editions were in Barcelona, in 2014 and 2017, and in Rabat in 2015, on that occasion with the support and hospitality of Bank Al-Maghrib. This conference is therefore beginning to take root as a successful meeting point between different actors with interests in the economic and financial developments in these countries. The exchange of ideas among a wide and diverse range of participants – including central bankers, public officials, academics, and representatives from the private sector and international organisations– in a friendly environment proved enormously fruitful in previous editions, as, I am sure, will be also the case this time. Let me also add that forums like this are particularly relevant for central banks, which in recent years have had to face deep-seated transformations in economic and financial relations globally. This new environment forces us to re-think the design and implementation of economic policies in order to better contribute to the progress of our society. I would also like to inform you that the Banco de España is preparing a seminar on central bank communication, the first of which is aimed at Mediterranean and Latin American countries, to be held in the spring of 2019. | I am sure that the participants in the different sessions scheduled today will elaborate more on the best economic policies to ensure that globalisation and technological innovation will continue contributing to economic growth and prosperity in an increasing number of countries. Ladies and gentlemen, I leave the floor now to the President of the Executive Committee of the European Institute of the Mediterranean, Mr. Senén Florensa, thanking him for the cooperation in the organisation of this event and, of course, thanking you all for your presence here today. 4/4 | 1 |
What does that mean to the monetary policy? If domestic and foreign financial assets are treated more and more as perfect substitutes, domestic interest rates, especially mid- an long-term ones, are determined on the global market, and thus the influence of particular central banks on their level is weakened. This phenomenon is already observed in the USA. 12 Melick W., Galati G. “The Evolving Inflation Process: an Overview”, BIS Working Paper No 196, 2006. 13 Hannoun H. “Internationalisation of financial services: implications and challenges for central banks”, Conference of the SEACEN Governors Bandar Seri Begawan, Brunei Darussalam, 4 March 2006. 14 McKinsey Global Institute, $ Trillion and Counting: Taking Stock of the World’s Capital Markets, February 2005. 15 In 1980 bank deposits accounted for 45% of total financial assets, currently their share dropped to 30% (McKinsey Global Institute 2005 – ibidem). 16 It is called the Feldstein-Horioka puzzle, after the two economists, who were the first to empirically prove its existence (Feldstein, 2005). 17 Feldstein M. Monetary Policy in a Changing International Environment: The Role of Capital Flows, NBER Working Paper 11856, 2005. 6 BIS Review 57/2006 Although the key interest rate of the central bank has been raised from 1.00% in 2004 to 4.75% at present (i.e. by 3.75 percentage points), long-term interest rates, which are more important from the aggregate demand perspective, have remained roughly unchanged 18 . | On other occasions there may be an obstacle in the form of a disruption, such as the Asian crisis the other year. In both cases, monetary policy must be adjusted to the economic laws but also to the conditions that apply for the current phase of the journey. What I mean is that interest rate hikes and cuts are a natural ingredient of a monetary policy for price stability - a policy that ultimately aims for a stable development of production and employment. The favourable economic trend in Sweden in recent years is in fact a good illustration of price stability’s affinity with a stable expansion of output and jobs. Since the upturn after the crisis in the early-1990s, the annual GDP growth rate has averaged around 3%, the number in employment has risen by almost 150,000 persons and the rate of inflation has been more or less around the target. This has called for repo rate increases on some occasions and cuts on others. 1 BIS Review 6/2000 Rapid GDP growth during 1999 So at what speed is the Swedish economy currently travelling? What are the speed limits? And what repo rate is appropriate for a safe journey? According to the latest national accounts, published just before Christmas, the GDP growth rate for the first three quarters of 1999 was over 3.5%. It is still difficult to tell just what happened in the fourth quarter but demand growth seems, if anything, to have accelerated. | 0 |
19 All speeches are available online at www.bankofengland.co.uk/speeches 19 labour that result from Brexit – both effective and actual – should steepen the wage Phillips curve, increasing the sensitivity of domestic wages to domestic labour market slack (moving in the opposite direction to the rotation shown by (3) in Figure 1 above). UK potential supply capacity itself is also likely to be lower as some capacity tied to Europe becomes obsolete. The reduction and reorientation of trade is likely to weigh on productivity for some time through a loss of comparative advantage and the disruption of supply chains as companies in the UK shift from supplying customers in the EU to customers in the rest of the world. Empirical estimates suggest a 20% reduction in trade tends to drag on productivity by around 5% in the long run. 53 The actual impact will depend on how quickly any lost access to European and third country markets (via European trade deals) can be replaced. In this regard, the UK Prime Minister’s discussions in Canada today are potentially significant. With respect to the exchange rate, the effects of imported inflation are particularly important to UK inflation dynamics, given both the openness of its economy, the low degree of home currency invoicing 54 and the relatively slow but significant pass through of large, persistent exchange rate moves. | Each of these banks has had to structure their business models to ensure that they are independently viable, and have adequate and stable funding sources. The PRA has examined the banks’ financial projections, and these assessments fed into the approvals that formed part of the ring-fencing process. But banks should, as a matter of course, continue to examine carefully their viability and funding risks. For example, as part of their contingency funding planning, banks will need to consider what options are available to them to meet any unexpected outflows. These banks are able to access the full range of the Bank of England’s liquidity 5 6 See Independent Commission on Banking (2011), Final Report, para 3.91. See Bank of England (2018), Financial Stability Report, June, page 31. 6 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 6 facilities, including the Discount Window Facility, and they should consider the extent to which they have collateral that can be used to obtain liquidity should they need it. How will we supervise the ring-fence? The PRA’s work on ring-fencing does not end with the implementation of the new regime on 1 January. From this date the PRA’s focus moves from putting up fences to ensuring they remain fit for purpose. From 2019 the PRA has a statutory objective to ensure that ring-fenced banks do not threaten the continuous provision of core retail banking services. | 0 |
That paper cast the debate on the potential objectives of such a regime as a choice between ‘protecting banks from the cycle’ and ‘protecting the economy from the banks’. Macroprudential policy could focus narrowly on building resilience in the financial system in a dynamic way, so that it was better able to absorb large adverse shocks. Or it could pursue the broader and bolder objective of smoothing the swings in debt and asset prices associated with the financial cycle. The subsequent academic literature has usefully refined how we think about these goals of a macroprudential regime. One fruitful strand has focused on the pecuniary externalities generated by fire-sales in asset markets (Lorenzoni (2008), Jeanne and Korinek (2010), Bianchi and Mendoza (2010), Benigno et al (2013)). Collateralised borrowing leads to externalities because individual borrowers do not internalise the fact that increasing debt in good times raises the likelihood they will be forced to sell assets following adverse shocks, pushing prices lower, tightening collateral constraints and exacerbating downturns. These feedback and amplification loops can mean that private borrowing in good times is greater than a social planner would choose, facing the same constraints. That is the theory. Experience during the crisis tends to support the importance of these transmission channels. When highly-levered banks were forced to 31 All speeches are available online at www.bankofengland.co.uk/speeches 31 sell illiquid assets at highly discounted prices, this lowered valuations further and tightened constraints for other banks (Brunnermeier (2009)). This contributed to the depth and duration of the economic downturn. | Impact on the supply of credit and capital allocation How do covered bonds impact the supply of credit and capital allocation? Capital requirements under Basel II and III incentivise banks to supply residential mortgage lending. The introduction of IRB models for calculation of capital requirements have resulted in low risk weights for residential mortgages. This may encourage leveraging. Some countries where large shares of covered bonds are backed by residential mortgages, have experienced relatively strong growth in residential mortgage lending and brisk house price growth. The availability of a large and liquid covered bond market may have facilitated this development. One would expect that the emergence of a vibrant residential covered bond market would generally deepen fixed income markets through larger volumes and better liquidity. The cheaper financing of residential mortgages through covered bonds has been reflected in household lending rates. In combination with very low risk weights and corresponding low capital requirements on residential mortgages, banks may have favoured such lending. As a result, corporations seeking financing may be pushed into bond markets through a crowding out effect. In addition, a vibrant market could make bond financing more attractive and pull corporate borrowers to the market. Higher interest rates on banks’ corporate loans may contribute to this effect. In some of the markets in Europe that have seen substantial deleveraging, loans to SMEs have been provided at steep interest rates. However, the economic situation and investment demand in general are probably much more important in determining overall growth in investment financing by banks. | 0 |
However, technological developments on markets may have gradually reinforced this type of behaviour. The spread of benchmarking, which allows fund managers and clients to measure performance against that of other funds, together with the growing competition within the sector, appear to have increased such mimetic behaviour. Some operators have come to the conclusion that it is better to be wrong along with everybody else, rather than take the risk of being wrong alone. - The spread of certain fund management techniques, in particular index management, which has proven very popular on equity markets, may have contributed to amplifying movements in financial asset prices. This technique endeavours to match as accurately as possible developments in stock market benchmark indices. It therefore mechanistically leads managers to accentuate current price trends by buying stocks that are on the rise and selling those that are falling. - The impact of risk management techniques on market dynamics is particularly enlightening with regard to the question of asset price overshooting. Of course, central banks and financial institutions should continue to encourage the use of these instruments. But, in times of financial turmoil, the growing use of sophisticated risk management techniques by financial intermediaries has had the paradoxical effect of amplifying the initial shock and the spill-over effect. Regardless of the intrinsic qualities of these risk management tools, their growing use may have produced pernicious effects. | Jean-Claude Trichet: Views on recent economic developments in the euro area and international financial architecture Address by Mr Jean-Claude Trichet, Governor of the Banque de France, at the Institute of International Finance Spring Membership Meeting held in Hong Kong on 1 June 2001. * * * Ladies and Gentlemen, It’s a great pleasure for me to share some views with such a distinguished audience on two topics of great importance: the first one deals with recent economic developments in the euro area and the motivations of the last 25bps rate cut by the ECB on its 10 May’s meeting. The second point deals with the very important question of international financial architecture. Let me start with the first topic. The global outlook for 2001 continues to be characterised by sizeable uncertainties, amid the readjustments taking place in the American and Japanese economies, and their impact on the rest of the world. In the United States, however, while the GDP growth estimate for the first quarter of 2001 indicates that the slowdown has been substantial, the economy is still driven so far by firm consumer expenditure. Economic activity in the euro area in 2000 expanded at an annualised rate of 3.4%, the strongest growth since 1990, driven by buoyant domestic and foreign demand. The general outlook for this year and next one remains positive, even if, clearly, some impact of the American slowdown is already visible. | 1 |
Aggregate demand continues to be negatively affected by the difficulties of our main trading partners, low confidence of Albanian businesses and households, tightened financing conditions. However, the domestic private demand increased in the fourth quarter, after decreasing a quarter earlier. Indirect indicators suggest that developments in private investments were positive in the fourth quarter, while final consumption by the population continued to be weak. As previously stated, the Bank of Albania maintains that developments in both components of the aggregate demand will dictate the economy’s performance in the short and medium term. In this regard, we deem that the expected improvement in financing conditions and balance sheets, due to the payment of fiscal arrears, and the reduction of uncertainties will provide the needed incentives for a better performance in the forthcoming quarters. Nonetheless, the recovery of consumption and private investments will require a more courageous behaviour and higher risk taking willingness by economic agents. Developments in the external sector signal a negative contribution from net exports during the last quarter of the year. Net exports deficit expanded, as imports increased in the fourth quarter. In January and February, the trade deficit marked an annual increase of 6.7% due to the increase in import of goods and the growth rate moderation in exports. The ability of the Albanian economy to maintain the stable pace of growth for exports and diversify the base of exported goods will be a primary factor for providing medium and long-term economic growth in Albania. | BIS central bankers’ speeches 5 Chart 1 © Globe Cartoon Chart 2 Switzerland’s foreign trade, 2000−2015 Source: Swiss Customs Administration 6 BIS central bankers’ speeches Chart 3 Interest and exchange rates, 2008−2011 Chart 4 Monetary base from 2008 to the present day BIS central bankers’ speeches 7 Chart 5 Interest and exchange rates from 2012 to the present day 8 BIS central bankers’ speeches | 0 |
Without these measures, the euro area would have been in outright deflation last year and prices would have fallen at an even quicker pace this year. Growth would have been significantly lower. BIS central bankers’ speeches 1 Second, while our measures were deemed effective, they were also judged to be insufficient in view of the deteriorating outlook for price stability. There was a concrete risk that without increasing the quantitative stimulus, the date by which inflation would settle around levels below, but close to, 2% would once more be pushed back beyond any relevant definition of medium term. Therefore we decided to recalibrate our monetary policy stance. We cut the deposit facility rate further to –0.3%, we extended the envisaged end-date for our monthly purchases to the end of March 2017, while maintaining its conditionality on the inflation outlook, and we announced that we will reinvest the principal payments of our purchased assets once they mature, for as long as necessary. We also decided to continue conducting the main refinancing operations and three-month longer-term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2017. Since our meeting in early December, conditions have once more changed. A moderate recovery of the euro area economy is under way, driven mainly by domestic demand. But downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks. | “Riskreduction” and “risk-sharing” measures are two sides of the same coin and should be pursued in parallel: they are all essential to protecting the stability of the European banking sector. Third, there are challenges related to the fiscal and economic policies of Member States that require decisive policy action. Fiscal policies should contribute to the economic recovery. At the same time, they should be in full compliance with the requirements of the Stability and Growth Pact. This is important to maintain confidence in the European fiscal framework and in the sustainability of public finances. Moreover, countries would benefit from a more growthfriendly composition of fiscal policies. This could involve greater efficiency of public sector services as well as moving to a more growth-friendly tax system. But the ongoing cyclical recovery in the euro area should also be supported by effective structural policies, particularly actions to improve the business environment, including the provision of an adequate public infrastructure. Such actions are vital to increase productive investment, boost job creation and raise productivity. If reforms are credible, carefully chosen and well designed, their positive effects can be felt quickly, particularly in the context of our supportive monetary policy stance. Fourth and finally, there is still political uncertainty surrounding the European project. This is true in the broader context of our Union. A solution that would anchor the United Kingdom firmly within the EU while allowing the euro area to integrate further would boost confidence. The Economic and Monetary Union architecture also remains an unfinished construction. | 1 |
