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Then we will move on to the impact of the recent global financial crisis on the rising issue of financial education and financial awareness. Taking into account the importance of benefiting from other countries’ experiences while formulating national financial education strategies and programs, in the second session we will focus on financial education practices around the world. I believe that this session will yield very useful inferences. In the third session, we will listen to experiences of those countries that have made significant progress in designing their national financial education strategies and we will learn their methods, challenges and suggestions for solutions as well as the outcomes they obtained. On the second day of the Conference, we will elaborate the current efforts on financial education in Turkey and the roles and responsibilities of all relevant stakeholders. At this point, the cooperation between institutions will play an instrumental role in designing national strategies. The implementation of education programs is as important as designing financial education strategies and this issue will be thoroughly discussed in the sixth and last session of the Conference. As the Central Bank of Turkey, we strongly believe that the significance of financial education is far beyond its conceptual meaning and we attach great importance to collaborating with national and international institutions in this area. We believe that this Conference with the valuable contribution of the Capital Markets Board will be a milestone. I wish the Conference every success and thank everyone who has made a contribution. 2 BIS central bankers’ speeches | Against this background, it is timely that SEACEN Centre has initiated this course to explore the nature of financial intermediation, the role of financial markets in the allocation of resources and the need for appropriate regulatory framework. As regulators, we need to understand the concepts and the basics of the working, the pricing and trading strategies of the derivatives markets and instruments, how financial entities use them in risk management, as well as their potential impact on financial system stability. But more importantly, in these two weeks, we will benefit from the presence of a number of distinguished speakers that have kindly given up their time to be with us. I hope we will use this opportunity fully. On this note, I would like to thank Mr. Sunil Sharma, Chief, Asian Division, IMF Institute, for his efforts to coordinate this course with the SEACEN Centre and the Bank of Thailand. I trust that this course will be most fruitful and rewarding for all the participants, but above all that the interaction among yourselves will provide an opportunity for you to learn from one another, and strengthen the bonds of friendship that bind the works of our institutions for many years to come. | 0 |
After completion of the gold sales and the distribution of the proceeds from the sales to the Swiss government and the 26 cantons, the SNB’s balance sheet will consist of approximately CHF 90bn. With the remaining 1290 tonnes of gold reserves, the SNB retains roughly 20 percent of its assets in gold. By international comparison, the SNB continues to hold a very significant stock of gold. During the remainder of my talk, I would like to address what strike me as the most relevant issues that came up in connection with these gold sales. I will begin by outlining the historical context of the SNB’s Governing Board’s decision to declare 50% of its then gold reserves as no longer necessary for monetary purposes. As you will see, a number of constitutional and legislative changes were necessary for that policy decision to result in actual gold sales. I will then outline how the SNB designed, revised and implemented its selling strategy. Finally, I will attempt to draw some tentative lessons from these gold sales, some of which might be of interest to those central banks or international institutions that are considering gold sales or have recently begun to sell gold. II. Historical context In 1999, the SNB held 2590 tonnes of gold on its balance sheet. At that time, the SNB’s gold stock represented 30% of U.S. gold reserves. In relative terms, Switzerland’s position was extreme among the G10 countries. | Philipp M Hildebrand: SNB gold sales - lessons and experiences Speech by Dr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, at the Institute for International Economics, Washington, DC, 5 May 2005. * I. * * Introduction I am pleased to be in Washington today and would like to thank Fred Bergsten and his colleagues at the Institute for International Economics for providing me with this opportunity to talk about the recently completed gold sales of the Swiss National Bank (SNB). In June 1999, the Governing Board of the SNB decided that half of its then gold reserves of 2590 tonnes were no longer required for monetary purposes and that it would inform the market and the public accordingly. This decision contributed to the process that eventually led to the first central bank agreement on gold sales. This so called Washington Agreement provided the framework for the subsequent gold sales of the Swiss National Bank, the ECB and thirteen European national central banks. Under this agreement, the SNB’s realized sales of 1170 tonnes which represented the bulk of the total sales of 2000 tonnes for all participating central banks. The SNB completed its gold selling program on March 30, 2005 after selling a residual 130 tonnes under the second central bank agreement on gold sales. | 1 |
This served not only to foster consumer confidence in payment cards but also boosted credit card spending by foreign tourists which increased from RM4.3 billion in 2006 to RM7.9 billion BIS central bankers’ speeches 3 in 2013, an increase of 83% over 7 years. In 2013, fraud losses had remained low at less than 0.03% of the total value of debit and credit card transactions. Due to the liability shift in the rules of the international payment card network operators, about 89% of these losses are borne by foreign financial institutions who have yet to implement the higher security requirements. Consequently, our fraud losses amounted to only 0.01% of the total payment card transaction value, which is quite low by international standards. One lesson learnt was that if we invest intelligently in infrastructure, we would certainly reap the benefits faster than expected. Nevertheless, there have been recent reports on concerns over emerging fraud threats in online banking and online payment card transactions. In this regard, I would like to stress that individuals do not and should not bear any loss arising from any unauthorised transaction not caused by them. Bank Negara Malaysia will not tolerate any cases where financial institutions have acted unfairly by passing the liability of fraud losses to their customers. Bank Negara Malaysia holds the board of directors of financial institutions responsible to ensure that effective safeguards are in place to counter both present and emerging fraud threats. | BIS Review 66/2004 7 Meanwhile, even with a clear intention to do so, the practice of lending, and the pricing of lending, in accordance with state policy and not the credit worthiness of the borrower takes time to get rid of. Although it does not take long for the credit officer to learn to look at the balance sheet and the profit and loss account of the borrower, the security of the job requires an unspoken recognition of the authority of those in a position of power in the government bureaucracy. A further complication is the fact that commercial bankers are part of the government bureaucracy. In such a system, it is difficult for the bureaucratic position of the individual to be aligned with the commercial interest of the bank, which is to make profit. There is an interesting description of the stance of such an individual: where you stand (on an issue) depends on where you sit (in the bureaucracy). Consequently, it will take some time before the process of credit allocation becomes entirely market-based and the banks subject to the market disciplines that we are familiar with. One implication of this is that the high NPL and low capital adequacy ratios will continue to be a feature, with ebbs and flows, as capital injections get rid of the stock of NPL while the flow of NPL continues, but hopefully at a reduced pace as corporate governance improves. Professionalism cannot be acquired overnight. | 0 |
For this reason, Madam President, I would like to suggest dealing with this topic in greater depth in a session of the Commission especially designed for this purpose, which would allow us to deepen the background information compiled for this Report’s box and identify priorities for future follow-up. Nature and relevance of uncertainty in the current scenario The second topic I would like to address is that of uncertainty. As you will have noticed, this term is mentioned several times in this Report when characterizing the economy’s current situation and its outlook. It is appropriate to go deeper into the meaning of this concept because it is too often used or interpreted in different ways, some of them as a synonym for risk and/or threat to the economy. According to its formal definition, uncertainty refers to the lack of certainty, that is, the degree of randomness in variables of interest such as, for example, economic variables that affect welfare. Other definitions point to a diversity of plausible states, to which it is not possible to assign a probability of occurrence. These definitions mark a difference with the concept of risk, because the latter refers to the real possibility of occurrence of certain adverse events. Thus, uncertainty is a broader concept that is not necessarily related to adverse events or even to concrete possibilities. | In fact, the cost of maritime freight has tripled, and the prices of other inputs and commodities, such as construction materials, food and agricultural produce, have also risen considerably (Figure 11). All of this has been reflected in higher producer prices and increased short-term inflation expectations in several economies. Although global markets expect the effect on inflation to be mostly temporary, concern has increased in those economies where demand-boosting policies have been most significant. In the United States, inflation surprised to the upside in March and April, while a large fiscal stimulus package is being implemented and monetary policy remains highly expansionary. Measured inflation expectations have risen, while financial markets have experienced bouts of inflation-related volatility. In Chile, inflation has evolved as expected, as the CPI’s annual change rose to 3.6 percent in May. Expectations are in line with the two-year policy target. The annual variation of the CPI has continued to be mainly determined by the behavior of goods and energy prices. The former continues to be pressured by tight inventories in a context of high demand. The latter reflects the rise in oil prices and the low comparison base. Core CPI today stands at 3.4 percent (Figure 12). III. Projections Expected growth for this year substantially increases in the central scenario, to a range between 8.5 and 9.5 percent. | 1 |
Paul Tucker: Shadow banking, financing markets and financial stability Remarks by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at a Bernie Gerald Cantor (BGC) Partners Seminar, London, 21 January 2010. * * * Many thanks for input to Andrew Bailey, Michael Cross, Colin Miles, Victoria Saporta, and for earlier conversations with David Rule (now FSA) and Bill Winters. For background work to Michael Grady and for secretarial support to Sandra Bannister and Cheryl Feeney. This should be the crucial year in establishing a framework for a more resilient global financial system. Much of the authorities’ work is about how to do better in well-established areas of policy: bank capital requirements, liquidity requirements, supervision, and so on. But new areas are being debated, or revisited, too. Those debates are more profound. They include whether we can develop macroprudential instruments and regimes for “taking away the punchbowl” from future financial-system parties before they get out of control. Whether we can develop regimes for the resolution of banks and other key financial firms that can reinject market discipline into the financial system, while at the same time ensuring continuity of essential financial services to the economy in the event of severe distress at large, complex, cross-border firms. And whether the structure of the financial system needs to be constrained by the authorities. This evening I am going to focus on one part of the “structure” debate: shadow banking. | This effectively financed the inventory of dealers and other leveraged investors. Demand was strong. The financing tail came to wag the securities-lending dog. I doubt whether all asset managers understood the instruments they would have been holding outright in the event of a counterparty default. But that is only the beginning. Some asset managers used the cash generated by securities lending to buy risky assets outright. AIG’s escapade in and massive losses from the CDS and CDO business is well known. Less remarked upon, although public, 7 is that the insurance parts of the group – not the derivatives part – lost enormous amounts of money from securities lending, as they ended up reinvesting vast amounts of cash in securities. These investments had maturities of years not months, notwithstanding that a securities lending contract typically gives the borrower as well as the lender (ie the underlying owner of the securities) a right to terminate the transaction on demand. Again, I suspect that many asset managers did not understand their exposures. They had leveraged up, and exposed themselves to liquidity risk. Securities lenders like AIG were effectively assuming robust liquidity in the secondary market for their reinvestment securities. They were wrong. As the value of those assets fell, “securities lending” counterparties called their repos. In effect, to add to the problem of accumulating investment losses, AIG suffered a repo run – just like a bank run, in fact. | 1 |
According to information from the Bank for International Settlements, the volume of new issues in euro (calculated as a gross figure) almost doubled in the first half of 1999 compared with same period last year. By contrast, the increase in new issues in US dollars was around 10% weaker. New issues in the Japanese yen and the Swiss franc either stagnated or even declined somewhat. With regard to the role of the exchange rates between the euro and other important currencies outside of the EU, in particular the US dollar, the Eurosystem made an unambiguous choice when shaping its 5 BIS Review 99/1999 monetary policy strategy. This strategy clearly excludes any explicit or implicit targets or target zones for the euro exchange rate. The pursuit of an exchange rate target could easily jeopardise the preservation of the price stability objective and therefore hamper real economic developments. It should also be noted that exchange rate fluctuations are often caused by structural or fiscal policy as well as divergent economic developments. Monetary policy would be significantly challenged and its credibility put at risk, if such exchange rate fluctuations had to be contained by monetary policy. The absence of an exchange rate target does not mean that the ECB views the exchange rate of the euro as irrelevant or does not take it into account. On the contrary, the exchange rate is monitored and analysed as a potentially important monetary policy indicator. | The Governing Council consists of the Executive Board of the ECB and the governors of the central banks in the euro area. Monetary policy decisions are implemented by the Eurosystem, which comprises the ECB and the national central banks of the 11 participating EU Member States. The national central banks are, above all, entrusted with the decentralised implementation of the single monetary policy and the relevant activities in their countries. First, I should like to say that the launch and the first few months of the common currency have, in our view, gone well. The initial experiences with the euro and the single monetary policy have proved to be both positive and encouraging. We have currently achieved price stability and the prospects look good for this to remain the case in the years to come. The Governing Council of the ECB has become a truly supranational body. The members of the Governing Council clearly see themselves as committed to this joint cause. They take the whole euro area into consideration when discussing and taking decisions on monetary policy. The efforts made prior to and at the time of the changeover weekend at the beginning of this year are already part of history. Since the beginning of this year the euro has been quoted on the international financial markets and used for cashless payments. | 1 |
Economic and monetary developments Since our last meeting, the Governing Council has left key ECB rates unchanged: the main refinancing rate currently stands at 0.75%; the rate on the deposit facility stands at 0%; and the rate on the marginal lending facility stands at 1.50%. Economic activity contracted for a third consecutive quarter in the fourth quarter of 2012. Available indicators signal further weakness at the beginning of 2013, with domestic demand remaining dampened. This is due to weak consumer and investor sentiment and to the necessary balance sheet adjustments in both the public and private sectors. Foreign demand also remains subdued. Economic weakness in the early part of 2013 is expected to be followed by a very gradual recovery later in the year. Strengthening global demand, our accommodative monetary policy stance and the improvement in financial market confidence across euro area countries should all work their way through to spending and investment decisions and support the recovery. Even though we have yet to see sustained improvement in the real economy, survey indicators have confirmed earlier evidence of a stabilisation of business and consumer confidence, albeit at low levels. Taking a somewhat longer view, the improvement in financial market confidence since last summer has been significant. As regards the exchange rate, let me be clear that the exchange rate is not a policy target, but it is important for growth and price stability. | As you heard from the Bank’s Governor, Mark Carney, yesterday, the Bank’s strategy is to enable innovation and empower competition, while ensuring monetary and financial stability.2 In practice the Bank is embracing fintech, and working to do as much as we can to ensure that it develops in ways that maximise the opportunities and minimise the risks for society, and that as such are entirely consistent with the defining theme of this year’s summit – “the value and purpose that fintech has to society”. The Fintech Hub one year on The vehicle we use to do all this is our Fintech Hub, which we launched one year ago.3 This team, which grew out of our award-winning Fintech Accelerator, sits at the heart of the Bank and leads our fintech strategy by bringing together expertise from all of Bank’s business areas. They have engaged extensively with the fintech sector to understand developments and apply these to support the next wave of innovation in finance. Examples of their work this year include: collaborating with HMT and the FCA to set out the UK’s approach to cryptoassets and distributed ledger technology in financial services4; examining challenges in cross-border payments with colleagues from the Bank of Canada and Monetary Authority of Singapore 5; exploring how As set out by Mark Carney in his 2018 Mansion House Speech, “New Economy, New Finance, New Bank”, available at https://www.bankofengland.co.uk/speech/2018/mark-carney-speech-at-the-lord-mayors-bankers-and-merchants-dinner-mansion-house. 2 “A Platform for Innovation”, available at https://www.bankofengland.co.uk/speech/2019/mark-carney-speech-at-innovate-financeglobal-summit-2019. | 0 |
What makes our task harder is that the goalposts are moving all the time. Ever increasing complexity 4 BIS Review 52/2006 and interlinkages in the international economic and financial system mean that legislators and standard-setters must run just to try to catch the moving train. In the European context, cross-border integration has progressed further than in other parts of the world, which strengthens financial development and presumably also stability. But integration means increased risks for contagion and we must be vigilant to identify and deal with any vulnerability in the system. Regional FSAP-type assessments are at the same time broad and focused and thus useful for this purpose. In my view, it would be totally wrong to regard the FSAP as a process where the IFIs are the providers, the countries the recipients and the other stakeholders form an interested but passive audience. We need an ongoing dialogue to understand and improve the process. Hence, I am particularly grateful to our Belgian hosts for having arranged this seminar which will give us an opportunity to discuss these important issues. Thus my final conclusion, which answers the question posed in the title of this speech, can be very short: Yes, I strongly believe that regional financial stability assessments in the EU and EEA areas can provide additional values to financial stability and to a better understanding of how the cross-border interlinkages between the financial groups and the infrastructural financial arrangements under certain circumstances may add to the vulnerability of the systems. | What to expect from the Fed’s Monetary Policy Normalization?1 Sebastián Claro Vice‐Governor, Central Bank of Chile I would like to start thanking the organizers for this invitation. Let me start with a disclaimer. Next Monday, April 3rd, the board of the Central Bank of Chile will present its inflation report to the Senate. Therefore, I will not be able in this occasion to offer a detailed discussion on the macroeconomic situation and perspectives in Chile, which will be described in detailed in the report. Rather, I have decided to focus on a broader issue that is relevant for Chile and the region in the current scenario. During 2017, we will finally witness the process of monetary policy normalization in the United States. After almost 8 years keeping the Federal Funds rates essentially at zero, the Federal Reserve has started a gradual process of interest rate hikes. This is good news. Fundamentally, the normalization of monetary policy is the natural consequence of a normalization of the US economy after the Global Financial Crises. A normal US economy is a positive phenomenon for the world economy. However, this transition period may become bumpy. Indeed, previous episodes of rate hikes by the Federal Reserve have not been smooth at all for emerging economies. The most obvious of these examples is the debt crisis in the early 1980s. | 0 |
That might not matter were the consequences limited to the party-goers. But they are not. When the party ends, some innocent bystanders may lose their homes altogether. Moreover, the party-goers aren’t just deposit-taking banks. A wide range of financial institutions, including investment banks, monoline insurers, even hedge funds, have the potential to cause significant damage to the rest of the economy in the wake of their demise. Are they all to be helped to get home safely when the party ends? If so, will they all be regulated in the same way as banks? If not, how can we limit the potential cost to the taxpayer? Add to this the problem that many of these institutions are global in scope, but the responsibility for both regulation and rescue remains firmly at national level, and you can see why policy-makers get headaches as bad as the party-goers’. No individual bank, or indeed the authorities, can easily find a way out of this because their incentives are to continue in the same manner. There is, therefore, no point blaming anyone for the outcomes. But together we have to find an answer. Of course, excessively strict and detailed regulation would mean that there were no parties worth going to and the economy as a whole would suffer from a suppressed and inefficient financial sector. | They may also, under a compromise text, render partly redundant and ineffective the responsibilities of supervisors of home and host countries, as well as those of micro-prudential and macro-prudential supervisors. In this context, I believe that the creation of a banking union is to be supported. It would be a major development for banking supervision in Europe, which would bring numerous benefits and would enable us to efficiently address the current difficulties. Such a development would most likely have very positive consequences in that it would be a step towards greater European harmonisation. Naturally, the benefits of such a reform would be more far-reaching but such questions go beyond the scope of today’s conference. Questions regarding the impact and stakes of Basel III will already give ample food for thought in the rich debates and discussions this morning. I wish you all a fruitful conference. BIS central bankers’ speeches 3 | 0 |
Chairperson, some of the challenges faced by women entrepreneurs regarding access to finance have been specifically identified as follows: • Lack of collateral/ discriminatory property rights; • Financial illiteracy; • Lack of awareness of development finance; • Lack of financial confidence; • Lack of appropriate products; • Uncertain business climate; • Inadequate financial skills; • Lack of banking facilities; • Cumbersome application procedures and complicated forms to complete; 1 2 A Report on the Study Tour to Tanzania and Rwanda, 20–26 June, 2011, Gender in Development Division. BIS central bankers’ speeches • High cost of finance. • Poor gender disaggregated data which limits market information on what women want and need • Most businesses are informal and in lower value areas Bank of Zambia response The Bank of Zambia has responded by putting in place measures to maintain a stable macroeconomic environment which have resulted in significant reduction in inflation; downward movement in interest rates; and a fairly stable exchange rate. The Bank of Zambia is also the lead implementer of the Financial Sector Development Plan on behalf of the Government of the Republic of Zambia. As you may be aware, the Zambian government formulated the FSDP as a comprehensive strategy for addressing challenges in the Zambia financial sector. | In other literature, women have been credited with owning 48 per cent of MSMEs in Africa (NFNV). Therefore, women are increasingly being recognised as a powerful source of growth. Indeed, at the Second African Women’s Economic Summit held in Lagos in July 2012, women were recognised as the New Emerging Market. Chairperson, as you may be aware, the Zambian economy has been growing at an average rate of above 5% in the recent past. Most of this growth has been broad based with economic sectors, such as, agriculture, mining, manufacturing and tourism recording impressive growth rates. However, there is potential for further economic growth across all sub sectors if the potential of women entrepreneurs can be harnessed. Limited access to affordable financial services such as savings, loans, remittances and insurance services by the vast majority of the population, especially for women and the SME sector is acting as a constraint to the growth impetus. It is recognised that many women, together with the businesses they run are financially excluded. This is also acknowledged in a 2011 Report by the Gender and Development Division on the study tour to Tanzania and Rwanda, regarding women’s economic empowerment. The Report states that “there is evidence that gender disparities in national development still exist in Zambia and one of the areas of concern is access to finance by women entrepreneurs. | 1 |
There is, of course, a reason why I am standing here talking about historical events. But, before I get to this reason, I would like to say a few words about the money we use today. Central bank money and commercial bank money Today, we have three kinds of money. The first kind is the one I have talked about the most today, banknotes and coins. These are a form of central bank money, that is, money issued by the central bank. As I mentioned earlier, the special thing about central bank money is that it has no nominal credit risk, as it stands for a claim on the central bank, which cannot go bankrupt. Cash is also the form of central bank money that can be held by the general public. The second sort of money is also central bank 3 [10] money, but in electronic form. This is the money that is held in accounts with the Riksbank and it can only be held by those who are allowed to have accounts in the Riksbank, which currently means credit institutions, securities companies, clearing organisations and the Swedish National Debt Office. It is electronic central bank money that the banks use when they are making large payments to one another. This is done through a payment system called RIX. Most of the electronic payments made in Sweden, whether they are made by direct debit, credit transfer or card, pass through RIX at some point. The third kind of money is commercial bank money. | In two reports 6, representatives of the private sector, the European Commission and the European Central Bank presented concrete recommendations on how, for example, regulatory barriers could be broken down. Almost 12 years have now passed since the second report was published and some of these proposals and recommendations have still not been implemented. For example, we still do not have an EU-wide framework for the treatment of interests in securities. Drawing once more on the comparison with the United States, a cross-border securities transaction costs at least ten times as much in Europe as it does in the United States. I think that makes it clear that Europe’s economy has a lot to gain from dismantling the relevant regulatory barriers as part of a capital markets union. 5 At that time with the caveat: “to the extent necessary for the proper functioning of the Common Market”. 6 http://ec.europa.eu/internal_market/financial-markets/docs/clearing/first_giovannini_report_en.pdf. http://ec.europa.eu/internal_market/financial-markets/docs/clearing/second_giovannini_report_en.pdf. 4 BIS central bankers’ speeches In addition to harmonised regulation for securities, we should also seek to implement a harmonised legal framework for crisis management. The Council Regulation on cross-border insolvency proceedings has provided a common regulatory framework governing, for example, jurisdictions and the recognition of court judgements. But within this framework, there are substantial national differences, such as regarding the extent to which various stakeholders are protected in the event of an insolvency. In my view, a single resolution framework for non-banks, i.e. | 0 |
One conclusion seems clear: prudent risk management by a critical mass of firms will not only help to ensure a safe and sound financial system, but also will reward individual institutions with longterm profitability. In my view, market discipline, enhanced by appropriate regulation and supervision, offers the only realistic path for us to achieve our goals of a strong and stable marketplace. Today, I would like to focus my comments on the importance of risk management techniques and how market discipline can be enhanced to the benefit of public and private sector participants alike. A series of market events over the past year and a half, beginning with the devaluation of the Thai baht in July 1997, had a major impact on many lenders and investors, revealing in the process several shortcomings in risk management techniques. One lesson financial institutions learned from these events was the need to continuously reassess both counterparty credit risk management techniques and assumptions about market liquidity. Broadly, financial institutions learned that reliable estimates of the size and portfolio composition of major counterparties were lacking and that improved credit risk management techniques were needed in two key areas: credit and market exposure measurement, and counterparty due diligence. Let me be a bit more specific about some of the weaknesses found in credit risk management techniques. For example, some institutions routinely performed credit assessments using sparse, often unaudited financial information from valued customers, some of which had recorded substantial profits in previous years. | CDS spreads among 2 BIS Review 25/2008 Icelandic banks are much wider than among foreign banks with comparable credit ratings, and much wider than many – including respected financial analysis institutions abroad – consider appropriate and consistent with the banks’ financial strength and performance. 1 It is worth remembering that Iceland’s financial system has grown by leaps and bounds recently, and the operations of Icelandic commercial banks extend to a large number of foreign locations. Iceland’s three largest commercial banks now generate more than half of their income through their operations in other countries. Those operations are distributed over a wide geographical area. While they are most prominent in the Nordic region and the UK, they are also visible in Continental Europe and farther afield, though to a lesser extent. Through these operations, Iceland’s banks have fortified their foundations and distributed their risk. They are international banks with headquarters in Iceland, and they are much less dependent on economic developments in Iceland than they were previously. At the end of January, the banks published their annual accounts for the year 2007. These reflected both the success of the past several years and last year’s changes in the global capital markets. For the year as a whole, the banks demonstrated excellent performance. Profits were good, and core operations yielded strong returns. As can be expected, profits dropped in the fourth quarter, as was the case with banks all over the globe. | 0 |
In our case monetary policy set by the MPC should be able to respond to the macro implications of any dislocation to credit markets to the extent that they influence the outlook for inflation and thus deviations of inflation from target, just as the MPC conditions its policy decisions on asset price and balance sheet developments on all other occasions. That's natural. But, what we have not done – and should not do – is in any sense aim off our preferred setting of monetary policy because of financial instability. That has not happened. That outcome depends on having institutional structures governing decisions on monetary policy and financial stability. Internationally the picture remains more mixed on the latter. Let me next move on to the first stage of what I will call developments in money. Many central banks, the Bank of England included, are now implementing Quantitative Tightening (QT), the reversal of the Quantitative Easing (QE) we had previously used. QE has worked through its effects on interest rates and asset prices more generally. Those effects are temporary and their size is state contingent, being larger in times of crisis and market upheaval. We can think of QT likewise, except that we are deliberately implementing it gradually, and not in stressed times. It is not an active tool of monetary policy, but any effects it does have will be captured in the normal way of monetary policy setting, through realised financial conditions. | You will be mightily relieved to hear that we are into the home straight now, but it contains the small issue of non-bank finance. Given the increase in bank regulation required in the aftermath of the financial crisis, it is not surprising that the last decade has seen a relative and absolute increase in non-bank finance. Continuing the theme developed earlier, one important way to look at the bank versus non-bank world is that in the former there is assurance on the value of money as the main liability of banks, while in the latter the value of investments explicitly and deliberately is not assured. This is important, but we also have to recognise that the growth of non-bank finance has led to the significant expansion of the landscape of systemic risk since the crisis. In other words, we have seen that the non-bank world can transmit risk into the bank world, and other parts of the core of the financial system, like central counterparties. Consequently, the relative focus of our financial stability work has shifted to the risks posed by non-bank financial institutions (NBFIs). | 1 |
