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19 20 21 For example, Nagel, S and Malmendier, U (2011) Stiglitz (1997) has described a similar process for the price Phillips curve based on asymmetric price adjustment. See Borio and Filardo (2007). 9 All speeches are available online at www.bankofengland.co.uk/speeches 9 Mark Carney has pointed out how global influences will shift the Phillips curve both lower (due to the positive supply shock from increased product and labour market integration) and flatter (due to integration of global value chains, increased competition and contestability of product and labour markets). The downward shifts, which will persist as long as integration continues, are disinflationary, pointing to running the domestic economy at tighter spare capacity to meet the inflation target. 22 For the policymaker a flattening of the Phillips curve poses a more difficult challenge than under-measurement of labour utilisation or a lowering of the natural rate or of inflation or real pay expectations (Chart 9). The latter pose the challenge of judging the timing of policy action right; excess (deficient) demand for labour will drive pay up (down) as before as unemployment falls (rises). But the point – i.e. the level of unemployment and the rate of growth of pay – at which that will happen is lower. Getting the timing of monetary policy right is a formidable challenge for the monetary policy maker. But it is a familiar one. | As I noted earlier, one of the major developments of Phillips’ original work was the incorporation of inflation expectations into the curve plotting the relationship between pay growth and unemployment. This enabled the Phillips curve framework to explain the experience of the 1970s in which unemployment rose but pay did not fall. 12 11 That can happen if the efficiency of matching changes – perhaps due to technology – or because of compositional changes to the workforce – if different cohorts of worker have different rates of frictional unemployment. Somewhat counterintuitively, the data do not tend to support the idea that matching efficiency is improving over time. See Pizzinelli and Speigner (2017) for a discussion. 12 Phillips (1958) does investigate the role of inflation – noting that the relationship was absent in years when a rapid rise in import prices had initiated a wage-price spiral – but does not incorporate inflation or inflation expectations into the mathematical relationship. 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 The inflation adjusted Phillips curve adds inflation expectations as a driver of pay growth alongside excess supply (or demand) for labour relative to the natural rate. In order to preserve the value of real wages workers are assumed to require compensation for expected inflation as well as whatever pay increase or decrease the tightness or looseness of the labour market would warrant. | 1 |
The SNB takes stock at the end of each year and distributes part of these profits to the Confederation and the cantons. If the SNB had to pay out money ‘debt-free’, as called for by the initiative, it would be giving money away without receiving an equivalent amount in return. However, the SNB would not be able to earn income on the money it gives away. In a system with ‘debt-free’ payments, we would therefore be unable to make an annual distribution to the Confederation and the cantons. It is important to recognise that economically speaking, the two approaches are ultimately equivalent. We can distribute the profits on our investments every year, or we can give newly created money away, but then no longer pay out any profits. In other words: Under established practice today we distribute the interest on our capital, while under a sovereign money system we would be selling off the family silver, as it were. ‘Debt-free’ payments would not make our country any richer. The initiative’s authors also suggest that, with the introduction of sovereign money, the SNB would be able to redirect the profits that banks currently earn from money creation to taxpayers. This idea is based on the assumption that, by creating money, banks are filling their own coffers. But, in reality it is all the banks’ customers – private individuals as well as companies, savers and borrowers – who benefit from the creation of money by banks. | In a sovereign money system, a bank is no longer permitted to use its customers’ sight deposits to finance loans. Instead, it is obliged to call solely on investors who provide it with money for loans on a more long-term basis. These may be customers with savings deposits, investors on the capital market, other commercial banks, or even the SNB, which can grant the bank a loan. Because sovereign money impairs the useful intermediary function played by banks in the monetary system today, lending would become more difficult and complicated – to the detriment of customers, be they savers or borrowers. 1 For more on maturity transformation as a traditional bank function and its importance to the economy, cf. Jordan, Thomas J., How money is created by the central bank and the banking system, speech held at the Zürcher Volkswirtschaftlichen Gesellschaft, Zurich, 16 January 2018. Page 3/8 The initiative’s undeliverable promises Financial stability So, what benefits do the initiative’s authors see in sovereign money? They want to separate the creation of money from the granting of loans because they believe this will enhance financial stability. To achieve this goal, they call for customers’ sight deposits to be held in so-called sovereign money accounts as off-balance sheet items, just like securities custody accounts are today. This offers security in as far as this money is not at risk should the bank fail. However, barring the banking system from creating money is the wrong approach to take. | 1 |
Timothy F Geithner: Change and challenges facing the US financial system Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the New York Bankers Association’s Annual Financial Services Forum, New York, 25 March 2004. * * * It is a pleasure to join you at the New York Bankers Association Financial Services Forum. The institutions represented in this room, together with the rest of the New York financial community, remain at the center of the U.S. and global financial systems. Your meeting today takes place against the backdrop of a relatively favorable national and global economic outlook. The U.S. financial system is in reasonably strong shape. Financial innovation has enabled substantial improvements in the quality of risk management and in the capacity of the system to handle shocks. But the benefits of innovation have come with significant challenges to the people who run financial institutions and to those responsible for supervision and oversight. How effective we are in responding to these challenges will determine whether the U.S. financial system is as successful in the future as it has been in the past. The consensus forecast for the U.S. economy expects solid growth this year and next, somewhat above the upper bound of the range of most estimates of U.S. potential growth. Confidence in the sustainability of the U.S. expansion, as measured by changes in these forecasts, for example, seems to be increasing. | Furthermore, differences in demographic trends and structural policy choices between countries in the eurozone (or states in the US) may create or perpetuate some heterogeneity across large monetary areas, an issue you will discuss tomorrow morning. 2 – How to respond to such uncertainties? Without pre-empting discussions, let me flag some possible responses. I’ll first, address the issue of policy uncertainty between central bankers. So far, it is, fortunately, the simplest one: we are not in a so-called “game of chicken” and clarity about policy intentions between ourselves are beneficial for all. The frequent exchanges we have at the BIS, G7, G20 and even events such as this Symposium, are valuable to create mutual trust and avoid the possibility of large policy surprises. Our monetary policies are independent, and rightly so, but they are concerted and we are committed to avoid currency wars. Clarity about our reaction functions clearly also extends to financial markets and the public at large. Second, how could we respond to current state and future path uncertainty? The textbook answer, dating back to Theil and Tinbergen, is to work out your best guess and then act as if you are completely sure. This is sometimes described as the certainty-equivalent approach. There are, however, symmetry assumptions in this type of model that do not necessary hold in the real world. Uncertainty around the central projection may be skewed in one direction. Applying the certainty-equivalence approach also assumes that upside errors are regarded equally to downside errors. | 0 |