Two, develop standards to support the atomic settlement of currency transactions across platforms using distributed ledger technology and non-DLT based platforms. Three, establish policy guidelines for the connectivity of digital currency infrastructure across borders, for better access and participation. Through Ubin+, MAS will also collaborate with international partners to explore a broader range of atomic settlement solutions. MAS is working with the central banks of France and Switzerland and the BIS Innovation Hub to explore the exchange and settlement of wholesale CBDCs with an automated market maker. An automated market maker will enable the exchange and settlement of two or more digital assets to be performed automatically with a smart contract. MAS is also partnering SWIFT to explore different interoperability models, to enable instant cross-border payment and settlement across DLT-based systems and existing payment infrastructures. 4/11 BIS - Central bankers' speeches RESHAPING LIKE FIRE - PROGRAMMABLE MONEY (PROJECT ORCHID) The third desired outcome is programmable money. Money today exists in two forms: physical cash in the form of central bank issued notes and coins; and digital money in the form of deposits with commercial banks. Digital money accounts for 92% of money supply in Singapore and has been designed efficiently and elegantly to suit our large variety of daily needs. Payment to merchants, account-to-account transfers, setting up timed or regular payments, can all be made with just a few taps on your mobile phone today. So what is the problem with money that we are trying to solve? Money today is not programmable. | 3/11 BIS - Central bankers' speeches It eliminates settlement risk, duplicative reconciliation, and the need for large prefunding accounts. It has benefits not only for retail payments but also cross-currency and securities transactions. One of the most promising ways to achieve atomic settlement is through tokenised assets which can be exchanged simultaneously on a distributed ledger. This is what MAS has been experimenting with since 2016 through Project Ubin. Project Ubin demonstrated three things: banks paying one another without going through MAS; decentralised netting of payments while preserving transactional privacy; and final settlement and delivery-vs-payment by tokenising digital currencies and securities assets so that they could be simultaneously exchanged. The success of Project Ubin paved the way for further collaborations and progress. Partior – a joint venture among DBS Bank, JP Morgan, and Temasek – has used a blockchain based multi-currency clearing and settlement platform to reduce the settlement time for Singapore dollar and US dollar transactions from days to minutes. Project Dunbar – a partnership among the BIS Innovation Hub, Reserve Bank of Australia, Bank Negara Malaysia, South Africa Reserve Bank, and MAS – has built open-source distributed ledger platforms for international settlements using wholesale central bank digital currencies, or CBDCs. MAS will be launching Project Ubin+, a global initiative on the cross-border exchange and settlement of foreign currency transactions using wholesale CBDCs. It will focus on three areas: One, study business models and governance structures where settlement can be performed atomically, to improve efficiencies and reduce risks. | 1 |
The model used for monetary policy of decisions being made by a committee made up of both Bank of England executives and independent experts has been expanded to financial stability with the creation of both a Financial Policy Committee and a Board of Prudential Regulation. As I have argued, those policy committees will be more effective if they have access to the broadest range of the Bank’s analysis and information and are as well informed as possible about each other’s reaction function. The now very wide range of the Bank’s responsibilities also creates a need to strengthen the oversight arrangements for the Bank as a whole. For delivery of our statutory objectives, the Bank is accountable to the public, through Parliament’s Treasury Committee. That accountability is being reinforced. Parliament has created an Oversight Committee of 8 non-executives who are in the Bank but not of the Bank. The Government has today announced the appointment of Anthony Habgood to lead the Bank’s Court of Directors and the Oversight Committee. I welcome the appointment of someone of his depth and breadth of corporate experience. Independent oversight by the committee he will chair can strengthen the Bank’s legitimacy and effectiveness. The Oversight Committee has access to internal papers, is able to observe meetings of policy committees, and is responsible for reviewing all aspects of the conduct of the Executive of the Bank, including the delivery of policy, the design of and adherence to rigorous processes and procedures, and the monitoring of our transparency and openness. | BIS Review 124/2007 1 | 0 |
At this point we see an improvement in the global growth outlook and an increase in international commodity prices on the back of positive developments in the vaccination process, in addition to expansionary policies. However, despite the ongoing vaccination efforts, the ongoing uncertainties regarding the vaccination process and the course of the pandemic keep the risks to the global economy alive. Distinguished Guests, At my first General Assembly meeting, let me briefly share with you some important issues regarding the monetary policy. Under the duties and powers set forth by law and in line with its main objective of achieving a permanent fall in inflation, the Central Bank of the Republic of Turkey will continue to use the monetary policy tools effectively. We are strictly committed to the medium-term inflation target of 5%, defined as price stability and set jointly with the Government. We are going to use the monetary policy tools appropriately to achieve this target. I would like to underline that we are determined to bring inflation down to 5% in 2023 and keep it there permanently, consistent with the medium-term framework we set out in the January Inflation Report. I am aware that the low inflation environment that we target is a prerequisite for sustainable economic growth as well as employment growth. We will remain determined and resolute to reach this target with our corporate capacity, strong analytical capability and sense of responsibility. The Central Bank will continue to use all available instruments independently and effectively in pursuit of its primary objective. | Such a step would only be taken in accordance with the principle of subsidiarity, and all the sums borrowed would Page 5 of 6 be gradually repaid by the banking sector. Rather, it is about building confidence in bank resolution in Europe by showing that it will always be able to intervene effectively in the event of a crisis. Such a system will also encourage the lifting of the constraints imposed by certain national authorities on capital and liquidity flows. I regard the European Commission's proposal to set up a backstop through a credit line provided by the European Stability Mechanism (ESM) as a top priority. We also need a common scheme for providing liquidity to financially sound banks after resolution which is in line with euro area monetary policy rules. Of course, a compromise will have to be found in order to make headway on the third pillar of the Banking Union, deposit insurance. Once we have completed the resolution framework, we will be less in need of a shared European scheme. A pragmatic approach could be to introduce a system of loans between national deposit guarantee schemes (DGS), with guarantee mechanisms to ensure that liquidity advances do not lead to losses for the lending DGS. This would lead to a sharing of liquidity without sharing risks, which would be a first step towards shoring up financial sector confidence and strengthening depositor protection. | 0 |
Percentage points 0 .2 0 .1 -0 Year 1 Year 2 -0 .1 -0 .2 -0 .3 -0 .4 -0 .5 -0 .6 Source: Norges Bank JB 7. februar 2003 Sub-index model RIMINI RIMINI Year 3 Isolated effect on consumer price inflation of a persistent rise in labour costs of 1 percentage point 0 .8 Year 4 Year 3 0 .6 Year 2 0 .4 Year 1 0 .2 0 Source: Norges Bank JB 7. februar 2003 Annual wage growth1) and unemployment2) Per cent 1 0 .0 8 .2 7 .7 8 .0 10 Unemployment 6 .2 5 .8 6 .0 5 .1 4 .4 4 .0 2 .9 2 .7 8 Annual wage growth 6 .7 3 .0 5 .3 5 .5 5.83) 6 4 .3 3 .1 2 .9 3 .2 3 .6 3 .1 2 .0 4 2 0 .0 0 1 9 93 1 9 94 1 99 5 1 99 6 1 99 7 19 9 8 19 9 9 20 0 0 2 0 0 1 2 0 0 2 1) Average for all groups. Including costs of additional vacation days 2) Registered unemployed and persons on labour market programmes. | Change in consumer price inflation in percentage points 0 -0 .1 -0 .2 -0 .3 -0 .4 -0 .5 År -0 .6 1 2 3 4 Source: Norges Bank JB 7. februar 2003 Effects on consumer price inflation of a persistent appreciation of 5 per cent of the import-weighted krone exchange rate. | 1 |
In the area of infrastructure development in Asia, the overall investment requirements for the next ten years are estimated to be about USD8 trillion. To support these developments, the regional financial integration process in Asia needs to be accelerated and deepened. Significant progress has already been achieved in strengthening cooperation and collaboration efforts amongst regional policymakers within the Asian region to ensure that financial stability in the region is preserved. Efforts have also been taken to develop the financial markets in Asia. In addition, after a decade of financial reforms, the financial systems in Asia have emerged resilient. While the financial systems in several of the advanced economies continue to be confronted by unresolved challenges, financial systems in the region have continued to function and perform well to support private sector economic activity. Financial institutions in Asia, have in fact, continued to expand their reach within the region during this period to support and facilitate the regional financial and economic integration. As regional financial integration accelerates moving forward, this would contribute towards sustaining the future prospects of the region as it increasingly becomes an important growth centre in the world economy. With China now becoming Malaysia’s largest trading partner, Bank Negara Malaysia and the People’s Bank of China have entered into a bilateral currency swap arrangement in 2009. This swap arrangement serves as a key platform to promote trade and investment linkages between both countries. | Zeti Akhtar Aziz: Economic ties between China and Malaysia Address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Launch of Industrial and Commercial Bank of China (Malaysia) Berhad, Kuala Lumpur, 28 April 2010. * * * It gives me great pleasure to be here today on the official launch of Industrial and Commercial Bank of China (Malaysia) Berhad (ICBC). The establishment of ICBC in Malaysia, the largest commercial bank in the world today, represents an important development in forging stronger economic and financial ties between the People’s Republic of China and Malaysia. This licence is issued pursuant to the arrangement entered into between the Government of Malaysia and the People’s Republic of China in 2009, reinforcing a long-term relationship that has been strengthened over the years. The presence of ICBC, in our financial system will pave the way for increased business and investment opportunities between our two countries. As Asia leads the global recovery and with the progressive liberalisation in the region, the economic integration of the Asian region can be expected to strengthen further. Today, intraregional trade in Asia has increased to an average of 50% of the total exports of the region as compared to 32% in 1995. The underlying structural and demographic changes in Asia are expected to reinforce this trend. In addition, as domestic demand in the regional economies increases, it will provide further impetus to intra-regional trade and to the overall prospects for Asia. | 1 |
It is not clear that before the late 19 century a single dominant financial centre existed in Europe as the economies of scale were not sufficiently developed. 5 There is perhaps another puzzle in the way financial services have developed, one that is closer to home. The resurgence of London. According to the Global Financial Centres Index, London is the world’s leading 6 financial centre, just as it was in the days of Cunliffe Bros. But as we know, London did not enjoy uninterrupted status as a premier financial centre over the intervening period. As I have noted, international financial activity dried up materially after the First World War. But even accounting for the overall decline, London’s relative importance as a financial centre declined further as the global footprint and importance of the UK economy decreased along with sterling’s reserve currency role. It was only with return to financial globalisation, some 50 years ago, that this process was reversed – leading to the concentration we now see. The puzzle here is that historically, the clustering of financial activity has tended to follow trade and commerce. It was commerce that led to the rise of Venice and then Amsterdam as financial centres in the th th 16 and 17 centuries. | Transparency requires me to record, in this genealogy, that one of the founding Houses of the Accepting Houses Committee back in 1914 was Cunliffe Bros, whose founder was actually Governor of the Bank of England at the time. Transparency however also requires me to make clear that he was no relation. I do, however, feel a little sense of eponymous history in speaking here tonight. Financial markets of course have changed greatly since Cunliffe Bros, with half a million pounds of capital, was a force in the City. I want to look today briefly at how financial markets have grown worldwide, why they are subject to strong pressures to cluster activities in key centres and how this has affected the concentration of financial services in the UK – or as it is often, and misleadingly described, in London. 2 I also want to touch on two of the fundamental challenges faced by financial markets and the institutions that support them – maintaining, or some would say, restoring their ‘social license’ and managing systemic risk. And finally, given that this is the Association for Financial Markets in Europe, I will touch briefly on one or two possible implications for European capital markets of the UK’s exit from the European Union. In passing, I will say a little about how the Bank sees these issues. Our role and responsibilities have evolved as markets have evolved. | 1 |
structured investment vehicles and conduits), so no further capital requirements were necessary for the banks. Credits were issued on the basis of ever-increasing housing prices, so the mortgage was backing enough to relax the lending standards. As often occurs when the storm hits, the situation reversed and a credit contraction followed (figure 8). Also, the real-estate bubble created a demand for homes as financial assets. These loans were sold to agents that neglected the risk evaluation process, hence the contamination to the whole financial system. The "originate and distribute" model crashed, risk-rating institutions were unable to properly rate complex securities, while the executive compensation structure also encouraged the search for returns. Lending to risky borrowers that fail to repay is certainly costly, but it can hardly unleash a crisis of the magnitude we are seeing today. The problem is aggravated by the way the 3 This point has been made more intensively in Buiter (2008). For a vision involving other mechanisms, see Muellbauer (2007). 4 According to Barajas et al. (2008) only 20% of the booms en in crisis. BIS Review 124/2008 3 banks got rid of these loans, how they were rated, the derivatives that were created to reduce the risk and pretend they had been transferred away. There are also doubts whether the derivatives markets' operation was as transparent as it should have been or if it was manipulated. | Inexpensive goods can still be produced, if capacity expands without generating price pressures. But the demand for oil, steel, minerals, etc., recorded strong increases, which pushed prices up. The supply has not responded to demand with the same vigor. 5 The empirical literature has been critical in this point, but a recent work by Auer and Fischer (2008) shows that the producer price index of the United States was two percentage points less due to cheap imports from developing economies. 4 BIS Review 124/2008 A case worth highlighting is foods. Some of them absorbed the demand increase due to economic growth with supply increases, but then a new source of demand appeared: bio fuels, which have further strained the prices of grains. Another factor that, according to some analysts, has been important in price hikes has been investor involvement, demanding commodities as another asset in their portfolios. But if investors were buying to resell with a margin, this would translate into an increase in inventories, which it has not. Accordingly, the purchases of futures by some agents go hand in hand with the sale of futures by others, and are normally the counterpart of hedging operations. On the other hand, while investors’ positions have risen substantially in the commodities markets, they still share but a small fraction of the market. | 1 |