Capital flows, net in % of GDP Financial account flows, in % of GDP 15 20.0 10 MK 5 Baltics 5.0 0.0 RS LV 2017 2016 2015 2014 2013 2012 2011 2010 -20 2009 -10.0 2008 BG 2007 -5.0 2006 SI 25 2005 -15 20 2004 -10 15 SEE LT BalticsHR RO AL 2003 CZ CEE 10 CESEE 2002 HU -5 EE 2001 -5 SEE 10.0 EU28 0 PL 5 2000 0 CEE 15.0 Source: Eurostat, IMF and NBRM calculations. With the occurrence of the crisis, investment ratios plunged across the board, and despite the more recent recovery, the level of investment in most of the countries is still below the pre – crisis maximum. The crisis was accompanied by rising uncertainty, increased risk premium, and most importantly, sharp reversal in the external financing. The region has been shielded partially from 2 the sudden stop, given the FDI dominance as a stable financing, and the contained bank deleveraging, amid regional initiatives (Vienna Initiative in particular). Yet, some of the countries were also caught by the crisis in the middle of rising vulnerabilities, excessive leverage in particular, which precluded faster recovery of the investment rates. | The estimates reveal shortfall, meaning that after the crisis, the investment in the 1 The only exception is Macedonia, given the strong investment cycle after the crisis, driven by public investments and structural reforms in the export segment. 2 Transition report 2015-2016 “Rebalancing Finance”, European Bank for reconstruction and development. 4 region is lower than in the peer countries, in the range of around 3 to 6 percentage points of GDP. Similar inference is drawn by the IMF (2016)3, pinpointing post-crisis gaps in the capital stock in the CESEE region compared to estimated benchmarks, being reflection of lower savings rates in the region, narrower borrowing space after the crisis and lower return on investment. This notion is confirmed with the data on the real capital stock in the region, as well, which is around 40% of the EU-28 average, with the SEE region lagging behind significantly. Though this ratio is rising, yet it clearly indicates large scope for improvement. Chart 5: Real capital stock, per capita in CESEE region vis-à-vis EU28 0.70 0.60 0.50 0.40 0.30 2014 2012 2013 2010 SEE 2011 2008 CEE 2009 2006 2007 2005 2003 CESEE 2004 2001 2002 2000 0.20 Baltics Source: Penn World Table, version 9.0 and NBRM calculations 2. Investment financing Many policy measures for unleashing investment growth are suggested in this context. | 1 |
Dimitar Radev: Assessment of the banking system in Bulgaria Statement by Mr Dimitar Radev, Governor of the Bulgarian National Bank, on the occasion of the completion of the asset quality review and stress test of the banks in Bulgaria, 11 August 2016. * * * Today the Governing Council of the Bulgarian National Bank adopted the results of the asset quality review and stress test of the banks, as summarized by the international professional services company Deloitte. The main objective of the review was to present a thorough and independent assessment of the banks and the banking system as a whole. In its scale the exercise was unprecedented in the Bulgarian banking history and engaged more than 900 experts, including experts from the most reputable international audit firms, which acted under the direction of the BNB. The detailed results for each individual bank and the system as a whole will be announced at 1 PM on Saturday as per the formerly communicated announcement date. Following the announcement, the Bulgarian National Bank will be ready to address any specific questions related to the results. The asset quality review and stress test were mandated to the Bulgarian National Bank by law and they stem from the Government’s National Reform Programme. On that ground, I have presented the report on the outcomes to the Finance Minister and on Monday I will submit it to the National Assembly. | I would like to assure the public, that we will be consistent in our disciplined approach and we will continue to follow our plan for reforms in the banking sector focusing not on the issues of the past but on addressing effectively the challenges of the future in order to maintain financial stability and integrate successfully in the European financial infrastructure. 2 BIS central bankers’ speeches | 1 |
Particularly prominent among them are the indirect and second-round effects on inflation that may stem from the latest price increases. Indirect effects occur when, in an attempt to maintain profit margins, firms pass higher energy costs through to the price of their products. To a certain extent, the spreading of inflationary pressures beyond the energy component is already a reflection of this effect. Profit margin indicators point to a recovery in the euro area in 2021, after the sharp fall in 2020. Margins in Spain appear to have been less buoyant and, according to several (still partial) sources, even declined in the last stretch of 2021 and the first quarter of 2022. Second-round effects arise when, in an attempt to preserve their purchasing power, workers demand wage increases in line with inflation, driving up labour costs and putting additional pressures on final prices. On the latest evidence, significant second-round and indirect 9 effects are not yet materialising in the euro area. Indeed, the latest data on wage settlements point to employees bearing a considerable loss of purchasing power in recent quarters. The limited pass-through of prices to wages could partly be the result of the relatively scant prevalence of indexation clauses, after a long period of low and stable inflation. The percentage of euro area private sector workers covered by this type of clauses in 2021 was the lowest in recent decades. | They should also be designed to avoid significant distortions to price signals, which is particularly important to avert any feedback into the inflationary process. This is a further reason to avoid both an across-the-board fiscal impulse and a very widespread use of automatic indexation clauses in expenditure items. Forgoing such clauses should be part of the incomes agreement, which is the second ingredient of the economic policy response to the war that I would like to mention. An incomes agreement The priority objective of the incomes agreement that we have been advocating in recent months at the Banco de España is to avoid triggering an inflationary spiral that would only exacerbate the harmful effects of higher energy prices. It would consist of an agreement between firms and workers, under the framework of social dialogue, to share the inevitable loss of national income that higher commodity import prices entail. These are goods which we do not have, but which we need for domestic production and consumption. What are the features that should characterise such an agreement? First, it should address the asymmetric impact of the shocks, combining the necessary coordination at national level with mechanisms to adapt the agreement to the existing differences in productivity and activity across firms and sectors. If there are segments of households whose standard of living has been hit particularly hard by rising inflation, the incomes agreement should also seek to mitigate their straitened circumstances. | 1 |
For example, it is fairly easy to assess adherence to the best practice recommendation to implement a fails charge when a seller fails to deliver a Treasury security, or to use a payment-versus-payment settlement mechanism for FX transactions. In contrast, best practices that propose broad principles can be implemented differently across institutions and have outcomes that do not lend themselves to easy measurement. For instance, it is difficult to gauge the extent to which an individual market participant behaves in a manner that supports market liquidity or whether market participants as a group apply this recommendation consistently. Nonetheless, such principle-based best practices can be quite powerful in motivating market participants to think carefully about their internal policies and procedures and consider whether they are consistent with broader principles. Both types of best practices are important. Successful best practices are almost always developed using a collaborative and inclusive approach. Ideally, with respect to financial markets, the process should include a wide range of market participants, including dealers, banks, buy-side firms, and market infrastructures, representing different areas of expertise, including the core business lines, legal, compliance, operations, technology, and custody. A public consultation process may be helpful in further enhancing the development process. | Jean-Pierre Roth: Switzerland as an industrial location and National Bank policy Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Europa Forum Lucerne, Lucerne, 27 October 2003. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * In a high-wage country such as Switzerland enterprises can only maintain their position in the face of international competition by a process of ongoing innovation. The resulting structural change in the direction of highly technological and increasingly productive economic sectors is also a prerequisite for strong economic growth. In an international comparison, however, Switzerland’s growth is poor. This weak perfomance in terms of growth highlights the need for action in economic policy. Monetary policy cannot, however, fulfil this role. The primary task of monetary policy is to ensure price stability. Price stability is an important locational advantage that Switzerland has to offer. Moreover, monetary policy can also contribute to stabilising the economy and warding off undesirable exchange rate shocks. It is, however, not in a position to bring about a sustained improvement in economic growth. The result of such an attempt would merely be economic overheating with the threat of a subsequent slide of the economy into recession. Lasting effects on economic growth may, by contrast, emanate from education policy, research policy, policy on foreigners and fiscal policy. | 0 |
26 May 2022 Keynote Speech at ASIFMA China Capital Markets Conference Edmond Lau, Deputy Chief Executive, Hong Kong Monetary Authority Onshore Market Development 1. Good morning. I’m delighted to join you virtually at this year’s China Capital Markets Conference. First of all, let me take this opportunity to thank ASIFMA for organising this event and inviting me to speak. 2. Today’s agenda focuses on onshore market developments. I would like to share my thoughts on the significance of recent developments in onshore capital markets, as well as the opportunities for international investors. 3. Mainland capital markets are experiencing a period of significant growth, with onshore equity and fixed income markets currently the second largest in the world. However, international investors’ exposure to China’s capital markets remains relatively small. Only around 4% of onshore equities and 3% of onshore bonds are owned by foreign investors, which is low by international standards and far smaller than China’s weight in the global economy. 4. We are pleased to see the Mainland’s continued commitment to open up onshore capital markets in recent years. The latest developments to facilitate foreign investors’ access to the onshore markets and adopt international standards have been encouraging and welcomed by the industry. Let me highlight a few of them here. 5. First, with the removal of foreign ownership limits, global financial institutions are able to further expand their footprint in China by taking majority or full ownership in their onshore subsidiaries. | Following a strong 2021, foreign equity and bond inflows into onshore markets softened this year on the back of geopolitical uncertainty, Covid lockdowns, and the China-US monetary policy divergence leading to a reversal of onshore bonds’ yield premium. 10. Notwithstanding this, the scale of the decline in foreign purchases and holdings has moderated recently and is relatively small compared to global investors’ total holdings in onshore equities and bonds. We believe that these short-term fluctuations will not reverse the long-term trend of foreign investment in Mainland capital markets. 11. In fact, several key drivers will continue to strengthen interest in diversification into RMB assets over the medium term. These include (i) continued inclusion of onshore equities and bonds into major global indices; (ii) China’s long-term economic growth prospects; (iii) RMB being a stable currency that is increasingly recognised as a reserve currency; and (iv) lower correlation of RMB assets with other global financial market assets. 12. These factors are paving the way for a structural shift which will motivate global investors to think more strategically about their exposure to China. This, in turn, will spur demand for RMB assets and facilitate the further opening up of the onshore capital markets. 13. In the remaining time, I would like to highlight in more detail a few upcoming developments which will be of interest to international investors seeking access to Mainland capital markets. 14. | 1 |
The case for transparency and good budgetary management assumes further significance in the evolving advocacy for channelling aid through the domestic budget. The provision of aid in the form of general budgetary support confers greater independence in the use of resources on recipient countries, stronger national ownership of development policies and programmes, and lower costs than those associated with multiple aid delivery modalities. For this intention to be achieved on a wide basis and the proffered benefits realised, donor governments and institutions must have confidence in mechanisms in place in recipient countries for the management of the budget. Worries about corruption and mismanagement are antithetical to this objective; hence the need for strengthened budgetary procedures, improved governance and transparency. There is a strong perception in the donor community that international assistance is required to help strengthen the public financial management systems and processes in aid receiving countries, including oversight by parliament, audit boards and civil society. Apart from the technical dimensions of the intervention, it is considered pertinent that, as may be relevant, the recipient countries should subscribe and adhere to, internationally sanctioned arrangements, such as the Extractive Industries Transparency Initiative (EITI), to ensure appropriate disclosure of revenue accruals and maximisation of inflows from national resources. Accountability is the natural concomitant of transparency. Indeed, the purpose of transparency is essentially the facilitation of accountability. In general, accountability refers to the obligation of those in authority to account to those on whose behalf they exercise such authority, for the discharge of the responsibilities entrusted to them. | Hyden and Court in their 2002 Discussion Paper, Governance and Development, relate the BIS Review 109/2007 1 emergence of this dimension of governance to the changing paradigms in thinking on development. They trace the evolution of development thinking from the emphasis on projects to programmes, then to policies, and the latest recognition that in addition to these, politics is also important. The inclusion of the political dimension in development practice has altered the development landscape, prompting intrusion into aspects of policy earlier deemed beyond the limits of donor activity; with concomitant protests of violation of sovereignty and related controversies. The concept of governance arising from this process is not precise in meaning. Despite attempts at distinguishing between the political, economic and administrative aspects of governance, its analytic and operational dimensions, and its constitutive and distributive elements, in the final analysis governance is essentially all-embracing in its essence. It percolates through the entire fabric of the political, economic and social life of a nation. Recognition of this is reflected in the diversity of definitions given to the concept. While it may be too time-consuming to provide a sampling of these definitions, the flavour of the concept can be savoured from the following statement of Vivien Collingwood of Nuffield College, Oxford in the paper, Good Governance and the World Bank. | 1 |
We nevertheless view the continued existence of our own independent currency, which can be freely traded on world markets, as an important asset for Switzerland in general, and for its financial sector in particular. e) Efficient supervision To be sure, no financial centre can survive without credible guarantees as to its soundness and robustness. As we know, financial institutions are different from other firms. Due to the complex ties that exist between them, and given that the very institution of money is built on trust, fragile elements can destabilise the entire industry. They can have devastating effects on the other players, including on fundamentally healthy institutions. A prerequisite for a successful financial centre is therefore a strong banking supervisory authority. f) Integrity All the ingredients mentioned so far are important building blocks of a flourishing financial centre. One should not forget, however, that the most significant factor for a successful banking system is the assurance that the public, and the bank customers in particular, be honestly and fairly treated. In short, without trust there can be no lasting successful financial centre. This is more than wishful thinking on the part of a central banker. It is obvious that it is in the selfinterest of any financial centre, of its lawmakers, its supervisory authorities and of its private agents and their associations to set and implement rules and codes of conduct that match the highest standards. | And default itself amplifies losses in the network, most obviously through direct bankruptcy costs, but also through fire sales of the sort already discussed. Moreover, when entities are highly leveraged, they will have only limited capacity to absorb losses, making such a cascade of defaults more prone to occur. A similar network dynamic can occur when institutions are hit by a payment shock, such as the drying up of wholesale funding that occurred at the start of the crisis and again around the time of the collapse of Lehman’s. The analysis of the behaviour of such financial networks is still very much in its infancy 9 . But a key point material to regulatory design is that some types of network will be inherently more stable than others, depending on both the nature of the network and the obligations on its members. For instance, a network where all institutions are of similar importance and exposures are evenly spread is likely to be relatively stable, as the consequences of an adverse shock to any one institution will be spread widely and thinly. In contrast, as we saw with the collapse of Lehman’s, networks in which there are a relatively small number of key players are potentially very susceptible to the failure of a key player. By the same token, a network in which exposures are collateralised or can be netted across the system will be 9 For more discussion of this issue, see Haldane (2009). | 0 |
The second argument is that there is no evidence that conflicts of interest between the parts of our Swedish banks conducting investment banking activities and the traditional lending activities have led to abuse. One can, of course, speculate as to why abuse of this type of conflict of interest does not occur in Sweden in the same way as in the United States. I have no clear answer to that. However, there are a couple of institutional differences. Share issues in Sweden have rarely been guaranteed or syndicated in the same way as they are in the United States. The role of the Swedish investment banks in share issues has therefore often been less comprehensive than that of their US counterparts. This may have limited the problem. Another institutional difference is that the bank market is more concentrated in Sweden. This may make the banks more anxious of their credibility than US banks are. If a Swedish bank were to pass on its own credit risks to investors in a share issue, there is a greater risk that this would seriously damage the bank’s credibility. The number of large Swedish investors is fairly small and it would quickly become known if anyone felt they had been cheated. The incentives to exploit a conflict of interest have quite simply been much lower here than in the United States. | There are some different potential solutions. I have already observed that the market itself is often capable of solving the problems. This can be achieved, for instance, by customers making demands for information on various conflicts of interest. However, the collection and distribution of information is not free. And as information contains a strain of public goods, there is a risk that the market solution will generate too little information. It may therefore be necessary in certain contexts to have regulations stipulating that information on conflicts of interest must be made public. Regulations concerning greater insight into various persons’ incentives may limit the effects of different conflicts of interest. It would help outsiders to assess the quality of the information provided. A more drastic solution would be to require that activities exposed to conflicts of interest should be managed by different companies, or even different groups. The Glass Steagall Act in the United States, for instance, required that investment banks and commercial banks must be legally separated. However, there are clear disadvantages with forcing a separation of different activities through legislation. All regulation also entails costs - both explicit and implicit costs. It is important from society’s point of view that these costs do not exceed the usefulness of the regulation. One cost of separating various activities is that it makes it difficult, or impossible, for financial intermediaries to benefit from synergies and economies of scale. | 1 |
For my family, it was real. For many communities and regions it was a blight, social every bit as much as economic. Across the country, it depressed the everyday lives of millions of adults, some of whose sons and daughters I knew as friends. And it was a blight that affected not one generation, but many. It was that experience as a teenager that led me to commit to economics, and to public service, as a way to understand, and perhaps try and correct, that economic and social blight. And more than thirty years on, those are the same reasons I remain committed to better understanding, and perhaps hoping to improve a fraction, the functioning of the economy to this day. Those wrenching developments in the UK labour market in the early 1980s have been repeated throughout history, since at least the Industrial Revolution. The cycles and shifts in BIS central bankers’ speeches 1 jobs and wages, and attempts to moderate them, are as old as civilisation itself. Today’s cycles and shifts in the labour market are, in some respects, an echo of that past. As in the past, technology is changing the quantum and nature of work, displacing some jobs while creating others. As I will discuss, through each of the Industrial Revolutions innovation has disrupted the number and nature of jobs. Often, it has led to a so-called “hollowing out” of mid-skilled workers and a widening wage gap across the economy. Yet, in other respects, this time may be different. | GROUNDED LIKE EARTH – TRUSTED SUSTAINABILITY DATA (PROJECT GREENPRINT) The fifth desired outcome is trusted sustainability data. Good data is foundational to driving the green and transition finance agenda. Financial institutions and corporates need good data on their customers' and suppliers' carbon footprints and compliance with their respective transition targets. They also need good data on the climate-related risks their physical assets are vulnerable to. Quality data is key in the fight against greenwashing and in enabling stakeholders to make well-informed ESG-investment decisions. But the ESG data acquisition process is often manual, tedious and costly. Access to good data sources is often fragmented, and data verification is at a nascent stage. FinTech can be a key enabler in addressing these data challenges. In fact, we need FinTech to do in the sustainability space what it is doing today in the inclusion space. We need Green FinTech. Just as Earth provides a firm, steady ground upon which we stand, we want to create a trusted data ecosystem that provides a firm foundation for sustainable finance. To build a Green FinTech data ecosystem, MAS has launched a collaborative effort with the financial industry called Project Greenprint. Project Greenprint seeks to build digital utilities that streamline the collection, access, and use of climate and sustainability data. It aims to help mobilise capital to sustainable projects, monitor the climate commitments made, and measure the impact associated with investments. | 0 |
However, we must also acknowledge that there may be skill mismatches that prevent reallocation – especially for workers previously employed in low skill sectors such as construction – and these are more challenging to address. At the end of 2012, 18% of workers in the euro area with low education levels were unemployed, compared with only 6% of highly educated workers. This puts a strong onus on active labour market policies and, over the longer term, raising educational attainment. Fixing the financial sector Improving price signals in these ways is necessary for reallocation to take place in catchingup economies – but it is not sufficient. For example, in several such countries profit margins in the tradable sector have increased relative to non-tradables in recent years, yet these signals have not triggered meaningfully higher investment. Research by the European Commission suggests that financing constraints are an important factor limiting capital reallocation in this direction.19 Moreover, there is some evidence that weak bank balance sheets have retarded the process of “churn” between firms that drives resource reallocation. One study found that, in the early phase of the crisis, banks that were lowly capitalised were more likely to maintain credit to less creditworthy borrowers – so-called “ever-greening.20 This type of behaviour inhibits firm exits and reduces the availability of credit for new entrants. Addressing these financing constraints has both a short- and a longer-term dimension. | While ULC went up sharply before the crisis for unproductive firms, highly productive firms did not experience significant ULC growth.17 This implies, first, that there is substantial potential to boost productivity by reallocating resources both across sectors and within sectors towards the most productive firms; and second, that reallocation is not dependent on further ULC adjustment among those firms, as the most productive firms did not experience a significant competitiveness loss. In other words, productivity gains can be realised in the short- to medium-term independent of necessary longer term processes such as improving innovation or adopting new technology – or indeed, completing internal devaluation. Achieving these gains in the euro area today requires reforms that address both price signals and credit allocation that hinder the pace of reallocation. In terms of price signals, I have discussed how before the crisis excessive rents in sheltered sectors distorted profit signals and encouraged capital misallocation. Hence, ensuring that capital now flows towards higher TFP firms must involve deepening the single market and strengthening competitive forces in the non-tradable/services sector. Greater competition will also support TFP growth through various static and dynamic channels: a recent empirical 16 For an explanation of this phenomenon in the US context see Bernanke, B (2005), “Productivity”, remarks at the C. Peter McColough Roundtable Series on International Economics, January 2005. 17 Di Mauro, F. (2014), “Firm-level data: Who said that they are too difficult to use for policy?”, VoxEU 11 March 2014. | 1 |
I think our track record is good here so far, but there is more to be done. The UK does not yet have a resolution authority for insurers, as recommended in the FSB’s key attributes. Assessing firms’ preparedness for exiting the market in an orderly manner, and working with boards to make improvements where needed, will be an increasing focus of our supervision in the next few years. Nor is there generally an inherent conflict between prudential and other government objectives, as is sometimes suggested. For example, take the government’s three objectives for the review of Solvency II: 2/5 BIS central bankers' speeches to spur a vibrant, innovative, and internationally competitive insurance sector; to protect policyholders and ensure the safety and soundness of firms; and to support insurance firms to provide long-term capital to support growth. These are consistent and mutually supportive objectives. Safety and soundness underpin the other two: the sector can only be internationally competitive if it operates within a robust and reliable infrastructure, which includes the prudential regime as well as things like the legal system; and only a financially sound insurance sector can make a sustainable contribution to long-term investment. Likewise, an innovative sector, in which business models adapt to changes in circumstances, is ultimately a sounder one. In this context I am wary of calls to encourage specific forms of investment with prudential regulatory incentives, which is usually polite code for lowering capital requirements. | First, globally it is not normal for prudential regulators to have an actual competitiveness objective – to my knowledge there is only one example amongst 3/5 BIS central bankers' speeches the main prudential regulators. I worry therefore that having such an objective might be seen by others as an intention to weaken regulation in the UK, and thus undercut our authority in international bodies. I also think it’s a bit of a red herring. A robust prudential regime focussed on objectives of safety and soundness and policyholder protection is part of the national infrastructure that underpins the attractiveness of UK firms as counterparties. Second, it is wise not to give regulators too many objectives and have regards. Loading something up with ever more objects is an excellent way to decorate your Christmas tree but it’s not the best way to create an effective regulator. Solvency II Review So much for theory. What about practice? In particular the main event of this year: you may think it is defeating Covid, but of course it is in fact the review of Solvency II. I don’t want to bore this audience (any more than I have already) with a discussion of detailed measures. But I have a few brief points to make about the review itself. Perhaps most importantly, the review will stay true to the basic principles of Solvency II. | 1 |
In this regard let me offer one simple example of how critical the role of the legislature and the media may be: The conventional wisdom is that one important way in which African economies can ensure that they are able to limit long-term damage to their economies is to ensure that they do not indulge in policy reversals for short term gain that sacrifice the longterm growth prospects. Mr. Chairman, policy reversals are more likely to occur in an environment in which information flows and understanding is poor between economic managers such as central bankers on one side and the legislature and the media on the other. Populism can wreak havoc on good economic policy making. In this regard Africa does not need to rehash the false choice of market versus the state – both are part of the fabric of society and the economy. Furthermore, calls have been heard that African Governments should also nationalise banks and purchase car companies as the developed economies, the owners of capitalism, have done. These are ultimately dangerous calls as the nature of our individual economies matters in determining the appropriate remedy for our economic ills. It is for this reason that my address today is entitled “The Central Bank, the Media, and the Legislature: Can they Work Together?” My simple answer is that they can, and that they must – particularly in the unprecedented circumstances in which we find ourselves in today. | Mr. Chairman, before I outline how the Bank of Zambia has engaged both the media and the legislature and the positive results that we believe we have reaped, allow me to state very quickly how a strong relationship between the media, the legislature and the central bank is a modern feature of central banking. Mr Chairman, the role of modern central banks revolves around three key functions: price stability; financial system stability; and the maintenance of the payment system. Price stability has the greatest weight in the goals of most central banks. Advances in economic theory and computing power as well as the developments in financial markets have greatly enhanced our understanding of the economy and our ability to understand and forecast inflation. Central banks act to influence inflation some periods into the future – a period determined by the individual characteristics of the economy in question. Today we understand this process as targeting inflation expectations of households and firms – either implicitly or explicitly. Central to the success of such a strategy is the extent to which central banks have credible monetary policy frameworks and key pillars in such a framework are the ability to communicate policy in a predictable and intelligible way to the public – with the 2 BIS Review 95/2009 media playing an important role in this process – and the notion of accountability to an appropriate body whether this is the Minister of Finance, the legislature or both bodies. | 1 |