The moderation in the contraction of the aggregate stock of credit points to an increase of new lending operations, which is consistent with the economic recovery. In fact, the information available on new credit transactions suggests that the segment of lending to SMEs has started to recover. And in the most recent period, this trend has gradually spread to the other credit categories, such as in the case of credit extended for house purchases. What are the determinants behind these recent developments? In my view, demand-side factors are playing a relevant role in the incipient recovery in credit flows. The improvement in growth and employment prospects and the reduction in aggregate uncertainty have all resulted in an increase in current and expected income, expanding the willingness of agents to spend and their ability to take on new debts while reducing the risk perceived by lenders. In parallel with the recovery in the demand for investment, we have witnessed an improvement in the financial position of borrowers. Specifically, from the peak observed in mid-2010, the gap between debt ratios in Spain and the euro area average has fallen from 37 pp to 9 pp in the case of corporates and from 20 pp to 9 pp in the case of households. But credit flows are also being stimulated in the current juncture by several factors more directly connected with the supply side. | For example, traders on the CCI-ILSTC have to rely on the multi-modal transport bill of lading or MTBL as proof of title as the goods are being carried on land, by rail, and over sea. However, the MTBL is currently not widely used as a negotiable document, unlike ordinary bills of lading which have clear legal status. This limits the access to trade financing facilities for importers and exporters using multimodal trade routes. We must step up efforts to enhance the acceptance of MTBLs amongst trade players in China and ASEAN. In fact, the MTBL will need to be recognised as a negotiable document, not only in its paper form but also its electronic form. Government agencies from Singapore are working with the Chongqing Port and Logistics Office to conduct a pilot to digitalise bills of lading, including the MTBL, using TradeTrust. TradeTrust is an interoperable framework to support the exchange of electronic documents. It uses distributed ledger technology to allow trade actors to establish the authenticity of a digital document. If we can scale the use of TradeTrust within the CCI-ILSTC, banks will be able to use these electronic documents for trade financing and we can effectively eliminate the risk of 1/3 BIS central bankers' speeches fraudulent MTBLs. More broadly, the greater use of electronic trade documents will make verification checks easier, reduce the incidence of fraud and human error, and ultimately lower costs. But to achieve this, all stakeholders need to adopt digital tools and upgrade their trade practices. | 0 |
Plus, some short-term elements, for example in January and February the exchange 1 As stated in a box in this Report, from now on, and with the purpose of enhancing the transparency the Board’s vision about the economy and the path of monetary policy, it has been decided to add a third year in the projections published on each opportunity. Thus, starting in March 2018, every Report will include the growth and inflation forecasts for the next three years: the current year and the next two. These forecasts will continue to be reported in two ways; the estimated variable in the baseline scenario. For inflation, it will remain a specific number, while for growth it will be a range, as it is now done for the present year and next. This change adds to those adopted in March 2016, when the Board decided to extend by one year the growth forecast for activity. 2 rate decrease coincided with carry trade operations, foreign flows for company acquisitions, pension fund portfolio adjustments and the entry into the market of the funds from the issuance of public debt. All this has led the peso to appreciate more than other comparable currencies (figure 6). However, some of these factors have a transitory impact, with rapid trend shifts over a few days, making it difficult to establish a clear direction. Therefore, the peso has been very volatile in recent quarters, with peaks of over CLP650 in December and lows of less than CLP590 in February. | Another relevant issue beyond the economic conjuncture is the need for the economy to recover the buffers that allowed macroeconomic policy to operate countercyclically. Chile's macroeconomic policy framework proved especially effective in the current cycle. One example of this is that monetary policy was able to accommodate a significant rise in inflation caused by a depreciation of the currency, by favoring a reduction in interest rates. This, because it was evaluated that the effect of the cyclical weakness of the economy on inflation would weigh more than the effects of the exchange rate increase. In the past, a similar situation would have been solved with a rate hike that would have had negative effects on activity. This has been made possible by our economic policy framework that was built based on a low level of public indebtedness, a high degree of capitalization of financial institutions, the financial solvency of companies and households, the credibility of fiscal and monetary policy, and an adequate level of international reserves. However, the slow growth of the economy over the past several years has partly used up these buffers. The level of public indebtedness has increased, banks have reduced their capital gaps and household debt has grown, while employment, having moved to more self-employed occupations, has less room to sustain itself without an increase in mean productivity (figure 11). | 1 |
In my view as well as in the conclusions by all the analyses that focus on this issue, Albania has huge potential, to a large extent unutilised, to support a sustainable economic growth, convergent to the economies of our trade partner countries in the euro area. Despite shortterm difficulties, originating largely from external sources, the fundamentals of Albania’s economic development remain sound. The macroeconomic stability, natural resources, structure and cost of the labour force, render the long-term investment in the Albanian economy an investment with a guaranteed return. In invite you all to be partake in this vision; engage even more intensively in supporting the Albanian economy with loans and financial services; and explore new areas and directions for the country’s economic development. I am confident that this is not only the best service you may provide to Albania, but also the best strategy to ensure sustainable and profitable development of the banking industry in Albania. In unison, we should not allow short-term problems to be transformed into weaknesses and lost opportunities in the long run. You will always find in the Bank of Albania an institution that is fully determined to comply with its objective on price and financial stability; a fair and farsighted regulator on banking supervision; an efficient administrator of liquidity and financial markets; and a profoundly professional institution and provider of useful macroeconomic analyses. Finally, I would like to make my most sincere wishes for a successful New Year 2013 in your professional career and personal life! Thank you. | Banking services should be provided in accordance with the clients’ financial literacy, in any case highlighting, the benefits and the risks that customers may incur as they use your bank products. In the context of its role as the supervisory and regulatory authority of banking operations, the Bank of Albania will continue to carefully monitor and address the challenges facing this 2 BIS central bankers’ speeches activity. Our regulatory framework and supervisory and operational activities will be adapted to provide all the necessary support for the banking activity to be safe and have multiple benefits for the banking industry, customers, and the economy in general. The professional and continuous communication with you will be at the basis of our activity, to identify together the best solutions that address your needs and those of other interest groups. Dear bank managers, In conclusion, I would like to bring to your attention one of the biggest lessons learned from the crisis of the latest global financial system, which I think remains applicable for Albania: concentration on short-term time horizons is counterproductive to both individual financial institutions that engage in them, and the overall financial system and economy of a country. In this context, I invite you all to be farsighted in your analyses and decision-making processes with regard to the future of the economy of Albania and its banking industry. | 1 |