Otherwise, it will threaten people’s well-being. Last year, we cut the key rate — at the outbreak of the pandemic, inflation was low in Russia, and the key rate helped us support lending and demand. As we all know, companies tend to welcome a policy of low interest rates, which makes borrowings cheaper and thus helps them develop their business. Conversely, it reduces households’ demand for deposits. If this is also coupled with inflation, households’ real incomes decline and savings depreciate. Figuratively speaking, we can say that monetary policy is like seasonal clothing: we wear jackets when it is cold and hang up our dresses in the wardrobe until the next warm season. The same is true for monetary policy: it significantly influences the situation in the economy and current 3/5 BIS central bankers' speeches developments and helps promote stability, just like adequate clothing keeps us warm without being too hot. Accordingly, now is the right moment to raise the key rate in response to the changed environment and higher inflation. We had been keeping the key rate at a low level for quite a long period in order to make sure we do not clip the wings of the recovering economy. However, now we have no doubt that our decisions have not hindered growth. The economy has bounced back to its pre-crisis level, even surpassing it in many industries, and continues to expand. | Completing the topic of mitigating the aftermath of the pandemic, I would like to say that during the pandemic period we have been implementing measures to help reduce the impact of inevitable restrictions and support households and companies, without disrupting fundamental interconnections in the market and compromising stability. The latter is critical for the financial sector and essential for people and businesses using services provided by the financial sector. Currently, the financial system is functioning normally, is resilient and able to cover the needs of the growing economy. The slump of early 2020 was followed by a rather rapid recovery. This surge was coupled with a global rise in commodity prices and faster inflation both in Russia and worldwide. Demand has already restored, which is evident from all indicators. Contrastingly, production will need more time. This is due to disruptions in production chains that have not been fully restored yet. There are shortages of some components and materials and workers in certain professions. As the borders are closed, it is impossible to engage non-residents as much as before the pandemic. For instance, this problem is severe in construction, services to a certain extent, and agriculture. All these factors are pushing up prices. Taking into account the nature of inflation, namely the steady growth of prices across a broad range of products observed in recent months, it is clear that we may not just wait until this period ends. The Central Bank needs to use available instruments to bring inflation back to the target. | 1 |
Not only can one expect that a particular economy meeting the five criteria is clearly eligible to belong to a currency area composed of other economies with the same fiscal, monetary and financial features but one can also expect that the business cycles in these economies are likely to be largely synchronized. Convergence from the very beginning of the single currency is a necessary condition to create an optimum currency area. But convergence is not only necessary at the moment of the selection of member economies. It is also necessary afterwards in what we could call the permanent regime of the euro. And then the stability and growth pact is of the essence. It calls for each country to remain in a sound position as regards its fiscal behaviour. There is a paradox enshrined in the stability and growth pact: implementing the Maastricht Treaty provisions, including sanctions vis-à-vis past behaviour, it places more power BIS Review 63/1997 -8- in the hands of the „centre“, which is in that case the Council, say Brussels, vis-à-vis member states than is the case, for example, for the US government vis-à-vis Texas or California. The absence of a significant federal budget and the absence of a federal government have driven the Europeans to embark upon a direct coordination of their national fiscal postures, through direct peer pressures and decisions within the Council of Ministers. | Mr. Trichet discusses Franco-German monetary cooperation and monetary union Speech by the Governor of the Bank of France, M. Jean-Claude Trichet, on the occasion of the fiftieth anniversary of the Land central bank of Rheinland-Palatinate and the Saarland in Mainz on 2/6/97. It is a great honour to speak in Mainz today and to celebrate the fiftieth anniversary of the Land central bank of Rheinland-Palatinate and the Saarland. Everybody knows that Mainz played a decisive role in spreading culture and ideas in Europe, in particular thanks to the invention of printing by Gutenberg. And the celebration of the fiftieth anniversary of your institution gives me the opportunity to underline once again the prominent role played by the Bundesbank for the stability, credibility and prosperity of the German economy. As you know, the Banque de France deeply supports this culture of stability, which sets the basis for monetary cooperation between France and Germany, the basis for European monetary union. The celebration of an anniversary is a good opportunity to draw lessons from the past and to foresee the future. That is why I have decided today to speak about Franco-German monetary cooperation during the last fifty years and the prospects for monetary union. In this respect, the creation of the single currency on January 1st, 1999 is a major event for our respective countries. Far from being a breaking off with the past, the creation of monetary union is the logical crowning of Franco-German monetary cooperation. | 1 |
It is important to remember that the interest rate forecast is a conditional forecast and not a promise. The interest rate path has been revised frequently, and sometimes fairly substantially – as during the financial crisis and in the wake of the oil price fall in 2014. Nor are market 2/7 BIS central bankers' speeches expectations of future interest rates necessarily aligned with Norges Bank’s interest rate path. On the contrary, the two curves have often diverged to some extent, particularly at somewhat longer horizons. Norges Bank’s analyses nonetheless indicate that we are successful in steering market expectations in the desired direction (Brubakk et al (2017)), for example by publishing the interest rate path. The analyses also find that central bank and market revisions of interest rate paths in the periods between monetary policy meetings are strongly correlated. This suggests that market participants have a good understanding of the central bank’s response pattern and of how monetary policy will react to new information about economic developments. Need for alternative reference rates Chart: From key rate to money market rate … Market expectations of future interest rates are reflected in the Norwegian monetary market rate – three-month Nibor. This rate can be decomposed into the average expected key policy rate over the next three months and a risk premium, usually referred to as the money market premium. Over time, three-month Nibor has tracked the key policy rate. | The fall in oil prices in 2014 led to a further reduction in the key policy rate in Norway. Chart: Gradual normalisation of monetary policy Last week, Norges Bank raised the key policy rate for the first time in seven years. If the economy evolves as currently envisaged, last week’s decision will be the beginning of a gradual normalisation of the interest rate level. This is good news. It means that the Norwegian economy is performing well. The effects of the fall in oil prices in 2014 have unwound. The economy has shown solid growth in recent years and the labour market has been improving. The upturn in trading partners’ economies, higher oil prices and low interest rates have lifted growth in Norway. The outlook for the Norwegian economy implies that the key policy rate will be raised in the years ahead. Capacity utilisation is close to a normal level. Underlying inflation is close to the 2% inflation target. The key policy rate is being raised to prevent pressures in the economy from intensifying and triggering a surge in prices and wages. Raising the rate also reduces the risk of a renewed rapid rise in property prices and debt. High price and wage inflation and a further buildup of financial imbalances would increase the risk of a sharp economic downturn further out. There are a number of factors to suggest that the key policy rate should be raised at a gradual and cautious pace. An environment of low global interest rates limits the room for manoeuvre. | 1 |
This could suggest that the increase in funding rates for these entities reflect bargaining dynamics, rather than increased demand or aggregate reserve scarcity. 11 other tools such as term operations, as necessary for appropriate monetary control, based on policymakers' assessments of the efficacy and costs of their tools.” 25 Earlier this year, rates paid on the bulk of federal funds trading had ticked up, although they remained within the FOMC’s target range. The uptick in the federal funds rates raised a question as to whether the effective federal funds rate might print above the FOMC’s target range, absent a change in our operational settings. 26 To address the rise in the overnight rate within the range, a technical adjustment to the IOR rate was made at the June FOMC meeting: the IOR rate was raised by 20 basis points while the FOMC raised the target range by 25 basis points. Following that change, all rates paid on federal funds borrowings, as well as in other money markets, rose by about 20 basis points. This made it less likely that the EFFR would be above the target range. At the September FOMC meeting, the IOR rate and target range were each increased by 25 basis points, maintaining the five-basis-point spread between the IOR rate and the top of the target range, as shown earlier in Figure 4. | 24 Flexibility When Needed: The Technical Adjustment When overnight rates—including rates on federal funds transactions—edge higher, what tools does the Federal Reserve have to ensure that they generally remain within the target range when reserves are abundant? The federal funds target range is an important feature of the FOMC’s public communications, and maintaining control of the federal funds rate and other money market rates is therefore taken quite seriously. Public confidence in our ability to maintain rates within the target range is important for ensuring that expectations for the FOMC’s future policy stance are properly incorporated into the term structure of interest rates, and thereby appropriately affect financial conditions and the broader economy. At the March 2015 joint FOMC Board meeting, it was decided that in a situation of abundant reserves, the Federal Reserve intends to “adjust the IOER rate and the parameters of the ON RRP facility, and use 23 Recent market intelligence supports the notion that increased awareness among some banks of the LCR benefit to borrowing federal funds from FHLBs, even at rates at or slightly above IOR, has contributed to the upward pressure in federal funds rates. For further discussion of the impact of LCR treatment on money markets, see Potter, “Confidence in the Implementation of U.S. Monetary Policy Normalization,” August 4, 2018. 24 While trading volumes among smaller domestic banks have been largely steady since the beginning of normalization, their borrowing rates have increased since March with the rise in the broader constellation of money market rates. | 1 |
Minor variations in the total level of reserves supplied could move equilibrium market rates up or down as individual depository institutions with a deficiency of reserves had to find and trade with depository institutions with a surplus of reserves. This system functioned with a relatively low level of reserve balances. 3 The Desk was able to reliably achieve the FOMC’s 1 The Board of Governors is also responsible for the supervision and regulation of banks and systemically important financial institutions, payments systems and infrastructure, and overall oversight of the Federal Reserve System. It may also authorize Federal Reserve Banks to extend credit to other entities under emergency lending authority. 2 The FOMC’s Authorization for Domestic Open Market Operations and Authorization for Foreign Currency Operations outline the activities that the selected Bank is eligible to undertake. The domestic policy directive and foreign currency directive specifically instruct the Desk to execute such operations in furtherance of a particular operating objective defined by the FOMC. 3 In the five years prior to the crisis, total reserve balances averaged $ billion and excess reserves – balances in excess of those required to satisfy reserve balance requirements – averaged about $ billion. 2 BIS central bankers’ speeches policy directive under this implementation framework. The effective federal funds rate – the average rate prevailing in the brokered federal funds market each day – routinely hit the FOMC’s target rate, generating a high degree of confidence among market participants in the Desk’s ability to implement policy. | I will then discuss the implications of these changes for the Federal Reserve’s balance sheet and for the eventual “normalization” of monetary policy when the Federal Open Market Committee (FOMC) believes it is appropriate to remove the extraordinary levels of monetary policy accommodation that it has provided. Finally, I will discuss some of the considerations that must be taken into account in normalizing monetary policy. As always, these are my views and do not necessarily reflect those of the New York Fed or the Federal Reserve System. The desk’s role in implementing monetary policy The Federal Reserve (the Fed) has a somewhat more complex organizational and governance structure than most other central banks around the world, so before discussing recent developments in the implementation of monetary policy, I’d like to take a moment to describe roles and responsibilities within the Federal Reserve System and where the Desk fits in. The statutory basis for U.S. monetary policy is found in the Federal Reserve Act, which was enacted just over 100 years ago. | 1 |
It also gives due protection to the consumers of Islamic finance, ensures the enforceability of Islamic financial contracts and provides an effective mechanism for legal redress. The legal framework for Islamic finance also needs to address any specific elements that could result in a comparative disadvantage to the industry. More specifically, in a world in which finance has long been defined by conventional practices and laws, the features that are unique to the requirements of Islamic finance need to be taken into account to ensure neutrality of treatment. In Malaysia, the rapid evolution of Islamic finance has been supported by the development of a comprehensive legal infrastructure. A series of legislation since 1983 has provided the foundation for a regulatory regime for Islamic banks, takaful operators, the Shariah Council for Islamic finance, Islamic finance windows in conventional banks and the various forms of bond and money market instruments. In addition, the corporate, securities and insolvency laws and guidelines are compatible with the Shariah. These legislation have been reinforced by the establishment of a dedicated High Court bench to provide a comprehensive adjudicative system to deal with disputes involving Islamic finance. In addition, the new Islamic Finance Arbitration Rules of the Kuala Lumpur Regional Centre for Arbitration provides a customised mechanism for the resolution of disputes in the Islamic financial services sector. The development of an efficient and vibrant Islamic financial market Equally important to the development of Islamic finance is not only the financial intermediaries but also the Islamic financial markets. | The central bank adjusts its policies in response to the actual behaviour of agents, who would adjust their behaviour in line with the central banks policy. For this interaction to happen, both the public and the central bank need to speak the same language and understand each other unequivocally. Money management needs this two-way understanding and the active role of individuals. Consequently, the trust and confidence of the public is earned, monetary policy objectives are achieved and its reliability is enhanced. Thirdly, I would like to underline that financial education of individuals establishes a more stable society on one hand and a stronger and secure banking system on the other. Efficient and ongoing financial education is a path trotted by millions of individuals and families in their endeavour to achieve financial goals and accumulate wealth. The positive effect of this process is reflected in a stronger economic and financial stability for the entire society. The banking system has its role to play in this process, mainly through lending to businesses and households. As a regulator, the Bank of Albania gives its share of contribution ensuring that banks strictly abide by legal and regulatory obligations in relations with their customers. On the other hand, financially literate customers, contribute to the 2 BIS central bankers’ speeches development of the banking system with their increasing demand for financial products and services. Therefore, the result is clear: higher efficiency, lower charges, better services and healthier and safer banking system. | 0 |