There is still considerable debate amongst Islamic scholars about the acceptability of the various forms of derivative products from the perspective of Islamic jurisprudence. Hence, there is a need for more investment in intellectual capital in the field of Islamic finance to promote innovation that BIS Review 11/2004 3 integrates the appropriate Syariah principles within the Islamic financial instruments. Our efforts to keep abreast with such developments will facilitate more rapid development of Islamic financial instruments for the purpose of risk management, using derivatives. It is evident that the derivatives business has global opportunities since risk in today’s financial environment is a product of uncertainties prevailing in the global markets, whether financial or non-financial. The ISDA Master Agreements have been the universal means of bringing order and certainty to the complex and rapidly developing world of OTC derivatives. The culmination of the new 2002 ISDA Agreement, 10 years after its predecessor, comes in the wake of many financial crises. Legal documentation of derivative transactions has a role in mitigating risks for banks and businesses. The world has changed considerably in this recent 10 years - financial liberalization driven by rapid advances in information technology is altering the financial landscape at an unprecedented pace. The legal and regulatory infrastructure must keep pace. We must continuously learn, un-learn and re-learn. The acquisition and application of knowledge must be a deliberate strategy and activity in pursuing the path of excellence. | There has also been a trend towards greater intraAsian investment flows in the region. This includes higher investment of surplus funds into the region, in the form of foreign direct investments as well as portfolio capital flows. These regional developments will lead to greater demand for OTC financial derivatives, which can be met by any of the major national, regional or global financial institutions operating in these markets. Malaysian banking institutions must be prepared to compete in this highly innovative and agile global industry by staying ahead on the learning curve for writing OTC derivatives that precisely match the risk management characteristics needed for effective hedging. At the same time, banking institutions must take into account the need for robust internal controls specifically in the area of credit, market, operational and legal risks to prevent the failure of any derivative contract. 2 BIS Review 11/2004 My second point concerns the New Basle II Capital Accord. The International Swap Dealers Association, as the global trade association representing the leading participants of the OTC derivatives industry, has provided its views to ensure that the capital requirements of the New Capital Accord’s will reflect the actual amount of risk that a bank is exposed to in a particular derivatives transaction. According to the recommendations put forth by the Basle Committee, capital requirements to support off-balance sheet derivatives are calculated by reference to the credit risk of the item adjusted for credit quality of the counter party. | 1 |
In the past few months, domestic activity has evolved as expected. The stronger external impulse has consolidated, with still favorable financial conditions, trading partners that, on average, are somewhat more dynamic and better terms of trade. Nonetheless, inflation has stayed below the forecasts of the September MP Report. Most of the difference is related to the more volatile items in the basket, as core inflation —which we measure with the so-called CPIEFE1— is near expected levels. The projections that I will present to you in a moment assume that the convergence of inflation will take somewhat longer than we anticipated in the last MP Report. This considers the effect of the recent surprises and the evolution of the exchange rate up to the Report’s statistical cutoff. It also assumes that activity growth will gradually speed up its pace, from its bounded present levels to above potential in the second half of 2018, yielding the way to close the output gap that will help inflation to converge within the projection horizon. In any case, there are still significant risks surrounding the baseline scenario depicted in this MP Report. On the one hand, some sectors still lag behind in the recovery process, especially some relating to investment. On the other hand, a scenario in which the economy does not return to higher growth rates in the coming months, can affect the recovery of growth in the medium term. | A long upturn followed from 1992 to 2008. National income rose by an annual rate of 5.4 per cent in this period, far higher than the rate of output growth in the mainland economy. Income growth was even higher than in the post-war period in the 1950s and 1960s. BIS Review 44/2010 1 Major structural reforms Behind these favourable developments were the major structural reforms of the 1980s and 1990s that resulted in an expanded production capacity in the Norwegian economy. Capital and credit markets were liberalised. It became easier to establish and build up new businesses. The EEA and WTO agreements resulted in stronger competition and increased flows of goods and services, labour and capital. As a result of the 1992 tax reform, the welfare state could be funded with reduced impact on wealth creation. The framework conditions for the electricity market, telecom market, aviation and broadcasting were changed. Trade was liberalised. State-owned companies were listed on the stock exchange and new forms of managing public agencies were developed. Industrial policy no longer kept unprofitable enterprises afloat. Subsequently, the business sector experienced a long period of high productivity growth. Moreover, shifting forces have driven the economy. In the wake of the crisis around 1990, labour costs decreased to a low level compared with Norway’s trading partners and wage settlements were moderate. In 1995, the cost level was 10 to 12 per cent below Norway’s average for the oil age from 1970 until now. | 0 |
2.3 Strengthening of regulatory and supervisory framework The design of strong and appropriate rules and their rigorous monitoring constitutes a guarantee for the preservation of financial stability. The Bank of Albania has been active in improving the regulatory framework, consolidating it further in compliance with the legal provisions and the Basel Committee principles, the European Council directives and the best practices in the area of regulation and supervision of financial institutions licensed by the Bank of Albania. The main objective was the harmonization of the best practices in: strengthening internal control; improving banking institutions’ governance; strengthening the risk management capacities; and increasing the level of banks’ transparency to the public. With respect to the latter, the Bank of Albania has required higher and improved communication of the banking system with the public about the products and services being provided, the promotional campaigns for new products and the provision of information on their real financial situation and risk profile. BIS Review 78/2010 7 3. Other Bank of Albania activities After the analysis of the two key functions of the Bank of Albania, I would like to elaborate on some other aspects of the central bank’s work. 3.1 Payments’ system The payments’ system reflected security and efficiency in 2009. On average, 225 transactions a day were processed and settled in the AIPS system, with an average daily value of ALL 19 billion. | 3 European Union enlargement At first glance, the link between this topic and the two issues I have been dealing with up to now appears quite tenuous. Yet, while the issues arising from market integration and financial stability are of concern for many Central Banks, managing the EU enlargement is a distinctive concern of the Eurosystem. I would like to share views on how the Eurosystem will act to address this concern, while performing their task regarding price and financial stability. Ten countries from Central, Eastern and Southern Europe –comprising 75 million inhabitants – are to join the EU, thus completing European reunification. Although their combined GDP is rather small (equivalent to that of the Netherlands for instance), in terms of population' size they will propel the EU (450 millions inhabitants) largely ahead of the combined population of both the US (population: 275 millions) and Russia (population: 145 millions). This testifies again, if need be, to the attractiveness of the European Union framework, which has provided us with economic prosperity and political stability for almost half a century. Accession countries have accomplished important progress in stabilizing and strengthening their economies and their institutions. Observing the accession countries, recent history shows the major improvements those countries have made, in hardly 10 years, on the road towards convergence with the EU. Let us keep in mind, the sometimes rather slow pace the current Member States took, regarding for example trade openness, price liberalisation, or macro economic discipline. | 0 |
Satellite Seminar on Financial Inclusion held in conjunction with the 61st World Statistics Congress Opening remarks by Mr. Abdellatif JOUAHRI Governor of Bank Al-Maghrib Marrakech, July 14, 2017 1 “While data is important, the right data is essential” Albert Einstein Honorable Chair of the Irving Fisher Committee, Honorable Governor of the BEAC, Distinguished guests, Ladies and gentlemen, It is with great pleasure that I welcome you to Morocco on the occasion of this international seminar on financial inclusion, which will focus on data and their important role in developing policies and strategies that take into account on-the-ground realities and then measuring and assessing the impact of these policies. First of all, I would like to thank our partners, the Irving Fisher Committee on Central Bank Statistics and the Center for Latin American Monetary Studies for their valuable contribution to the organization of this event, held as usual on the sidelines of the 61st World Statistics Congress. The topic of our meeting further underscores the importance that central banks and international standardization bodies attach to financial inclusion. It is a subject that is of increasing interest to them, particularly with regard to its interactions with financial stability, resulting in hindering the policies put in place to develop access to and use of financial services. A sustainable and efficient financial inclusion requires a long-lasting balance between innovation and the safeguards that need to be developed in order to ensure the soundness of the financial sector. | This commitment reflects our willingness and determination to continue our financial inclusion efforts, which have enabled Morocco to become a regional benchmark, given the significant progress it has achieved in this regard. Such efforts have been reported by the World Bank and the IMF during their last Financial Sector Assessment Mission (FSAP) conducted in 2015. Ladies and gentlemen, Aware of the importance of data for designing relevant policies, Bank AlMaghrib has taken specific measures to develop, in line with international standards, a set of indicators which address two fundamental dimensions of financial inclusion: access to and use of financial services. As for the “quality” dimension, it is monitored for the time being through the Banking Services Price Index, which we developed in 2011 and which accurately reflects the cost and trend of banking services. Moreover, considering the weight of very small, small and medium enterprises (VSMEs) in our industrial fabric and their role in employment and wealth creation, we mobilized various public and private actors to establish an observatory for VSMEs. Founded in 2016, this observatory aims at (1) centralizing national and regional data and information on VSMEs, and (2) generating demographic, economic and financial information on economic sectors in order to allow stakeholders to respond more effectively to the issue of financing this specific category of companies. We have also established two credit bureaus, the first in 2007 and the second in 2016, in order to provide credit institutions and similar bodies with a common platform for the exchange of data. | 1 |
In addition, integration in the stock markets is progressing, although they have to overcome barriers of the same kind as those I have just mentioned. In addition to the closer links between stock market firms, a notable increase in transactions on the new European indexes has been observed. Moreover, the “new markets”, with growth figures benefiting greatly from the establishment of the large European market, have expanded considerably. The broadening of the capital markets and their greater integration are contributing to a more efficient allocation of savings. First, this development is also leading to lower transaction costs and increasing the liquidity of the traded instruments (which in turn contributes, ceteris paribus, to reducing the absolute level of interest rates). Second, it is multiplying investment opportunities and increasing the range on offer. At the same time, it is fuelling competition between issuers, investors, and even, to some extent, regulatory systems (as shown, for example, by the adoption in several countries, including France, of a legal framework for real estate bonds, modelled on the German Pfandbriefe). Meanwhile, the deeper market calls for restructuring and rationalisation of the finance industry, the effect of which would be to strengthen the management of savings in Europe. | In the same way, the remuneration of fixed rate debt securities such as bonds only includes expected inflation and is thus vulnerable to any unexpected change in inflation. It has been empirically established that, as intuition suggests, the volatility of inflation increases as it rises, which implies that risk premia are generally not in line with the real level of inflation. I should add that inflation creates a well known fiscal bias when flows of interest to creditors include an inflation premium to cover the depreciation in the value of financial capital during a period of inflation, and this premium, which is not real income, is charged. 1 BIS Review 6/2000 In fact, in a situation where inflation rises unexpectedly a transfer of wealth occurs from the creditors to the debtors. This interferes with the optimal allocation of savings (I shall return to this issue) when the transfers of wealth do not correspond to the provision of a service or a real economic cost, but have all the characteristics of a “windfall profit” or an exceptional loss. It can also result in a reduction in the amount of savings in two ways: by discouraging agents’ propensity to save amounts subject to the monetary hazard; and (because of the bias resulting from the depreciation in the nominal value of debt and the fiscal distortion to which I referred) by transferring inflationary income from the private to the public sector, which has a lower saving ratio. | 1 |
- increased competition between issuers, which has encouraged the standardisation of sovereign bonds, the gradual convergence towards “best practices”, the development of a range of attractive and actively traded benchmark issues (especially for sovereign bonds). Besides, competition has also enhanced liquidity as issuers have increased the average size of outstanding bonds. - the modernisation of market structures: besides the rapid development of electronic trading, the consolidation of Central Securities Depositories is also paving the way for a more efficient functioning of Delivery-versus-Payment procedures, and easier and safer channels of settlement of cross-border securities transactions. This last point is of particular relevance for the Eurosystem, as the smooth functioning of European securities settlement infrastructure is key for the practical implementation of monetary policy. On the equity market, the elimination of the currency risk within the euro area has led investors to shift from a domestic orientation to a more international, sectoral one. The creation of a wide range of pan-European sectoral indices was, thus, a direct consequence of these changes in investor strategies. Additionally, the introduction of euro has been a strong catalyst for mergers and acquisitions in the financial sector. For instance, in this respect, we can stress current trends in mergers or close co-operation between banks, stock exchanges, securities settlement systems, clearing houses. Had the euro not been created, would it have been thinkable that the Paris, Brussels and Amsterdam exchanges merge to create EURONEXT ? The large European goods and services market. | Over the last two decades, China has grown into one of the two largest economies in the world. At the same time, authorities are constantly announcing new steps to increase the renminbi (RMB) convertibility and develop its use in international transactions. It is therefore natural to wonder whether the RMB will emerge as a major international currency in the foreseeable future. In line with my introductory remarks, I will refrain from any geopolitical speculation on this question and present a few technical – and personal – remarks on the nature of a global currency. What does it take to become a reserve currency? It is generally assumed that this status brings important privileges, some of them “exorbitant”. It is also forgotten that it comes with significant obligations. First, being a reserve asset means that the currency enjoys full and unconditional capital account convertibility towards both residents and non-residents. The economy is therefore fully integrated with global capital markets and fully exposed to external financial shocks. This creates a very demanding environment. Convertibility essentially means that you accept the judgment of “foreigners” as to the true value and purchasing power of your domestic currency. Although it is not often perceived as such, it entails some abandonment of sovereignty, through the loss of some independence in monetary policy. This is the famous “Mundell trilemma”: no country can simultaneously have a fixed exchange rate, full capital 2 BIS central bankers’ speeches convertibility and monetary policy independence. Indeed, all reserve currencies today have fully flexible exchange rates. | 0 |
There is generally a tendency towards concentration in infrastructure provision because of increasing returns to scale in a fixed cost business and often powerful network effects. This applies equally in the case of commercial bank provision of infrastructure: ECB survey evidence reveals that the ten largest correspondent banks in euro account for around 80% of correspondent banking payment values; and the top-4 global custodians now account for three-quarters of total assets in custody. Indeed, regulators have been giving increasing attention to the potential systemic spillovers from operational or business failures at major commercial bank providers of infrastructural services. That has led, for example, to the initiative in the US to implement “New Bank”, a dormant shell company to take over the functions should one of the two major clearers in the US Treasury market cease operations. 34 It may be that a competitive environment can be sustained, particularly as the cost of technology falls, lowering barriers to entry, and liquidity bridges and other forms of interoperability are established between systems. But, the jury is still out. Recent evidence on the trading side, particularly in the US, is mixed: some trading platforms, such as Archipelago and INET, have been swallowed up by the incumbent exchanges; others, such as BATS Trading are thriving, keeping the pressure on the exchanges to cut costs and upgrade their services. 35 I suspect what we are seeing is a redefinition of the market on an international scale. | Nigel Jenkinson: New markets and new demands – challenges for central banks in the wholesale market infrastructure Speech by Mr Nigel Jenkinson, Executive Director, Financial Stability, Bank of England, at a joint Bank of England/European Central Bank Conference on “Payments and Monetary and Financial Stability”, Frankfurt am Main, 12 November 2007. I am very grateful to Mark Manning for his help in preparing this speech and to John Gieve, Victoria Cleland and Ben Norman for helpful comments. * 1. * * Introduction 1 Central banks sit at the heart of the monetary economy providing the ultimate settlement asset and typically operating the large-value payment systems that underpin financial activity. The modern central bank’s twin objectives of monetary and financial stability emerged from their early role in settling claims between banks. 2 But this traditional payments function is subject to the same forces for change that are transforming the rest of the economy. In particular, developments in technology, the financial innovation they allow, and the globalisation of finance are reshaping the landscape, exposing new sources of risk and posing fresh challenges for regulators and central banks. 3 As markets become more interconnected and international, national authorities have to work more closely together, cooperating in their oversight and operational activities and coordinating their risk assessments. As new products and players emerge in the commercial sector, they may also need to adapt the scope of their oversight and regulatory response. | 1 |
As will be explained in the analysis, my assessment is that the evidence shows that our package of monetary policy measures has been an effective response to the environment that the ECB has faced in recent years. Furthermore, the effectiveness of the policy toolkit means that we can add further monetary accommodation if it is required to deliver our objective. Finally, especially when inflation deviates from its objective for an extended period, central banks ‒ including the ECB ‒ should adopt clear communication strategies that leave no doubt about their absolute commitment to meeting the inflation objective over the medium term. The ECB’s instruments and tools Excellent accounts of the history of ECB monetary policy are provided by Hutchinson and Smets (2017), Hartmann and Smets (2019) and Rostagno et al. (forthcoming). As a summary device, Chart 1 shows some key interest rates and developments in excess liquidity in recent years. The chart underlines the primary role of the deposit facility rate – which has been in negative territory since 2014 – in anchoring the key EONIA market interest rate in a world in which the money market operates in conditions of excess liquidity. From mid-2014 onwards, net liquidity provision from refinancing operations and asset purchases has markedly increased. In part, this expansion of liquidity provision depended on banks choosing to take up funding support in refinancing operations, especially conventional longer-term refinancing operations (LTROs) and, more recently, targeted LTROs (TLTROs). However, the expansion during 2014–18 was dominated by our asset purchase programme (APP). | Ladies and gentlemen, On the 8th of May this year, only 15 days ago, Macedonia had the honor to represent its first preaccession economic program at the ministerial dialog between the ministries of economy and finance of the EU and the candidate countries in Brussels. The adopted conclusions that refer to our country, amongst other things, state that "generally, the document suffers from a lack of reliable statistics, impeding the analyses of the position of the country regarding the growth cycle...", which, you would all agree, has to do with the reliability, in such situation, with inflation calculations, particularly of the expected one. Furthermore, page 4 says that "in the area of economic statistics, top priority for Macedonia is to establish a capacity for regular production and submission of annual and sub-annual statistics", but, also, not failing to notice that "a certain progress has been made in the annual national accounts, following the ESA 95 concepts", and that we should move on in that area. | 0 |
For instance, a seemingly credible threat by one party to take actions that lead to mutual disadvantage can prompt concessions from the other, (or not). A former American President, 1/3 BIS central bankers' speeches Richard Nixon, called this his “mad man” theory when applying it to the war in Vietnam and there are echoes of this idea in current international trade disputes. Such behaviour undermines multilateralism which has been an important source of stability and growth over many decades. If strategic uncertainty is a source of unilateral advantage, it will not dissipate but remain a source of latent policy risk. Last, “Structural change and monetary policy” uncertainty There are fundamental structural changes occurring, notably in the euro area economy but also elsewhere, that are poorly understood. The ongoing demographic transition, for example, is changing employment, investment and saving decisions, which will probably lower the natural rate of interest. The monetary policy transmission mechanism also seems to be changing. A sustained period of accommodative monetary policy has boosted growth and employment and is finally showing up in nominal wage growth: this first part of the Phillips curve is at work. But higher nominal wages have not yet been passed through to core inflation. It should eventually, but the more pertinent issues – of when and by how much – are unclear. There is, thus, not a single mechanical relationship between monetary policy instruments and inflation, rather a distribution of likely responses. | My understanding of the present debates leads me to the following four pragmatic suggestions that I hope can stimulate your discussions: 1. Remain very clear about your objectives – uncertain times are not the right ones to create additional doubts about, say, your inflation target – and about your capacity and determination to use your tools in a predicable sequence. 2. But, whilst being consistent with your guidance, be very flexible in the precise calendar and calibration of your implementation. In short, be as predictable as possible, but never be precommitted. 3. Act to prevent the worst outcomes occurring but without supplying complete insurance, which would create moral hazard. 4. Never base policy on only one expected path for the economy. In conclusion, we cannot seek to control, or avoid, uncertainty; instead we must implement strategies that are the most robust to it. The French philosopher Edgar Morin put it nicely: “La connaissance progresse en intégrant l’incertitude, non en l’exorcisant” – “knowledge advances by integrating uncertainty, not by exorcising it”. With that in mind, let me wish you all a very productive symposium with lively and enlightening exchanges of views. Christine, the floor is yours. 3/3 BIS central bankers' speeches | 1 |
That deterioration followed the failure of Lehman Brothers, which triggered the most severe banking crisis for almost a century. Confidence in the very essence of banking – as well as in individual financial institutions – was shaken to its core and measures of financial market risk and uncertainty ballooned. The resulting contraction in the supply of credit has had a significant impact on the ability of households and companies to borrow and spend. But the nature of the downturn over the past six months cannot be explained solely in terms of the direct effects of the collapse of Lehman Brothers on the supply of credit. The impact of changes in credit conditions on investment and consumption decisions tends to be gradual, as existing loans mature and new contracts are negotiated. This contrasts with the dramatic pace at which economic activity and sentiment turned during the final quarter of last year. BIS Review 46/2009 1 Output, orders and investment all fell precipitously in a matter of months. Moreover, the downturn in economic activity was seemingly indiscriminate. Output in virtually every corner of the world fell sharply, irrespective of a country’s exposure to sub-prime loans, the state of its banking system, or its level of indebtedness. The effects of the shock were also felt far beyond its epicentre in the financial sector. Manufacturing output has been particularly hard hit, with UK manufacturing output estimated to have fallen by 4.9% in the fourth quarter of last year; the largest quarterly fall for over thirty years. | Jean-Pierre Roth: Role of the central banks with respect to the financial market crisis Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Forum Suisse de Politique internationale, Geneva, 23 May 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The central banks have been working extremely hard to respond appropriately to the turmoil that has beset the financial markets in recent months. Aimed at enhancing the resilience of the markets and safeguarding the stability of the financial system, the measures they have taken have been drastic and innovative at times. As this episode has also shown, a policy of preserving financial stability is not always easy to reconcile with monetary policy. The central banks must therefore tread carefully and avoid compromising their price stability objectives when intervening to defend financial stability. While money market conditions deteriorated over the past nine months, the Swiss National Bank put off interest rate hikes so as not to provoke a tightening of credit conditions in Switzerland. Effective action by banking supervisory authorities is key to ensuring long-term financial stability. However, the central banks also have a role to play in reinforcing the markets during times of need. | 0 |
Although it is a Herculean task, establishing an acceptable level of regional coordination to generate and facilitate trade and investment and ensuring that cross border flows take place safely and efficiently, without disrupting the national financial systems is an imperative. The rapidly changing global payment system infrastructure is challenging the existence of domestic and regional payment systems that are lagging behind in the pace of development of technology, communications and globalization. Each country has to reform their payment BIS Review 79/2007 1 systems to keep up with advanced technologies and complex processes. Given the nature of cross border transactions, the need to mitigate risks involved in them and the high cost of quality infrastructure, it is advantageous for countries in the region to undertake reforms collectively in coordination with each other. A regional payment group can attract rich intellectual and resource capacity for payment system development in the region. Within the framework of a common payment initiative, all members can create productive and collective working relationships to address issues relating to the common quest for developing the national and regional payment systems. In this regard, the central banks should promote close coordination among experts in the region to strengthen the payment system infrastructure. 3. Case for a SAARC region payment initiative The SAARC region-wide payment system has a long way to go in improving its performances, as many others have organized themselves better for the task. | Ranee Jayamaha: Policy framework for regional cooperation and the role of the central banks Speech by Dr Ranee Jayamaha, Deputy Governor of the Central Bank of Sri Lanka, at the Central Bank of Sri Lanka, Colombo, 6 July 2007. * * * Thank you for this opportunity to share some thoughts on the need for cooperation to develop a regional payment initiative and the role of the central banks in that endeavour. 1. Background As articulated by the Governor, the SAARC region’s trade and financial services are developing at a faster rate, with India achieving a rapid growth of around 8-9%. Most of the SAARC Group of countries, including India, have opened up or are considering to open their capital accounts in keeping up with global trends and the regional needs. Accordingly, trade and investment flows and demand for financial services will exceed the present levels over the next couple of years. Hence, payment system gains much importance as it is a critical facilitator in cross-border flows, as well as domestic transactions. It should be able to cater not only to the present needs, but also the future demands. For purposes of this presentation, the payment system is treated in a broader sense to encompass the payments, clearing and settlement systems. At a national level, some of the SAARC and ACU countries have already reformed or are about to reform their payment systems to minimize risks and increase safety and efficiency, although the degree of such reforms vary widely. | 1 |
Rather than pretend that we can forecast the future, a more intelligent response is to reinforce the resilience of those parts of the financial system that we cannot permit to fail and encourage entry and exit in a free market in other parts. It is clear that we need to understand more about how stability affects risk-taking, leverage, and the “cycle of confidence”. My third example relates to the so-called “risk taking” channel of monetary policy. 19 Short-term policy rates, especially when they are, as now, exceptionally low, may encourage investors to take on more risk than they would otherwise wish as they “search for yield”. 20 Financial institutions with 15 There is a substantial literature on debt deflation, including Fisher (1933), Minsky (1982b), Bernanke and Gertler (1990), King (1993), Eggertsson and Krugman (2012). 16 Minsky (1982a). More recently Geanakoplos (2010) has set out a theory of what he calls the “leverage cycle”. Again, this cycle is driven by sentiment, and has a self-reinforcing dynamic. In good times leverage increases and that helps to drive up asset prices as optimistic investors can access financing on easy terms. But at some point bad news puts the process into reverse. Losses trigger margin calls which force asset sales and cause a collapse in asset prices. The reason that such a cycle is costly is due to a series of externalities and market imperfections. 17 King (2003). 18 Taleb (2012). 19 A term coined by Borio and Zhu (2008). | 20 Rajan (2005) argues that the “search for yield” was an important ingredient in the story of the crisis. 6 BIS central bankers’ speeches long-term commitments (pension funds and insurance companies, for example) need to match the yield they promised on their liabilities, with the yield on their assets. When interest rates are high, they can invest in safe assets to generate the necessary revenue. When interest rates are low, however, they are forced to invest in riskier assets to continue to meet their target nominal rate of return. That tends to push down risk premia and lower the price of borrowing. Other investors too find it difficult to accept that in a world of low nominal and real interest rates equilibrium rates of return will not meet their previous expectations. 21 If these mechanisms are important, the financial cycle may be heavily influenced by monetary policy, especially when interest rates are low. That also creates the possibility of a trade-off between monetary and financial stability. All three examples suggest that the conventional analysis of the trade-off between the volatility of inflation and the volatility of output is likely to be far too optimistic. Does this add up to a case for “leaning against the wind” of rising asset prices rather than waiting to “mop” up after the bust? Certainly we have seen that monetary policy cannot fully offset the effects of financial crises for two reasons. First, crises may impact output before the response of monetary policy is felt. | 1 |