There are many moving parts at the same time, the play is unpredictable, and it involves an enormous amount of tacit unseen coordination among players. Ability, hard work, and team spirit have to come together in a harmonious manner. Moreover, the outcome is highly contingent on certain events at pivotal moments. A foul here, a red card there can make all the difference. Sports commentators call these “momentum swings”. Countries must seek to make the most of these windows of opportunities to build reform momentum. Successful policies will be those that are mindful of a country’s history and leverage on prevailing political economy contexts. The long-run performance of countries hinges critically on this because the outcomes of institutional change tend to be highly persistent. How rules and norms evolve depends heavily on what they are today. Thus institutional development often follows a virtuous circle, such as in South Korea, or a vicious spiral, as in the case of Zimbabwe. From this perspective, there is an enormous amount of heterogeneity among emerging market economies. Where a country stands in terms of its history and readiness for BIS central bankers’ speeches 3 institutional change will distinguish those which are just experiencing a temporary deceleration from those that might be facing more of a structural slowdown. The destinies of emerging markets are not strictly bound to each other. Some will succeed, and a few may not. It is not useful to lump countries together into one group or under one catchy acronym or another. | In fact, this was precisely one of the key drivers of Thailand’s growth in the 20 years prior to the 1997 crisis. During this time, the share of employment in agriculture fell by a third, releasing workers to the more productive manufacturing and service sectors. Thailand’s experience is quite typical of many others in Asia. Emerging market countries have not only grown rapidly over the last few decades, they have also changed dramatically. Sustaining growth going forward hinges on the continuation of this process of change and upgrading. For Asia, industrializing the agriculture sector through the adoption of modern methods and the development of agribusinesses will be a key source of productivity growth. Similarly, the composition of the service sector, which is also quite large, has to shift from low-productivity activities to modern, high value-added services. Countries that have achieved sustained growth are those that are better at removing the bottlenecks that impede such transformation. This typically requires a number of key fundamental capabilities, such as macroeconomic stability, rule of law, good education, strict enforcement of contracts, a competent bureaucracy, good governance, and low tolerance of corruption. These are often encapsulated under the rubric of strong institutions. One can think of institutions as the set of rules and norms that both governs the incentives of economic agents as well as constrains their behavior. Good institutions encourage growth, bad institutions stifle it. Entrepreneurship, a critical driver of structural change, relies heavily on the institutional environment. | 1 |
Of course, the authorities must stand firm about the figure 2½ if the inflation target is to anchor long-term expectations and if we shall reap the long-term benefits of this conduct of monetary policy. Monetary policy affects the economy with a lag. The current level of inflation does not provide an adequate basis for determining the level at which interest rates should be set today. Our analyses indicate that a substantial share of the effects of an interest rate change occurs within two years. Two years is thus a reasonable time horizon for achieving the inflation target. Economic agents can act on the assumption that the inflation rate will be 2½ per cent. If it appears that inflation will be higher than 2½ per cent with unchanged interest rates, the interest rate will be increased. If it appears that inflation will be lower than 2½ per cent with unchanged interest rates, the interest rate will be reduced. There is symmetry here. It is equally important to avoid an inflation rate that is too low, as it is to avoid an inflation rate that is too high. The global economy has experienced a slowdown during the last year. The downturn in the US has had contagion effects on European and Asian economies through its impact on world trade and the financial markets. Capital markets are global, and when revenues decline in the US, enterprises with operations in many countries also reduce investment and operating expenses in Europe and Asia. | Normally, this will lead to an appreciation of the krone, with a further reduction in earnings and employment. Manufacturing will, therefore, feel the effects of excessively high wage growth to an even greater extent than earlier. At present, the labour market is relatively tight, which is reflected in high wage growth. In other countries, the situation is different, with sluggish economic development and declining inflation. As a result, interest rates are higher in Norway than in other countries. According to the guideline for fiscal policy, the use of petroleum revenues will increase every year for a number of years ahead. This will sustain the demand for labour. The service industries will need more resources. The contest for labour resources will intensify. To contain inflation, monetary policy must probably be fairly tight in the years ahead. Since 1997, labour costs have increased by between 5 and 7 per cent per year. Nevertheless, the increase in consumer prices has been about 2½ per cent the last couple of years. The krone exchange rate has appreciated since the summer of 2000 as a result of a wider interest rate differential between Norway and other countries. Combined with low growth abroad and increased trade with low-cost countries such as China, this has led to a slower rise in import prices. A higher rise in prices for domestically produced goods and services reflects an increase in labour costs in Norway. As the world economy recovers, import price inflation will probably edge up. | 1 |
In July, CPI inflation increased by 0.7 per cent compared with July last year, and CPIF inflation increased by 0.8 per cent. This was completely in line with our forecasts and with market expectations. Information on developments in the real economy during the third quarter is so far limited to the business and consumer tendency surveys for July and to the purchasing managers’ index for July. The National Institute of Economic BIS central bankers’ speeches 5 Research’s economic tendency survey fell in July and is at a level indicating that growth in the economy is weaker than normal. The confidence indicator for households did rise compared with June, and then to a level just above the historical average. Another bright spot was that the indicator for the manufacturing industry rose. This is in line with the indications from thepurchasing managers’ index for the manufacturing industry, which also rose in July. However, one must exercise caution in drawing conclusions on the basis of changes in individual months. Appreciation of the krona during the summer Another significant factor this summer has been the large appreciation of the krona in relation to the euro. This, together with the fact that the krona has increased in value against other currencies, too, means that it has appreciated in trade-weighted terms this summer. Our forecast in July was that the krona would strengthen, given the relatively good economic developments in Sweden and given our robust public finances. | As Libor is a reference rate that is used globally for large volumes of contracts, it is quite inacceptable that individual banks should casually report incorrect figures. The Riksbank has long followed developments concerning the corresponding reference rate in Sweden, known as Stibor. We are currently carrying out our own investigation into how Stibor is determined and we also have an on-going dialogue with the Swedish banks on how they need to strengthen governance and increase transparency with regard to Stibor. I assume that Swedish banks will take heed of what has happened with Libor and help reinforce confidence in Stibor. It is 4 BIS central bankers’ speeches possible that we may need to wait and see what happens with Libor before we can establish a better model for Stibor, but meanwhile Swedish banks should make it clear to the market and the general public how Stibor is set on a daily basis and what controls and checks exist in the current organisational framework. The Riksbank’s investigation is not yet complete, but will be presented during the autumn. Weak developments in Europe and some uncertainty over the strength of the US recovery If we move on to the economic statistics released during the summer, they have mostly concerned developments during the second quarter, that is, up to the end of June. However, there have also been some indicators for the third quarter. To summarise, one can say that developments abroad have largely been in line with the assessments we made in July. | 1 |