The recent reforms to strengthen the euro area fiscal framework – the so-called six-pack and the fiscal compact – are welcome and go in the right direction. But they remain within the logic of the Maastricht Treaty where responsibility for fiscal policies is exclusively in national hands. This creates an inherent credibility problem, as for fiscal frameworks to be fully credible, they have to enforceable. This is impossible without a further and deeper sharing of budgetary sovereignty. This could be achieved by giving European institutions greater competence to effectively compel euro area Member States – in a graduated manner if and when the situation deteriorates – to take the necessary fiscal policy decisions. This would correspond to a further sharing of national sovereignty. But for both weaker and stronger countries, it is in fact an opportunity to regain substantive sovereignty as opposed to formal sovereignty. For the weaker countries, measures that put the soundness of their fiscal policies beyond doubt will allow them to be fully sovereign, in the sense that they can use fiscal policy in its vital economic stabilisation role and take free decisions about taxes or types of expenditure without fear of excessive discipline from financial markets. For the latter, sharing sovereignty at the European level will allow them to effectively protect their domestic economies from spillovers from the rest of the euro area. Moreover, they will no longer be placed into situations where they are de facto forced into taking decisions to avert imminent catastrophe. | As I have discussed previously, important research by Stanford economist Raj Chetty and his co-authors has shown that intergenerational income mobility in the United States—a child’s chances of moving up in the income distribution relative to his or her parents—has remained stable over the past half century.1 However, because of the increase in income inequality and stagnant or declining incomes for the least well-off, the consequences of being born to low- versus high-income 2/3 BIS central bankers' speeches parents are greater today than in the past. These trends have contributed to a steady decline in “absolute” upward income mobility in the United States, as defined by the share of children who earn more in real terms than their parents. This fraction has fallen from 90 percent to 50 percent over the past half century. Recent work by Chetty and his co-authors has investigated the importance of higher education in achieving upward mobility. They find that many highly qualified lower-income students do not attend selective colleges, while those low- and middle-income students who do—despite facing greater challenges—fare almost as well as affluent students who attend the same colleges. Their research also indicates that some colleges are better engines of upward income mobility than others, and that colleges that offered the largest number of low-income students pathways to upward mobility have become less accessible to them during the 2000s. As a result, highereducation’s contribution to increasing intergenerational mobility has diminished. It is unclear why access has fallen to colleges with relatively high mobility rates. | 0 |
However, unemployment is still too high - the increase in production of almost 15% since the end of the 1980s has not been sufficient to bring the labour market into balance. The employment ratio has increased, however, from 72 to 74% during the past year and employment is expected to increase greatly during the coming years. It is expected that open employment will fall to 3.7% in 2002. However, the beginning of this decade looks very promising. Almost the entire 1990s were marked by the problems in the wake of the high inflation economy of the 1980s and the overheating that ended that decade. Loan-financed consumption, excess investment, among other things, in properties, which took place in tandem with the increasing asset and property prices, had led to large financial and real imbalances being built up. When the bubble burst and the krona fell, there was a great need among households, businesses and banks to review their balance sheets and reduce their debt. As we know, this led to a great reduction in demand and increasing unemployment, which in turn caused major problems in public finances. The costs of the bank crisis aggravated the central government budget problem at the same time. Monetary policy, focused on stable prices, has played an important role for creating balance in the Swedish economy. This favourable development would not have been possible, however, without a responsible fiscal policy. | In the second place, the development of asset prices can lead to financial imbalances accumulating so as to threaten the stability of the financial sector and the Riksbank has a special responsibility here. Asset prices stimulate household consumption and business investment and it is probably here that asset prices are most significant for inflation target policy. Rising share prices, for instance, increase household wealth inter alia and are an indication that the economy is expected to grow strongly. Household consumption decisions are to a great extent based on expected incomes and wealth. At the same time, investment decisions by businesses are based on expectations of increased production. If households and businesses base their consumption and investment decisions on the expectations reflected in asset prices, demand will probably increase more rapidly than the actual growth of the economy. This creates an inflationary pressure in the domestic market. If the international investors also expect that productivity and the return will increase more quickly in Sweden than in the surrounding world, the exchange rate can, however, strengthen and also dampen inflation. Asset prices are also important for the assessment of stability in the financial system. It is important for instance to assess the risk for debt among businesses and households, which can be the result of rising asset prices, creating risks for suspensions of payments and ultimately for bank crises. What characterises a financial imbalance? Rising asset prices can thus contribute to financial imbalances being created in the economy. | 1 |
By this point, the Registry had introduced inspection teams to undertake on-site supervisory work. One target of this more invasive approach was the New Cross Building Society, which was closed down in 1983 following a detailed investigation of its business that uncovered non-compliance with key provisions of the Building Societies Act. The Registry concluded that if the present management and existing policies continued, there was a distinct risk of a crisis in this rapidly growing society and that it would then not be able to repay retail depositors in full. 30 BSA Building Societies Yearbook 1998-99 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 A weakness of the legislation as it stood then was that the only hard power available to the Registry was to force the closure of a building society. In most instances, the threat of such action was sufficient to achieve the Registry’s aims – but in the case of New Cross, the most radical option had to be pursued. The Building Societies Act 1986 aimed to improve this and handed enhanced powers to the newly-formed Building Societies Commission (BSC), which was tasked with enforcing tougher prudential requirements in respect of capital, liquidity, systems of control and governance – and all on a statutory footing (you will note here the parallels with developments in banking supervision). | If we have a world made up of one very large country and several very small countries, with full cross-border financial integration (in the 1 For a more expanded version of what follows, see my published work, in particular Gudmundsson (2008) and Gudmundsson (2016). 2 economic sense of these terms rather than the legal one), and assume that relative risk premia are constant, then long-term interest rates in the small countries will be pegged to long-term rates in the large one. This, of course, is an “unrealistic” theoretical simplification. But it gives us a reference point to start to think about these issues, and it indicates the direction we might be heading in as global financial integration progresses. In this type of world, the small countries could still have independent monetary policy of a sort, provided that they have a flexible exchange rate regime. They could pick their own inflation targets and set their own short-term rates that would affect economic activity in the short run and inflation in the long run. In this case, monetary policy works mostly through the exchange rate channel. If exchange rates are “well behaved” and the financial sector is sufficiently regulated and supervised, then a floating exchange rate and “keeping your own house in order” is sufficient for independent monetary policy and financial stability. The problem is, however, that exchange rates are sometimes far from being smooth reflections of underlying fundamentals. | 0 |
Several times over that period, it appeared that growth was breaking out on the upside and forecasts were raised, but each time such hopes were disappointed. We are again at a similar junction. Over the past two quarters, the pace of economic growth has picked up. In particular, real GDP rose at a 1 Agria Sbordone, Thomas Klitgaard, Jonathan McCarthy and Joseph Tracy assisted in preparing this speech. BIS central bankers’ speeches 1 3.5 percent annual rate last quarter, and is widely expected to grow at around a 2½ to 3 percent annual rate through the end of 2015. This time, however, I believe that we are less likely to be disappointed. That is because several of the various “headwinds” that have impeded U.S. economic activity in recent years have subsided. This allows the improving underlying fundamentals to exert themselves more forcefully. For example, fiscal restraint, which had a significant impact on economic growth last year, has abated, and is likely to disappear altogether next year. Credit availability has also improved, reflecting healthier bank balance sheets and improving job and income prospects for potential borrowers. In addition, the excess supply of housing that built up during the boom of the previous decade has been worked off. This lessening of headwinds has allowed supportive financial market conditions spurred, in part, by very accommodative monetary policy to shine through. As a result, I expect that both consumption and business investment spending will strengthen over the next few quarters. | All of this remains very much a work in progress. But, these efforts should help us to avoid repeating the mistakes of the recent past, and enable us to take a more proactive stance toward mitigating potential future vulnerabilities. Of course, we at the Fed are not alone here. Since the recent financial crisis, central banks worldwide have been engaged in a broad rethinking of how to better fulfill their mandates. Let me close with a final thought. The largest problems that countries create for others often emanate from getting policy wrong domestically. Recession or instability at home is often quickly exported. Equally important, growth and stability abroad makes all our jobs easier. This means that there are externalities in the work we do, so that more effective fulfillment of our domestic mandates helps to bring us collectively to a better place. Ensuring global growth and stability is and will remain our joint and common endeavor. Thank you for your kind attention. 6 BIS central bankers’ speeches | 1 |
4 BIS Review 39/20086 The sudden discovery by Bear’s derivatives counterparties that important financial positions they had put in place to protect themselves from financial risk were no longer operative would have triggered substantial further dislocation in markets. This would have precipitated a rush by Bear’s counterparties to liquidate the collateral they held against those positions and to attempt to replicate those positions in already very fragile markets. In short, we judged that a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy, with lower equity prices, further downward pressure on home values, and less access to credit for companies and households. Following that initial call with the SEC on March 13, my colleagues in New York and in Washington spent the night focusing on the implications of a large-scale default by Bear and how we might contain the consequential damage. Bear renewed conversations that began earlier that day with JPMorgan Chase, which is Bear’s clearing bank for its repo arrangements, to explore a range of possible financing options. The New York Fed dispatched a team of examiners to Bear Stearns to look at its books so that we could get a better handle on what could be done. We gathered the best information we could, evaluated the risks involved, and explored a range of possible actions. | I won’t enter into the details. Just bear in mind the three following elements. First, authorities are extending guarantees to banks’ refinancing so that they can, in turn, properly finance the economy. Second, very significant reforms of accounting rules are now being implemented. Basically, these reforms allow banks to transfer instruments previously marked to market value to portfolios where that will no longer be the case. They also provide for greater flexibility in marking to market value assets whose market has shut down. Third, and lastly, governments have confirmed their willingness, when warranted, to step in and support banks’ capital. What about France’s actions? The Government and Parliament very quickly put meat on the bones of the European principles. A new bill has been passed, which provides for two things. First, it sets up a EUR 320 billion funding vehicle to guarantee banks’ medium-term refinancing (i.e. up to five years). This vehicle is strictly supervised by the French Government and the Banque de France. The guarantee is granted for a fee, so that the beneficiaries pay costs corresponding to normal market conditions. Second, the law also creates a state-owned company empowered with EUR 40 billion and entitled to subscribe to 2 BIS Review 143/2008 banks’ subordinated debt issues or preferred shares. As you know, six banks have expressed that they will issue subordinated debt and the Government announced that it will subscribe to these issues for EUR 10.5 billion. | 0 |
The ECB’s accommodative policy stance has been a key driver of domestic demand during the recovery, and that stance remains in place. As laid out in the ECB’s forward guidance, monetary policy will continue to support the economy and respond to future risks in line with our price stability mandate. And we will continuously monitor the side effects of our policies. As I confirmed to you last time when I was here, the ECB remains resolute in its commitment to deliver on its mandate. This commitment is vital for the stability of the euro area economy and for the welfare of euro area citizens. But you have also asked me to discuss more structural issues facing monetary policy, in 2/5 BIS central bankers' speeches particular the review of the ECB’s monetary policy strategy, which will start in the near future. Such strategic reviews are relatively common for central banks, although their scope and aims often vary. The US Federal Reserve is currently undertaking such a review; the Bank of Canada has one every five years. In the ECB’s case, the last strategy review was completed in 2003. A lot has changed in the last 16 years. The macroeconomic landscape has been marked by the Great Financial Crisis and the sovereign debt crisis, and more recently by a low inflation environment. At the same time, new challenges have emerged such as demographics, disruptive technology and climate change. Conventional wisdom has been challenged and monetary policy globally has explored unchartered territories. | By offering settlement in central bank money, TIPS increases the speed and safety of customers’ daily transactions.5 Since 2016, the ECB has also been exploring the application of new technologies, particularly distributed ledger technologies, to market infrastructures. Together with the Bank of Japan, the ECB is conducting a research project called “Stella” which is investigating innovations that can facilitate safer, faster and cheaper financial transactions.6 But driving change also means identifying and managing the risks that come with breaking new ground. Innovations – including stablecoins – will only be beneficial if the associated risks are mitigated through effective regulation and oversight. So I believe we should follow the golden rule of supervision: “same business, same risk, same rules”. We must ensure that stablecoins do not compromise the safety and efficiency of the payment system or the soundness and stability of the financial and monetary system. And this is all the more important for stablecoins with a global reach. The G7 Working Group chaired by my fellow Executive Board member Benoît Cœuré has made clear recommendations with a view to developing a globally consistent approach to their regulation and oversight.7 As it did for the General Data Protection Regulation, the European Union can show the way here. In line with international standards and recommendations, we – and here I count on you as colegislator – should develop and enforce regulation that strikes the right balance between supporting innovation and addressing risks. | 1 |