As an early contributor to this industry, I am at least partly to blame. The estimates of gross job loss span a pretty wide range, but lie anywhere between 10% and 50% of the global workforce, depending on whether it is jobs or tasks that are assumed to be displaced (Table 1 summarises). Even at the lower end of this range, the societal impact would be significant. At the upper end, they would be truly transformative. If the truth lies in between, this could still make the jobs loss from the Fourth Industrial Revolution greater than its predecessors. And if so, then the potential societal costs – such as rising wage inequality and threats to social cohesion – could also be as great as ever previously. 50 Some of the potentially powerful effects of automation on jobs and wages are already apparent. In the US, each industrial robot per thousand workers has been found to reduce the employment rate by 0.2-0.3 percentage points and wages by 0.25-0.5%. 51 52 In Europe, results are more mixed. Research suggests that technology may have been the largest single contributor to falling labour shares over the recent past. 53 Whether these effects on jobs and pay will be temporary or permanent is far harder to judge. At this stage of the technological cycle, the evidence is more likely to be picking up the shorter-term displacement effects of 48 Haldane (2015b) Haldane (2015b). 50 Schwab (2017). 51 Acemoglu and Restrepo (2017). | This strongly implies it is not the greater incidence of ideas-fuelled booms after 1750 that accounts for the growth inflexion. The explanation lies instead in the dramatic fall in both the probability and cost of GDP contractions. Recessions have occurred only 30% of the time since 1700 and only 17% of the time since 1900. During these periods, growth has averaged minus 2.2% per year since 1700 and minus 3.4% per year since 1900. Since 1750, recessions have become far less frequent and less painful. It is the avoidance of deep recessions that differentiates the Golden Era from its Malthusian predecessor. Where does this leave our story of growth? Well, the story that better fits the facts appears to be one in which the conveyor belt of ideas and innovation has been continuous over the centuries, causing lengthy if lumpy ideas-fuelled expansions. But whereas prior to the Industrial Revolution this conveyor belt was regularly halted by recessions, more recently these interruptions have been far fewer and less costly. Put differently, the real revolution in living standards after 1750 came about not exclusively, or perhaps even mainly, from the surge in ideas and technologies. Rather, it resulted from societies having found some means of avoiding the subsequent recessionary bullets. Prior to the Industrial Revolution, these killed expansions dead. After it, societies appear to have found some effective means of dodging them. A Second “i” on Growth To understand growth, then, we need to explain why economies become less recession-prone after 1750. | 1 |
I would like to conclude this brief tribute to Benjamin Franklin by quoting one of his phrases that makes an encouraging link BIS Review 4/2006 1 between success and risk: “there are many ways not to succeed, but the most certain is not to take risks”. Let me turn now to my main topic which is to provide you with an overview of the Single monetary policy of the Eurosystem that consists of the European Central Bank and the 12 national central banks of euro area member states and of its main features and achievements. Quite paradoxically, - The single currency for a long time met with the scepticism from many observers, who regarded it as unrealistic first to launch a new currency and second to envisage a single monetary policy for a group of countries that, despite rapid convergence, continued to display major differences. Interestingly enough, the assumption made by some observers and market participants that the entry interest rates in the Euro on 1 January 1999 would be some kind of average of the interest rates of the composing currencies proved to be wrong. | Jean-Pierre Roth: Swiss outlook and global developments Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Icon Roadshow Euro 2008, Frankfurt am Main, 17 March 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * The Swiss economy looks back on a number of successful years during which it was a very active participant in the growth of the world economy. The export sector rapidly expanded its presence in the new markets, thereby making an important contribution to this development. What was remarkable was that the increased foreign activities were not detrimental to Switzerland as a production location. On the contrary, the Swiss location benefited overall. Reforms aimed at strengthening and opening up Switzerland as a business location have also made a substantial contribution to economic prosperity in recent years. The turbulence on the financial markets that erupted in mid-2007 is unlikely to leave the Swiss economy unscathed. The export sector, including the banks, will be affected by the slowdown in the international economy. An additional factor is the substantial rise in the value of the Swiss franc over the past few months against the euro and the US dollar. However, we are already in a position to learn quite a bit from the financial market turmoil. | 0 |
In a financial crisis of these proportions, “outside money” – an asset that is not a liability for anybody else than a central bank – becomes the sole trustworthy store of value. 4 Only a central bank, the monopoly provider of outside money, can respond to the scrambles for liquidity. The ECB injected its funding capacity into a market vacuum left wide open by bank retrenchment, dealer defaults and investor panic. In these conditions, inter-temporal financial arbitrage – of the type I described above – becomes impaired. The power of banks and dealers to engage in or finance inter-temporal trades of liquidity balances is degraded. So the main conduit of monetary policy – which depends on those trades – is lost. The ECB had to open a new channel, the “liquidity channel”, to get round the roadblocks facing the interest rate channel (see slide 4). More precisely, the ECB acted in two dimensions. It sought to alleviate the difficulties experienced by banks in getting liquidity from the interbank market, which was putting pressure on the assets side of banks’ balance sheets and increasing the risks of hindering credit supply. At the same time, it sought to restore the normal pass-through from short-term money market (lending) rates to other market and bank interest rates. | In this context, it is a logical next step that supervisory colleges encompassing home and host central banks and regulators from this region cooperate in having a greater input in the Basel Committee’s deliberations. Not only will this make everyone more aware of the variety of banking practices that exist in this region, but in conferring together at a senior level, during and between college meetings, central bankers and supervisors will secure a reasonable agreement between all parties as the best course on Basel III implementation. The National Bank of the Republic of Macedonia continues to be committed to the adoption of the principles and frameworks contained in the Basel guidance papers. In adopting this commitment we take care that implementation is adjusted to our circumstances. In order for individual rules not to harm the bank business in hand specifically, and the economy in general, overall regulation should allow the wise exercise of judgement or discretion by the banks applying it and by the regulator overseeing that application. I wish you, the European Banking Federation Associates’, a successful Meeting today and a pleasant stay in the Republic of Macedonia. 2 BIS central bankers’ speeches | 0 |
3 The unemployed also includes people who have been offered work starting within three months, assuming that they would have been able to work on the date of the survey or to start within 14 days. 4 Open unemployment is a definition used by the Swedish Public Employment Service to refer to jobseekers who are actively looking for work, who are able to enter the labour market immediately, and who are not participating in a labour market policy programme. 2 BIS central bankers’ speeches However, it is not certain how actual unemployment is to be defined if the intention is to measure the spare capacity of the labour market. Youth unemployment can be taken as an example. In October 2007, Statistics Sweden went over to reporting unemployment according to an internationally-established standard. Full-time students who have looked for work and could have worked were now reported as unemployed. This change meant that unemployment in the age group 15–24 increased strongly, even though this group’s main activity was studying. The number of people unemployed in relation to the number of people in the labour force in the category young people was about 25 per cent in 2010. Using the previous reporting method, unemployment would have been 15 per cent.5 For total unemployment, the changed method meant that measured unemployment increased by about 2 percentage points. Neither is it clear how individuals participating in labour market policy programmes should be classified. | This means that resource utilisation, measured in terms of GDP, can increase or decrease without there being any simultaneous change in unemployment. Neither is it certain, after companies have decided to increase or decrease employment, that this will be reflected by changes in aggregate unemployment. As the size of the labour force also varies, for cyclical reasons among others, the level of unemployment will depend on the extent to which individuals leave, remain in or enter the labour market. … but the connection is not stable Monetary policy is forward-looking and must be based on forecasts. The practical conditions for forecasting actual unemployment are made more difficult by changes, over time, in the historical relationship between economic activity and the development of the labour market. During the financial crisis of 2008–2009, the Riksbank was surprised (as were other analysts) to see that unemployment did not increase more, considering the steep fall in 5 AKU, 2010. BIS central bankers’ speeches 3 output in the Swedish economy. The Swedish labour market coped comparatively well, both in comparison with how it is usually affected by falls in GDP and in comparison with developments in many other countries.6 The former point is illustrated by Figure 1. | 1 |
A case in point is that in Portugal, where non-financial companies have a sort of single window to report the data required by the main Portuguese authorities (Tax Agency, National Statistical Institute, Mercantile Register, Central Bank). In particular, our neighbour has been able to build a single data platform to which every authority can subsequently resort to obtain the information they are entitled to access. I have seen that in the Spanish National Statistical Plan (PEN) for next year there is a reference to a project setting up a “Sistema Integrado de Información de las Empresas”, which I think is along the same lines. It could then contribute to significantly reducing firms’ reporting burden in the future. As concerns financial information, we should also be open to more efficient financial reporting and statistical production at the Banco de España and the ESCB level. The Banco de España is very much committed to this goal. In fact, we already have a strategy to simplify and rationalise regulatory reporting that is starting to bear results. The main aim is to alleviate the reporting burden and to improve data management by institutions and by the Banco de España itself. 7 On top of that, various initiatives have been taken as part of the Banco de España’s Strategic Plan (which runs to 2024) dealing with data management and transparency. | Opening up our data for analysis / transparency The current statistical revolution has gone hand in hand with substantial progress in empirical economics and modelling. Some years ago, macro literature often relied on representative agent models. That was a natural consequence of computational limitations. However, the aggregation of individual behaviour does not in general coincide with the behaviour of one average individual. That’s why this literature is now moving towards models with heterogeneous agents (each with distinct behaviour and a distinct reaction to policies), which allows not only for a more accurate representation of the economy, but also for the analysis of distributional issues, such as inequality. For such sophisticated analysis, detailed micro information is key. This is also true for empirical economics, and in particular for the evaluation of economic policies. Many policies target very specific groups of agents according to some individual- or location-specific characteristics. Moreover, one must take into account that the effects of policies depend on many individual features as well as on other contextual issues. Those two factors notably increase the heterogeneity of the effects of such measures. As a consequence, access to 3 massive data that do not limit the scope of the analysis on account of small sample biases is key for the evaluation of economic policies. | 1 |
Precisely in relation to the recovery in credit flows, I will focus in the rest of my address on the task at the forefront of the Banco de España’s priorities: the reform and strengthening of our banking system. BIS central bankers’ speeches 3 In 2012, in accordance with the regulations approved in the February–May period that year, banks undertook a major provisioning drive; and the Memorandum of Understanding and the financial assistance facility of up to € billion were negotiated with the European authorities. The effort by banks focused, above all, on setting aside provisions to strengthen the coverage of loans to the real estate development and construction sector and of foreclosures. Moreover, in keeping with the Memorandum, banks under restructuring or resolution were obliged to transfer to Sareb, at an agreed price, the assets belonging to the above-mentioned balance sheets segments. As a result of this transfer, and bearing in mind the write-downs made, Spanish banks’ exposure to these risks has been drastically reduced, from € billion as at end-2011 to € billion at end-2012. Alongside the most notable clean-up and provisioning drive, a recapitalisation and restructuring strategy was applied based on the analysis of balance sheets and on the tests based on stressed macroeconomic scenarios which concluded a year ago. | Luis M Linde: Profile of Professor Nicholas Bloom – winner of the XII Germán Bernácer Prize Opening remarks by Mr Luis M Linde, Governor of the Bank of Spain, at the XII Germán Bernácer Prize Ceremony, Madrid, 24 September 2013. * * * Ladies and Gentlemen It is a great pleasure for me to introduce this award ceremony for the 12th Germán Bernácer Prize. First of all, let me once again thank the organizers and sponsors of the Prize. They have established an excellent programme to support economic research in the fields of macroeconomics, monetary policy, and financial economics. This is the 10th time that the Bernácer Prize award ceremony has taken place at the Banco de España. The continued support and backing of this initiative of the Observatory of the European Central Bank by the Banco de España is justified by its conviction of the importance of macroeconomic research, insofar as it concerns the functions to be performed by the European System of Central Banks. By recognizing the relevance of a prize like this, which has been awarded, in every instance, on the basis of academic excellence, the Banco de España reaffirms its commitment to economic research. As many of you know, this Prize commemorates a distinguished Spanish macroeconomist who worked at the Banco de España, as director of its Research Department, during the 1930s. Despite the isolation of the Spanish economics profession at that time, Germán Bernácer obtained substantial international recognition for his research contributions. | 0 |
On the one hand, deregulation and the opening of markets for products and factors and, on the other hand, the phenomenal progress in information and communications technology.3 On a macroeconomic level, the explanations lead to three possible conclusions. First, to the conclusion that the economy has lost some of its cyclical dynamic, a change which is explained by the increased transparency and more efficient steering of entrepreneurial processes as well as the fact that inventories have been cut or completely eliminated. Second, that there has been a permanent reduction in the natural rate of unemployment which results in an upward shift of the potential output curve and thus to significantly higher growth rates in the transition phase. Third, that there is a gain in long-term productivity growth, ie a steeper potential output curve in future. Academic economists usually react with scepticism to these basically supply-side hypotheses. In fact, they are assumptions which, plausible as they may be, have not been empirically tested. Monetary policymakers cannot simply ignore them because they relate to interconnections which are important for the formulation of policies. It would be just as foolish, however, to accept such theories uncritically and to include them in the decision-making process simply because they sound plausible. In any case, the assertions put forward under the label “new economy” create additional uncertainties. In this particular state of uncertainty, there is growing interest in an ongoing analysis and interpretation of indicators. In this way, one searches for early evidence for the pros and cons of these hypothetical changes. | There has also been some further deregulation. For instance, state monopolies have been abolished and freedom to establish new companies with regard to, for instance, transport, communications and energy has been introduced. Changed competitive conditions thus affect productivity growth, but they can also affect price developments more directly. Despite the fact that we gained much stiffer legislation on competition in 1993, developments in this field appear to be moving slowly. Swedish prices remain higher than in other countries in several areas without explanations for this in the form of differences in VAT rates and wage levels. Increased competition can contribute to price levels converging, but this assumes that the relative price changes will be accepted and it can entail, as in the 1990s when electricity and telecommunications were deregulated, such large price reductions in some sectors that our inflation rate will be lower than that of other countries. Special interests and consumer interests Limits to competition are a clear example of how special interests dominate over general consumer interests. There are many examples of this in various areas of the Swedish economy, and in particular the construction sector. This means that we allow inefficiency to remain, which reduces growth and the development of most people’s standard of living. One interesting and very recent example of how special interests have declined concerns pharmaceutical prices. | 0 |
We anticipate a financial institution's policy to cover all necessary areas pertaining to IT activities including contingency plan, security, and out/in-sourcing. In addition, the policy should cover new product issuance such as internet banking and e-money. The process of formulating, implementing and maintaining of such policies should be considered. A continuous risk assessment and monitoring should also be part of an area of examination. Management support and oversight It is ultimately a responsibility of a financial institution's board and management to extend governance to IT and provide the leadership, organizational structures and processes to direct and control the enterprise. Management must monitor to ensure that IT resources are properly managed to promote business objectives. 4 BIS Review 35/2005 IT governance During the last few years, financial institutions have increasingly invested in technology infrastructure to improve their internal processes and servicing capabilities. Investment in technology infrastructure normally involves huge amount of funds and other resources. Technology also carries risks, which can adversely affect financial institutions if not properly managed. Financial institutions need to understand the strategic importance of IT, manage IT to effectively deliver value to business, and mitigate risks arisen from the use of IT. IT governance focuses on how financial institutions make the best use of their invested technologies. It is a high-level IT control framework related to the formulation of IT strategies, the management of IT processes to deliver value, the performance measurement, and the management of IT-related risks. | In the case of Thailand, BOT takes an active role in meeting regularly with financial institutions and IT companies to exchange views and experiences on the development of the businesses and IT environment. - In the process of drafting policies, we often seek out the view from our fellow regulators to ensure that our policy are in line with market and international practices, as well as to help us anticipate problems that may arise in implementation. - The final drafts of policies are sent out for comments from key stakeholders in and outside the Bank of Thailand, especially the industry, to ensure that the policies are practical and not posing any undue burden on financial institutions. - We also make sure that revision of regulations and guidelines is conducted regularly to ensure that e-banking policies are keeping with demand from the financial community as well as with market innovation and international best practices. - To maintain proactive supervision, the IT risk-based supervision is conducted continuously, updating each of bank's IT risk profile on a regular basis and performed overall assessment in certain areas. In case of getting a report of any incidents, we have to thoroughly analyze the impact on the financial institution system and consumer. And, to prevent recurrence of such incidents, we may urgently issue notification to financial institutions to provide preventive, detective and corrective control measures in self and customer protections. | 1 |
It is possible that some households planned on the basis that this increased economic stability would persist indefinitely. If so, the events of the past two years would have come as a substantial shock. Households’ consumption has slowed sharply since the beginning of 2008. Indeed, consumption is estimated to have fallen for the past five consecutive quarters, the first time this has happened since records began in 1955. Relative to an average rate of increase, the level of consumer spending has fallen by around 7½% since the start of 2008, and the savings rate has increased sharply. There has already been a considerable adjustment in households’ spending. In the near-term, the prospects for consumption depend importantly on the performance of the labour market. Although there has been a substantial fall in employment over the past year or so, the size of this adjustment to date has, if anything, been less than we might have feared given the falls in output. This may partly reflect the greater degree of wage flexibility that has been apparent in this recession compared to that in either the 1980s or 1990s. 6 This greater flexibility has meant that more of the burden of firms’ adjustment to the recession has been spread over the workforce as a whole, rather than on those losing their jobs. | Whatever the approach chosen, the main challenge would be to take account of climate risks, either through economic estimates that we master – such as GDP observed under stress – or directly through climate variables – such as the rise in temperature – which would require BIS central bankers’ speeches 3 developing new methods and gathering new information. This, of course, would mean relying on expert judgment on these issues, in a context where financial institutions do not have enough experience to understand future risks. We will work on this with the ACPR and the public authorities concerned. *** Understanding and analysing climate risk is essential. The regulations currently being drawn up – the Act on energy transition and the work of the Financial Stability Board – on information disclosure are useful tools to ensure that the transition to a greener economy is active and therefore under control. These initiatives could also contribute to making market participants more aware of the need to use a discount rate that is more compatible with the transition to a greener economy. The Canfin-Grandjean report of June 2015 also includes many interesting avenues. However, we must at the same time remain modest. We, the public authorities, do not know everything. And we cannot substitute ourselves for private players, whether financial or nonfinancial. | 0 |
The portfolio size and composition to which each central bank eventually normalizes will, of course, depend on what it eventually determines is appropriate to support implementation of monetary policy in the longer run. Indeed, the FOMC has indicated that in the longer run, it will hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities. The ECB has also used unconventional measures to provide accommodation, but unlike the Federal Reserve, BoJ, and BoE, this has primarily been through liquidity provided directly to the banking system via longer-term refinancing operations, rather than through asset purchases. This liquidity was provided at fixed terms of up to three years, thus allowing the size of the ECB’s balance sheet to normalize automatically as refinancing agreements mature. By contrast, the ECB’s upcoming purchases of asset-backed securities and covered bonds will present it with longer-term portfolio considerations. Finally, I should note that central banks – like other financial market participants – need to remain aware of changes in the financial market landscapes in which they operate. They may need to adapt their operations accordingly as they move away from asset purchases and back to money market instruments to implement monetary policy. For example, in addition to reflecting developments in its balance sheet since the financial crisis, the FOMC’s approach to normalizing policy also reflects changes in U.S. money market dynamics that have been influenced by various factors. | Benoît Cœuré: Monetary policy, exchange rates and capital flows Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the 18th Jacques Polak Annual Research Conference, hosted by the International Monetary Fund, Washington DC, 3 November 2017. * * * I would like to thank T. Kostka, A. Mehl, I. Van Robays and J. Gräb for their contributions to this speech. I remain solely responsible for the opinions contained herein. Central bank asset purchase programmes are often catalysts for significant cross-border capital flows. By compressing the (excess) return on domestic bonds, they encourage investors to rebalance their portfolios towards foreign, higher yielding assets.1 Such capital flows have reached historical dimensions in the case of the ECB’s asset purchase programme (APP), with both resident and non-resident investors moving out of euro-denominated securities and into bonds issued predominantly by the safest non-euro area sovereigns. I examined these flows in detail in a recent speech at the ECB’s Foreign Exchange Contact Group meeting.2 One intriguing observation I made in this speech was that there was no evidence of a causal link between such capital flows and exchange rate movements. Findings based on event studies instead suggest that, around the time of central bank asset purchase announcements, investors price the exchange rate mainly on the basis of the information these programmes provide to markets about the expected future path of short-term interest rates. | 0 |
Potential output growth estimates for 2022, 2023 and 2024 in the European Commission’s Autumn 2022 European Economic Forecast also remain higher than the estimates in the Autumn 2019 and 2020 European Economic Forecasts. To put the size of the revisions to potential output in context, the European Commission estimates that potential output was 5% lower 5 years after the onset of the global financial crisis compared to the level it would have had if it had increased each year from 2008 to 2012 at the pre-crisis potential growth rate (that loss increased to more than 9% after 10 years). The European Commission’s Autumn 2022 European Economic Forecast estimates GDP to be 0.2% higher in 2024 than the level it would have had if it had increased each year from 2020 to 2024 at the 2019 potential growth rate, but 0.6 percentage points lower than the level implied by the Autumn 2019 European Economic Forecast. The potential output level in 2024 is therefore not estimated to be significantly different from the level that could be expected before the onset of the pandemic, with the sign of the change depending on the counterfactual used. This may reflect factors that have impacted potential growth in different directions: the pandemic and the recent shocks may have had a negative effect, while Next Generation EU investments and other policy measures in response to the pandemic may have had a positive effect, with the net effect being small. 15. | First, conducting monetary policy based on the view that potential is permanently lower – without clear evidence that this is the case – could prove self-fulfilling and costly. The evidence increasingly shows that destroying demand also affects supply. Research on recessions over the last fifty years has found that deep contractions – including those driven by monetary policy – lead to long-lasting effects on real GDP compared to the pre-contraction trend. [20] This suggests that current macroeconomic policies should be designed to avoid unnecessarily heightening the risk that the increasingly likely contraction in coming months becomes a severe and protracted one, which would scar the economy. This requires that energy and fiscal policies remain targeted and contribute to dampen inflationary pressures, helping to keep inflation expectations anchored while preserving productive capacity. But it also requires that monetary policy does not ignore the risks of overtightening. [21] If we were to compress demand in an excessive and persistent manner, we would face the risk of also pushing output permanently below trend, irrespective of whether the initial shocks were temporary or not (that is, even if a harsh policy reaction was unnecessary). And that could not be easily reversed by subsequent policy easing, not least because expansions do not rebuild supply nearly as much as contractions destroy it. [22] Second, even if we were to conclude that supply shocks will lower potential durably, we would still need to examine their effects on demand before deciding our policy stance. | 1 |
In addition, I would expect to see increased RMB trading in the forex market, which in turn should lead to the development of more sophisticated instruments. The second change to offshore RMB markets we can confidently expect is the further development and strengthening of links with the onshore RMB market. As a critical piece of infrastructure that supports the internationalisation of RMB, the offshore RMB market cannot operate in isolation. Given continued liberalisation of cross-border RMB transactions by the Mainland authorities, we will see more and wider channels for the flow of RMB between the onshore and offshore RMB markets. This will be critical for the sustainable development of the offshore RMB market and, thus, the future role of Hong Kong. Role of Hong Kong And this brings me now to my third point, the development of Hong Kong as the offshore RMB business centre. Let me start by saying that Hong Kong’s role is not an accident or a result of chance. It stems from our city’s historical and indispensable role facilitating the opening up of the Mainland economy. Since China’s liberalisation and reform began three decades ago, Hong Kong has served as the global gateway for trade and investment with the Mainland. Even to this day, Hong Kong still intermediates some 30% of the Mainland’s external trade and accounts for some 60% of cross-border direct investments in both directions. | Likewise, they suggest a much wider use and circulation of RMB in the international financial system. Renminbi internationalisation: From where to where? So let us now turn to this issue, and my second point – the expanding role of the RMB. The big question I’m often asked is how the wider use and eventual internationalisation of the BIS central bankers’ speeches 1 RMB is to unfold. This question is, of course, easier to ask than to answer. But I believe we can gain useful insights by taking some perspective on where we are now and how we arrived here. How it started? Given the pace of change, it is sobering to recall that it wasn’t until 2009 – not all that long ago – that the Mainland authorities started to allow Mainland corporations to use the RMB when trading with the rest of the world. The first step was the launch of a pilot scheme in July 2009 allowing corporations in five Mainland cities to settle their trade with Hong Kong, Macau and ASEAN economies, in RMB. This pilot was subsequently expanded progressively. Today, all trade transactions between Mainland China and the rest of the world have the option to be settled in RMB. Another major milestone was reached in 2011, when the Mainland authorities began to liberalise the use of RMB for inward and outward direct investments. | 1 |
In this respect there are some notable differences in Sweden. External competition in markets for goods has also tended to grow in Sweden. Since the mid-1980s the traditionally high GDP share for imports has almost doubled. Domestic competition has also increased, for instance in markets that have recently been deregulated - electricity and telecommunications, of which the latter is particularly strategic for IT. Even so, price levels in Sweden are still high in many areas - higher than in most other EU countries as well as compared with the United States. Differences in taxation clearly play a part but so does a lack of competition. This in turn may have to do with the degree to which markets for goods are BIS Review 18/2000 4 regulated. In the OECD index of product market regulation, Sweden is admittedly lower than many other EU countries but appreciably higher than the United States. A breakthrough for the new economy is also dependent on the situation in factor markets. The Swedish risk capital market has undergone major improvements and relative to GDP is now the third largest in Europe, after the United Kingdom and Ireland. And whereas in 1983 it was only a quarter of the relative size of the risk capital market in the United States, by 1998 it had already become half as large. A notable feature in recent years is the greatly increased input of foreign capital. | A closer look at the figures reveals that the improvement has been most marked in manufacturing and particularly rapid in industries where computers are used most intensively. The upward shift in US productivity growth was preceded by an investment boom that gave pride of place to investment in IT-related capital. Since the 1980s, American investment in computer capacity has doubled in nominal terms; in relation to the dramatic price fall for computer capacity, the level has risen by a factor of more than twelve. To what extent, then, has the improvement in productivity come from IT? What are the mechanisms? Computers have clearly helped to make production processes more efficient and automated, just as new techniques have led to the creation of many new goods and services, from compact discs to tele-medication. But in order to understand the broader implications for the workings of the economy, one should perhaps heed Alan Greenspan, head of the US Federal Reserve, and single out the word “information”. When information flows more efficiently, there will be a better matching of supply and demand both internally and between firms, as well as less tied-up capital for coping with contingencies. In that firms can use IT to enhance “just-in-time” routines, they can cut the levels of stocks and working capital. Better information also paves the way for smaller production units and less bureaucratic structures. All these processes are now being further reinforced by the rapidly growing flow of information on the Internet. | 1 |