Along with two other agencies, the Fed is reviewing the foreclosure practices at the major bank mortgage servicers. We are also keeping an eye on banks’ potential liabilities where they made representations about mortgages bought by investors that may not have been correct in all cases. We want to ensure that the housing finance business is supported by robust back-office operations – for processing of new mortgages as well as foreclosures – so that homebuyers and investors have full confidence in the process. We are monitoring developments closely in order to evaluate any potential impact on housing or financial markets and the overall economy. Economic conditions in Upstate New York Now let me turn to economic conditions in Upstate New York. It is no secret that this region has struggled with weak economic growth and population loss in recent decades. The region has experienced some very painful economic restructuring, particularly as it lost so many of its high-paying manufacturing jobs. Yet the process has yielded a productive and more diversified economy, with a larger service sector. For this and other reasons I will discuss, the Upstate New York economy has weathered the Great Recession relatively well. While the Upstate economy generally underperformed the nation during the 1980s and 1990s, its recent experience has been quite different. During the Great Recession, Upstate New York’s job losses began later than they did for the United States as a whole, and those losses were generally less severe. | With a young population, ASEAN has the third-largest labour force in the world, after China and India, with a fast-growing middle class given the rapidly rising affluence. By 2020, ASEAN is expected to account for more than USD2 trillion of additional consumption to the world economy. Motivation for ASEAN Integration A key factor that underpins the region’s potential is its progressive economic integration. ASEAN is one of the most diverse regions in the world – in terms of economic size, income level, resource endowment, economic structure, financial sector development, and economic systems. The region has therefore leveraged on its complementarities arising from this diversity. This is reflected in the increased cross-border production networks, and the significant increase in intra-regional trade and investment activities. Since 1990, ASEAN intraregional trade has grown from 18% to 24% of its total trade, and intra-regional investment BIS central bankers’ speeches 1 activities have now quadrupled since 2000, from 4% to 17% of its total investment. While there has been a trend towards greater intra-regional trade and investment, financial integration in the region has not progressed as significantly. ASEAN economies have, however, now reached that stage of development whereby greater regional financial integration can further unlock our growth potential. The push for regional financial integration is to bring about a more effective intermediation of funds, bringing the excess savings from one country to be channelled into productive investments in another. | 0 |
Accordingly, further progress in establishing a sound legal infrastructure, covering both bankruptcy procedures and effective corporate governance, would seem to be very high on the list of priorities. It is also important to understand the dangers inherent in adjustable peg exchange rate systems. It is still far too early to draw the firm conclusion that the only viable exchange rate regimes, in all circumstances, are a free float on the one hand and a currency board or a monetary union on the other. Nevertheless, one common characteristic of the main crises of the recent past – Mexico, Thailand, Indonesia, Korea, Russia, Brazil and, for that matter, my own country Sweden – has been that the authorities had adopted a more or less rigid exchange rate regime that ultimately proved to be unsustainable. One clear lesson seems to be that, in many circumstances, once a weak peg comes under fire, defending it is often a losing battle, especially if the exchange rate does not properly reflect the development in the real economy. Another drawback to a fixed, but adjustable, peg is that it may stimulate excessive short-term capital inflow and thus in itself generate vulnerability because the central bank is seemingly absorbing the exchange rate risk. Against this background, a key question is the appropriate exit strategy to another exchange rate regime or a timely adjustment of the pegged exchange rate should the need arise. | An additional insight is that the simultaneous occurrence of foreign exchange rate crises and banking crises is probably the single most important reason why some countries have suffered much deeper recessions when their currency pegs collapsed or came under a severe speculative attack. The contractionary shock to most European countries in 1992-93 was clearly much smaller than for Sweden and Finland in the early 1990s and for Mexico in 1995 and Asian countries in 1997-98. 3 BIS Review 88/1999 Thus, authorities in countries that receive capital inflows should prepare for the day when the movement might reverse. Countries that are vulnerable in this regard should carefully consider the adequacy of their foreign exchange reserves, particularly in relation to their short-term external debt. Since large numbers of countries cannot build up their reserves by increasing their trade surpluses simultaneously, this would seem to argue for greater use of contingent lending facilities provided by the private sector. Given such arrangements, recourse to the new IMF Contingent Credit Lines would then add public sector to private sector affirmation that the domestic policies being followed by the borrowing country are sensible and sustainable. … but the international dimension should also be recognised To say that the key to avoiding future crises in emerging markets must be found in domestic reforms is not to deny that part of the solution may still lie in measures that change the way in which international financial markets sometimes operate. | 1 |
We are grateful to Bundesbank for their active participation in this project – as well as in their specific role in the regional project on “Strengthening the Central Bank Capacities in the Western Balkans with a view to the Integration to the European System of Central Banks”. We would also like to thank National Bank of Romania and Banque de France for their involvement in this project. Last but not the least, I would like to thank staff members of the Bank of Albania intensively engaged in the design and implementation of the project. I do believe that, as with previous experiences, this project will be implemented and finalised successfully, contributing to the advancement of capacities in our institution. Thank You! 2/2 BIS central bankers' speeches | Philipp Hildebrand: Switzerland and global competition - an all-purpose strategy Summary of a speech by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the University of St Gallen, St Gallen, 29 August 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch) * * * Openness was one of the major factors that made Switzerland one of the richest countries in the world. A significant portion of our industry, and one upon which our current prosperity is based, is the direct or indirect outcome of foreign expertise and the efforts of foreign entrepreneurs. These people were attracted to Switzerland – particularly in the 19th century – by its openness and its stable, liberal environment. Openness promotes competition, innovation and progress, thereby securing sustained prosperity. But Switzerland strayed from the straight and narrow when it began erecting barriers to competition – barriers that provided ever greater protection to its domestic market. The ensuing insulation of the domestic market is probably one of the main reasons for Switzerland's growth slump today. External trade policies are always domestic market policies as well. Consequently, external trade policies have instruments that can be effective in opening up the domestic market from outside. This openness to external trade is of utmost importance, therefore, not only for exporters, but also for the domestic market. Being open towards Europe and towards other trading blocks is not mutually exclusive. | 0 |
Second, that a clearer signal about what we believe will be the path of interest rates in the future helps to have a more efficient transmission of the Monetary Policy, particularly in turbulent times. In fact, in the more recent period, marked by a higher than normal level of uncertainty associated with both a grimmer outlook for the Chinese economy and the normalization of monetary policy in the United States, we have made a special effort to signal the financial market what is the likely direction of our monetary policy in our baseline scenario as well as the risks involved. We have done this by increasing the transparency of our analysis and, especially, by being more precise in our communication. Of course it is too soon to make a comprehensive and definite analysis about the costs and benefits of this policy, but in my view this extra amount of forward guidance has been positive in order to achieve a smoother economic adjustment in difficult times. I thank you for being here, and without further delay, welcome to our nineteenth annual conference: “Monetary policy through asset markets: lessons from unconventional measures and implications for an integrated world.” BIS central bankers’ speeches 3 | Hong Kong Repayment criteria toughened, a risk weight floor of 15% for residential mortgages, LTV on car park spaces and commercial property Action on car park spaces followed leakages of the house price exuberance into other sectors New Zealand Restriction of new high LTV lending to 10% of new loans Singapore Debt service ratio, reduced repayment periods, tightened LTV, increased land supply Norway Countercyclical capital buffer of 1% from July 2015 UK Removed incentives for household lending in Funding for Lending scheme. FPC given ability to recommend changes to affordability criteria on mortgage lending. 8 Part of a series of measures. BIS central bankers’ speeches References Aikman, D, Haldane AG and Nelson, B (2010) “Curbing the credit cycle”: http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2010/speech463. pdf. Aikman, D, Haldane AG and Nelson, B (2014 forthcoming) “Curbing the credit cycle”, The Economic Journal. Bank of England (2009), “The role of macroprudential policy”, Discussion Paper: http://www.bankofengland.co.uk/publications/Documents/other/financialstability/roleofmacrop rudentialpolicy091121.pdf. Bank of England (2011), “Instruments of macroprudential policy”, Discussion paper: http://www.bankofengland.co.uk/publications/Documents/events/ccbs_workshop2012/paper_ kapadia.pdf. BCBS (2010). Basel III: A global regulatory framework for more resilient banks and banking systems. Chari, VV and Kehoe P (2013), “Bailouts, time inconsistency and optimal regulation”, NBER working paper no. 19192. De Paoli, B and Paustian, M (2013), “Coordinating monetary and macroprudential policies”, Staff Reports 653, Federal Reserve Bank of New York. Goodfriend, M. (2007) “How the world achieved consensus on monetary policy”, Journal of Economic Perspectives, 21(4), pages 47–68. Haldane, A. G. (2013), “Why institutions matter (more than ever)”: http://www.bankofengland.co.uk/publications/Documents/speeches/2013/speech676.pdf. | 0 |