If we add to the foregoing ingredients a strong increase in banking competition, both among deposit institutions and between these and other less regulated non-bank competitors, the pressure to increase the risk profile in order to maintain past profit levels simply heightens banks' incentives to take on more risk in upturns. Having commented on the problems of excessive credit growth and how a more conservative monetary policy can mitigate them, I would like to move forward to the second part of my speech, and concentrate on the resilience of the banking system and the role of supervisors. We should acknowledge that the resilience of the financial system in general, and of credit institutions in particular, plays a key role in softening cyclical downturns. Evident in this crisis has been the notable weakness with which many banks have faced the downswing. To increase their resilience, banking regulation policy can perform a pivotal function by curbing 2 BIS Review 149/2008 the countercyclical behaviour of capital, so that it protects banks and prepares them for the crisis. And to discuss this, I am bound in this second part of my speech to refer to Rojo (the Spanish for red, and “Rot” in German). Again, this is not only a type of wine but the name of the former governor of the Bank of Spain entrusted with steering and successfully ensuring the Spanish economy’s entry into the euro area. | Ivan Iskrov: Association of Banks in Bulgaria – 20 years Congratulatory address by Mr Ivan Iskrov, Governor of the Bulgarian National Bank, to the Association of Banks in Bulgaria on the occasion of the 20th Anniversary of the Association’s Foundation, Sofia, 3 April 2012. * * * Mr. President, Ladies and gentlemen, Dear colleagues and friends, It is a great honour and a pleasure for me to be here today commemorating with you the 20th Anniversary of the guild of the banking profession – the Association of Banks in Bulgaria. This is a perfect opportunity to congratulate the Association for the long way it successfully traversed, and along which it established itself as one of the most reputed trade associations in the Republic of Bulgaria. All these years the Association consistently assisted its members in pursuing their banking business and protecting their interests, all the while standing as a stable and constructive partner of the central bank, as the banking regulatory authority, of other government authorities, and of the representatives of the business. Therefore, we the members of the BNB Governing Council are all pleased to attend this occasion as a proof of the respect cherished by the central bank’s management for your work and professional achievements! Behind the ABB’s history stands the individual road of achievements, but also of challenges, of each one of the Association’s members. | 0 |
Similarly, if you went to your personal lawyer and overheard him refer to you in conversation with his associate as a “counterparty,” rather than as a “client,” would you worry? You should. My point here is not that banking is a profession like medicine or law. My point is about how you see your customer and the service provided to that customer. A counterparty is not someone needing your help; “it” represents a profit opportunity – something to be exploited. Their loss is your gain. A customer, by contrast, is someone to be served. It is right to charge a fee to a customer, client, or patient, but the transaction is driven by the other person’s needs. Many financial services firms, however, refer to the people they do business with as counterparties. This is no accident. It characterizes the way in which the organization views the person it is facing in its businesses. Viewing customers as profit opportunities is inconsistent with a strong ethical culture. In my experience, firms that consider their operational model as service provider tend to have a better culture than those firms that consider their operational model as money maker. The second item that I would leave out is a conception of a bank as a money making machine. This is not to say that I would ignore profitability; that would be foolish and would destine a firm to a short life. | The number of vacant jobs is significantly higher than two years ago, specifically by about a third. Many industries are facing a shortage of workers, including both specialists and low-skilled workers. Speaking of the inflow of labour migrants, it has already returned to the pre-pandemic level, according to recent data. However, as the demand in the industries with a large portion of labour migrants (in courier services and construction) has surged over this period, companies still experience a deficit of labour migrants. Consequently, the rise in the demand for labour in various groups of employees is translating into the steady increase in nominal wages. In the course of the discussions preceding our today’s decision, several executives of our regional branches stressed that increasingly more companies were forced to raise wages at a double digit pace to be able to retain their employees. The staff shortage is a factor limiting enterprises’ capacities to expand output. It is hard for them to catch up with growing demand. This suggests that proinflationary risks brought about by labour market gaps are strengthening. Monetary conditions continue adjusting to our earlier decisions on the key rate. After the meeting in October, nominal interest rates, including on federal government bonds, deposits, and loans, continued to go up. Yields on federal government bonds rose over the entire curve. The growth of short-term yields has been mostly driven by the increase in the key rate and the updated forecast of its further path, whereas long-term yields are largely influenced by the escalation of geopolitical tensions. | 0 |
However, there are factors restricting the leeway on this front, since the policy interest rates of some Latin American economies stand at record lows, and in some cases the central banks themselves regard them as close to the effective lower bound. Admittedly, the financial asset purchase programmes implemented by some Latin American central banks have been effective so far; but the consequences of their prolonged continuation or future extension are uncertain, given that the use of such instruments in the region is in its infancy. Therefore, in the event of further adverse shocks, there is a vital role to be played by the global and regional safety net, such as the support of the credit facilities provided by the IMF,11 the World Bank, the Inter-American Development Bank and the Development Bank of Latin America, among others, along with the Federal Reserve's swap lines and FIMA Repo Facility. Third, as in the rest of the world, the pandemic may have permanent downside effects on potential growth. These stem, among other factors, from extensive job destruction (the 10 According to the Economic Commission for Latin America and the Caribbean (“The social challenge in times of COVID-19”, COVID-19 Special Report, No 3), the poverty rate may rise, setting it back to 2010 levels, together with a significant increase in the Gini coefficient. 11 To date, the IMF has provided countries in the region with close to $ billion in financial programmes. | For a more detailed analysis, see Banco de España (2020), “Recent developments in the most important Latin American banking systems for Spanish banks”, Box 2, “Report on the Latin American economy. Second half of 2020”, Analytical Articles, Economic Bulletin, 4/2020. 8 For a stress test analysis of the 61 largest banks in Latin America, see Annex 4 of the IMF’s Regional Economic Outlook (2020), Pandemic Persistence Clouds the Recovery. 9 See A. Werner, A. Ivanova and T. Komatsuzaki (2021), Latin America and Caribbean’s Winding Road to Recovery, IMF blog. 5 First, in addition to the human cost in lives, the effects on poverty and income distribution have been very severe.10 Indeed, during 2019, bouts of political tensions and social unrest in several countries, partly related to this situation, fuelled economic uncertainty; this in a region where numerous elections are due to take place in the coming quarters. A second challenge is that posed by shrinking fiscal space following the increase in government debt in the region during 2020, positioning it as the emerging region with the highest government debt-to-GDP ratio and, where debt refinancing is concerned, leaving it highly vulnerable to changes in investor sentiment. Against this background, monetary policy is supported by the accommodative policies of the main developed economies and by low inflationary pressures. | 1 |
Sometimes, unfortunately, some directors of finance companies think that they are immune from this risk. Some of them say: “we have a highly respected chairman; we have a super CEO. We have entrusted the entire management to those wonderful persons; they are very good; they are well known; they know their subject; 2 BIS Review 55/2008 so therefore we can take it easy and relax.” That appears to be their philosophy. If you think so, you may do that. But remember, you would be doing that at your own risk! You must realize that you are also fully responsible. It is the collective board that will be held accountable. Recently, you may have recently seen some advertisements that were placed by the Failed Finance Companies Commission, summoning all the directors, in the course of their inquiry. They have not said, “we will summon only the chairmen and CEOs of the failed finance companies”. No. They have summoned all. That is perfectly correct because every Director is responsible. So, each one of you too, will be responsible in the future with regard to your Company. That is why we have invited eminent professionals to come and explain to you, your duties and responsibilities. Sometimes, directors may not really appreciate their responsibilities and they may be quite comfortable about leaving key decisions to their colleagues, whom they trust implicitly. Maybe, you may comfortably place your trust in them, and indeed you may think you are entitled to do so, because you are working together. | But, at the same time, in the interest of the entire system, there may be occasions that we have to do that. So, please understand the rationale for our regulation. We are responsible for financial system stability and you, in an indirect way, are also responsible for that. 4 BIS Review 55/2008 | 1 |
In this regard, the ECB supports both private-sector and European Commission initiatives to encourage further integration, such as the follow-up to the report of the Commission’s Forum Group on Mortgage Credit. Infrastructure Integration of financial markets cannot take place without an integrated payment, clearing and settlement infrastructure. This brings me to the third component of the financial system, the financial infrastructure, which also gives me the opportunity to illustrate some cases of where the ECB has taken direct action. TARGET is one such example. Had TARGET not been operational from the first day of Monetary Union, there would have been no means of transferring liquidity from a country with a liquidity surplus to a country with a liquidity deficit. Consequently, we would not have had a single but several money markets, which would have made monetary policy far more difficult to implement. Over time, TARGET has continuously increased its market share in large value payments in euro. TARGET's market share is now around 90% of the total traffic value compared to 70% at the moment when the euro was launched. At the same time, the domestic component has remained at roughly three quarters of the total traffic value. However, our ambitions did not stop in 1999. We are currently building TARGET2, which is due to go live in 2007 and will replace the current decentralised system with a single technical platform. | Prior to the most recent informal meeting of the finance ministers and central bank governors in the EU, which took place in Oviedo in Spain, a working group had studied the conditions for speeding up financial integration. This group made a review of the important welfare functions of the financial system and referred to the profits that an efficient financial sector can generate. They also illustrated some of the obstacles that remain within 3 the EU and which I have just mentioned. On the basis of its analysis, the group drew conclusions on what measures from the public sector could contribute to realising the political ambitions within the EU. The finance ministers and central bank governors of the EU member states endorsed the group’s conclusions. They thus emphasise once again that the 42 measures in the financial services action plan must indeed be implemented in the member states no later than 2005, in a way that opens up markets but does not create new obstacles to integration. Public supervision of financial activities needs to become more uniform within the EU, to enable operators with financial activities in several countries to be covered by similar conditions and to facilitate co-operation between the national supervisory authorities. Competition within the financial sector should be intensified, and in particular different financial operators should be afforded equal access to clearing and settlement systems. Furthermore, existing elements of tax discrimination should be identified and removed. | 0 |
Now, onto this scene lands crypto and digital money. Note, I did not describe crypto – in its unbacked form – as money. It isn't. For money to fulfil its function as a means of 2/6 BIS - Central bankers' speeches payment it requires stability of value. This is clearly not true of unbacked crypto. It could be a bet, a highly speculative investment or a collectible, but note that it has no intrinsic value, so buyer be very aware. More interesting is the creation of so-called 'stable coins' or digital currency, which purport at least to be money as a means of payment. But, as we have seen, they do not have assured value, and in the work we have done at the Bank of England we have concluded that the public should expect assured value in digital money, and confidence in this is needed to underpin financial stability. For stable coins to function as money they will need to have the characteristics of, and be regulated as, inside money. Meanwhile, a lot of work is going on to assess the future of digital money, including Central Bank Digital Currency (CBDC). Digital money is not new. Digital money in the form of commercial bank deposits and commercial bank reserves at the central bank have existed for many decades. What is new is the idea of broadly available retail digital money. | Currently, they have an aggregate LCR of 149% which means a total liquidity buffer of £ trillion. That buffer comprises £ billion of reserves and cash and £ billion of other high quality liquidity assets, mainly government bonds. As QT proceeds, that mix will change as reserves decline. We can't assume that, going forwards, the current answer on the total size of liquidity protection is the correct one. We saw with Silicon Valley Bank that with the technology we have today – both in terms of communication and speed of access to bank account – runs can go further much more quickly. This must beg the question of what are appropriate and desired liquidity buffers that create the time needed to take action to solve the problem. Let me go on to the next stage of developments in money, digital money, how will it change things and is it needed? We tend to think about money in two ways at least: its uses and its forms. The uses are store of value, means of payment, unit of account. On the forms, we use the terms inside and outside money and commercial bank money and central bank money1. (Gurley and Shaw 1960; Friedman and Schwartz 1963). In this language, commercial bank money is inside money, and central bank money is outside money. We regulate banks in good part because money is a public good. Inside or commercial bank money is now the dominant type of money, and that supports the provision of credit in economies. | 1 |
Monetary policy is not immune from the complexity of the real world. For instance, some unconventional policies may have had unintentional distributional consequences by pushing up asset prices, hence benefiting some households with important financial wealth. On the other hand, fostering economic recovery and reducing unemployment goes in the direction of helping the most vulnerable part of the population. In other cases, strong intervention may raise legitimate moral hazard concerns. Should Central Banks have refrained from acting at the risk of not fulfilling their mandate? Those simple questions remind us that decision making always involves some tradeoffs. It is all the more important that policy makers keep a clear focus on their ultimate objective. Central Banks should do their utmost to avoid any undesirable allocation or distribution effects of their policies. Those policies should be designed as neutrally as possible. This being said, the possibility of unintended side effects should not paralyze decision making when required by the situation in order to fulfill their mandates. The Eurosystem has faced such a situation when deciding on its program of large-scale asset purchases. I believe the decisions taken reflect an appropriate balance between the necessity of achieving the mandate and the desire to avoid undesirable side effects. Key principles underlying the implementation of the PSPP have been the minimization of unintended consequences and full neutrality, as illustrated for instance by the choice of the capital key to allocate purchases between various Governments debts. | With the supervisory pillar in place, completing the Banking Union still calls – as the euro area Heads of State and of Government recently concluded – for a common backstop for the Single Resolution Fund. And, above all, the creation of a European Deposit Guarantee Scheme. 4/5 In the fiscal policy arena, fiscal stabilisation capacity in the euro area needs to be completed through two channels: improving the member countries’ fiscal headroom and developing supranational cyclical insurance instruments. To conclude, I turn once more to the Spanish Royal Academy, which defines “challenge” as an aim it is difficult to achieve and which is thereby an incentive and a test for whosoever faces it. Economic policy-making requires constantly facing the challenges our society throws up. To quote Jean Monnet, “Nothing would be more dangerous than to regard difficulties as failures”.1 Thank you. 1 Jean Monnet, Memoirs, William Collins Sons & Co. Ltd., Great Britain, 1978. 5/5 | 0 |