Andres Lipstok: The Estonian economy Speech by Mr Andres Lipstok, Governor of Bank of Estonia, at a lunch for the EU Deputies, organised by the Ambassador of the Czech Republic, Mr A Langer, Tallinn, 28 May 2009. * * * Excellencies, Ladies and gentlemen, I am genuinely pleased for the invitation of Ambassador Langer to join you here at the working lunch. First of all, I would like to provide a short overview of Estonia's current economic situation and the plans related to the adoption of the euro. Afterwards I would be glad to discuss these issues with you. The global crisis has had a strong impact on Estonia's small and open economy via trade channel. Collapse of world trade and decreasing demand in Estonia's main trading partners has decreased considerably also Estonia's exports. Although financial channel is also somewhat strained, we have not witnessed particularly excessive tightening of credit inside the banking groups that operate in Estonia. Estonian banking market is fully integrated into Scandinavian groups, which has provided stability. Estonia's banking sector has enough capital and liquidity to support restructuring in the real economy. The global turmoil is clearly not over yet, though there have been some signs of stabilisation over the past months. Estonia, too, is showing some signs of stabilisation and confidence indicators have also slightly improved. However, it has to be stressed that outlooks for this and next year are highly uncertain everywhere in the world. | CMH is expected to unlock a vast potential of opportunities for the Islamic financial industry. It can provide a wider range of new instruments not only for liquidity management and risk management purposes but players can derive additional linkages by utilising CMH to facilitate issuance of sukuk and in the creation of financing and deposit products. Besides having the potential of providing wider product selections, CMH could create a more transparent and streamlined commodity transaction practices based on the concept of murabahah or tawarruq. Leveraging on the experience of Bursa Malaysia in the area of exchange traded products, CMH is able to eliminate uncertainty in the transactions and could mitigate risks such as legal risk, market risk and counter-party risk. We are most grateful to the CPO suppliers for participating in this initiative. For CMH to be successful, it requires the cooperation of the players in the CPO market. With greater involvement of players in the commodity industries, CMH would be able to unlock the potential of your business operation by enabling the stocks to be exploited for this exchanged traded mechanism. The success of the CMH depends on the continuous support of the CPO suppliers. The CMH could also explore the possibility of sourcing CPO supplies from abroad. This innovative effort which has been endorsed by the Shariah Advisory Council of Bank Negara Malaysia and the Securities Commission has the potential to appeal to a wider market audience in and outside of Malaysia. | 0 |
4 But household indebtedness has continued to grow faster 1 During the crisis, the Riksbank provided extra liquidity to the Swedish banking sector through a number of long-term loans in SEK and USD. 2 However, we expect that some banks will need to raise their liquidity buffers to meet the new Basel III liquidity rules. 3 See Finansinspektionen, “The Swedish mortgage market and bank lending”, February 2010, and Sveriges Riksbank, “Financial Stability Report 2009:2”. 4 Finansinspektionen (2009), “Utvecklingen på bolånemarknaden 2008”, 2009:7. (Only available in Swedish.) 2 BIS central bankers’ speeches than income (see figure 3), loan-to-value ratios have increased, and a large proportion of mortgages are variable-rate loans. These vulnerabilities could impair the financial system by increasing loan losses if the current economic recovery were to stall, or by impairing Swedish banks’ ability to finance mortgages if investors’ confidence in Swedish covered bonds were to fall. Figure 3: Swedish household debt and post-tax interest expenditure Per cent of disposable income. Sources: Statistics Sweden and the Riksbank. (The Riksbank’s Financial stability report 2010:2) It is too early to establish whether recent repo rate increases and the introduction of a maximum permitted loan-to-value ratio of 85% for residential mortgages by Finansinspektionen (the Swedish Financial Supervisory Authority) have had a discernable effect on credit growth. In any case, house prices are continuing to grow (see figure 4). | I would expect that these same techniques could be used to assess sovereign debt but, to my knowledge, I believe it is not done. An analogy can also be drawn between the macroprudential tools the Riksbank is considering for household debt and the Stability and Growth Pact for countries in the eurozone. The Stability and Growth Pact is designed to facilitate the stability of the Economic and Monetary Union (EMU) by placing upper limits on member countries’ national debt (60% of GDP) and annual deficit (3% of GDP). These are somewhat similar to maximum loan-tovalue ratios and debt-to-income ratios for households. The Stability and Growth Pact was reformed in 2005, making it more enforceable by relaxing the rules to reflect the difficulty of adhering to limits throughout the economic cycle as the burden on public debt increases during a recession due to automatic stabilisers (such as increased social security payments). A number of measures were introduced in the eurozone during the crisis to protect the EMU, such as the creation of the European Financial Stability Facility. The debate about longerterm reforms is currently ongoing. Calibrating these rules and national macroprudential instruments, such as a maximum household debt-to-income ratio, is difficult because we lack complete understanding of how risks to the financial system develop and how macroprudential instruments act on those risks. As a result, decisions cannot be fully guided by theory; instead, policy makers are required to make genuine policy judgments. | 1 |
One can express this as, if many imperfections impact at the same time, it could lead to substantial financial imbalances. Empirical research confirms that asset prices and loans can increase substantially over a long period of time and my impression is that the mechanisms I have indicated have contributed to this. While debt and asset price levels have built up slowly over a number of years, price corrections have occurred quickly. The entire cycle from start to finish, from asset price and credit expansion until the repercussions of price falls and debt reductions have waned can take up to a decade. The IMF, for instance, reports in a study that the repercussions alone from a share price crash take on average two years to wane, while it takes approximately four years for the effects of a house price crash to fade. Can and should monetary policy subdue the growth of bubbles? Even if we as monetary policy decision-makers assess that there is reason to feel concern that debts and asset prices have been pushed up by over-optimistic households and companies, it is not selfevident whether and how this will affect the decisions. There is always some uncertainty as to whether it really is a question of an imbalance. And, as I have said, it is not easy to quantify a risk scenario, both with regard to the probability that it will occur and the effects it can have for inflation and demand. | As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 9.1% in May, after 9.7% in April. Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 1.4% in May 2016, compared with 1.2% in April. Developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) remained broadly stable at 1.6% in May, after 1.5% in April. The euro area bank lending survey for the second quarter of 2016 indicates further improvements in loan supply conditions for loans to enterprises and households and a continued increase in loan demand across all loan categories. Furthermore, banks continued to report that the targeted longer-term refinancing operations had contributed to more favourable terms and conditions on loans. The monetary policy measures in place since June 2014 have significantly improved borrowing conditions for firms and households, as well as credit flows across the euro area. The comprehensive package of new monetary policy measures adopted in March this year underpins the ongoing upturn in loan growth, thereby supporting the recovery of the real economy. | 0 |
Its recovery or wind-down must not be allowed to jeopardise the stability of the economy as a whole. For this purpose, the regulations stipulate requirements for resolution planning. For example, by end-2019, systemically important banks in Switzerland have to prepare ‘emergency plans’ demonstrating that they will be able to continue their systemically important functions in Switzerland without interruption in the event of a crisis. The second pillar also specifies requirements for loss-absorbing capacity. Systemically important banks must hold sufficient financial resources to cover losses in a crisis or to finance the costs of a separation of systemically important functions. Banks can use so-called Page 9/14 ‘bail-in’ instruments for this purpose. These are essentially debt securities which can be converted into equity or written down in the event of impending insolvency. 20 These measures are especially designed to counter the de facto obligation by the state to provide assistance in the event of a crisis. The organisational arrangements facilitate an orderly separation of the central functions within a reasonable timeframe. Furthermore, creditors are to participate directly in the default risk. The intention is to ensure a bail-in by creditors rather than a bail-out by the state in the event of a crisis by predefining the criteria for when debt securities are converted or written down. The Swiss regulatory approach is thus aimed at tackling the fundamental causes of ‘too big to fail’. This was also the conclusion reached by the Federal Council in its 2015 evaluation report. | Indeed, estimates from both the International Monetary Fund and various investment banks suggest that the current value of Thai baht is consistent with the underlying fundamentals. To promote a deeper foreign exchange market and foster more balanced capital flows, the Bank of Thailand also launched a Capital Account Liberalization Master Plan, which entailed liberalization of Thai investment abroad and a streamline of foreign exchange regulations. There are also continuing efforts to enhance the private sectors’ adaptability and foreign exchange risk management. These initiatives should provide an extra layer of cushion to shield businesses against short-term market volatility. They are not, however, a substitute for structural improvement in productivity, which in the long run holds the key to success for the export industry. Given that the global environment is still subject to uncertainty, capital flows may continue to be volatile, and risks to financial stability warrant close monitoring, it is more important than ever that monetary policy strikes the right balance between providing support to sustain growth momentum while ensuring long-term financial stability. In the judgment of MPC, the current stance of monetary policy remains accommodative, with the real policy rate still in negative territory. As the balance of risks shifts between the need to support growth and the duty to safeguard financial and price stability, monetary policy stance will have to be adjusted accordingly. The Bank of Thailand stands ready to employ the right mix of policy tools under its purview to attain these goals. | 0 |
My heartfelt advice to you is to work as hard on expanding your EQ as you have on harnessing your IQ. You all have great futures ahead of you. You will get there just as fast, and enjoy it much more, if you remember that a sound mind resides most comfortably in a sound, well-rounded person and that a sound, well-rounded person has more than a superior education and brain. The whole person is as important an achievement for those few who have been admitted to the “society of educated men and women” as is the achievement of intellectual excellence. As a former midshipman, I have always been inspired by the creed of the father of the Navy, John Paul Jones, as written by his biographer Augustus Buell. “It is by no means enough that an officer of the Navy should be a capable mariner. He must be that, of course, but also a great deal more. He should be as well a gentleman of liberal education, refined manners, punctilious courtesy, and the nicest sense of personal honor. He should be the soul of tact, patience, justice, firmness, and charity. … Every commander should keep constantly before him the great truth, that to be well obeyed, he must be perfectly esteemed.” I would say that Jones (or Buell) nailed it. | Take the naval reference and the gender bias out, and you have the ultimate guide for all of you who depart Bryant today aspiring to lead: You must be more than smart and have more than a mighty intellect; you must develop the whole woman, the whole man to be a leader in whatever field you chose. A smattering of Latin Which brings me to the last requirement for most all commencement orations – a smattering of Latin. Commencement speakers at great schools seem to delight in showing off their command of an ancient tongue. Many a commencement speaker might have concluded this afternoon’s remarks with labor omnia vincit – a stern reminder that labor conquers all things. It is true, indeed, that you can’t rest on your laurels or your good family name or a Bryant education or just plain good luck. You have to work hard and sweat to succeed. And in doing so, you have to remember mens sana in corpore sano – a sound mind resides best in a sound body. But that is way too ponderous. This is, after all, a festive day! | 1 |
The latter system provided the economy and prices with a fixed nominal anchor. Inflation was determined by growth in output on the one hand the supply of gold on the other. This was a system we had in common with our trading partners. Furthermore, we participated in the Scandinavian currency union as from 1875. The gold standard was suspended during World War I when the British government largely financed the war by printing money. Parity policy in the interwar years was unsuccessful in many countries. After World War II, countries made a joint effort to stabilise price BIS Review 102/2007 1 developments by establishing the Bretton Woods system. The US dollar was pegged to gold and the other currencies to the dollar. In this way, we chose – with the value of gold as the basis – a fixed exchange rate and indirect inflation in other countries as our nominal anchor. The Bretton Woods system collapsed in 1971. In the absence of gold as an anchor, the real value of banknotes and coins and bank deposits was now dependent on confidence that the central banks would not inject so much cash into the economic system that the value of money declined. The various countries chose different solutions. In Norway, we looked to other countries for both confidence and our inflation level, by tying our exchange rate in various ways to other countries’ currencies. In the ten years from 1976 to 1986, confidence in this policy was severely eroded. | In addition to these savings bank merger/SIP operations, it should be mentioned that in the three years of international financial crisis, only two savings banks saw their solvency deteriorate to such an extent as to require the application of precautionary special measures. First, the directors of Caja Castilla-La Mancha were replaced by the Banco de España in March 2009 (before the FROB was set up). It received aid from the DGF totalling € billion, of which € billion consisted of preference shares and € billion were in the form of guarantees of asset value, as well as € million of bridge financing. This savings bank, following the agreements reached by it with Cajastur, has joined one of the 12 merger/SIP processes under way. Second, CajaSur was subjected to compulsory restructuring due to lack of solvency and viability, following its failure to approve a merger with Unicaja, a sound and solvent project in which the two savings banks had agreed on a private solution for the failed institution. The FROB granted temporary aid through the subscription of € million of non-voting equity units and € billion in liquidity support, which so far it has not been necessary to use. Definitive arrangements are being worked out for this savings bank through a competitive process in which the aid finally granted will be defined. At present, the provisional amount of the aid to be received by Spanish savings banks in this process is as follows. The FROB will furnish around € billion to strengthen own funds in merger/SIP processes. | 0 |
The acquiescence of the UK labour force in accepting lower real wages is quite remarkable for those of us who grew up during the wage-price spirals of the 1970s and 80s. It explains in part why unemployment has stayed much lower than we would have expected, given the weakness of output growth. Much of the labour force has priced itself into work. The public sector has also been addressing its finances. There was clearly a greater structural deficit in the fiscal position than anyone thought pre-crisis and the Government are trying to reduce public expenditure and raise income to get back onto a sustainable footing. I should note that no consolidation at all would have been unsustainable and was never an option. Nevertheless, as the May Inflation Report noted, it is likely that the consolidation has weighed on output over the past three years and will continue to do so. The financial sector also has its balance sheet problems. The major banks in particular have been re-structuring, reducing wholesale market borrowing, improving their liquidity positions and building up capital. I believe every large UK lender has at least one non-core portfolio they are running down, and commercial property lending is typically a common factor. Finally, the corporate sector. In aggregate, UK businesses continue to save rather than invest, running up a significant and on-going corporate surplus. But like the household sector, there are different sub-groups. Some, especially large companies, are cash rich and profitable but not investing as much as they perhaps could. | Unlike a normal firm, part of the value of a bank does depend upon its capital structure. There is also a deeper point here about the wider benefits to the economy of the maturitytransformation services delivered by banks financing their longer-term loans with monetary 2 Basel 2 in effect required a minimum equity capital ratio of 2 percent. But under Basel 3 there is a greater focus on the equity that is truly free to absorb losses. As such, almost all regulatory deductions from capital are to be made from equity rather than being split across tier 1 and so-called tier 2 “capital” or made from total “capital”. Also, some risk-weights are increased; for example, on counterparty credit risk exposures. Together those changes mean that an old Basel 2 core tier 1 minimum risk-weighted asset ratio of 2% is equivalent to around 1% on a Basel 3 basis. Taking into account the capital conservation buffer and the surcharge for systemically important financial institutions, for the largest banks the Basel 3 equity minimum comes to around 10% (plus any Pillar 2 buffers). 3 For the original paper, see Modigliani and Miller (1958), “The Cost of Capital, Corporate Finance and the Theory of Investment”, American Economic Review, 48, 261–97. Later papers by the same authors addressed the implications for their result of tax, bankruptcy costs etc. 4 This assumes a bank’s post-tax return on equity is determined, given the riskiness of the bank’s business, in competitive global capital markets, with excess returns competed away. | 0 |
Indeed, there is some risk that market participants could overreact even before normalization begins, when the pace of purchases is adjusted but the level of accommodation is still increasing month by month.11 Not only could such responses threaten financial stability, but also they might make it harder to calibrate monetary policy appropriately to the economic situation. We will need to think long and hard about how best to develop policy in a way that enables us to respond flexibly to a changing economic outlook, but in a way that is not disruptive to the economy.12 Based on what we have learned to date at the zero bound, I believe that it will be important for us to anchor all our communication around the core principle: The path of the policy rate and the size and composition of the balance sheet over time will be driven by our unbending commitment to our dual mandate objectives of maximum sustainable employment in the context of price stability. As you can see, there will be much more to learn as we go. Thank you for your kind attention. I would be happy to take a few questions. 11 The move to economic thresholds-based guidance for the federal funds rate should help in this regard. While the thresholds are certainly not triggers, they should help market participants adjust expectations about the likely timing of lift-off in a relatively continuous manner and guard against these expectations being pulled further forward in time than is warranted by changes in the economic outlook. | We applied what we understood to be the lessons from Japan, though with hindsight, perhaps not in every respect as completely as we could have. In particular, Japan’s experience reinforced the lessons of the Great Depression here in the U.S. and made us sensitive to the disinflationary force of an asset price bust and financial 4 However, research suggests that the purchases did reinforce the forward commitment. See, for example, “Policy commitment and expectation formation: Japan’s experience under zero interest rates” Kunio Okina and Shigenori Shiratsuka North American Journal of Economics and Finance, Vol 15, No 1, pp 75–100. 5 See, for example, “Deleveraging and Monetary Policy: Japan Since the 1990s and the United States Since 2007”, Kazuo Ueda, Journal of Economic Perspectives, Vol 26, No 3, Summer 2012, pp 177–202. 6 Some commentators prefer the term “North Atlantic financial crisis” as the failure and near-failure of financial institutions was concentrated in the U.S. and Europe. However, the crisis was global in the sense that financial markets transmitted the shock throughout the world and this resulted in a severe global economic downturn. BIS central bankers’ speeches 3 crisis. We recognized that we had to be very aggressive to prevent deflation and deflation expectations from becoming well entrenched. The Federal Reserve reduced short-term interest rates to nearly zero by late 2008 – a little over a year and a half after the initial shock hit in August 2007. | 1 |
Nevertheless, there is much that the government can do to facilitate financial-market development by clearing the way, particularly where this involves markets of a regional nature. Three areas of work in which the HKMA – with various partners – is taking an active role are worth citing here. The first involves the gradual introduction and expansion of renminbi business within Hong Kong, which requires primarily co-operation between the Mainland and Hong Kong authorities at various levels, including both political and technical. The second example is our collaboration with other central banks in the region, under the auspices of EMEAP, on the Asian Bond Fund, which is intended not just to encourage business in the debt market, but also to stimulate regulatory reforms in economies in the region. The third example is our work in encouraging the development of Islamic finance in Hong Kong, through ensuring a level playing field, stimulating interest in Hong Kong among Islamic countries, encouraging product development, and raising market awareness within Hong Kong, particularly through the educational work of the Treasury Markets Association. All of this work looks both to the past and to the future for inspiration. Looking to the past, we have the still-recent experience of the Asian financial crisis, one element of which was the undeveloped state of some of our financial markets, in particular the debt market. Many of the market-development initiatives on which we have been working have been intended to address these deficiencies. | They make use of technology at many different levels: from traditional cross-harbour ferry and metallic coins to advanced transcontinental passenger planes and real-time electronic clearing. And usually both transport systems and financial infrastructure receive attention only when something goes wrong. Financial infrastructure suffers the further handicap that it is largely invisible – a matter of wires and electronic pulses – with none of the glamour or nostalgia that physical transport can sometimes evoke. So, quite understandably, the general public take it for granted – indeed may not even be aware – that Hong Kong has for some time had some of the most advanced, efficient and secure payment, clearing and settlement systems of any financial centre in the world. One of the responsibilities of the HKMA is to promote the development of these systems in collaboration with dedicated service-providers and the financial industry generally. In addition to its responsibility for Hong Kong's domestic systems, the HKMA also has a specific responsibility for promoting the development of systems in Hong Kong that facilitate the safe and efficient conduct of international and cross-border financial activities. We have been paying special attention to this aspect of our work in recent years in a way that has a very direct bearing on the development of financial markets in the region. | 1 |
For this reason, Madam President, I would like to suggest dealing with this topic in greater depth in a session of the Commission especially designed for this purpose, which would allow us to deepen the background information compiled for this Report’s box and identify priorities for future follow-up. Nature and relevance of uncertainty in the current scenario The second topic I would like to address is that of uncertainty. As you will have noticed, this term is mentioned several times in this Report when characterizing the economy’s current situation and its outlook. It is appropriate to go deeper into the meaning of this concept because it is too often used or interpreted in different ways, some of them as a synonym for risk and/or threat to the economy. According to its formal definition, uncertainty refers to the lack of certainty, that is, the degree of randomness in variables of interest such as, for example, economic variables that affect welfare. Other definitions point to a diversity of plausible states, to which it is not possible to assign a probability of occurrence. These definitions mark a difference with the concept of risk, because the latter refers to the real possibility of occurrence of certain adverse events. Thus, uncertainty is a broader concept that is not necessarily related to adverse events or even to concrete possibilities. | This would enable us to also seize opportunities to tackle these “twin challenges” in an integrated manner. It is my sincere hope that today’s event, along with the release of the report, will encourage broader dialogue and increase awareness around nature-related risks and opportunities, in turn paving the way for concrete action on this important front. I would like to thank the World Bank for this fruitful collaboration, and the esteemed speakers joining us today. I look forward to the engaging sessions ahead. Read Report: An Exploration of Nature-related Financial Risks in Malaysia See also: BNM’s Climate Change website 1 IPBES. 2019. “The global assessment report on biodiversity and ecosystem services: summary for policymakers.” [Link to IPBES] 2 World Economic Forum New Nature Economy Series [Link to PDF] 3 2/3 BIS central bankers' speeches 3 UN Biodiversity page [Link] 4 SDG 8. 5 SDG 3. 6 "Life on land” is SDG 15, “Life below water” is SDG 14. 7 Network for Greening the Financial System. 3/3 BIS central bankers' speeches | 0 |
One reason why equilibrium interest rates are low at the moment is because the distribution of economic outcomes has become more skewed to the downside. In this regard, low rates are a consequence of riskier environment, not the cause of higher risk premia. 26 For example, see Ihrig, J, Klee, E, Li, C, Wei, M, and Kachovec, J (2018), ‘Expectations about the Federal Reserve’s balance sheet and the term structure of interest rates’, International Journal of Central Banking, vol. 14(2), pp. 341-390. 21 All speeches are available online at www.bankofengland.co.uk/news/speeches 21 V. Winter – Monetary policy in a persistently low r* world Looking ahead, deep structural changes in economies are creating disinflationary pressures at a time when conventional monetary policy space is already limited. Inflation targeting frameworks will be tested in new ways. It feels like winter is coming. In all likelihood, equilibrium interest rates will remain low for a prolonged period as many of the structural forces that have pushed them down are set to persist for years. Moreover, these could likely to be reinforced by flaws inherent in the international monetary and financial system27 and the disinflationary effects of advances in technology and the changing nature of commerce.28 The principle structural force leaning in the other direction on inflation is that the shift towards deglobalisation with the potential fracturing of the global trading system. | Ben Bernanke has advocated a temporary shift from inflation to price level targeting when policy rates reach their lower bound.36 Others have suggested moving from a point target to average inflation targeting. Both options would require policymakers to “make up” any period of low inflation arising from the constraints of the lower bound with higher inflation in future, increasing monetary stimulus. However, these strategies might work less well in open, than closed economies, particularly ones like the UK where exchange rate pass-through is large and protracted. The response of the exchange rate to shocks would likely push up inflation during downturns in domestic activity, leading make-up strategies to generate perverse policy prescriptions. See Evans, C, Fisher, J, Gourio, F and Krane, S (2015), 'Risk Management for Monetary Policy Near the Zero Lower Bound’, Brookings Papers on Economic Activity, Economic Studies Program, vol. 46(1), pp. 141-219. 36 See Bernanke, B et al, ibid. 35 24 All speeches are available online at www.bankofengland.co.uk/news/speeches 24 An alternative and more radical approach than developing tools to provide stimulus at the ELB is to make it less likely that policy rates need to reach it. Absent divine reflation, the most frequently discussed option is to raise the inflation target. In theory, once achieved, and if inflation expectations moved up smoothly consistent with the new target, then this framework change would reduce the frequency of hitting the ELB. However, like many ideas in economics, this works better in theory than practice. | 1 |
They rely on huge amounts of data and their experience of how to deal with them; by taking advantage of network effects, they are starting to attack strategic links in this value chain (services with high technological added value and sometimes customer relations) in order to be able to offer new profit generating activities. Thanks to their dominance of certain sectors – let us take the example of cloud computing – and to their ability to expand – their cash reserves enable them to penetrate a market, to dominate it and to use technology to set up barriers to entry – these new entrants are giving rise to a significant risk of dependency, or even captivity, for established financial players. While BigTechs today are, at least in Europe, subcontractors of banks and insurance companies, we cannot rule out a reversal of business models which would confine financial institutions to the role of specialised service providers: credit origination, middle and back office, compliance. These prospects raise several questions in terms of European sovereignty: how can we effectively protect citizens’ data (be they payment or personal data) and offer them real control over their use? How, in a global ecosystem with ever more open architectures, can we increase the strength and resilience of the financial system in the face of cyber risks? How can we encourage the development of pan-European payment solutions in the face of rising competition from non-European players in the payment solutions segment? | In this regard, the Europe of payments should seize the opportunity offered by the digital revolution to develop a pan European payment 3/4 BIS central bankers' speeches solution. Our institutions are an integral component of this European ecosystem and intend to play their full part in it: the Banque de France Lab, the ACPR Fintech-Innovation unit, with its joint ACPR-AMF Fintech Forum, and all public authorities, are fully mobilised to support the expansion and growth of this ecosystem. Second, we also apply this injunction to innovate to ourselves: we can only achieve our objectives and truly support the market if we ourselves are innovative. In this respect, our projects are and must remain numerous. I have already mentioned MADRE, I would like to make a special mention of our analysis of “weak signals” by artificial intelligence, to detect fragile companies. This project is remarkable by the cooperation that it involves between a wide variety of public players: the Direction générale des entreprises (DGE), the Délégation générale à l’emploi et à la formation professionnelle (DGEFP), the Agence centrale des organismes de sécurité sociale (ACOSS) and the Direction interministérielle du numérique et du système d’information et de communication de l’État (DINSIC) and of course the Banque de France. Our search for innovation also means innovation in work methods and project implementation: intrapreneurship, which we have set up at the ACPR, is a good illustration of this. | 1 |
We have moved beyond measuring access, to including measures of the usage and quality of financial inclusion services. We need to go further to include measurement on how efficiently we are increasing financial inclusion. Such measures do not exist widely, if at all, and have yet to be systematically propagated. This blind spot ignores one of the most important aspects of innovative strategies for financial inclusion, which is the potential to drive down the costs of delivering financial inclusion initiatives. A framework for evaluating financial inclusion efficiency can provide powerful incentives to harness technology in the most optimal way. This should drive lower the costs of delivering inclusive financial services over time, and thereby enhance the viability for both Governments and private actors. Sustainability also calls for the strengthening of financial institutions that provide services to low-income and vulnerable groups. The misconduct or underperformance of such institutions can have a disproportionate impact on the poor simply because they have lower buffers. It can also significantly set back financial inclusion efforts by further entrenching the mistrust of formal financial institutions. It is therefore, critical for such institutions to exemplify strong and socially responsible corporate governance, and to have the appropriate technical expertise that will enable them to expand product offerings, increase outreach and develop alternative delivery channels. They must also be adept at identifying and managing financial and operational risks inherent in their business models. This requires investments in systems and in the development of talent with deep knowledge within the institutions. | In its own way, this symposium sets out to disrupt the ordinary in order to achieve the extraordinary; invoke curiosity to inspire creativity; and challenge the conventional to embrace novelty. With open minds and thoughtful exchanges, the next two days present an excellent opportunity to generate a critical mass of ideas that form the foundation for new strategic partnerships to be built, and existing ones strengthened. The time is now to deliver on the financial inclusion promise to the 2 billion unbanked and vulnerable people who continue to live in the most challenging financial circumstances. With an “eye for innovation”, I am certain we can spot the opportunities that will deliver that promise. 4 BIS central bankers’ speeches | 1 |