The Code of Banking Practice, which is a non-statutory code issued jointly by HKAB and the DTC Association with our endorsement, is the main tool for achieving this end, and, as 2 BIS Review 55/2001 you all know, the Code is currently being subjected to extensive revision and strengthening. This process is almost at an end and we believe that it will make the Code an even more effective tool. In addition to transparency, we hope that the banks, in making their decisions on fees and charges, will show some sensitivity to the needs of the more vulnerable members of society. We believe that, so far, banks are displaying such sensitivity. We also wish to ensure that there continues to be choice for customers. Again, we believe that there is choice, and that deregulation, new technology, new products are indeed combining with competition to provide a greater choice than ever before. We shall continue to monitor. This is a reasonably healthy picture. But it is time also, I think, to look at the current arrangements for consumer protection in the banking industry, to see whether improvements are needed, and if so, what they should be. The HKMA already plays an informal role in addressing consumer complaints, though we have no powers to settle disputes. Should we – or should someone else – be given such powers? Should there be sanctions for banks that fail to comply with codes of practice? How does Hong Kong compare with other jurisdictions in this area? | These two key features of the British and Australian systems illustrate how the arrangements in Hong Kong do not go as far as, or are less formalised than, those in other jurisdictions. This may have something to do with different philosophical approaches: in Hong Kong the tradition has been a freemarket one, which entails a very low level of government involvement in business relationships. But as the Hong Kong market becomes more sophisticated and more competitive, and as consumer issues are coming more to the fore, it may be useful to consider whether Hong Kong should follow the path of other jurisdictions. At this early stage of discussion, there seem to be three broad options, which are not necessarily mutually exclusive. The first is some form of self-regulation by the banking industry. The second is to provide a specific mandate to the regulator, that is the HKMA. The third is to place the responsibility in the hands of an Ombudsman. There are a number of issues – some philosophical, some practical – that will need to be taken into account in deciding in the fullness of time where the responsibility would lie. As far as the HKMA is concerned, the arguments for and against are, I suggest, finely balanced. One argument holds that a more formal role for the HKMA in this area might create a conflict of interest between our prudential regulation and consumer protection roles. | 1 |
It is therefore necessary to monitor competitiveness even more closely than before through indicators such as unit production costs and the tax and regulatory framework. The close multilateral surveillance and the frank discussions provided in the context, inter alia, of the Eurogroup, will help monitor competitiveness trends with a view to ensure early warnings and appropriate reactions. Let me address, in conclusion, two questions: the issue of sustainable growth and the present diagnosis of the Eurosystem as regards the balance of risks. Growth: Central bankers are sometimes portrayed as being excessively cautious and reserved with respect to economic growth. On the contrary, we are very much in favour of growth. First and foremost, because the objective of monetary policy—price stability—is a necessary condition for longst term, robust growth. At the press conference following the ECB Governing Council on 1 February, Wim DUISENBERG said very clearly on behalf of all of us that "within the euro area, the maintenance of price stability over the medium term (…) will provide an important contribution to the achievement of sustained non-inflationary economic growth and will also support a further solid and sustainable expansion of the world economy ”. Not only are we aiming at sustainable non-inflationary steady growth through our action but also via all our recommendations : we are resolutely anti-Malthusian in all fields of the economy, that is we support innovation, liberalisation and growth incentives. We are anti-Malthusian as regards scientific and technical progress. | This intertwining of the communication of the European monetary team with the European and national institutions and the full body of the civil societies is currently underestimated. Wim DUISENBERG attends hearings at the European Parliament in Brussels as often as Alan GREENSPAN does on the Hill in Washington. Each national governor explains in his own language (so in total in ten languages), through the lens of twelve different cultures the same message from the 2 BIS Review 11/2001 Eurosystem. To improve its transparency and its communication even further, the Eurosystem decided to publish for the first time in December 2000 Staff Economic Projections for the euro area. In terms of transparency and accountability—namely the duty to explain, justify, whenever possible convince, and in any case, being fully responsible vis-à-vis public opinion for decisions taken- I think that the Eurosystem meets the best practices of the main central banks in the world. I.2. Co-ordination of economic policies A few years ago, it was necessary to convince a great number of skeptical people, in Europe as well as in the rest of the world, that the euro was really to be set up. Many observers pointed to its presumed contradictions and alleged inconsistencies: claiming, for example, that the economic divergences and structural gaps among euro-area countries would be too large to ensure a viable monetary union or that the lack of co-ordination between economic policies would deprive the area of an appropriate policy-mix, and could not be achieved without a political federation. | 1 |
On Sunday, September 14, we learned that Barclays could not proffer the needed guarantee without a shareholder vote. This vote would take days, if not weeks or months, and there was no way to predict if the shareholders would even vote for the transaction to proceed. I explored with counsel whether the U.K. government, or one of its instrumentalities like the FSA, might waive this U.K. requirement, such that the guarantee could be delivered and the rescue effected. I learned that the U.K. authorities were not amenable to a waiver. Thus, Barclays ceased to be available as the willing buyer that we needed to rescue Lehman, and there was no other interest from any firm of sufficient size and capability that could acquire Lehman, a company with consolidated assets of about $ billion. 5 Timothy F. Geithner, Secretary of the Treasury, Statement before the United States House of Representatives Committee on Financial Services, April 20, 2010. 4 BIS Review 112/2010 Many have asked why, when the Barclays guarantee problem presented itself, the Federal Reserve did not step forward and guarantee the trading obligations of Lehman pending its merger with Barclays. They observe that we lent approximately $ billion to Maiden Lane LLC to facilitate the merger of J.P. Morgan Chase and Bear Stearns, and they look at our commitment to lend up to $ billion to AIG. | These are the areas that institutions need to focus on to avoid becoming a “problem bank case” themselves. Let me move on now to consider the role of the banking supervisor in ensuring that an institution’s internal controls are adequate and effective. This is an area on which there has been greatly increased emphasis in recent years. Of course supervisors, like the management of financial institutions, have always been concerned with the quality of control systems. However, the approach has been rather piecemeal, and has focused on certain types of risk which are easily quantifiable, rather than the more intangible types of risk. What we are trying to do nowadays is to move towards a more systematic identification and assessment of the risks facing a bank across the whole range of its activities and the adequacy of the controls over these risks. This “risk-based” approach is intended to focus our attention on what we see as the institution’s key risk areas. Of course, the correct identification of the institution’s key risk areas is crucial in this. For most of Hong Kong’s local banks, credit risk, liquidity risk and perhaps BIS Review 48/1998 -4- reputational risk remain the highest risk areas, but for individual institutions other forms of risk such as interest rate risk and market risk also come into the equation. | 0 |