The BIS Review 84/2005 3 average inflation rate over the ten years since the inflation target was introduced does not indicate any systematic deviation. The second factor that complicates the picture of a simple relationship between monetary policy and employment is that inflation is not influenced by the output gap only but also by inflation expectations, which in turn depend on the credibility of monetary policy. If there is confidence in the Riksbank’s monetary policy it is often enough to make small changes in interest rates to signal that the Riksbank is keeping a close eye on inflation tendencies. If inflation expectations instead deviate sharply from the Riksbank’s target, more potent measures may be required. Thirdly, inflation and employment are not always affected by the same factors. Many short-term factors have a strong impact on inflation but only a marginal effect on the output gap and employment (e.g. the impact of mad cow disease on meat prices or the rapid rise and fall of electricity prices due to how the weather had affected reservoir levels). Likewise, certain factors and policy decisions affect registered open unemployment more than they influence the output gap (e.g. the National Labour Market Board’s decision to scale back labour market policy measures in 2003). In addition, the relationship between monetary policy and unemployment sometimes deviates fairly sharply from previous historical patterns. | A fixed exchange rate means that the central bank, with the aid of currency market interventions or its policy rate, stabilises the exchange rate around a target, e.g. a price for the dollar, gold or an average of currencies, whereas under a floating exchange rate regime the exchange rate is determined by supply and demand in the currency market. With a fixed exchange rate, you avoid some of the uncertainty in world trade when countries exchange currencies with each other. There is a limit to how much a currency’s exchange rate can vary, which is good for importers and exporters when they are forecasting income and expenditure. The fixed exchange rate can also be seen as a way to achieve price stability. With a fixed exchange rate, inflation in the long term cannot be higher or lower than the inflation rates in the countries with which you have tied your exchange rate. For example, a fixed exchange rate against the dollar would ”force” us to maintain the same inflation rate in the long run as the US and the other countries whose currencies are pegged to the dollar. Were that to fail, our current account balance would deteriorate and we would have to devalue. BIS Review 84/2005 1 Sweden devalued five times between 1976 and 1982 under a fixed exchange rate (1976, twice in 1977, 1981 and 1982). That was because Sweden in the 1970s and 1980s had higher inflation than the other countries. | 1 |
This would clarify the position of cash as legal tender. It is also important that the legislator takes a stance on the issue of what, in addition to cash, may comprise legal tender and how this relates to the Swedish krona as a currency. Legislation on legal tender should be as technologyneutral as possible so that it will also be applicable to future means of payment issued by the Riksbank. All in all, it would therefore be good if the means of payment issued by the Riksbank is given a stronger position in the future than it has at present. The e-krona will have only minor consequences for the banking system Some critics of central bank digital currencies claim that they create risks that affect the financial system. Some are worried that the Riksbank will compete with the banks and that credit granting might be affected. 9 But this is not true. With regard to supplying money, the Riksbank, like other central banks, has always competed with the banks. We have been offering cash as an alternative for 350 years now. One difference is of course that a digital form of cash in one way or another, such as an e-krona, would be a more effective competitor to the current supply of digital payment services than physical cash is. However, our analysis shows that the consequences for the banks would be very small under normal circumstances. | 5 See IMF (2010), chapter 2, and references contained in it, for a discussion of balance sheet and asset co-movement approaches to determining systemic institutions. 6 Actually, the SBIF may deny authorization to any bank merger, acquisition of assets of a bank by another banking entity, or taking control of two o more existing banks by the same person or group, or to increase substantially the existing control if the acquiring bank that performs said merger, acquisition or the resulting group of banks reaches a significant market share. In order to deny authorization, the SBIF needs prior approval by the Central Bank Board, issued by the majority of all Board members. 6 BIS Review 124/2010 Figure 1 Net flows of investment funds to emerging economies (billions of dollars accumulated in twelve moving months, weekly data) Equity flows Total flows Emerging (1) Latin America Total equity 120 Asia ex-Japan Other emerging (2) 120 80 80 40 40 0 0 -40 -40 -80 Total Total fixed income Total equity -80 06 07 08 09 10 06 07 08 09 10 (1) Global Emerging Markets (GEM). (2) Middle East, Emerging Europe and Africa. Source: Emerging Portfolio Fund Research. Figure 2 Monetary Policy Rates in the world (1) (percent) Developed economies (2) Chile (4) Survey emerging ec. 35 Emerging economies (3) Survey developed ec. | 0 |
The minimum is a system that allows the sharing of negative information or some kind of black lists. But one should quickly migrate towards pooling and sharing positive information as well. A well functioning credit information system is not harmful to the consumers. Instead it enables the borrowers on the margin to obtain credit, those who would have been refused in its absence. In Thailand we already have two credit bureaus operating, and the Credit Bureau Act will soon be enacted to govern their businesses. Third, the need to protect the consumers. The charges and expenses levied against them should be made clear and easy to compare between various issuers. Interest rates should be declared as effective annual rates and sufficient lead time should be allowed and communicated to consumers before changes in terms and conditions come into effect. In Thailand, we are planning to set a uniform standard for the whole industry regarding such things as interest free periods, the setting of due dates and calculation methods for past due balances. Finally, if internet transactions become prevalent or poised for rapid growth, there is the need to define its proper legal framework. On this issue, we have just passed the relevant laws and are in the process of drafting the subsidiary regulations at ministerial level. At the micro level, and this is your direct responsibilities, card issuers have to put in place a good system of risk management. | And our goal, in the moment of the transition, was to fully respect the promise made to the people of the euro area namely: “The new currency will be at least as credible and as confidence inspiring as was your own national currency.” In this perspective it was very important to explain in real time our decisions to be as clear as possible on our diagnosis and reasoning with a view to convince observers that the new currency deserved fully this very high level of credibility. Secondly we also had to take into account the fact that we were issuing a new currency for eleven countries, eleven cultures and (soon to become twelve and then later on thirteen and fifteen today) and many languages. In this framework it was indispensable to have extremely clear single terms of reference from the very moment of the collegial decision. Otherwise it would have been unavoidable that various interpretations would have been given through the grid of various cultures and different languages. Had we waited for five of six weeks to give detailed explanations we would have been facing information and communication issues that would have been very difficult to solve. Thirdly, as explained before, and totally independently of the previous two reasons which are specific to the euro area, academic research had, particularly in the 90’s, made important advances in permitting to understand better the decisive role of transparency in establishing and consolidating the credibility of central banks and in helping them to solidly anchor inflation expectations. | 0 |
8 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 8 Uncertainty is very high From the rising spectre of global terrorism to intensifying geopolitical tensions and financial crises, for too long, for far too many people, the world seems to be getting riskier. They are right. Currently, on average across Europe and the US, policy uncertainty is around 1.5 standard xx deviations above its historical average. In the UK, we expect currently elevated levels of uncertainty to cut 7% from investment over the next three years and 1% from GDP. Higher uncertainty has contributed to what psychologists call an affect heuristic amongst households, businesses and investors. Put simply, long after the original trigger becomes remote, perceptions endure, affecting risk perceptions and economic behaviour. Just like those who lived through the Great Depression, people appear more cautious about the future and more reluctant to take irreversible decisions. That means less willingness to put capital to work and, ultimately, lower growth. These dynamics are clearly visible in financial markets. As one illustration, for two-and-a-half centuries, the prices of government bonds and the prices of equities tended to move together: the typical bull market entails rising equity prices and falling bond yields, with the reverse in bear markets (Chart 11). Since the mid-2000s, however, this pattern has reversed and bond yields have tended to fall along with equity prices. | Their forecast for global growth for 2019 is now 3 percent, which is the lowest since 2008–09, and it’s not hard to think of scenarios in which growth slows even further.1 In the old days, central bankers used to worry about inflationary pressures being too great. Old habits die hard, and I’m always on the lookout for signs that inflation is rising too fast. But in the current climate it’s inflation that’s too low that’s of greater concern. You see, my five-dollar cup of coffee masks an inconvenient truth: inflation in the United States is below target and has been for some time. Beyond sluggish inflation, we’re starting to see signs of slower global growth playing out in the U.S. data. While consumer spending is holding up, other parts of the economy—including manufacturing, exports, and business investment—have seen growth stall or experienced outright declines. Geopolitical Tensions The third and final issue I want to discuss—the rising geopolitical tensions around the globe— further complicates an already complex picture. When it comes to the economic outlook, the word of the day—and probably the year—is “uncertainty.” Trade negotiations, civil unrest, and tensions in a number of corners of the world are driving many businesses to take a wait-and-see approach to investment, thus putting a further dampener on growth prospects. | 0 |
More recently, the Central Bank has encouraged banks to draw up Business Continuity Plans (BCPs), focusing on their core banking solutions, back-up systems and Disaster Recovery Sites (DRS). The Central Bank, being the owner and operator of the core payment systems, is keen to ensure that the banks have put in place adequate processes and systems to deal with any disruption to core banking and payment services. It took a considerable length of time to convince banks of the importance of having BCPs, back up systems and DRSs. Evidently, the establishment of these systems has given confidence to the customers that banks are in a position to deal with emergencies that could occur at any time. 5.2 With the advancement of IT and customers becoming comfortable with new technology, they demand greater convenience, reduced transactions costs and higher quality banking products and services. The reliability of the products and services are assured to a large extent by the attention paid to BCPs by banks. While these have increased productivity in the banking sector, banks have had to spend more money for the acquisition and installation of new IT systems. 5.3 Another risk faced by the banking industry due to its becoming a major user of technology, is the risk of failures to systems. The fact that “hackers” can get into banking IT systems, with or without inside help, demonstrates the magnitude of the problem. Specially, plastic card operations have been plagued with such risks. | And my main conclusion for monetary policy is that flexible inflation targeting – applied in the right way and in particular using all the information about financial conditions that is relevant for the forecast of inflation and resource utilisation at any horizon – remains the best-practice monetary policy before, during, and after the financial crisis. A related conclusion is that neither price stability nor interest-rate policy is sufficient to achieve financial stability. A separate financial-stability policy is needed. In particular, monetary policy and financial-stability policy need to be conceptually distinguished, since they have different objectives and different appropriate instruments, even when central banks have responsibility for both 1. So today, I will first briefly summaries my view of the causes of the crisis, and then discuss what the possible lessons are for future monetary policy, and finally I shall emphasise the distinction between monetary policy and financial-stability policy. The financial crisis had little to do with monetary policy As I see it, the financial crisis was caused by factors that had very little to do with monetary policy. The factors were the macro conditions; distorted incentives in financial markets; regulatory and supervisory failures; information problems; and some very specific circumstances, such as the US housing policy to support home ownership for low-income households 2. | 0 |
Prices for credit insurance and funding costs have risen, although to a smaller extent than for many US and European institutions. As a result, Norwegian banks now have to put more effort into procuring deposits and a little less into selling loans. Such a change in banks' behaviour may help to curb growth in demand and output in the period ahead. In addition, there may be further repercussions for the Norwegian economy if weaker developments in the US lead to a broad-based pause in global growth. First, a downturn in the world economy may have a negative impact on activity and profitability in export industries and perhaps even the oil sector. It may be more difficult to sell goods in a falling market, and prices for domestically produced goods may fall. Second, turbulence and the prospect of weaker growth may increase uncertainty among Norwegian households and businesses. As a result, new projects and investments may be postponed, or enterprises may be reluctant to recruit new employees. Third, the financial market turbulence has a more direct impact on the business sector. Banks and investors now apply a higher premium and higher prices for providing capital for acquisitions, restructuring and investment, and highly leveraged companies have to pay high loan risk premiums. We still do not know what the full impact of the turbulence will be. The US authorities have taken measures, both fiscal and monetary, to address weaker growth prospects. Interest rates are shifting down in the US and many other countries. | In this respect, the strong krone is a sign that the Norwegian economy is faring well. Looking ahead, the outlook and balance of risks suggest that the key policy rate may be raised further in the period to summer. The prospect of higher price and cost inflation will in the short term outweigh weaker growth in the world economy. At the meeting on 13 March, Norges Bank’s Executive Board held the interest rate unchanged at 5.25 per cent and presented the interest rate path shown in this chart. The Board’s strategy is that the key policy rate should be in the interval 5-6 per cent in the period to end-June, unless the Norwegian economy is exposed to major shocks. The projections are uncertain. New information may reveal aspects of economic developments that indicate that the Norwegian economy is moving on a different path than projected. On the one hand, unexpectedly high cost inflation, higher import prices or a weaker krone may result in higher-than-projected inflation. On the other hand, if the global downturn has a stronger-than-expected impact on the Norwegian economy or if the krone appreciates markedly, inflation may be lower than projected. The uncertainty surrounding the interest rate ahead is illustrated by the shaded areas in the chart. The Government Pension Fund – Global Now, let me turn from the financial turmoil and economic developments in Norway to the Government Pension Fund – Global and the issue of sovereign wealth funds. | 1 |