The IMF has a key role to play in helping members with sovereign debt issues and in making the debt resolution process more predictable and efficient. In this vein, we support the joint efforts of the IMF and the World Bank to strengthen the Common Framework for debt treatment in a coordinated and timely manner, and in total concert with all creditors. We are all committed to a greener world and attach great importance to transformational reforms required to address climate change-related challenges for the benefit of generations that follow. No country and no region is immune to climate change. It is as much an existential threat to our constituency and to the MENA region as it is to other constituencies and regions. In our region, we have experienced historical floods at the same time as historical droughts. We have to recognize, and collectively address, the existing highly inequitable burden sharing, where countries with negligible carbon footprints bear the weight of negative externalities associated with climate distress created over the years by large emitters. Our countries are 3 committed to their pledges made under the Paris Agreement with the recognition that there could be country specific strategies towards the same greener targets and objectives. Finally, we reiterate our call for a strong, quota-based, and adequately resourced IMF at the center of the global financial safety net. We call on the IMF to ensure the timely completion of the 16th General Review of Quotas by December 2023. | The installation of new equipment, which was judged necessary at the beginning of the year, is taking place only very gradually, in particular at small and medium-sized companies. Retail activity perked up considerably in May. Employment levels in industry showed little change, except for the automobile industry where cutbacks continued. They fell slightly in the building sector, whilst holding steady in the retail and market services sectors. Permanent staff levels showed no significant change, although certain companies - primarily those engaged in seasonal activities as in the food-processing industry - made increased use of temporary staff. BIS Review 66/1997 | 0 |
This seemed a contradiction in terms to many countries – liberalising and opening up but at the same time developing resilience in the financial centre. But we have achieved both. We have managed the tension between liberalisation and developing resilience. I think we’ve managed it rather well. If you look at what happened during the Asian Financial Crisis and subsequently, the Global Financial Crisis, we have come out as one of the safest financial systems in the world. So that was an important third phase – liberalising and opening the financial centre but also developing further resilience. Our credibility today rests on each of these three major phases in MAS’ development and policies – from the foundational years, to the period when we reoriented monetary policy and then in the last phase, liberalising and developing further resilience of the financial centre. The credibility has added up over the years. I also want to say that MAS has become an organisation of excellence. This has particularly been due, in my opinion, to the organisational development efforts that began especially in the mid-1980s, when Mr JY Pillay came in as the Managing Director, followed in subsequent years by Mr Lee Ek Tieng. There was a great focus on organisational development from the mid-80s. It happened that both Mr Pillay and Mr Lee Ek Tieng were amongst the most senior leaders in the public sector. They led the transformation of the MAS as an organisation of people. | According to the Ernst&Young’s Fintech Adoption Index, one-third of consumers utilize at least two or more fintech services and they are becoming increasingly aware of FinTech as a part of their daily lives. The FinTech Adoption Index for services offered by FinTech organizations under five broad categories – money transfers and payment services, financial planning tools, savings and investments, borrowing and insurance, indicates that money transfers and payment services are continuing to lead the FinTech change, with adoption standing at 50% in 2017 and 88% of consumers anticipating of doing so in the future. Thus, the global payments industry is currently undergoing a paradigm shift driven by rapid advances, the influx of new technologies and evolving consumer behavior as digital generations come of age. The emerging FinTech enhances the transformative power of digital payments via innovation. The irruption of digital payments relates to its many opportunities. Embracing payments digitalization has the potential to substantially reduce the costs, increase the efficiency and enable broader access to payment services. With the rise of new payment digital technologies developed by the FinTech, and increasingly adopted by banks, consumers and merchants nowadays have a wide range of payment products to choose from. Innovation developments, such as instant payments, payment initiation services, person-to-person mobile payments and contactless proximity payments have the digitization process accompanied by innovative solutions in their essence. The payment innovations and digitization process also have an impact on the transformation of payment market infrastructures. | 0 |
SNB Bills allow us to be more flexible in steering liquidity. Consequently, we are now in a position to offer more long-term transactions, which help calm the money markets and facilitate the steering of the threemonth Libor. The financial market crisis has also shown us that the liquidity-shortage financing facility can only contribute to calming the situation in the money markets if it is actually used when needed. However, even during the crisis, it was rarely called upon. The reason for this being that the direct costs of drawing on it were relatively high, as were the indirect costs ensuing from the stigma associated with using the facility. The SNB has thus decided to lower the direct and indirect costs of using the facility. To start with, we will reduce the special-rate interest premium from 200 basis points to 50 basis points. This will become effective from 1 January 2009. The SNB will also make some changes to its reporting methods. In order to protect the borrower’s reputation, claims from the liquidity-shortage financing facility will, in future, no longer be reported separately. These two measures should encourage banks to utilise the facility’s limits more frequently and therefore increase their liquidity provisioning. We have also found that, in periods of turbulence, some of the data reported in our weekly publication Important monetary policy data are misinterpreted, which can have a destabilising effect. To remedy this, we have decided to discontinue the real-time announcement of individual transactions and facilities. | 1 Chart 1 shows the “fever curve” of the money market, i.e. the difference between the three-month Libor and the three-month (T)OIS rate (tom-next/overnight indexed swap). This difference reflects the credit and liquidity risk premium on unsecured money market trades. It is a barometer of the health of the money market and, in the broader sense, also for that of the financial markets in general. 2 The five crises in the comparison are the stock market crash of 1929, the oil crisis of 1973, Black Monday in 1987, the bursting of the IT bubble in 2000, and the current crisis. In each case, we look at price performance in and around the index’s highest recorded level prior to the crisis, which does not necessarily coincide with the onset of the turmoil. The highest levels were reached on 3 September 1929 (Black Tuesday was on 29 October 1929), on 11 January 1973 (oil crisis), on 25 August 1987 (Black Monday was on 19 October 1987), on 14 January 2000 (IT bubble), and on 9 October 2007. 3 For annual data and the Case-Shiller Composite 20 Index, cf. Robert J. Shiller, Irrational Exuberance (2006, 2nd edition). BIS Review 157/2008 1 These financial losses alone will continue to have a major impact on the real economy for some time to come, owing to the fact that their full effect is not generally felt immediately. Despite the historic disruptions in the financial markets, this is not the 1930s. | 1 |
The role of supervisors – in-house initiatives As well as these initiatives, which may be considered external, we are also working in the Banco de España to adapt to this new reality. Firstly, we have created an internal function entrusted with assessing the impact we as an institution have on the environment. The aim is to articulate and coordinate the necessary measures to reduce that impact. Secondly, as a macroprudential supervisor, we clearly need to be able to assess and quantify the risks that the transition towards a more sustainable economy poses, both for individual banks and the financial sector as a whole. Among other functions, we need to be able to assess the level of financial institutions’ exposure to high-carbon emission activities, perform stress tests for the financial system overall and define scenarios and methodologies to be applied by banks individually. In consequence, we are designing internal governance structures and methodologies, actively participating in the cultural shift in the SSM supervisory model. Naturally, we are also evaluating the information and data requirements needed to address this challenge. Nor should we forget that central banks are also important investors in the debt markets, both in the area of monetary policy and reserve management. Although we have not yet included environmental risk assessment in our credit analysis, we are working to remedy this. 5 ESG - Environmental, Social and Governance. | I trust this regulation will be approved shortly, in accordance with the objectives set by the new European Commission, and that this taxonomy will finally provide us with a common definition of what may be considered “environmental” or “sustainable”. The role of supervisors – external initiatives As supervisors, we clearly have responsibility for urging on these changes. We need to be proactive; in particular, we need to enter into a dialogue with banks to analyse how they are incorporating environmental risk. At the Banco de España we are intent on pressing ahead with this dialogue. Let me mention just a few examples of recent steps taken. To assess the level of preparation for environmental risk, we conducted a survey among the 12 banks directly supervised by the SSM and several other smaller banks. Subsequently we discussed the survey findings with the participating banks, conveying to them the importance of this issue and the supervisory expectations. According to the survey findings, many banks that were already explicitly considering environmental risk have included it in their social responsibility areas. Almost all have a team dedicated exclusively to Sustainable Finance and some also indicate that they have established specific committees, reporting in some cases to the Area General Manager or Corporate Secretary and in others directly to the Board of Directors. 4 In general, the Green Bond Principles are updated once a year, to reflect the latest market developments. | 1 |
Our forward guidance is clear as to the sequencing: “we expect [the key ECB interest rates] to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.” There is no doubt within the Governing Council about this sequencing. In all events, we should not consider raising interest rates until we have reached a sustained adjustment in the path of inflation. Page 6 sur 8 4/ The fourth instrument is the provision of liquidity to financial institutions. In October 2008, we introduced the fixed-rate full allotment policy in all our regular refinancing operations. The maturity of this liquidity provision was then extended with the launch of 3-year longer-term refinancing operations (LTROs) and, later, targeted longer-term refinancing operations (TLTROs). In September 2017, a total of EUR 760 billion is still lent to euro area banks through TLTROs, which at over 7% of euro area GDP is substantial. III. Supplementing monetary policy in Europe For the future, we can be confident, because our monetary policy is effective and recovery is robust. But our confidence must be without complacency, because monetary policy cannot be the only game in town: it must be supplemented by national reforms, and by a strengthening of the euro area. We have been saying this for a long time, but now is the time to act. | It is now urgent to make concrete progress on substance, and to move up a gear, by triggering four accelerators of the Economic Union: - A macro accelerator: the French President, Mr. Macron, in his speech about Europe ten days ago at the Sorbonne, started by talking about the “coordination of economic policies”. In this widely-discussed speech, I believe that this was not sufficiently remarked upon. In my opinion – as an independent central banker – we should aim to achieve a genuine collective economic strategy; a mutual commitment between the Member States of the euro area, for more reforms in countries where they are required, and more fiscal support in countries with leeway for this. This collective strategy could be prepared and adopted as of 2018. It could be supplemented by the creation of a common stabilisation fund, aimed at supporting, through lending, Member States facing asymmetric shocks. This could be part of a European Monetary Fund, provided that its scope of action is extended beyond the current European Stability Mechanism. - A micro accelerator: i.e. a Financing Union for Investment and Innovation. The aim is to mobilise the EUR 350 billion savings surplus of the euro area, notably to shore up equity which is the key to an innovation economy, and also to foster synergies, thanks to an integrated steering mechanism, between the Juncker investment Plan, the Capital Markets Union and Banking Union. Here too, progress could be rapid. | 1 |
Essentially, the Principles seek to control money laundering by cutting across the multiplicity of jurisdictional issues and addressing the serious reputation damage they were suffering in the media because of money laundering. Ladies and Gentlemen, allow me now to discuss our local initiatives/responses to money laundering. Admittedly, there has been little activity in the areas of prevention of money laundering in Zambia, until quite recently. This exposed the country to the activities of money launderers because they always seek to operate in countries where there are lax controls. However, the major initiatives in the fight against money laundering, locally, have included: • Enactment of the Prohibition and Prevention of Money Laundering Act. The Government of Zambia responded to the increase in drug trafficking and money laundering by passing the Prohibition and Prevention of Money Laundering Act in 2001. The Act provides for the disclosure of information by supervisory authorities and of regulated institutions if suspected of money laundering activities. The Act also provides for the forfeiture of property belonging to persons connected to money laundering offences as well as for the prosecution of persons connected to or charged with money laundering offences. The Money Laundering Act places certain obligations on the Bank of Zambia as the supervisory authority. One of these is the issuance of regulations to commercial banks as and when necessary in order to prevent money laundering. • Regulatory responses. | Caleb M Fundanga: The role of the banking sector in combating money laundering A paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at a seminar organised by the C and N Centre for Advanced International Studies, Lusaka, Zambia, 23 January 2003. * * * Mr Chairman Distinguished Guests Ladies and Gentlemen Allow me first of all to thank you for inviting me to address you on this topic of great importance to the development of our financial system in Zambia – “the role of the banking sector in combating money laundering”. I have every reason to believe that your training in the last couple of days has provided an opportunity for you to share with the resource persons valuable insights on the subjects you have covered. Mr Chairman, the scourge of money laundering is not new to mankind. Despite money laundering being topical in policy discussions nowadays and on the minds of supervisors and regulators like the Bank of Zambia, the scourge itself has a long history and could be as old as the history of organised trade. Nonetheless, in spite of the fundamentals of the crime remaining, largely, the same as in the olden days, recent advances in technology and globalisation have offered and will continue to offer more sophisticated means to convert ill-gotten proceeds into legally acceptable financial assets. In recent times, money laundering has grown into real big business. | 1 |
Even though their importance has been reduced in recent years, mortgage companies still provide most residential mortgages. With the predominance of mortgage companies, fixed-rate mortgages have been a tradition in Denmark and Sweden. This has not been the case for Norway. Mortgages from the State Housing Bank were primarily adjustable-rate loans. After credit market liberalisation, adjustable-rate mortgages were also offered by banks. The supply of fixed-rate mortgages was limited. Fixed-rate loans are less common in Norway than in the other Nordic countries. From the 1980s to the 1990s, the Norwegian economy moved from high to low inflation with, until recently, falling nominal long-term interest rates. Borrowers with fixed-rate mortgages fared poorly in this period, and even more poorly than maturity or mortgage insurance premiums alone would imply. But with a clear monetary policy objective to keep inflation low and stable – and with an independent central bank tasked with achieving this objective – the result would be different. The high inflation expectations that were built into long-term interest rates no longer exist and a further marked fall does not seem likely, nor for that matter does any substantial inflation-driven increase in long-term rates. Purchasing a home is a long-term investment. A fixed-rate mortgage reduces borrowers’ uncertainty about expenses over the life of the loan. Longer-term financing in banks Banks play an important role in the economy. Their task is to convert short-term deposits into long-term loans. In times of crisis, fulfilment of this task is put to the test. | Global green bond issuance volume reached $ billion in 2018, a four-fold increase from $ billion in 2015. The Asia-Pacific region accounted for almost $ billion of issuance, or almost 30% of global volumes, of which $ billion was from China. Exchanges can support the listings of green, social, and sustainability bonds, as countries and corporates transition towards a low-carbon and climate resilient model. • To foster sustainable growth in ASEAN, the ASEAN Capital Markets Forum (ACMF) has developed the ASEAN Green Bonds Standards, in collaboration with the International Capital Market Association (ICMA).Đ The standards, based on ICMA’s globally recognised Green Bond Principles, seek to facilitate ASEAN capital markets in tapping green finance to support sustainable regional growth and meet investor demand for green investments. As of October 2019, 80 such bonds from Singapore, Malaysia, Thailand, and the Philippines have been issued for renewable energy, green buildings and low carbon transportation [6] . 14 Đ Đ Exchanges can also play an active role in supporting sustainable growth through sustainability reporting and integrating sustainability considerations in products that you launch. In particular, sustainability reporting is a key tool in encouraging enterprises to integrate ESG considerations in their performance and value proposition to both internal and external stakeholders.Đ • Sustainable reporting has become more important with growing concerns from consumers and investors that financial returns are achieved with integrity, backed by ESG considerations. | 0 |
2 BIS Review 67/2007 The steady rise in the prices of high-risk investments, the low risk premiums and low volatilities might possibly even have an influence on the external value of the Swiss franc. Let me comment on this statement in a little more detail. In international currency portfolios, the Swiss franc has always been a safe haven currency. In the past, this was reflected in the fact that the Swiss franc rose against other investments when the situation was uncertain. Thus, the Swiss franc took on a kind of insurance function and many investors held Swiss franc investments to protect themselves against political and economic crises. Just as the Swiss franc is particularly attractive as a safe haven in stormy conditions, there is little interest in the Swiss franc when the weather is calm. Due to the very low level of risk awareness and risk aversion at present, the demand generated for hedging and thus for Swiss francs is weak. However, in the past, phases of calm weather in foreign exchange markets were repeatedly interspersed with stormy periods. Therefore, financial market participants and other market players with exchange rate exposures should remain aware of the exchange rate risks they are incurring. BIS Review 67/2007 3 4 BIS Review 67/2007 | Finally, the procyclical leverage of financial intermediaries is tied to systemic risk, suggesting that the leverage of financial intermediaries is a key factor behind economy-wide financial crises. Once again, a potential “macroprudential” regulator – one that is attempting to reduce the risk of a financial crisis but also attempting to stabilize the macroeconomy – would face a risk-return tradeoff: Allowing a buildup in financial intermediary leverage as the economy grows can assist in achieving macroeconomic objectives such as full employment, but risks a more severe downturn if such leverage growth becomes excessive. Making those judgments is inherently difficult. The benefit of being a money issuer Society demands money for many purposes. Money provides a good way for people to store value safely, and it can be used as a means of exchange. These are classic and enduring features of money. For the purpose of this talk, by “money” I mean a broad definition of money – what some would call “money-like” assets that can provide the monetary functions of storing value and serving as a medium of exchange. Those include both short-term government debt and short-term borrowing by financial intermediaries, especially borrowing that is designed to be extremely safe, such as repurchase agreements, or repos. A repo is a fairly modern instrument that I’ll describe in a bit more detail, as repos played an important role in the buildup of intermediary leverage and the issuance of private-sector money-like instruments during the lead-up to the crisis of 2007–09. | 0 |
These projects are: • a review of the standardised (credit and operational risk) approaches to capital adequacy, which need to be re-examined in light of calls for greater simplicity and comparability in the regulatory framework as well as the desire to reduce the reliance on credit rating agencies if possible; and • an examination of the need for a capital framework for interest rate risk in the banking book, particularly given the desire to limit arbitrage opportunities between the trading and banking books. These last two projects are still at an embryonic stage, so I cannot say too much about what they might entail at this point in time, but they will be the last pieces in what has essentially been a complete overhaul of the regulatory framework since the financial crisis. Monitoring and reinforcing implementation of Basel regulatory standards As I have already said, the establishment of the implementation monitoring programme has been a high priority for the Committee; it is critical to the successful delivery of the benefits of the agreed reforms. Starting from scratch at the beginning of 2012, a comprehensive assessment framework has been developed that is growing in its acceptance and credibility, and I am pleased to report that the Committee now has dedicated capacity in the area of implementation work. The implementation framework is being continuously strengthened through a lessonslearned process. | Our goal is to take a more holistic view on the implementation process by focusing not only on the existence of a regulatory framework but also on its functioning. The implementation process is also envisaged to be closely linked to the ongoing policy development process, creating a positive feedback loop that can help strengthen the regulatory regime. There is no doubt that this new monitoring and assessment initiative has already had a positive impact. As a result of the regular monitoring of how countries are tracking against agreed deadlines, as well as the forthcoming country assessments, member jurisdictions regularly approach the Committee about specific aspects of the Basel framework, actively seeking to ensure that their local adoption of the Basel rules would not be inadvertently out of line with the spirit of the agreement. Jurisdictions have also brought forward the release of their rules to ensure that their progress was captured in the periodic updates that the Committee has provided to the G20 and made public. The self-assessment responses undertaken for the assessment process are also benefiting the implementation process. In addition, the assessments of drivers that lead to variation of banking and trading book riskweighted assets are continuing and are to likely lead to both more consistent implementation of existing rules, and the development of policy options to address identified areas of weakness. | 1 |
The micro-economic evidence discussed earlier suggests these effects are difficult to detect and, to the extent they do exist, might be relatively modest in the contribution they have made to slowing aggregate investment and productivity growth. And if higher markups have, in fact, been the counterpart to a rise of ‘superstar’ firms, benefiting from network economies, that would, in principle, raise productivity growth and r*. A second structural parameter in the IS curve is the interest elasticity of aggregate demand, 𝜎. In the simplest baseline model, this is determined by (the inverse of) the intertemporal elasticity of substitution. In more general settings, with credit constraints, it may depend additionally on the balance sheet characteristics either of borrowers or lenders or both (for example, Kashyap, Stein and Wilcox (1993)). A rise in market power could, in principle at least, affect the balance sheets of borrowers and/or lenders in ways which could influence 𝜎. For borrowers, a rise in market power might raise equilibrium profit rates and market valuations. It may thus reduce companies’ collateral constraints and their reliance on external sources of finance (for example, Bernanke, Gertler and Gilchrist (1999)). For lenders, a rise in market concentration could in principle reduce the speed of pass-through of policy rates to retail deposit and lending rates (Gerali et al (2010)). Each of 24 Equation (9) is specific to the Galí model presented here, but equation (10) is a more general feature of macro-economic models, where r* is a function of the household discount rate and productivity growth. | One Norwegian krone was worth 0.40323 grams of fine gold. In the latter part of the 1800s, Norway benefited from free trade and free capital movements and became a relatively prosperous country. The standard of living in Norway did not lag behind that of Sweden. The currency union was maintained after the political union with Sweden was dissolved. The agreement lost its practical significance after the gold standard was suspended in 1914. The agreement was not formally terminated until 1972. From an economic viewpoint, the dissolution of the union in 1905 was a painless process. Economic developments were favourable up to World War I. International real interest rates have fallen The interest rate level is lower today than in 1905. In fact, Norges Bank has not allowed the key rate to be this low since the Bank was established in 1816. This partly reflects international conditions. In many countries interest rates were reduced considerably when the economic situation took a turn for the worse early in 2000. Interest rates adjusted for inflation, i.e. real interest rates, are now also low. Low real interest rates may be ascribed to several factors: Inflation has been low for such a long period that savers require a low premium as a hedge against unexpected inflation in the future. In order to prevent an appreciation against the dollar, many Asian central banks have been buying US government bonds, thereby pushing down yields. | 0 |
At the same time, the SSM will develop its own more detailed supervision manual, which lays down the supervisory approach to be taken by the SSM including on off-site and on-site reviews, risk assessments and model validations. The ECB and the EBA are cooperating closely to ensure that these two projects are fully consistent. Here again, the existence of the SSM will greatly facilitate the work of the EBA, as all SSM members will naturally converge in their supervisory practices. Third, the conduct of stress tests. The Council Regulation requests the SSM to conduct a comprehensive assessment of the banks that the ECB will supervise directly. This will have two main building blocks. First, a balance sheet assessment, which is a point-in-time evaluation of the asset side of banks’ balance sheets. Second, a forward-looking assessment of individual banks’ capital positions and provisioning levels in the form of a stress test. This stress test, and future stress tests undertaken as part of the SSM’s regular supervisory functions, will be conducted in close cooperation with the EBA, in particular regarding the design and timing of the exercises. European Systemic Risk Board As regards interactions with the European Systemic Risk Board (ESRB), the activities of the SSM will have a clear systemic dimension and so cooperation between the SSM and ESRB will be essential. | Memoranda of Understanding regulating these interactions will be prepared in the coming months. Conclusion To conclude, it is unavoidable that the existence of the SSM will alter the functioning of the ESFS. This is, after all, the most significant development in financial supervision in the history of the European Union. However, I am confident that the changes brought by the SSM will strengthen the ESFS, and will overall enhance the quality and consistency of supervisory and regulatory practices across Europe. The more Member States that are involved in Banking Union, the greater these positive effects will be. Thank you for your attention. BIS central bankers’ speeches 3 | 1 |
Ensuring adequate provision of a means of payment that is credit-risk free and fully and efficiently available and accessible to any potential user group is extremely important. To date, cash has been the only asset that enjoys legal tender status and has played this role. Yet, the way cash is fathomed and embraced nowadays is heavily influenced by the increasing digitalisation of society, and by technological change more generally. For example, the behaviour, preferences and expectations of users are changing rapidly, as their experience with digital technologies grows. Novel payment alternatives, provided 1 either by private players (both traditional and non-traditional ones) or by public authorities in various jurisdictions, may also surface and/or expand, presenting greater appeal than traditional banknotes and coins. Moreover, new features of existing payment instruments or services, such as programmability, are now becoming possible thanks to emerging technologies. Therefore, besides ensuring the availability of cash, we also need to consider new ways of improving the efficiency of retail payments by leveraging digital technology more extensively. All of this could signal the need to broaden the approach and explore new opportunities, aiming to better address modern society’s unmet demands. In this process, the notion of a universally accessible CBDC stands out, that is, a new type of central bank digital liability that could be made widely available. | In our discussion to come, I believe we could study two types of aggregates: Page 7 sur 10 Financial aggregates, from the perspective of financial stability, and potentially looking more closely at the assets of financial institutions including non-banks (such as their provision of credit in the broadest sense) rather than at their liabilities only (including money, as in the past). Other economic aggregates, starting with nominal GDP, which has the virtue of combining real growth and prices – two variables that statisticians sometimes have difficulties separating in our measures. But also employment and income distribution, which respond to the demands of the Treaties as well as to the expectations of the public. Allow me some remarks on the substance of these “secondary” objectives. To achieve financial stability, in an ideal world, we would have a box of macroprudential tools that could maintain financial stability whatever the monetary policy stance. However, in practice our set of macroprudential tools is comparatively limited. We need a monetary policy strategy that reflects this reality. We should go beyond the old debate of “separation principle” versus “ leaning against the wind”. I advocate a median way, which we could call “coordinated” or “integrated”.viii We have now a range of unconventional monetary instruments and our objective should be to pick the right combination that delivers the necessary accommodative monetary stance while minimizing of adverse side-effects on financial stability. | 0 |