This reflects the deceleration of the first quarter and the prospect of a smoother trajectory of sectors other than natural resources in the remainder of the year, partially offset by higher growth in mining. Partial second-quarter indicators show an ongoing deceleration of investment, but milder than earlier in the year. Private consumption, although receding somewhat, continues to show robust fundamentals related to labor market conditions and strong real wages, which should normalize as economic activity slows. Despite the slower growth of domestic demand, a lower copper price will result in a wider current account deficit this year, at 4.7 percent of GDP (table 2). Annual inflation is expected to return to the tolerance range once some transitory elements are reversed, hitting 3 percent during 2014. At the end of the projection horizon, this time the second quarter of 2015, it should stand at 3 percent. Core inflation will take somewhat longer to converge to 3 percent (figure 4). This forecast assumes that nominal wages will be adjusted in line with productivity and the inflation target. It also uses as a methodological assumption that in the projection horizon, the real exchange rate (RER) will remain fairly stable. This is based on the estimation that 4 BIS central bankers’ speeches with the nominal exchange rate and currency parities in force today, the RER is in the range consistent with its long-term fundamentals (figure 5). | Page 1 The PRA's future approach to policy − speech by Vicky Saporta Given at the City & Financial Global event Page 2 Published on 27 September 2022 Vicky explains how regulation that is strong and responsive can avoid unnecessary trade-offs between competitiveness and resilience. The Financial Services and Markets Bill 2022 introduces new powers and a new secondary objective on competitiveness and growth for the PRA. Vicky argues that the PRA can use these new powers to regulate responsively, and better tailor rules to the needs of the UK. Vicky sets out the PRA’s intention to take a proactive approach to the new objective. She explains that as a global financial hub, the UK’s competitiveness in financial services rests on its skilled workforce, and its deep and specialised markets. Vicky argues that the UK economy has more to gain by having a regulatory regime that is open to international business, nondiscriminating, predictable, transparent, responsive to threats and opportunities rather than in weakening standards to attract business. Speech Introduction The Government’s Financial Services and Markets Bill introduces important changes to the PRA’s powers and responsibilities. It does so to implement reforms identified by the Future Regulatory Framework for Financial Services Review, or the ‘FRF Review’. The reforms will move financial regulation back to a British style of regulation based on the Financial Services and Markets Act of 2000, which we refer to as ‘FSMA’. Most technical rules will be made by regulators accountable to Parliament. | 0 |
A decade on, the work of the IFSB in ensuring a cohesive cross-border regulatory framework and the international best practices that are attuned to the intrinsic characteristics and peculiarities of Islamic financial intermediation, have served to underpin the development of a sound and stable Islamic financial system, ushering in a phase of rapid growth and greater internationalization of the industry. Indeed, 10 years since the founding of the IFSB have been a period of significance, during which the Islamic financial services industry has grown impressively with its landscape dramatically evolved. This growth acceleration has been accompanied by the widening of its geographical reach transcending its traditional borders in Muslim majority countries to the more established financial centres. In addition, Islamic finance has evolved as a comprehensive system of intermediation servicing all segments of society, including governments, businesses and households regardless of scale of businesses and income levels. In this decade, Islamic finance has also evolved from being domestic-centric to become increasingly internationalized, intermediating funds across borders and becoming a new vehicle that bridges economies and fostering closer financial linkages, particularly among emerging and developing markets. As a form of financial intermediation that is well anchored to serve the real economy, Islamic finance offers distinct potential to achieve the goals of inclusive growth and financial stability. Its foundations have been strengthened with the setting up of the IFSB and before that, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), have taken the lead in setting the prudential and accounting standards for the industry. | Combined with continuous capacity building initiatives and institutional development, it has resulted in the opportunity to achieve scale and has allowed the Islamic financial services industry to transition into a dynamic, fast growing and competitive form of financial intermediation for the global community. The IFSB today is celebrating its tenth anniversary in a world which is changing profoundly. A new growth and development agenda is unfolding before us. Given the severe damage and devastation caused by the global financial crisis and the ensuing economic downturns, the road to an enduring recovery and lasting prosperity demands a global policy response that brings about a new economic trajectory built on a strong, more inclusive and more sustainable growth path. Common challenges that have also come to the forefront, such as poverty, increasing inequality and the imperative for greater social cohesion, have also called for the construction of policy objectives and strategies that can enhance stability, social well- BIS central bankers’ speeches 1 being and environmental sustainability. In the wake of the global financial crisis, there is consensus on the need for a return to financial systems that serve the real economy, and the demands for more responsible financial practices from the financial sector, that also includes the commitment to achieve socio-economic goals. In response, the international community is prioritizing financial stability by strengthening financial regulation. This includes financial reforms aimed at protecting depositors from excessive risk-taking, over-leveraging and unfettered innovation. | 1 |
Ravi Menon: Economic possibilities of blockchain technology Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Global Blockchain Business Conference, Singapore, 9 October 2017. * * * Honourable Chief Minister Chandrababu Naidu Distinguished guests, ladies and gentlemen, good morning. Andhra Pradesh and Singapore I am delighted to be here in Andhra Pradesh – the land of the Tiruppati temple, Carnatic music, Kuchipudi dance, and of course, the charming sea town of Vishakapatnam. I am grateful to Chief Minister Chandrababu Naidu for his kind invitation to speak at this conference. Andhra Pradesh and Singapore share in common a modern outlook. We both believe in the value of innovation for economic growth and harnessing the power of technology for the common good. That Andhra Pradesh is organising a global conference on the topic of blockchains shows its progressive nature. It is also a tribute to the vision of Chief Minister Chandrababu Naidu, who has inspired an IT revolution in Andhra Pradesh. Little wonder that Andhra Pradesh and Singapore have forged good relations and have been working closely together. The Andhra Pradesh government has appointed a Singapore consortium to develop the new capital city of Amaravati. The Andhra Pradesh government and the Monetary Authority of Singapore (MAS) signed a FinTech cooperation agreement in October last year. A delegation of more than 10 FinTech startups from Singapore attended the FinTech Valley Vizag Spring Conference in March this year. Establishing trust in a decentralised way Trust underpins all economic transactions. | The problem statement is this: In a real-time gross settlement payment system, transactions typically go through a single trusted party, often the central bank. The challenge MAS posed itself was: can we create a more efficient inter-bank payment and settlement system without MAS acting as the trusted party? This began Project Ubin – a collaborative effort among MAS, the Singapore Exchange, ten banks, six technology companies, and six academic institutions. Over the course of the project, more than 150 people were trained in DLT. Phase 1 of Project Ubin successfully demonstrated that banks are able to transact with one another on an Ethereum-based prototype without going through the MAS. MAS issued a digital representation of the Singapore Dollar – a central bank digital currency – and placed it on the distributed ledger for domestic inter-bank settlement. Phase 2 of Project Ubin – just recently concluded – successfully produced three software models that achieved decentralised netting of payments in a manner that preserved transactional privacy. The next step in Project Ubin is to extend the application to cross-border payment and settlement. Cross-border payments today rely on a correspondent banking network. Banks hold balances with one another and settlement occurs through the adjustment of these relative balances. There is counterparty risk, liquidity is split, and reconciliation is a major pain point. In cases where multiple correspondent banks are involved, transactions may take days and at high cost to customers. | 1 |