The Saudi economy is an integral part of the global economy and is thus susceptible to systemic risks, although Saudi Arabia did not feel the financial turmoil and liquidity crisis experienced by the rest of the world as a result of the recent sub-prime crisis, we are, nonetheless, vigilant in our efforts to continually monitor the domestic market and to ensure continuation and stability of policies and regulations. I wish all success to your forum and a good stay in the Kingdom. Thank you for your attention. 4 BIS Review 150/2007 | The good news is that today isn’t the beginning of this process. Over the past seven years, a huge programme of reform has been underway to fix the fault lines that led to the crisis and to build more resilient sources of finance to serve the real economy.3 The UK has played a leading role, consistent with our position as the pre-eminent global financial centre. 40% of global foreign exchange trading goes through London. Half of all trades in OTC interest rate derivatives. Two-thirds of trading in international bonds. And more international banking activity is booked here than anywhere else. 2 Bank of England survey results. Bank of England survey results. Respondents were asked for their views on the statement ‘I believe that financial markets work in the interest of society’. Possible responses were: strongly agree, agree, neutral, disagree, strongly disagree. 3 See the FSB Chair’s letter to G20 Leaders, available at http://www.financialstabilityboard.org/2015/11 /financial-reforms-achieving-and-sustaining-resilience-for-all/. 2 BIS central bankers’ speeches Great strides have been made in making the system more resilient. The banks that sit at the centre of many markets are safer, with capital requirements that have increased ten-fold and liquid assets on balance sheets that have risen four‐fold. A new, simple leverage ratio requirement protects the system from risks that we think are low but in fact are not. Banks’ trading assets have fallen by a third since the crisis, and their interbank borrowings have been cut by almost a half. | 0 |
Recently, signs of weakness have been observed in the US, but a favourable international environment in 2007 can be expected in view of the unchanged vitality of the Asian economy and the recovery of growth in Europe. In addition to the favourable impetus from the global economy, our exports also benefited from special conditions on the foreign exchange market. The introduction of the euro resulted in a stabilisation of the European monetary scene, and the Swiss franc was sheltered from the speculative disruptions that we have experienced in the past. Nowadays our currency is far less volatile that in the 1990s, and this is certainly beneficial for foreign trade. Moreover, although the dollar has lost ground over recent years, the euro has regained a level comparable to that of 1999. Since Swiss inflation was distinctly lower than that of our main trading partners, the real exchange rate index weighted by our exports to 24 countries has declined by almost 10% over the five last years. The competitive position of our exporters has improved accordingly. Nevertheless, it would be precipitate to think that the Swiss franc was likely to continue weakening. In many respects, the current situation is paradoxical in view of the fact that currencies from countries where inflation is lowest – the Swiss franc and the Japanese yen – have lost ground to currencies from countries with a less favourable price outlook. | Caleb M Fundanga: Repatriation of bank notes between Zambia and Mozambique Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the signing ceremony of the Agreement on Repatriation of Bank Notes between the Bank of Mozambique and the Bank of Zambia, Lusaka, 4 February 2009. * * * • Your Excellency, the High Commissioner; • Governor Ernesto Gouveia Gove, Governor of the Bank of Mozambique; • Members of the Mozambican delegation; • Bank of Zambia staff present; • Distinguished Invited Guests; • Ladies and gentlemen: May I begin by extending a warm welcome to Governor Gove and members of the Mozambique delegation to Zambia in general and to this signing ceremony of the Agreement on the Repatriation of Bank Notes between the Bank of Mozambique and the Bank of Zambia, in particular. Governor, the existence of an extensive border between Mozambique and Zambia has resulted in significant cross-border trade as evidenced by the movement of people, goods and currencies across the border thereby strengthening our shared identity and background as Africans. I must however, hasten to mention that, the cross border trade has hitherto been hindered by the need for traders from both sides of the border to convert funds into United States Dollars and then convert funds back into the other currency when purchasing goods or services. By so doing, cross-border traders incur foreign exchange losses as well as other conversion costs in the process. | 0 |
Thus caution, steadfastness and self-control are called for in all areas of the economy – in other words, the maxim that “the doors of pleasure should not be thrown wide open” still applies. As far as the Central Bank is concerned, ensuring low inflation is its most important function today and in the future. And that picture is growing brighter, although care still needs to be exercised. 4 BIS Review 42/2007 | While most countries have leveraged on the existing legal or regulatory frameworks developed for consumer protection in general, there is a need to recognise the limitations of such general frameworks in addressing consumer protection in the context of promoting a more inclusive financial system. A consumer protection regime that relies on full disclosures may mean very little to consumers that have neither the capacity to understand the disclosures, nor the ability to exercise the appropriate choice between the products being offered. Existing consumer protection frameworks may need to be adapted to address the specific needs of the more vulnerable groups. Finally, the development of a financial education programme is vital to enhance financial capability for consumers to participate effectively in the financial system that is dynamic and fast evolving. We are now in an environment that is seeing the proliferation of financial products and services and the emergence of electronic finance. Greater financial literacy will also ensure that the financial industry will be responsive to the more discerning demands. Being ill equipped or having a lack of understanding of the nature of the products could increase vulnerability to misselling by financial institutions or to fraud and scams. Proficiency in financial knowledge will contribute towards greater empowerment and competent financial decisions. Studies have shown that financial education that is made available at an early age, in the school education system, will strengthen this potential and enhance the greater financial inclusion. | 0 |
8 BIS Review 126/2010 Figure 6 Stock market volatility (percent) Long-term interest rates in developed economies (3) (percent) 120 120 6 6 100 100 5 5 80 80 4 4 60 60 3 3 40 40 2 2 20 20 1 1 0 0 0 0 07 08 09 10 Developed markets (1) Emerging markets (2) 05 06 U.S. 07 08 Japan 09 10 Eurozone (1) Uses VIX volatility index. (2) Estimated volatility of the MSCI index in dollars. (3) 10-year government bond interest rates. Sources: Bloomberg and Morgan Stanley Capital International. Figure 7 Output gaps (*) (percent) 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 08 09 June 2010 Report 10 11 -6 September 2010 Report (*) Gray area shows forecast as from the third quarter of 2010. Source: Central Bank of Chile. | We should not forget the lessons from the past and the reasons that led to the construction of our current European architecture. The Maastricht treaty includes strong safeguards against ‘fiscal dominance’, by granting independence to the ECB, introducing the monetary-financing prohibition and designing fiscal rules. These are not negotiable principles. Inflation should remain under the control of an independent monetary authority while fiscal authorities are in charge of the provision of public goods and income distribution, under the condition of debt sustainability. For this, it is necessary to preserve the credibility of the fiscal rules’ framework. In other words, I would not jump to a hasty revision of the Stability and Growth Pact. 2. Monetary and fiscal authorities should take into account the intertemporal consequences of each other’s actions. This means, as said before, that the central bank should only adopt measures that can be unfolded if inflation pressures or the risk of a deanchoring of inflation expectations materialize. Fiscal authorities instead must ensure that public debt will converge to a sustainable path in the long term even if interest rates return to higher equilibrium levels in the future. And they must – hopefully – improve the quality of fiscal expansions by favoring spending that enhance future long-term growth. This is especially true at present for the European and national recovery funds. 3. The rules on the exit from exceptional measures must be clear ex ante to avoid things going wrong in the future. | 0 |
Jean-Pierre Roth: Prospects for the Swiss franc in the heart of the euro area Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Associazione Carlo Cattaneo, Lugano, 9 March 2005. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The launch of the euro in January 1999 fundamentally transformed the international monetary order. Switzerland, a small country that strongly depends on exports and capital transactions, suddenly found itself surrounded by a market with almost 300 million people sharing a single currency. What were the monetary consequences of this development, and what are the prospects for the Swiss franc, which is traditionally considered a "success product"? The role of the Swiss franc in commercial and financial transactions has certainly diminished. Although the euro is only rarely used as a means of payment in the Swiss market, billing within the euro area is increasingly taking place in the single currency only – a fact to which Swiss companies have to adjust. In the financial markets, the euro now acts as a counterweight to the dollar. The Swiss franc has thus lost some of its significance as a safe-haven currency and has performed more in line with its fundamentals. The introduction of the euro has, however, not affected our monetary autonomy or the Swiss interest rate advantage. The Swiss National Bank has been able to respond with flexibility and determination to the recent economic slowdown. | Is it possible to complement or modernise the framework to reduce known vulnerabilities while enabling investments that boost long-run potential growth and prosperity, and help alleviate some of the supply-side problems4 that contribute to high inflation? To give us a good foundation to start from, I would like to begin by briefly summarising what happened in the 1990s and how the economy has changed since then. 3 The Riksbank has for a long time been pointing out the risks associated with rising indebtedness; see, for exam- ple, Ingves (2015). 4 For example, a lack of investments in the electricity grid cause a divergence of electricity prices across different regions of Sweden. Note that there is a big difference between long-term investments that improve the functioning of the economy and strengthen supply side, which dampens inflation, and discretionary fiscal policy that can temporarily support households and businesses but risks increasing inflation. 2 [16] Drama thirty years ago We are living in dramatic times: A recent pandemic, war in Ukraine and inflation that has risen sharply around the world. One similarity between then and now is the major geopolitical drama. Then, there were revolutionary events such as the reunification of Germany in October 1990, the Kuwait war, the wars in former Yugoslavia which started in 1991, and the dissolution of the Soviet Union in December of the same year. The political events made their mark on economic developments. I have often thought of the 1990s crisis as a domestic financial crisis. | 0 |
Transparency of the Central Bank of Chile Along with helping to mitigate uncertainty, trust is a fundamental asset for institutions and especially for a Central Bank whose mandate is structured from the perspective of the general interest and whose effectiveness depends on the responses of markets and economic agents. On previous occasions, we have argued that this attribute must be systematically cultivated, especially by seeking greater degrees of transparency in dimensions that are particularly relevant to the relationship between the Central Bank and the public. Page 12 of 27 The enactment of the Transparency Law has promoted many advances and initiatives on this matter in Chile. But in addition to complying with this legal obligation, the CBC has voluntarily implemented transparency policies or best practices applicable to the different areas of its work. This includes the recent approval of the Bank’s Transparency Policy,5 a document prepared within the framework of the 2018-2022 Strategic Plan, which aims to strengthen the relevant mechanisms, and is based on the standards contained in the IMF’s Central Banks Transparency Code. However, willingness or good ideas are not enough to enhance transparency in the adoption and implementation of our institutional decisions. It is necessary to periodically evaluate progress made and identify new opportunities for improvement. With this perspective, we have made a special effort to commission assessments on various dimensions of our performance to external and independent observers, who can contrast our efforts with the experiences of other central banks or with duly validated standards. | The previous trend growth update (2019), only considered changes in the labor factor associated with immigration to the country, without modifying the TFP growth assumption made in the previous estimate (2017). Page 6 of 27 As for the long-term prices of copper and oil, they are revised in opposite directions. Copper is raised from USD 2.7 to 3.3 per pound, while oil is reduced from USD 70 to 60 per barrel. It should be noted that these prices are the ones where the prices of copper and oil are expected to be in 10 years’ time. In the case of copper, this is different from the assumption used in the calculation of the structural rule, which corresponds to the average of the next ten years, and not its end point. The upward revision to the copper price stems from the expectation of exponential growth in copper demand associated with the “green wave”. This presents itself in a context where, although conventional demand is declining, the foreseen increase in production will be insufficient to offset the aforesaid demand increase due to said “green wave” towards 2030. For this to occur, new investment projects would need to enter the sector, and there are no such projects in sight. Moreover, in the past year different international organizations and specialized institutions have raised the copper price expectation five and ten years ahead and is now around USD 3.3. | 1 |
This was more than a simple customs union since, from the beginning, external trade policy was a full Community competence. Even the CAP, whose image to day is not universally positive, was seen, at the time, as the archetype of a common policy, bringing together the shared interests and joint actions of member states. The project was further developed and enriched in two directions. A further impetus was provided by the adoption of the Single European Act in 1986. This Act set a timeframe for launching the Single Market and reaffirmed the need for achieving Economic and Monetary Union (EMU). The Single Act created the framework for full economic integration, with total freedom in the flows of goods, services and capital between member states. Even today, in some service sectors, the EU is a more integrated area, from a legal and prudential viewpoint, than the United States. And second, the intrinsic solidarity between European nations was embedded into a policy of “cohesion” through which very important financial transfers took place, over a long period of time, between the richest and the poorest members. At some stage, some members have benefited for several years from such cohesion flows to an order of 5% of their GDP, significantly more than what most poor countries get from the IMF and the World Bank. Many other developments – both on institutions and policies – took place over the years. And it is clear that, to day, the EU is much more than an economic project. | There is still no indication of a general overvaluation based on the current price level, yet several indicators suggest that overheating is already becoming apparent in the owner-occupied apartment and apartment 2 BIS central bankers’ speeches building segments. There are also considerable regional differences, although there are signs that, already now, real estate prices in some regions are no longer justified by fundamentals. Should real estate prices continue to rise at the current pace and move away from the level justified by fundamentals, a significant price correction is more likely in the medium term. Such a price correction, together with a significant rise in mortgage loan defaults, would pose a threat to financial stability. Overall, however, there is some uncertainty about banks’ risk exposure. Given this uncertainty and signs of potentially adverse developments in the real estate and mortgage markets, there is a need for action in many respects. Therefore, the SNB and FINMA have already taken the first steps and intensified their monitoring of the mortgage market. For this purpose, at the beginning of 2011, the SNB launched a comprehensive quarterly survey of banks. In this survey, detailed information is collected on key risk indicators such as loan-to-value ratios and affordability criteria in the granting of mortgage loans. The survey results, which are expected from the autumn of this year, should contribute to a better analysis of the vulnerability of the Swiss banking sector and close existing gaps in data. | 0 |