Broad money BIS central bankers’ speeches 3 M3 growth came close to its historic average during the fourth quarter of the year, marking 11.9% and mainly in time deposits in the banking system. Although banks did not tighten their lending terms and conditions – on the contrary, during the second half of the year there were signs of easing – demand for bank lending by the private sector was low. This remains low due to the existence of negative output gap by businesses and the growing consumer tendency to save under a perceived added insecurity for the future and a more cautious behaviour towards actual consumption. Reduction of risk premia in financial markets, maintaining positive economic growth, employment and salaries, as well as a clearer short-term perspective of the economy are expected to contribute to an increased demand for bank loans in the coming period. The banking system meets the prerequisites, in terms of liquidity, capitalisation and more favourable financing conditions to response to this demand. Our outlook for the future supports keeping a positive progress of the economy for 2011. Growing demand is expected to be subject to the comparatively better progress of the domestic demand during this year. Private consumption and investments are expected to rise further, while, after the slowdown in 2010, the fiscal sector is expected to contribute positively to the economic growth. In spite of this, the growing demand is considered to be below the potential of our economy even for 2011. | Rapid expansion of exports and moderate increase of imports led to improved trade and current account deficits, contributing to foreign currency demand and supply balancing and increased exchange rate stability. Monetary and fiscal policies have conveyed a careful macroeconomic stimulus. Withdrawal of the fiscal stimulus during the second half of the year, led to a more stimulating monetary policy, by reducing the key interest rate in July and a fuller introduction of it into the financial markets during the following period. Financial markets were characterised by an improvement of liquidity indicators and a decline in interest rates in almost all financial instruments. Furthermore, a prudent fiscal policy rendered budget deficit and public debt in line with 2010 forecasts. These developments are expected to be brought forward, in broad terms, in 2011 as well. Economic growth is expected to remain comparable to levels of 2010. However, it is expected to be driven by domestic demand to a large extent. The banking system is in a much better position compared with two previous years in terms of supporting the increase of domestic consumption and investment with funds. Moreover, inflation pressures are forecasted to be under control, budget deficit and public debt are expected to be further consolidated, and external position of the economy is expected to be more stable. Respecting this picture has important implications, which I will address later in more details, for policymakers and economic agents. Latest developments in global economy are characterised by continued economic growth in most developed countries and emerging economies. | 1 |
MAS also set up a $ billion US Dollar Facility that is available to all banks, on the back of the swap arrangement with the US Federal Reserve. This Facility has helped to stabilise US Dollar funding conditions in Singapore, and enabled US Dollar lending to businesses in Singapore and in the region. About $ billion has been provided through this Facility. FINANCIAL STABILITY The COVID-19 shock has also increased the risks to global financial stability. The world entered the current crisis with one strong card and one weak card. The strong card is the banking sector. Globally, banks are generally in good shape, with healthy capital and liquidity buffers. The weak card is the corporate sector. In many parts of the world, corporate debt levels were already high pre-COVID, and will increase further through the course of this crisis. With tight cash flows, over-leveraged entities could face financial distress, leading in turn to ratings downgrades and corporate defaults. Mounting corporate defaults will strain banks’ profitability and capital positions. The strong card could become progressively weaker. If this happens, banks will be less able to sustain credit to the real economy. Worse still, if funding conditions also tighten and confidence is shaken, some banks could run into trouble, possibly triggering a financial crisis. MAS is determined that the financial system in Singapore remains robust and resilient. Our banks have built up strong capital and liquidity buffers, and are well-placed to weather these risks even as they continue to extend credit. | Our research shows that the gains from structural change can be considerable although adjustment costs, in terms of the reallocation of labor and capital, will also be significant. Now we arrive at the third and final question. Given the euro crisis and Thailand’s prospects for growth, what should monetary policy do? The dilemma here is how to bridge short-term stabilization with long-term goals of structural change. The challenge for policy is to maintain an overall framework where the trend of increasing economic integration can continue while containing crises. Given our baseline scenario of a prolonged recovery without a liquidity seizure we lean towards long-term goals – for example, maintaining capital flow liberalization, financial sector liberalization and market-led exchange rates – but with a readiness for monetary stimulus should a clear need arise. Let me discuss the policy tools at our disposal and how they fit into our overall policy objectives. On the interest rate, the policy rate has been on hold at 3.00 percent since January this year. At the moment we view it as supportive of growth amid global risks and consistent with our inflation target. However, I must stress that the interest rate is poised to go either way depending on developments in the advanced economies, in particular the euro area and the impact on the overall Thai economy. We recently saw how the impact of the euro crisis is spreading to Asia in the form of a broad-based slow-down in Thai exports. | 0 |
Governor’s Feature Address at the Khazanah Megatrends Forum 2022 Speaker: Tan Sri Nor Shamsiah Mohd Yunus / Venue: Kuala Lumpur / Language: English / Speech/Interview Date: 03 Oct 2022 / Navigating Malaysia's Economic Transition, in a post-COVID world 1. A very good afternoon to all of you. I would like to thank Khazanah for inviting me to speak. This morning, I will be pleased to share with you what we in Bank Negara Malaysia are seeing in the economy today, and what we believe is needed to secure our future. 2. For a good part of the past three years, the world has been grappling with managing not only a health crisis, but an economic crisis. Actions were taken to protect both lives and support people’s livelihoods. Following the warp speed effort to vaccinate the country last year, containment measures were soon lifted and borders reopened. Today, the economy is no longer in a crisis, and Malaysia’s economic recovery is well underway. A number of key indicators support this. 3. First, the Malaysian economy is showing positive growth momentum. This year, growth is expected to be strong. The reopening of international borders has and continues to lift tourism-related sectors. This will have significant spillovers to the rest of the economy given the importance of the services subsectors. Also, investment activity and prospects continue to be supported by the realisation of multi-year projects. | New licences were issued to foreign conventional and Islamic banking institutions, while the minimum foreign strategic stakes in the insurance and takaful industry were increased. Increased operational flexibilities were also accorded to the existing foreign banking institutions in the financial system which now account for about 30% of the banking system. At the same time, the foreign participation in our securities market was liberalised in 2007 to allow foreign corporations to raise financing either in domestic or foreign currency. The capital account liberalisation throughout the first decade in the 2000s has involved the progressive removal of restrictions on foreign exchange administration rules. This liberalisation was intensified after 2005, taking into account the state of readiness of the financial system and the economy to manage the consequential increased cross border financial flows. In July 2005, Malaysia migrated from a fixed exchange rate regime to a flexible exchange rate regime to accord greater flexibility to adjust to changing structural conditions in the region and the global economy. With the progressive dismantling of restrictions, businesses now had the flexibility to manage their financial exchange exposures. This encouraged two way capital flows and contributed towards stabilising the volatile capital flows to our economy. Finally, in addition to being accorded with the necessary powers in the new legislations, the policy toolkit of the Central Bank has also been expanded to address the potential build-up of financial imbalances and its risks to financial stability following increased internationalisation. This includes macro-prudential and supervisory measures to collectively address the underlying causes of financial stability. | 0 |
Source: Norges Bank SG 16. januar 2003 BIS Review 2/2003 7 Forward interest rates Norway, Germany and the US 7.0 7.0 6.0 6.0 Norway 5.0 5.0 4.0 4.0 Germany 3.0 3.0 US 2.0 2.0 1.0 1.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Norges Bank SG 16. januar 2003 Real exchange rate (TWI/relative CPI) 90 90 95 95 100 100 1970 - 2001 105 105 110 110 115 115 1971 1975 1979 1983 1987 1991 1995 1999 Source: Norges Bank SG 16. januar 2003 Purchasing power parity Norway and Germany. Relative prices and exchange rate 200 Consumer prices 100 200 100 Krone exchange rate 50 1970 50 1975 1980 1985 1990 1995 2000 Sources: Statistics Norway and Norges Bank SG 16. januar 2003 8 BIS Review 2/2003 Sweden's real exchange rate and relative GDP compared with the euro area. Quarterly figures. | How does monetary policy function? Monetary policy affects the economy through a number of channels. Let us make a stylised review of what happens if the central bank raises the key interest rate. In the short and medium term, this will result in a rise in the real interest rate. Normally, the exchange rate will also be strengthened. Prices for imported goods are an important part of the consumer price index (CPI). An appreciation of the krone reduces prices for imported goods measured in NOK. This is often called the “direct exchange rate channel to inflation”. The rise in real interest rates reduces consumption and investment demand. This is the “real interest rate channel to aggregate demand”. With a stronger exchange rate, domestically produced goods and services will be relatively more expensive than competing foreign products. Demand for domestically produced goods will decline. This is the “exchange-rate channel to aggregate demand”. The reduction in aggregate demand will in turn cause a reduction in price inflation. This is the “demand channel to inflation”. Price inflation and wage inflation are both affected by changes in inflation expectations. Some firms set prices for several periods. In wage formation, expected price changes will figure prominently in the calculation of expected future real wages. When monetary policy is credible, expectations regarding future inflation will be dampened by a rise in the interest rate. A change in expectations will in itself contribute to curbing future price inflation. Thus, the expectations channel amplifies the effect of monetary policy. | 1 |
We recognise the challenges firms are currently facing in acquiring good quality data for these purposes but as data becomes more readily available we expect firms to be able to further develop their risk management and scenario analysis capabilities. The longer-term nature of the threat of climate change is demonstrated by the decades-long time horizons of the scenarios covered by the Bank’s recent Climate Biennial Exploratory Scenario, the results of which were published in May. Although it did not include any international firms, I would like to highlight two of the key lessons from the exercise, which Sam Woods also discussed in his recent speech. [4] The first lesson is that, over time, climate risks will become a persistent drag on firms’ profitability, perhaps in the region of 10-15% annually, particularly if they don’t manage them effectively. The second lesson is that how and when we transition makes a big difference to the costs the financial sector will incur. These costs will be substantially lower if firms take early, orderly action. Taken together, all of this should provide a strong incentive for firms to be ambitious in how they embed the management of climate-related financial risks[5] and meet the PRA’s broader expectations set out in Supervisory Statement 3/19. [6] So in that context, investment banks should take recent disruptions in commodities or supply chains as a sign of things to come, and get used to managing those because in the new world they might well become more frequent. End So let me conclude. | So your CEOs may need to start making different types of phone calls. The financial sector can also work together on the development of extreme and multidimensional systemic stress scenarios, and assessing the impact of shocks from one firm to another. We are arguably now still in the foothills of this new digital era. Ahead of that, international banks must frontload the implementation of operational resilience policy. Surely a mere sliver of the earnings of the last decade should be more than enough to cover that investment. And boards must make sure they understand the risks from new technology and that operational resilience becomes part of the fabric of their decision making. This means, before entering materially into crypto assets, adopting Artificial Intelligence (AI), introducing the cloud; or entering third-party relationships, international banks active in the UK must complete their operational resilience homework. So that they are prepared for this new tide. Towards waters in which safe havens will probably be quite sought after and attractive – so there is an opportunity here for banks and their franchise. Page 7 Climate The two issues I have discussed so far, namely how the new world might threaten firms’ financial and operational resilience, obviously have the potential to crystallise in the very near future. The last issue I will touch on today may appear to some as somewhat longer-term, but it is fast approaching and will change the environment we operate in. That is climate change. | 1 |
Nor can I see, as economic activity has improved, any weighty reasons for making monetary policy more expansionary by reducing the repo rate even further. The adopted line, with a repo rate of 0.25 per cent that is expected to remain unchanged for several quarters, represents a very expansionary monetary policy. My view is that this policy should only be changed if inflation and/or the economic situation change considerably compared to our current forecasts. Concluding remarks I have now shared with you some of my experiences during my early months as a member of the Executive Board of the Riksbank. I realised already when I accepted the job that it would not be easy. However, the fact that monetary policy decision-making is not as straightforward as it appears in theory only serves to make the job even more exciting. A well-balanced monetary policy presupposes that we arrive at a reasonable balance between achieving the inflation target and stabilising the real economy. A reasonable balance requires in turn that we can effectively measure how much inflation deviates from the target and how resource utilisation relates to its normal level. We have fairly good measures of inflation, although it has been a problem recently that our main measure of inflation, the CPI, is so highly affected by our own repo rate decisions through their effects on housing costs. Consequently, at our most recent monetary policy meetings we have almost exclusively focused on alternative measures from which housing costs are excluded. | The Islamic banking industry now accounts for 16.7% of total assets in the industry. Similar trends can be observed in the growth of deposits that have reached RM180.4 billion, an increase of 27.7% during this period while, total financing has also increased by 24.5% to RM143.4 billion. This growth has also accompanied by an increase in the number of full-fledged Islamic banking branches. From January to September this year, 93 new branches were opened thereby enhancing the outreach of Islamic financial products and services. BIS Review 146/2008 1 Another area that has seen significant growth is in the Sukuk market. The Malaysian sukuk market has expanded significantly with an average annual growth rate of 22 per cent since 2001. Despite the current market conditions that have affected the volume of new bonds and Sukuk issuance, the Islamic capital market has continued to structure innovative Islamic financial instruments. By the first half of 2008, the composition of the more innovative Sukuk Musharakah had increased to 84% as compared to 58% of the total sukuk issuance in 2007. In addition, several new Islamic financial products have been introduced including residential mortgage backed securities, Commodity Murabahah deposit products, commodity based financing, credit card based on ujrah , as well as, structured products based on Musharakah, Mudarabah and Ijarah. Malaysia has acquired a unique market space for driving Shariah-based innovation by combining the depth of knowledge with the drive for innovation. | 0 |
The relationship between the Bank and banking sector was no longer one of equals, though the Bank’s approach did not alter course overnight. The Bank of England Act 1946 subsequently granted the Bank a range of powers, including the ability to issue directions to firms. A further legislative development – the Companies Act 1948 – conferred privileged status on some institutions (recognised banks or discount companies) which resulted in the Bank granting 7 exemptions to these institutions by virtue of their status as a bank . For the first time, we see evidence of some differentiation of treatment between banks and regular companies. 8 Meanwhile, the Accepting Houses Committee – a collection of merchant banks with accounts at the Bank – had by this point grown in stature as an association that represented banks of good standing with the implicit 9 backing of the central bank . During the 1950s, and in exchange for the extension of this privileged status, the banks accepted a measure of consultation in order to reassure the Bank that their name was still good. This often took the form of a monthly meeting with the Governor to discuss the firm’s balance sheet, and it was in this setting that the Bank formed an idea of the level of hidden reserves (or excess capital in modern parlance), something that would otherwise go undisclosed in the firm’s public accounts. | The Bank of England and Public Policy: 1941 -1958, Cambridge, Cambridge University Press, 1992, p.750 10 A short-term debt instrument issued by a company that is guaranteed by a commercial bank, often used to facilitate trade. 11 Fforde, p.755 8 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 And yet, as in the 1890 Barings episode, you can see in this activity elements which persist in supervision today. For instance, while I do not wish to offer any formal comment on the state of Mark Carney’s eyebrows, in my experience a meeting with Mark is always a useful way to focus the mind. It is worth remarking that during this period there was a genuine window of opportunity to extend the 12 boundaries of banking supervision undertaken by the Bank and legislate accordingly . However, after a year’s negotiation, it came to nothing and instead of a Banking Act 1957, the banking sector would have to wait until 1979 before the Bank involved itself more formally in the affairs of firms and, crucially, on a statutory basis. In the period up to the 1970s, there had been ‘no recent case of depositors losing their money. There was little public interest in the subject and there had been no troubles that might have led to a demand for the 13 Bank’s help’ . This set of circumstances changed abruptly when the secondary banking crisis engulfed the City in the period 1973-5. | 1 |
The Global Financial Crisis led to a loss of economic activity equivalent to around £ per person in the UK, based on the net present value of the shortfall in income since 2007 compared to its pre-2007 trend(Brazier 2019). 2 For example, Acemoglu and Zilibotti (1997), Arestis and Demetriades (1997), and Beck and Levine (2004) provide evidence that the financial sector has a positive role on economic growth. 3 The ‘efficient market hypothesis’ was popularised by Fama (1970). Complete markets were theorised by Arrow and Debreu (1954). 4 For example, markets could be inefficient due to information asymmetries, transaction costs, market psychology, sticky prices, monopolistic competition, or credit constraints. 5 Drehmann et al. (2012) and Lang et al. (2020) highlight the importance of cyclical risk for financial stability. 6 Glasserman and Young (2015) and Acemoglu et al. (2015) discuss the risk of contagion in the financial system. 7 Woods (2022) discusses alternative approaches to buffer usability. 8 6/7 BIS central bankers' speeches 8 See Bank of England (2021). 9 See Chatterjee (2022) for a comparison of the UK financial conditions index for the GFC and Covid. 10 Lloyd et al. (2021) shows that foreign shocks are a key driver of domestic macroeconomic tail risks. Bluwstein et al. (2020) also show that global factors can predict financial crises. 11 See Czech et al. (2021). 12 Bank of England (2021) provides more details on vulnerabilities associated with market-based finance and liquidity mismatch in open-ended funds, in particular. | 4 BIS Review 73/2007 or possibly because of, the fact that the monetary authorities were explicitly targeting the monetary aggregates as a means of controlling inflation. Part of the explanation of the divergence was that the 1980s were a period of rapid financial innovation following the removal of exchange controls and of pricing, income and dividend policies. This changed the amount of money people were willing to hold for a given amount of money spending (which in economics is known as the velocity of circulation). So the increase in money growth did not lead to a pick up in inflation. Even so the acceleration of monetary growth at the end of the 1980s did foreshadow the upturn of inflation at the end of the Lawson boom. The chart shows that since 1992 the rates of growth in broad money and inflation have diverged again and that broad money growth has picked up sharply since 2003. A key question is whether this reflects a further spurt in financial innovation or is telling us that we should expect increasing growth of money spending and inflation. There are good grounds for attributing part of the increase to structural changes in the financial markets which have led “other financial companies” (OFCs) to hold more deposits with the banks for a given level of economic activity. 8 It is within this OFCs sector that the growth in money has been the most rapid (Chart 12). | 0 |
There has already been progress with privatisation, especially in the hydrocarbon industry. There are plans to restructure and privatise over 500 state enterprises during the next five years, and to commercialise - or “autonomise” - Iran’s state-owned banking system. Trade and foreign investment are being encouraged by the extension of Iran’s free-trade zones. And new legislation is expected soon to simplify and clarify the Law for the Encouragement and Protection of Foreign Investment. These are all clearly positive steps. Iran is, of course, OPEC’s second largest producer and has the second largest reserves of gas in the world. It has benefited from the recent rise in oil prices and is playing a positive role in promoting the stability of the oil market. President Khatami recently noted that OPEC may need to raise output in proportion to the increase in global oil demand to stabilise prices. The government has taken positive steps to encourage foreign investment in the petroleum sector. For example, they have facilitated foreign participation in contracts to redevelop oil fields, and they have also signed an agreement with a consortium of nine leading international oil and gas companies to study Iran’s potential as an exporter of gas. The government is, moreover, actively seeking to cushion the economy from future fluctuations in the oil price. | However, when interest rates are 2 BIS central bankers’ speeches already very low, a decline in the Euribor is associated with a reduction in the interest margin (the price effect exceeds the quantity effect) as banks have less capacity to pass through the reduction in interest rates to retail deposits owing to their proximity to the zero-rate level. It is possible that these non-linearities may be exacerbated when interest rates move into negative territory. Chart 2 That said, there are also factors that mitigate the impact of low interest rates on results. In particular, low interest rate levels contribute to reducing loan loss provisions, insofar as they are conducive to a decline in non-performing loans. This mitigating effect is particularly significant in Spain, owing to the prevalence of assets with floating rates on bank balance sheets. 2.2 Non-performing loans The second factor weighing down on bank profitability is the still-high level of non-productive assets on the balance sheets of banks located in specific countries, despite the continuing downtrend we have observed for some time. As can be seen in Chart 3, in some instances the NPL ratio exceeded levels of 15% in mid-2015. With its ratio at approximately 7%2, Spain stands only slightly above the euro area average, thanks to the reduction witnessed in the past two years. | 0 |
Low interest rates have contributed to a relatively sharp rise in household demand throughout the upturn. At the same time, solid global growth has led to increased demand for many Norwegian export goods and high prices. Fixed investment in the petroleum sector has increased sharply, resulting in growing demand for goods and services supplied by mainland enterprises. Mainland fixed investment has also picked up gradually. So far in the economic upturn, the mainland economy has grown by an average of about 3.5 per cent quarterly, measured as an annualised rate. The output gap is a measure that expresses our assessment of total capacity utilisation in the economy. The output gap is defined as the percentage difference between actual output and potential output. Potential output indicates the level of output that is consistent with price and cost stability. The estimate for the output gap is uncertain partly because the level of potential output is unobservable. Since official statistics on overall activity in the economy are not available immediately and are subsequently revised, the level of actual output will be uncertain. In assessing the size of the output gap, technical calculations are compared with other information about capacity utilisation in the economy. As more information has come to light, the output gap has been revised downwards for 2005, but at the same time the growth rate towards the end of the year is estimated to be higher. Output has increased more rapidly than potential output for 2-3 years. | But there is a need also to reduce vulnerability by building bigger, deeper, more robust and diversified capital markets. While the interesting subject of monetary integration, which would provide a long-term solution, has been receiving some nascent attention, efforts to enhance the efficiency of financial intermediation within the region should be stepped up. Asia as a whole is one of the largest exporters of capital and, at the same time, also one of the largest recipients of foreign direct investment and foreign portfolio investment. The underlying process of capital flows associated with this roundabout phenomenon involves much greater financial volatility and instability for the region than the situation where a greater proportion of savings in the region could more readily find their way into investments in the region. This underscores the importance of greater efforts to enhance the efficiency of financial intermediation within the region. Indeed, capital market reform is high on the agenda of most Asian economies. There has also been considerable progress in the diversification of financial intermediation channels, specifically in the development of the bond market. At the end of last year, the amount of domestic bonds outstanding in eight economies1 that we have surveyed was equivalent to 47 percent of the combined GDP, more 1 Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. BIS Review 30/2004 1 than double the 20 percent at the end of 1995. Over that eight-year period, the bond market’s share in total financing grew from 11 percent to 19 percent. | 0 |
23 These measures appear to have contributed both to the rapid subsidence of SARS-related fears and uncertainties among the general public and to containing the spread of the disease. Since April 2004, there have been no reported cases of SARS. The global information infrastructure of GOARN is widely acknowledged as having helped nip the SARS crisis in the bud. There are important lessons here for the financial system. At present, risk measurement in financial systems is atomistic. Risks are evaluated node by node. In a network, this approach gives little sense of risks to the nodes, much less to the overall system. It risks leaving policymakers navigating in dense fog when assessing the dynamics of the financial system following failure. The market repercussions of Lehman’s failure were in part the result of such restricted visibility. What more might be done to prevent a repeat? Part of the answer lies in improved data, part in improved analysis of that data, and part in improved communication of the results. On data, in some real-world physical networks, data is collected on virtually all nodes and links. For example, in modelling the US electricity grid, data are collected on all major power stations (nodes) and power lines (links). 24 As these total 14,000 and 20,000 respectively, this is a large-dimension network. Data from physical networks such as the power grid are relatively easy to collect. For many other large-dimension networks, sampling techniques are typically required. These typically take one of three forms: node sampling; link sampling; and “snowball” sampling. | This can happen if the households expect a permanently lower level of public expenditure in the future and thus also a lower level of taxation. In such a situation, budget consolidation would lead to an increase in private consumption and production. How applicable this hypothesis is to the current situation in the United States and Europe is being widely discussed by economists at the moment. My assessment is that it is more likely that the expected cutbacks will have a negative impact on growth. 2 BIS central bankers’ speeches Trade links When a slowdown hits major economies like the United States and Europe it leads to a reduction in world trade as a whole. Figure 1 shows that world trade has developed relatively weakly in 2011, which has had a negative effect on Swedish exports. Figure 1 Development of world trade Index, 2000=100 Note. The index series is calculated on the basis of global import and export volumes. Source: CBP Netherlands Bureau for Economic Policy Analysis A fall in demand on large markets has both direct and indirect effects on Swedish exports. Let’s look, for example, at the trade links between Sweden and the United States. A slowdown in the US economy spreads directly to Sweden in the form of reduced demand for Swedish exports. There is also an indirect effect in the sense that a slowdown in the United States leads to a reduced demand for goods and services from, for example, Asia. | 0 |
We are, above all, interested in the question of whether banks are sufficiently capitalised in view of the aforementioned vulnerabilities, and are able to maintain their economically important functions such as lending despite incurring losses. Our stress tests confirm the relevance of the aforementioned vulnerabilities. They show that banks would suffer substantial losses in the event of an abrupt and steep interest rate rise combined with declining real estate prices. Affordability risks would materialise, meaning that numerous borrowers would no longer be able to pay their mortgage interest. Furthermore, many mortgages would be insufficiently covered, i.e. the mortgages concerned would no longer be fully secured by the value of the properties. In such a scenario, the capital ratios of numerous banks would drop below their target values and, in some cases, even below the regulatory minimum requirements. Equally, our stress tests underscore the importance of the capital buffers currently held by banks, which comprise voluntarily held buffers besides the capital required by statutory regulations. With these capital buffers, our assessments suggest that most banks would be capable of absorbing potential credit losses. In other words, we consider the resilience of most banks to be adequate. Current situation requires vigilance Ladies and gentlemen, the fact that we consider banks’ capitalisation to be sufficient at present does not mean that we can relax with regard to the vulnerabilities on the mortgage and real estate markets. That the current situation is not more precarious is due not least to the measures taken in recent years (cf. slide 5). | At the onset of the crisis, it was not clear that the pandemic would not lead to a slowdown. This can, however, be explained in retrospect. Interest rates have remained low and support measures have significantly cushioned the impact of the crisis on the income of households and companies. Data released since the publication of our report in June show that the price momentum is continuing unabated. Second, it is to be expected that the global low interest rate environment will remain unchanged for some time to come. One reason is that the structural factors behind the downward trend in interest rate levels over the past decade, such as the ageing of the population and the decline in productivity growth, are still in play. Another reason is the expansionary monetary policy pursued by central banks in the advanced economies. Such policy continues to be necessary in order to counteract the impact of the coronavirus crisis. It is therefore to be expected that interest rates will remain low for some time yet, which means that incentives for increased risk-taking will remain in place. 13 This could prolong the period in which growth in mortgage volume and residential property prices is higher than can be explained by fundamental factors. Moreover, the longer the current cycle lasts, the more likely it is that memories of past crises fade and that market participants increasingly disregard the risks in question. Against this backdrop, it is important to continue to closely monitor developments on the mortgage and real estate markets. | 1 |
2 BIS central bankers’ speeches A special emphasis should be made on monetary policy challenges facing the central banks throughout the world. Easy monetary policies helped stabilise the situation in advanced countries, but the quantitative easing programmes were introduced as short-term interim measures allowing to gain time for structural reforms. As you know, however, nothing is more permanent than the temporary and structural reforms show little progress, while the easy monetary policy now involves more risks than benefits due to its longevity. Monetary policy in itself is not able to set the economies of advanced countries back to resilient growth, since there are structural limits and there is no room for reducing interest rates any further, i.e., they have already been negative in many countries. Nonetheless, low interest rates in advanced countries were conducive to fast accumulation of external debt in the emerging market economies subjected to capital inflow and bubble formation. On the one hand, we realise that an exit from the easy monetary policy is fraught with an about-turn in capital flows and consequently the need to tighten monetary policies in emerging market economies. This may bring down the global economy’s growth rates even further. Moreover, as a result of a quick monetary policy normalisation holders of these countries’ bonds may incur losses and financial stability risks cannot be ruled out. On the other hand, a refusal to normalise monetary policy may lead to stagflation. | New technologies add elevated threats of cyber-frauds and cyberattacks to traditional banking risks. These are global challenges. Meanwhile, the Russian banking system also faces specific challenges, namely: – slack economic dynamics which shrinks banks’ earning capacity; – high debt burden of traditional borrowers; – persistently restricted access to external financial markets; BIS central bankers’ speeches 5 – weak players (some players faced difficulties following the worsened economic environment adding to the problems accumulated in the financial sector and not yet solved. The Bank of Russia has to stick to active supervision to check these problems); – another challenge is priority funding of financial institution owners’ businesses rather than competitive projects; – unavailability of long money in the economy due to underdeveloped collective savings (pension funds, unit investment funds, life insurance). The challenges I have mentioned affect not only banking, but the whole financial system and require different approaches in regulation and supervision. We shall restore a healthy financial market, clear from weak and unscrupulous financial institutions. This is an ongoing process, but it still takes time to be completed. I would say that the Russian banking sector’s higher resistance to serious external shocks is among our most important achievements in bank regulation and supervision. The banking system is stable, has a good capital stock and does not need regular easing to function efficiently. Stress tests held by the Bank of Russia and major credit institutions confirm that. | 1 |