As a result, the real exchange rate will remain at a relatively high level. With a reasonable degree of certainty, it can be said that the nominal exchange rate will swing more than that implied by our projections. Given the other assumptions in the Inflation Report, our best projections for the coming years is that the krone will hover around this level. It is not easy to project the nominal exchange rate, but perhaps we can provide an indication of the movement in the real exchange rate in the very long term: An economist at Norges Bank, Farooq Akram, has analysed the fundamental equilibrium real exchange rate for the Norwegian krone 1 . He takes into account that a steadily smaller share of our imports will be covered by current petroleum revenues and the return on the Government Pension Fund - Global. 1 Q, Farooq Akram. Oil wealth and real exchange rates: The FEER for Norway. Working Paper 2004/16 BIS Review 90/2006 5 Rough estimates based on this study indicate that the real exchange rate that maintains the trade balance when petroleum wealth no longer accounts for the same share of the economy will be more in line with the real krone exchange rate prevailing in the 1960s - before oil production started. This depreciation can come about either by lower price and wage inflation in Norway than among trading partners or by a nominal weakening of the krone. | This is partly due to increased trade and a shift in imports towards low-cost countries. The rise in prices for domestically produced goods and services pushed up CPI-ATE inflation until this year. Since the beginning of the year, domestic inflation has edged down, hovering around 1.3 per cent. The rise in prices has been lower than expected for both goods and services. There may be several factors behind the low inflation rate. Strong competition between various producers within the food industry and the construction industry may have had a dampening impact on inflation. In addition, productivity growth in retail trade has been high in the past few years. Intensified competition may also have contributed to curbing the rise in prices for banking and insurance services. Global growth has been high in recent years. In the US and in China, growth has been high for a long period. Growth picked up in Japan last year, and this year conditions are conducive to increased BIS Review 90/2006 1 growth in the euro area. Growth in China is expected to remain strong and contribute to pushing up growth in the global economy. Growth in the US is expected to be somewhat lower. Against this background, it appears that GDP growth among Norway’s trading partners will be high again this year and remain firm over the next few years. However, the housing market in the US has weakened more than expected in recent months, and the uncertainty associated with economic developments in the US ahead has increased. | 1 |
• Many of them were also banking supervisors. They saw financial stability as the preserve of prudential regulation and supervision. Those were the good ‘ole days. • Keep monetary policy focused on macroeconomic stability and regulatory policy on financial stability and all will be well. • In short, consistency between instrument and objective: Tinbergen would have been proud. Financial stability: what we know, what we don’t The Global Financial Crisis of 2008 changed all that. • Its devastation and virulence, but most of all, its suddenness, shook conventional macroeconomic thinking. • HM Queen Elizabeth II asked: “Why did no one see it coming?” BIS central bankers’ speeches 1 • That question illustrated vividly how little we knew about financial stability, let alone the interactions between the financial sector and the macroeconomy, between monetary policy and financial stability. But there are two things we did learn from the crisis about financial stability. First, macroeconomic stability does not guarantee financial stability. • Beneath the still waters of macroeconomic stability during the 2000s, deadly whirlpools of financial imbalances were forming. • The “Goldilocks” or “NICE” economy sharply reduced risk premiums, stoked a credit boom alongside speculative activities that ultimately undermined financial stability. Second, effective regulation of individual institutions does not deliver stability of the financial system as a whole. • Risks may be reasonably well managed in individual institutions but the system as a whole could be pro-cyclical and hence more risky. | 5 At the same time, the effect of policy rate changes on household indebtedness is very small. • The IMF estimates that hiking interest rates by 100 basis points for a year reduces the probability of financial crises by 0.04 to 0.3 percentage point at most. Back to Tinbergen: an enhanced role for regulatory policy So, we are back to where we started: if monetary policy has at best a limited role, what do we do with financial stability? • As Stefan Ingves put it recently: “We deal with inflation, we keep an eye on the exchange rate, we do our best to reach our inflation target. But that means that somebody else has to deal with the problem we have in our housing market.” 6 And that someone else could well be regulatory policy. And that includes both the oldfashioned microprudential variety as well as the “new kid on the block” – macroprudential policy. Old is gold: microprudential regulation The lesson of the Global Financial Crisis is not that microprudential policy was ineffective in achieving financial stability and therefore we need to look elsewhere. • The more pertinent lesson was that microprudential regulation – and might I add, supervision – was inadequate and had to be strengthened. 5 Svensson, L (2014), “Inflation Targeting and ‘Leaning against the Wind’,” International Journal of Central Banking, Vol. 10, No. 2, June. 6 “Riksbank Stefan Ingves sees flaws in crisis-busting tools,” Financial Times, 13 September 2015. | 1 |
As you may know, Paris EUROPLACE brings together the whole range of market participants – issuers, investors and intermediaries – in order to contribute to the development of European capital markets and promote the Paris financial center. The financial industry in India, as in Europe, is expanding significantly. And we have already seen in the past few years the flourishing of partnerships between French and Indian financial institutions: such as in the asset management industry, the joint venture between Sundaram and BNP Paribas Asset Management, or the SGAM and SBI Mutual Funds partnership; in insurance services, the Bharti and Axa Life Insurance partnership, and the joint venture between SBI Life and Cardiff; and in online brokerage: current developments involving Cortal Consors and Geojit. It is for this reason that it was decided by Paris EUROPLACE to focus our program on the development of opportunities and potential new partnerships between Mumbai and Paris, as well as to review how the expertise of the Paris financial marketplace can be used and leveraged. Let me highlight the following questions: - Why has the European financial market become a major pillar of international finance? - And what are the key advantages offered by the Paris financial market place? 1. First, why has the European financial market become a major pillar of international finance to compare favourably with the other large markets of the world? | Paris has taken a major position in the recent developments of the euro-denominated bond market: The French government bond market is today the most liquid in the world after the US treasury market, with an outstanding of € 900 billion, and has a strong innovative strategy: let’s mention the launch of a range of index-linked products to European and French inflation, or the introduction of a 50-year OAT bond, which represents the new frontier of the euro fixed-income market. The French corporate bond market is the largest in Europe, with an outstanding of € bn, compared to € bn in London and € bn in Frankfurt. Most recently, we have seen strong growth of structured and synthetic products. The new legislation concerning the French covered bond market boosts this market compartment, which represents today an outstanding of € On the equity side, Euronext has been ahead of London and Frankfurt in terms of transactions since 2006. The new alliance between NYSE and Euronext creates the world’s largest exchange in terms of market capitalisation € trillion), the world’s largest liquidity pool, with a daily average trading volume of € billion, & the world’s premier listings venue, with the presence of 80 of the top 100 companies listed world-wide, etc. | 1 |