All in all, we have come to the assessment that the risk spectrum is neutral; we see equally large risks for a lower inflation path than in our main scenario as for a higher path. Repo rate lowered 0.25 percentage points The Riksbank's total assessment is that inflation measured at the rate that has guided policy in recent times, UND1X, will be slightly lower than the target level one to two years ahead. However, the picture is more complicated than this. Despite the fact that this indicates the repo rate should be lowered, the decision has not been a simple one. This is because one important reason for inflation being lower than the target level one to two years ahead is that electricity and oil prices are expected to fall back from their current high levels and it is not certain this fall in prices will affect policy. When adjusted for energy prices, inflation is expected to be in line with the target two years ahead. The forecasts of inflation presented in the Inflation Report provide scope for lowering the repo rate by 0.25 percentage points. This was also the decision taken by the Executive Board of the Riksbank yesterday. An important circumstance that affected the decision is that the unease and uncertainty in the global economy risk leading in the short term to a much worse development in economic activity than described in the main scenario. | R&D is indeed an essential aspect of modern industries and enterprises and is no less the case in the financial world. There are three important pre-requisites in strengthening research and development capabilities, namely, adequate allocation of resources for infrastructure development, forging strategic alliances through smart partnerships and developing the required pool of qualified and skilled talent. Adequate allocation of resources for infrastructure development Islamic financial institutions are continually being confronted with new challenges that need to be addressed. Their institutional capacities and capabilities need to be continuously strengthened. This includes attention to continually review their strategic orientation and key priorities and the necessary adjustments that need to be made to position the institutions to effectively respond to the new developments and challenges that have emerged. In order to meet the increasing demands of a modern and sophisticated market, financial institutions must continually invest in the supporting infrastructure that promotes research and development. This will enhance the capacity for innovation. Attention also needs to be given to the applied approach to Islamic finance and its modern practice. Financial support for advanced research at universities and research institutes will increase research opportunities. Efforts to utilise and install strong technological capabilities will also contribute to enhance research and development. In embracing the new leadingedge technology, the potential for the Islamic financial industry to develop new products and services will also be enhanced. Forging strategic alliances through smart partnerships To further enhance research and development (R&D) activities, the promotion of strategic alliances through smart partnerships can play an important role. | 0 |
Likewise, we have not yet seen evidence that there is a critical mass of banks that would today consistently meet the “use” test spelled out in the New Accord. In the coming years, and we can start very soon, we look forward to continuing this dialogue with banks, banking associations, and researchers to find ways to move Basel in the direction of full credit risk models. Although banks and supervisors have much to do in the years ahead, we are confident that the development of an incentives-based capital framework, accompanied by more consistent and focused supervisory review and a concurrent enhancement of market discipline, will improve the management of risk across the industry, promote broader financial stability and resilience, and ensure that the banking system is better able to promote sustainable growth in the economy. 6 BIS Review 47/2003 | Basel II provides a much better way of determining the appropriate level of capital to hold against risk. It does a better job of capturing default risk and the true extent of risk transfer in securitization, guarantees and credit derivatives. It provides explicit recognition of operational risk, which can be larger than exposure to market risk for some complex financial institutions, not just for processing or clearing banks. But Basel II is not the end of the process of designing a better regulatory framework for capital in financial institutions. As we move to refine and implement the Basel II framework for credit and operational risk, we need to strengthen the framework for market risk and encourage further improvements in how firms capture the possibility of extreme events. The current regulatory treatment of market risk does a good job of capturing directional risk from movements in interest rates, exchange rates and equity and commodity prices. It is less effective, however, in capturing the full range of risks associated with some newer products and trading strategies, where values can react sharply and discontinuously. In particular, the risks of trading strategies based on changes in the correlation between asset returns are not always captured under the current regulatory capital regime, nor are some of the risks associated with traded credit products. And given the relatively short history of some of these products, the current regulatory treatment of market risk may not capture the risks of these products going forward. | 0 |
At roughly the same time, starting in 2011, we’ve seen a substantial loosening in nonmortgage lending standards by banks, an important sign of normalization in credit markets, as Chart 12 (Standards have loosened since 2011 on non-mortgage products) suggests. Perhaps not surprisingly, mortgage standards have only in recent quarters begun very slowly to reverse the significant tightening that followed the housing bust; see Chart 13 (Banks and Lenders Imposed Tighter Mortgage Lending Standards, 2nd half). Broad increases in wealth, continued recovery in the overall economy with higher levels of employment and income, a relaxation of credit standards, and historically low interest rates have led to improvements in delinquency rates and increases in both demand and supply for borrowing by U.S. households. In 2013, we see the consequent increase in household debt. In the last quarter of 2013, aggregate consumer debt increased by $ billion, the largest quarter-to-quarter increase since 2007. More importantly, as shown in Chart 14 (Total Debt Balance and Its Composition, in 2013 total household debt rose $ billion, marking the first four-quarter increase in outstanding debt since 2008. This is at most the beginning of a turnaround, of course: for example, once we adjust for inflation, debt per capita has just barely stopped falling, as Chart 15 (Real Household Liabilities Per Capita) suggests. BIS central bankers’ speeches 5 Further analysis based on our Consumer Credit Panel shows that the growth rates in auto and student loan borrowing have been positive for some time now. | But in many respects they highlight the inadequacies of existing regulations. The ease and cheapness of gathering, processing and disseminating information has encouraged financial innovation in a number of areas, including the development of screen-based trading systems, securitisation and the proliferation of derivative products. One of the regulatory responses to financial conglomerates is the adoption of consolidated supervision. Regulators should consider whether various businesses within a conglomerate (banking, securities, insurance, etc.) should be consolidated in an accounting sense for the purpose of calculating capital adequacy and other prudential ratios, and for assessment in general. The more general view expressed, for instance, in European financial market directives and Basle regulatory guidelines is that like activities should be treated identically for supervisory purposes, regardless of the category of institution. It is also important that bank and securities regulators co-operate at the international level. Financial innovation, e.g. derivatives trading, creates transparency problems for regulators, because of the speed and complexity of risk transformation. The appropriate response of market transparency is more extensive disclosure of financial information. But in the context of fast-moving derivatives business the difficulty is to formulate effective disclosure rules that do more than provide an outdated snapshot of risk exposures. For management of financial institutions, the main emphasis must be on internal controls. External regulators, such as the Basle Committee and IOSCO, have responded and issued detailed guidelines on risk management. | 0 |
Additionally, before this sad event, the first release of the National Accounts for 2009 and data at hand for the period preceding the catastrophe showed domestic output and demand growing faster than previously expected. Let me discuss both in more detail. Incoming information since the statistical closure of our December Report suggested that the foreseen recovery of domestic output and demand was not only materializing but doing so faster than anticipated. GDP dropped 1.5 percent in 2009, less than the 1.9 percent drop that had been forecast in December. In the fourth quarter, GDP actually rose 2.1 percent annually. These figures showed a faster recovery for those industries more closely linked to domestic demand, particularly manufacturing and retail. In the second half of the year the economy grew at an annualized rate of around 6 percent, narrowing the output gap more than December’s forecast (figure 1). Domestic demand also fell less than forecast in December. Data for the last quarter of 2009 stood out because of the performance of consumption and investment in machinery and equipment. In addition, inventories for the year as a whole had a milder depletion than previously expected. Information available prior to the earthquake and tsunami pointed to a continuation of the strong evolution of output and domestic demand. Sales indicators showed an upward trend and indices of consumers’ and firms’ perceptions were at optimistic levels (figure 2). The labour market was also picking up, with increased employment and an evolving composition by occupation. | William C Dudley: The evolving structure of the US Treasury Market Conference – welcoming remarks Welcoming remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the evolving structure of the US treasury market conference, Federal Reserve Bank of New York, New York City, 20 November 2015. * * * Frank Keane, Michael McMorrow, Joseph Tracy and Nate Wuerffel assisted in preparing these remarks. It is my pleasure to welcome you to this conference on the evolving structure of the U.S. Treasury market. As you all know, the Treasury market plays a unique and crucial role in our economy, and in global financial markets more broadly. Treasury securities serve as a liquid investment and hedging vehicle for global investors, a ready source of collateral for many financial transactions and serve as a risk-free benchmark for other financial instruments. The Treasury market is important for the Federal Reserve’s implementation of monetary policy and also is a focus here at the Federal Reserve Bank of New York in our statutory role as the Treasury’s fiscal agent. The Treasury market also helps to underpin the U.S. dollar’s status as the global reserve currency. And, of course, it is the primary means for borrowing to finance the U.S. federal government. 1 In recent years, the structure of the Treasury market has changed significantly. Trading has become increasingly electronic, and, in many cases, highly automated. | 0 |
Keeping up with fast markets Speech given by Chris Salmon, Executive Director, Markets, Bank of England 13th Annual Central Bank Conference on the Microstructure of Financial Markets, London 6 October 2017 I am grateful to Tom Horn, Geir-Are Karvik, Joseph Noss, William Rawstorne, Jack Worlidge, Jonathan Rand and to other colleagues for their comments and contributions. 1 All speeches are available online at www.bankofengland.co.uk/speeches Good morning and welcome to the second day of our conference. Yesterday we heard from Richard Payne’s session on the subject of algorithmic trading – a key development in market structure, enabled by the greater prevalence of electronic trading. This morning I want to step back a little further and look at the broader implications of the moves toward more electronic and automated trading. One phenomenon this has given rise to – and perhaps the element which has most captured the public imagination – is the series of ‘flash’ events which have occurred over recent years (Chart 1). The 2010 flash crash in US equities was the first such episode to generate headlines outside the industry. Four years later, in 2014, we saw something similar in the US treasury market, the most liquid bond market in the world. Closer to home, shortly after midnight in London on 7 October last year, the bid for sterling momentarily evaporated, with the currency falling nearly 10% against the US dollar before quickly reversing (Chart 2). | The changing distribution of risks for individual firms Moving on to my second example, even in the absence of systemic spill-overs from flash episodes, fast markets alter the pattern of risks that individual market participants are exposed to. And there good grounds for concluding that more needs to be done to ensure market participants take account of this consistently. 14 See BIS (2017), ‘The sterling ‘flash event’ of 7 October 2016’, January. See Joint Staff Report (2015), ‘The US Treasury Market on October 15, 2014’. 16 In this spirit, the FPC concluded following the sterling flash event that “such disruptions underscore the concern that liquidity in some markets may have become more fragile in recent years”. See Record of the Financial Policy Committee Meetings held on 23 and 29 November 2016. 15 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 Use of algorithms does not change the fundamental risks associated with trading in financial markets (e.g. market, counterparty and operational risks). But use of high-frequency trading algorithms does change their relative intensity and can materially increase the potential to build up significant intraday positions. This latter point is most obviously true for those bank and non-bank intermediaries that specialise in highfrequency trading. And though these firms should be expert in managing such risks, history shows this is not a given. | 1 |
The remaining 12, like me, are chosen by ninemember, nonpolitical boards of directors of citizens in their districts and charged with conducting the business of the Fed in the field based on our business acumen and with developing policy insights based upon what we see, hear and measure on Main Street. Together, the 17 of us formulate policy with the best judgment we can collectively muster, free from political pressures or the passions of the moment, on what is in the best long-term interest of the country’s economy. We each gin up forecasts for the economy. All 17 FOMC participants’ expectations for the economy through 2013 and beyond were released to the public yesterday and widely reported in the press today.5 To develop those forecasts, we employ sophisticated econometric models, study the entrails of numerous comprehensive surveys conducted all across the nation – like the Dallas Fed’s Texas Manufacturing Outlook Survey and the Texas Retail Outlook Survey and their counterparts in other Federal Reserve districts – and draw upon input from our boards of directors, numerous advisory boards and contacts with businesses and stakeholders nationwide and worldwide. These forecasts are helpful guideposts, but they must be kept in context. Kenneth Arrow, one of the most notable Nobel Laureates in economics, has his own perspective on forecasting. During World War II, he served as a weather officer in the U.S. Army Air Corps and worked with a team charged with the particularly difficult task of producing month-ahead weather forecasts. | That certainly implies a wide spectrum of actions: from generating online the account statement to transfers and payments via electronic platforms from various institutions, which are different from banks, digital money or virtual currency. Physical and digital worlds are intertwining rapidly. What do we imply with financial innovation, while speaking about financial technology ( Fin Tech)? An expert of this field says than Fin Tech should not indispensably be a rather complicated or sophisticated technical concept. Fin Tech supports business to be more effective and the systems to function better and faster, or simply to make life easier to individuals/businesses through the use of efficient financial services. Authorities have a decisive role in being committed to and supporting innovation. Advanced countries, such as Great Britain, are a good example of this approach. In the United Kingdom, the volume of transactions has grown by 74% since 2008, compared to 27% growth for the whole world or 13% for Silicon Valley. The British success is driven by the large support of government strategies and programs, from the regime of the points of sales, initiative to encourage investments and the establishment of the regulatory framework that provide grounds for the success of new initiatives, the possibility to access credit data for small-size enterprises, in the payment system and equal participation in the free competition. What can a Central Bank do? | 0 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.