Collectively, these developments have limited the dispersion of money market rates during the COVID-19 pandemic period and thus provided tangible support for a smooth functioning of short-term money markets in the euro area. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201123~8d9573b1b1.en.html 4/7 24/11/2020 Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic Regulatory changes The regulatory environment has become another important determinant of money market functioning in recent years. The banking sector reforms introduced after the global financial crisis were crucial for enabling the banking sector to play a supporting role in the pandemic crisis. But the Basel III regulatory reforms also imposed new requirements for banks, which had a bearing on their balance sheet capacity. In turn, these regulatory amendments likely affected market functioning because banks act as key intermediaries in money markets. Since 2015, when the leverage ratio and the liquidity coverage ratio (LCR) regulations were phased in, the dispersion index started to spike regularly at quarter-ends (Slide 8). These spikes coincided with banks’ leverage ratio reporting dates. Research suggests that banks whose leverage ratio is close to the regulatory minimum scale down their balance sheet at quarter-ends by reducing money market borrowing. This “window-dressing” behaviour has a market-wide impact: money market rates decrease and rate dispersion increases at quarter-ends. [27] Focusing on the regulatory environment in the aftermath of the global financial crisis, the conference paper by Correa, Du and Liao (2020) investigates how U.S. global systemically important banks supply dollar liquidity in repo and foreign exchange swap markets. | These improvements, along with sound fiscal policy, have increased trust in the Estonian economy and, furthermore, made it more resilient to economic shocks than before the crisis. Turning to some other indicators, the output level in our manufacturing sector already exceeded pre-crisis levels in 2011. Our exports are now at record levels. Compared to the third quarter of 2009, they have grown by 67%. Investments have also rebounded, becoming the fastest growing component of domestic demand. Over the last two years, our GDP has grown robustly and somewhat faster than we had expected, by around 8% in 2011 and about 3.2% last year. This is lower than the rates we would like to see in more normal times, and slower than the rate which Latvia achieved last year, but still a very respectable outcome given the state of the world economy. By now, we have recovered to about 95% of our somewhat unsustainable pre-crisis level. As a result, our unemployment rate has fallen steadily, most recently to 9.3%, which is lower than the euro area average. Our employment has risen to about the same level as it was in the middle of the boom period. Clear positive impacts are also evident in the financial sector. Joining the euro area removed any remaining risk of devaluation, working to lower interest premia, which are now near Nordic levels. Access to eurosystem liquidity support has decreased the risk of sharp interest rate fluctuations and sudden stops in capital inflows. | 0 |
And while I’m not yet worried that we face a major and serious risk in the opposite direction, I do think we need to adjust the policy settings we put in place to head off the downside risks to inflation identified in the immediate aftermath of the big financial shocks in late 2008 and early 2009. It is possible to describe this challenge in different ways – as a gradual “normalisation” of policy or a gradual withdrawal of policy stimulus. Words which I don’t think create the right BIS Review 99/2010 9 impression in the current environment – particularly in relation to an upward move of Bank Rate from 0.5% to 0.75% – are “rate hike” or “tightening” of policy. “Rate hike” implies a sharp rise in interest rates, which is not what I favour. I favour a gradual rise in Bank Rate which would be aimed to avoid destabilising confidence through a sudden lurch in policy. “Tightening” may be technically correct as the opposite of “loosening” but it implies that monetary policy might become objectively tight and restrain the growth of the economy significantly. Again, that is not my view about the policy stance we currently need. So how should we characterise the current challenge in front of the MPC? The Bank Governor, Mervyn King, is fond of sporting analogies. But I have always been pretty useless at sport and my greatest interest outside of my working life is music, and in particular rock music. | Like in most other crisis-affected Asian countries, these relationships played a critical role in the evolution of the crisis in Thailand. The problem of weak governance is not limited to the private sector, however. Regarding monetary policy, a post-crisis survey of stakeholders, consisting of domestic and foreign institutions, government agencies, as well as the general public, revealed that the BOT was also perceived to be plagued with several weaknesses: lack of good leaders, lack of experiences, and lack of transparency. Finally, in the macroeconomic framework as a whole, it is probably obvious from the experiences leading up to the crisis that high growth cannot be reached and sustained in the absence of consistent government economic policies. The most striking example here is the combination of the fixed exchange rate and the financial liberalization policy, which inherently led to underestimation of exchange rate risks. In the end, market stability that the fixed exchange rate regime was intended to foster was undermined by market-driven foreign borrowings. The lesson for Thailand as well as for other emerging economies is that the authorities must regularly review their policy stances in the drive to keep up with changing financial environments. A move towards liberalization, for example, should be examined carefully in the light of the public sector’s capability in stabilization and whether there is sufficient infrastructure in place to support the regime shift. Finally, the crisis reminds us the importance of monetary and fiscal policy coordination. | 0 |
3, A "353 9 33 3 3 93 9 4 4 6752 554 465477 752 -0 75 752 901 74: 2 1" 4 752 W 57 47 74752 552 712 2 1 714 552 $ 6 4 53 ! 5 4 437 53 2 $ &7'1 74 " 1 +,,-.-/ %973 4 !23(%& 2 7 %3 5332 3279 +6*9 A6(4)9 1 f 34,4/.4( &9(04 (7/4* 0C')0) T T T T ? @ 5Z!412 | Zdeněk Tůma: Education as investment in human capital Speech by Mr Zdeněk Tůma, Governor of the Czech National Bank, for the graduation ceremony, The New Anglo-American College, Prague, 20 June 2008. * * * Ladies and gentlemen, dear colleagues, It is my pleasure to be here today and to share with you some thoughts that concern the role of education as an investment in human capital in the long-term development of our economy and society in general. Today it’s commonplace for politicians to swear by concepts like investment in education, knowledge-based economy or the effect of education on long-term economic growth. They are also quick to add something about the necessity to pay for university education, at least those on the right wing of the political spectrum. Don’t worry, we haven’t met today to assess individual political ideas, and we all know that sometimes it’s a long road from what politicians say to what they do. However, the fact that you are sitting here today indicates that viewing education as an investment has its place in today’s society regardless of political preferences. I would like to use this opportunity to point out that although the concept of investment in education may be somewhat misused and can have unfortunate overtones for somebody, it has a rigorous theoretical foundation and is of high empirical relevance. | 0 |
Many representatives of trade unions and employers express a strong ambition and determination to arrive at wage increases that are commensurate with the macroeconomic situation. This is all to the good. But the fact remains that even in recent years, the rate of wage increases in Sweden has been higher than in major competitor countries and also above the macroeconomic potential. Real wage increases in excess of productivity growth enlarge the wage share and reduce the gross profit share. That is what is happening now in Sweden. Bit by bit, at least a part of the increased profit margin that resulted from the krona’s fall in the autumn of 1992 is being eroded. This is a difference from the United States. There the economy has entered what might be described as a good spiral, where higher productivity increases and comparatively moderate wage increases have generated profits that help to drive new investment in advanced technology. In such a process, unduly high wage increases can bring the changes to a halt, as happened in Sweden in the late-1960s and early-1970s. Present economic assessments do not generally suggest that a break is imminent in the path of Swedish wage formation. So will this have a negative impact on the propensity of firms to invest in the new technology? The financial system This brings me to the significance of the financial system and access for corporate financing in the transitional phase. | Am I to conclude from your comments that the ECB is prepared to strengthen the programme or take other measures in order to respond to any tensions that may arise? We have a programme that we are implementing. The ECB’s Governing Council has not made any decisions regarding further programmes. We are keeping an open mind in terms of how to respond to further developments and tensions within the markets. Because we are completely committed to maintaining stability in the financial markets and to avoiding the fragmentation that could prevent the functioning of the monetary policy transmission mechanisms. In countries such as Portugal, Spain and Italy, people are concerned that we could see another crisis, like the sovereign debt crisis in 2010–11. Can the ECB confirm that it will do all that is needed to avoid such a scenario? We have shown our commitment, with liquidity, by making capital requirements for banks more flexible and with the asset purchase programme. We are extremely committed. The current crisis is quite different to the one we saw in 2010–11. It did not originate in budgetary issues or the banking system. It was a massive exogenous shock. This is a health emergency which has become an economic problem. Our current efforts are focused on preventing it becoming a debt crisis. Are banks in Europe better equipped to deal with this crisis than in 2008? Or can we expect to see banks fail in various countries? Things are very different to ten years ago. | 0 |
However, the TLTROs will not merely provide long-term funding. The TLTROs are targeted operations: the stronger the flows of new net lending to non-financial corporations and consumers (relative to a specified benchmark), the higher the amount that banks will be permitted to borrow from the Eurosystem at very attractive terms and conditions over a period of up to four years. Hence, we have built in strong incentives for banks to expand their lending beyond original plans – both banks with a recent record of positive lending and those that have been deleveraging. Overall, the measures adopted last month have already provided additional monetary policy accommodation. Even though substantial easing measures had already been priced in by markets before the Governing Council’s June meeting, money market rates and bond yields declined further after the announcement of our decisions. Expectations with respect to shortterm money market rates have come down some basis points from their already very low levels. Looking forward, we will maintain a high degree of monetary policy accommodation. In view of the outlook for inflation, we will keep the key ECB interest rates at current levels for an extended period of time. Moreover, the ECB continues to stand ready to take action, if necessary, to further address risks of too prolonged a period of low inflation. This could also include the use of other unconventional instruments in line with our price stability mandate. Challenges ahead Let me now turn to the challenges that the euro area will face in the years to come. | In the last legislative period, a great deal has been done to restore stability as a key prerequisite for economic dynamism. This has resulted in a return of confidence to the euro area. But high public and private debt, low growth and unacceptably high levels of unemployment are reminding us that the most pressing matter now is to bring the euro area back onto a path of shared prosperity. To achieve this, the focus in the next five years should lie on thoroughly implementing the reinforced policy framework that was agreed in the last term, and on further increasing the resilience of euro area countries’ economies. For us at the ECB, this means assuming a new role in the banking union by supervising the euro area banks as from November. With the comprehensive assessment exercise that we are currently conducting, we will contribute to putting euro area banks on a healthy footing, so as to enable them to provide financing to the real economy. For euro area Member States, this means undertaking the necessary structural reforms to foster growth, and to avoid any new build-up of macroeconomic imbalances. It also means continuing fiscal consolidation to rebalance public finances in line with the rules underpinning the Stability and Growth Pact. The euro area policy framework was strengthened considerably by the agreement between this House and the Council on the six-pack and the two-pack. | 1 |
The Term Funding Scheme, for instance, launched in 2016, was I described the evolution of the monetary policy toolbox in more detail in my recent speech “The monetary policy toolbox in the UK”. In practice the assets we buy through QE sit on a separate balance sheet, the Bank of England’s Asset purchase Facility (the APF), which is indemnified by HM Treasury. This has important institutional and financial implications which I’ll come on to cover, but does not affect its use as a monetary policy tool. 8 9 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 intended to reinforce the pass-through of the August 2016 cut in Bank Rate to what was then a historically low level. Our current Term Funding Scheme with additional incentives for SMEs is intended to reinforce the transmission of the March cut in Bank Rate to 0.1% while also supporting Figure 1: A summary of the Bank’s balance sheet tools Taken from the Bank of England Markets and Operations Guide, which gives full detail on all our balance sheet tools. 5 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 5 lending to the real economy, particularly to SMEs. More recently the Bank’s response to Covid has included a Covid Corporate Financing Facility, launched jointly with HM Treasury, designed to lend cash, funded by reserves, directly to large companies, supporting their cash flow while leaving the banking system to focus on lending to smaller businesses. | I want to emphasise this last point. Some commentary that I have seen has suggested that in addressing market disorder the MPC somehow broadened its objectives and used a monetary policy tool for financial stability purposes. I don’t see it like that at all. The MPC took action in pursuit of its objectives, because further market dysfunction triggered by the Covid shock would have led to even worse outcomes for GDP and inflation. Their action had the welcome side effect of supporting financial stability, but it was taken for monetary policy purposes. Indeed it is quite possible to imagine other circumstances where the MPC would Joyce, M, Tong, M and Woods, R (2011), “The United Kingdom’s quantitative easing policy: design, operation and impact”, Bank of England Quarterly Bulletin, 2011 Q3 20 In his 2016 speech “The spectre of monetarism”. 19 10 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 10 not act to quell market disorder, if doing so would run counter to rather than in support of monetary stability. It’s for exactly this reason that the work I mentioned earlier, on whether central banks need new tools to deal directly with market dysfunction, is so important. QE and government financing One aspect of QE that has received particularly close attention has been its relationship to the Government’s finances. Specifically, some commentators have raised the question of whether, by buying government bonds at a time when the Government deficit is expanding, the Bank is somehow financing government spending. | 1 |
3 Today, with my focus on the mortgage and real estate markets, I would like to explain the cyclical dimension of systemic risks in greater detail. Experience shows that cyclical systemic risks often stem from the mortgage and real estate markets. Upheavals on these markets after periods of excessive price and credit growth have repeatedly triggered chain reactions with a negative impact on the banking system, public finances and the economy as a whole. History also shows that crises originating in mortgage and real estate markets entail particularly high costs for the economy as a whole, for example by causing recessions that are typically long and severe. 4 3 4 Cf. Zurbrügg F., After the storm: ten years on, how weatherproof is the Swiss banking system today?, speech held at the University of Lucerne, 6 September 2018. Cf. Jordà, O., M. Schularick, and A.M. Taylor (2015), ‘Leveraged bubbles’, Journal of Monetary Economics, vol. 76(S): 1–20. Page 3/12 Let me remind you of the example from Switzerland in the early 1990s. After a long period of rising real estate prices, mortgage interest rates increased and prices declined significantly. This triggered a banking crisis, which in turn led to a recession and a lengthy phase of economic stagnation. The global financial crisis of 2008 was also closely connected with declining prices on real estate markets, particularly in the US, the United Kingdom, Spain and Ireland. In this case, lax lending standards prior to the crisis proved to be a key factor. | François Villeroy de Galhau: Between "shadow" banking and an angelic vision of the market – towards a balanced development of non-bank finance Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the presentation of the 22nd Financial Stability Review, Paris, 25 April 2018. * * * Ladies and Gentlemen, I am very pleased to welcome you this morning to this presentation of the 2018 Financial Stability Review (RSF), dedicated to non-ban k finance. Intended as a forum for dialogue and exchange, the FSR offers leading personalities from diverse backgrounds the chanceto have an open debate. I am delighted to see many of this year’s contributors here among us this morning, and I would like to extend my warm thanks to all the speakers: Klaas Knot, President of the Dutch Central Bank; Philip Lane, Governor of the Central Bank of Ireland; Robert Ophèle, President of the Autorité des marches financiers; Paul Hamill, Global Headof FICC at Citadel Securities; Yves Perrier, CEO of Amundi; and Richard Portes, Professor of Economics at the London Business School. The topic we have chosen to address is far from anodyne: [slide 2] according to the Financial Stability Board (FSB), non-bank financing totalled USD 160 trillion in 2016 [Monitoring Universe of Non-Bank Financial Intermediation, MUNFI], up 50% relative to 2008 and accounting for close to half of all financial assets held by financial institutions worldwide, compared with 40% in 2008. | 0 |
And once we start, at least initially, we should raise rates slowly to make sure the economy can weather less accommodative financial conditions. In sum, we should be exceptionally patient in adjusting the stance of U.S. monetary policy – even to the point of allowing a modest overshooting of our inflation target to appropriately balance the risks to our policy objectives. Before I expand on these thoughts, let me note that the views I express are my own and do not necessarily represent those of my colleagues on the FOMC or within the Federal Reserve System. BIS central bankers’ speeches 1 Outlook Improving growth but slack remains After many years of false starts, the economy now seems to be in the midst of more sustained solid growth. My forecast is that real gross domestic product (GDP) will increase at an average rate of about 3 percent over the next year and half. The incoming data support this outlook. In the second quarter, consumer spending grew at a solid but unspectacular 2-1/2 percent pace, and it appears to have risen at roughly the same rate during the third quarter. The news from the business sector generally has been good. Reports from our business contacts have been improving for some months and are now almost uniformly positive. | For me, the biggest and costliest downside risk is that in our haste to get back to “business as usual” monetary policy, we could stall progress and backtrack to the economic circumstances of recent years – an economy mired in the ZLB. To say the least, conducting monetary policy at the ZLB has been a difficult experience that we all want to avoid repeating unnecessarily. In the winter of 2009, with the unemployment rate soaring to double digits, the Fed would have very much liked to lower the nominal federal funds rate an additional 300 basis points; but we couldn’t because the rate was already at zero. Faced with a pressing need to provide additional accommodation, we were forced to turn to innovative, but controversial, unconventional monetary policies. These policies have been extremely helpful. But there is no denying that they were second-best options; the ZLB had made lowering the fed funds rate, which is our first-best interest rate tool, infeasible. Everyone will welcome a return to more normal times and a reliance on the traditional policy framework of adjustments to the federal funds rate. But the decision about when to begin to raise rates shouldn’t be made prematurely. Rather, the decision for policy liftoff has to be made for the right reasons – that is, it should be dictated by economic conditions. Like my colleague Minneapolis Fed President Narayana Kocherlakota. 2 I think that policy at all times must be goal-oriented. Our experiences since the crisis began and current economic conditions are highly unusual. | 1 |
I want to make every effort to see that Eesti Pank has no need to come to the Riigikogu asking for capital at a time of such crisis. It is to avoid precisely this that the central bank builds up reserves and I am glad that the Eesti Pank Supervisory Board shares this opinion. For the central bank to be financially independent, it needs to maintain and invest its assets. The current situation in the financial markets, where interest rates on sovereign bonds have fallen to very low levels, poses new challenges for the central bank as a long-term conservative investor. Eesti Pank has reacted to changes in the operating environment and has spread its risks by adding further asset classes to the investment portfolio and investing money in the sovereign bond markets of more countries than before. • Eesti Pank’s return on its investment was several times higher in 2014 than the target set at the start of the year, and reached 22.8 million euros. Falling interest rates throughout the year made investments in bonds profitable and the increasing share portfolio of Eesti Pank meant that we earned significant income from investments in shares. As well as earning income, Eesti Pank is careful to keep control over its spending and to use its money efficiently. For this reason we have put the Maardu manor site up for sale, as we do not need it in carrying out the main functions of a central bank. | Orphanides, Athanasios, and John C. Williams, “Inflation Targeting under Imperfect Knowledge,” in Frederic Mishkin and Klaus Schmidt-Hebbel (ed.) Monetary Policy under Inflation Targeting, Central Bank of Chile, 2007. Reprinted in FRBSF Economic Review, 2007. Reis, Ricardo, “Losing the Inflation Anchor,” Brookings Papers on Economics Activity, Fall 2021, 2022, 307-361. Swanson, Eric T., and John C. Williams, “Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates,” American Economic Review, 104 (10), October 2014, 3154-3185. 1 Board of Governors of the Federal Reserve System (2012). 2 Board of Governors of the Federal Reserve System (2020). 3 See Orphanides and Williams (2004, 2005, and 2007). There is a large theoretical and empirical literature on the formation of expectations. See, for example, Evans and Honkapohja (2001), Malmendier and Nagel (2016), Coiboin et al (2022), and references therein. 4 As discussed in Levin and Taylor (2013), data on longer-run inflation expectations were spotty in past periods of high inflation. This situation has improved markedly over the past 20 years, first with the appearance of inflation-indexed Treasury securities, and more recently with the introduction of the Survey of Consumer Expectations in 2013, and other surveys of businesses and market participants. 5 This is constructed by inferring the expectations 6-10 years from matched individual responses for “the next ten years” and “the next five years,” then taking the median from the sample. | 0 |
On 1 January this year, the United Kingdom lost its financial passport. We had actively prepared for this, and fortunately the continuity of financial services has been maintained. Despite the pandemic, by end-2020, more than close to 2,500 jobs had already been transferred and around 50 British entities authorised, with the relocation to France of at least EUR 170 billion of assets. More relocations are expected and should be speeded up over 2021. On a more structural level, Brexit means that Europe has to develop its own financial autonomy. We need to reinforce our market infrastructures, especially for the clearing of interest rate instruments, with the strengths of the Paris marketplace. We also need a genuine “Financing Union” to channel Europe’s savings surplus – close to EUR 220 billion – more efficiently into productive investment. It is now – otherwise it will never happen – that we need to seize the dual opportunity offered by Brexit and the reconstruction to truly build a Capital Markets Union: I stand alongside the AMF and its Chairman in saying this. 2/ It is precisely this private investment that will prove decisive in supporting the economic reconstruction. In this reconstruction, we Europeans will have to be Schumpeterians while also remaining Keynesian: in 2020, the US economy, so to our West, proved twice as resilient as Europe’s. | We have seen progress in this area over the past few years with some firms hiring outside experts, engaging in cultural diagnostic work and implementing programs that focus on improving ethics, behaviors and internal culture. We’ve also seen progress in our direct engagement with boards of directors – and we’ve seen this across institutions of all sizes. When we, as supervisors, first began requiring deeper engagement with directors and senior leaders, the reactions varied, with an initial wariness of the purpose. In fact, directors were often accompanied by a compliance or regulatory relations liaison during our early interactions with them. Over time, though, as senior leaders and board members recognized the advantages of this level of engagement, the process has been smoother and our exchanges are becoming more engaging and direct (and few if any “escorts” are present during our interactions now). While the level of 2 BIS central bankers’ speeches engagement varies across firms, in general, we are seeing boards being more active in asking questions, providing oversight of management and engaging with supervisors. We, in turn, have deeper insight into decision making dynamics at the board and c-suite level, including the how and why of decision making on key strategic issues. Regular communications also encourage early and proactive surfacing of issues. In addition, we’ve seen good progress in recruiting additional directors to complement current skills on the board – better positioning the board to engage with the senior management team in a productive and appropriately challenging way. | 0 |
Much of the fall in the unemployment rate is the result of workers in their prime leaving the labour force. 2, 3 1 See, for example, Acemoglu, D and Autor, D (2011), “Skills, tasks and technologies: implications for employment and earnings”, Handbook of Labor Economics, Volume 4b, Elsevier. 2 See Yellen, J (2014), “Labor market dynamics and monetary policy”, Remarks at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole. In addition, Erceg and Levin (2013) show that there was a reduction in US participation rates of around 2½% between 2007–12. Of that, rates fell most markedly among the young (reflecting higher educational enrolment) and ‘prime age’ adults 25–54 years old. There was a sharp up-tick in older workers claiming forms of social insurance; but that was partly offset by higher participation rates among older workers, perhaps reflecting a need to offset lost retirement income. Erceg, C and Levin, A (2013), “Labour force participation and monetary policy in the wake of the Great Recession”, IMF Working Paper No. 13/245, July. 3 The 3pp fall in the participation rate is a marked break from its stable level in the preceding decade. Overall participation was flat at around 66% between 2004–7. It had fallen to below 63% in early 2014 (Bureau of Labour Statistics). By contrast, before that, and over the longer run, participation rates had been essentially acyclical – invariant to business cycle conditions (Erceg and Levin, 2013). | The economy moves from point B to point C, so employment recovers (to above its pre-crisis equilibrium), but wages continue to fall. BIS central bankers’ speeches 15 Weak wage growth With some additional structure, the simple model above can be used to understand unemployment and wage inflation.23 If wages are adjusted infrequently (ie there is nominal wage stickiness), then the following relation between wage inflation, 𝜋 𝑤 , and unemployment can be derived: 𝑤 𝜋 𝑤 − 𝛽𝐸𝜋+1 = −𝜆𝜑(𝑢 − 𝑢�) (WPC) 𝑤 captures expected inflation, 𝑢� is the ‘natural’ rate of unemployment (which can where 𝛽𝐸𝜋+1 vary over time) and 𝜆 is a parameter capturing the degree of wage stickiness. Equation (WPC) is the Wage Phillips Curve. For a given natural rate of unemployment, WPC traces out the relationship between wage growth and unemployment. Chart 9 contains a reducedform representation of the WPC, taken from Broadbent (2014). As that chart shows, outturns for wages in 2013 and 2014 were considerably below the past relationship, which would otherwise suggest that unemployment would be expected to be around 10% given the observed decline in wages. In light of equation (WPC), one way to interpret this is as there having been a decline in 𝑢�, the natural rate, such that a given rate of unemployment puts greater downward pressure on wages. Broadbent (2014) discusses Chart 9 further. 23 16 See Gali, J (2011), “The return on the wage Phillips curve”, Journal of the European Economic Association, 9(3), June. | 1 |
While Bank Negara Malaysia will continue to strengthen the consumer protection framework through enhanced disclosure standards, effective dispute resolution mechanisms, and promotion of fair practices, banking institutions must also play their role. An important aspect is to ensure that consumers are adequately equipped with the relevant information to minimise the risks of poor financial decisions and their consequences. Market practices and disclosure standards must be fair and comprehensive so as to ensure that consumers are treated equitably and have access to adequate and timely information to facilitate effective decision-making. Ladies and Gentlemen, In this recent year, Bank Negara Malaysia has put in place two important infrastructures within the banking sector, the first being the framework for the establishment of Islamic subsidiaries, and secondly, the merger of commercial banks and finance companies within the same banking groups. These frameworks have paved the way for banking institutions to further rationalise their operations and improve efficiency. Both allow for the operations to be now undertaken within a new structure where the operations will be able to leverage on the group infrastructure, including the branch network and the support functions, to maximise cost efficiency and reap the benefits of group synergies. A number of banking institutions have already capitalised on the opportunities provided by these frameworks. Going forward in 2005, Bank Negara Malaysia will finalise a number of key regulations for the banking system. | Any change in the exchange rate regime would be on the basis of longer-term structural considerations and not on account of short-term movements in capital flows and transient shifts in exchange rate expectations. Ladies and Gentlemen, In spearheading the development of the financial sector, Bank Negara Malaysia's objective is to develop a dynamic, competitive and resilient financial sector. In the year 2005, focus will be accorded to strengthen the effectiveness of the banking sector in meeting the new requirements of the economy, enhance competition and hence efficiency and to strengthen the infrastructure for consumer protection. These initiatives would be taken in the context of preserving the soundness and stability of the financial system. An important component of a strong financial sector is the institution of a robust regulatory and supervisory framework. Two main principles will be taken into consideration in the formulation and implementation of prudential policies. First, is the creation of a regulatory environment that fosters innovation and competition, while promoting best practices to preserve financial stability. Policies will therefore balance the need to attain efficiency whilst preserving stability. Second, regulations will increasingly be "principle-based". Regulations will focus on identifying parameters within which banking institutions must operate, whilst retaining sufficient flexibility to allow institutions to determine their own individual strategies and approaches within these parameters. This is in the light of the improved corporate governance and risk management practices within banking institutions. The Board and management will be accountable for strengthening individual institutions. | 1 |
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