Against the backdrop of an apparently healthy financial system, market participants report a substantial rise in transactions leverage, erosion in the use of loan covenants, more favorable financing terms for hedge fund counterparties, and especially a pressure to reduce initial margin against OTC derivatives exposure to hedge funds. But the concern is that this sustained period of very low credit losses and low volatility works to hold down measures of the underlying economic risk in these exposures. This combined with the range of factors I just discussed, raises the odds that market participants will be faced with negative surprises in the event of a more adverse macroeconomic 2 BIS Review 55/2006 environment. And this could have more negative implications for market dynamics and liquidity as market participants react to those losses and attempt to reduce their exposure to future losses. These concerns are not particularly new, and my sense is that they are widely shared among the people and institutions that are closest to these markets. They do not, in my view, challenge the overall judgment that these changes in the credit markets on balance are likely to make the financial system more resilient rather than more fragile. But they do suggest the need for greater caution by financial institutions in several important areas. First, it is very important that the major dealers make the investments necessary to improve the operational infrastructure that underpins the credit derivatives and broader OTC derivatives market. | Mark Twain is supposed to have once said: “I’m all for progress; it’s change I don’t like.” However, change lies in the nature of market liberalism, which neither can nor should be stationary. The structural changes that come in the wake of globalisation mean that less efficient production is replaced by more efficient production, and that sectors that do not hold up in competition are replaced by sectors where the country has comparative advantages, that is to say, is relatively better than its competitors. Structural changes thus consist of two parts: closing down (or moving out) and new establishment of businesses. The Austrian economist Joseph Schumpeter called this creative destruction; old jobs and technologies disappear and new, more productive jobs arise as technology develops and production becomes more specialised. The major challenge in future, in both Sweden and other industrialised nations, will therefore be to create dynamic conditions in which new jobs can arise as the old ones disappear due to rationalisation or are moved abroad. Studies regarding some industrial nations indicate that many jobs lost during the most recent economic slowdown have not yet been replaced by new jobs in the same branch when economic activity picked up again; instead productivity has been higher. However, employment has continued to increase in other sectors, which appears to increase the number of jobs regardless of economic activity. The fact that employees have to change sector leads to greater friction unemployment arising. | 0 |
This reflects the realisation by the Bank that without world-class employees, its aspiration to be a world class central bank as stated in its vision statement cannot be attained. For the Bank therefore, this programme is important because it is a step taken towards enhancing the skills of our staff to world class standards and is a commitment to attaining our vision. The programme you have come to participate in is unique in two respects. First, this programme is tailor-made or specifically designed for Bank of Zambia staff. Second, it focuses on middle management which is a reflection of the importance that the Bank places on the role that its middle managers play in helping it achieve its vision and mission. The programme has been designed to impart general management knowledge and skills to you our middle managers which will enhance your leadership and managerial abilities. The programme is designed to provide you with the tools that will enable you to contribute effectively towards the management of the Bank and also to prepare you for succession as and when opportunities arise. The first module you will learn is on the Functions of the Board of the Bank of Zambia. This was included to provide you with an understanding of the relevance of the Board to our strategic plan management process and ultimately to your job. Second, you will have a module on good corporate governance. | Caleb M Fundanga: The Bank of Zambia’s management development programme for managers Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the opening of the Management Development Programme for Managers, Livingstone, 4-15 December 2006. * * * • Director – Human Resources • Assistant Director – Organisation Development • The Consultants • Participants • Ladies and Gentlemen I welcome you all to this Management Development Programme. Management development programmes are crucial not only to Staff development but also to the realisation of the Bank of Zambia vision. As you are aware, our vision is “To be a world class central bank”. Our vision can only be realised if the performance of our employees measures up to world class standards, because it is employees who make an institution what it is. In other words, we can not have a world class central bank without world class employees. Ladies and Gentlemen: I would like to refer you to our strategic plan document. You will note that in its values statement, the Bank states that employees of the Bank of Zambia shall at all times endeavor to direct their efforts towards the achievement of the mission of the Bank by consistently following the values encapsulated in the BoZ Way. You will also note that the Bank has, in turn, undertaken to support employees by, inter-alia, continuously enhancing the capacity of the Bank through the development of all staff. | 1 |
The monetary base has risen by unprecedented proportions as we tried to prevent a collapse of broad money and credit as happened in the US during the Great Depression and today in Greece. And central bank balance sheets have risen across the industrialised world, as shown in Table 2. That expansion has reflected both money creation through asset purchases and lending against collateral. All major central banks have created new ways to lend against collateral.5 Far from their image as conservative creatures, are central banks at risk of throwing their traditional caution to the wind and ignoring the limits on monetary policy? Two limits are relevant in current circumstances. First, no matter how much liquidity is thrown at the banking system, lending and the economy will not recover if the banking system is inadequately capitalised and suffering from excessive leverage. That is why the Bank of England’s Financial Policy Committee has placed weight on the need for the weaker UK banks to raise capital. It is not surprising that the more strongly capitalised banks in the UK are expanding lending and the poorly capitalised banks are contracting lending. Second, there are limits on the ability of domestic monetary policy to expand real demand in the face of the need for changes in the real equilibrium of the economy. I do not believe that the present problems in the United Kingdom stem only from a large negative shock to aggregate demand. | But it has got harder. 4 BIS central bankers’ speeches Chart 1: UK inflation and output gap variances 3 Inflation variance 1958-1992 2 1 1993-2007 0 0 1 2 3 Output gap variance Chart 2: The UK’s pre-crisis trade-off? 3 Inflation variance Stylised ‘Taylor frontier’ 1958-1992 2 1 1993-2007 0 0 1 2 3 Output gap variance BIS central bankers’ speeches 5 Chart 3: The ‘Great Stability’ and crisis periods 3 Inflation variance 1958-1992 2 1 2008-2012 1993-2007 0 0 1 2 3 Output gap variance Chart 4: The true trade-off for the UK over 20 years? 3 Inflation variance 1958-1992 2 1 1993-2012 2008-2012 1993-2007 0 0 1 2 3 Output gap variance 6 BIS central bankers’ speeches Chart 5: A preferable outcome? 3 Inflation variance 1958-1992 2 1 P 1993-2012 2008-2012 1993-2007 0 0 1 2 3 Output gap variance Table 1: Monetary base Data are month averages for UK, US, Japan and end month for the euro area. Sources: Bank of England, Federal Reserve, Bank of Japan, ECB. | 1 |
We heard a lot of talk in the foreign exchange markets in 1996 about the “end of volatility.” As the market performance of the last few weeks has demonstrated, such commentary was a bit exaggerated. However, even with the spike in volatility we’ve seen in recent weeks, there is no question that we have witnessed a remarkable period of relative stability in foreign exchange rates over the past six quarters or so. What accounts for this relative stability in the foreign exchange markets since late 1995? Economic fundamentals are certainly one factor -- we have had a period of relative price stability in the major world economies, and a general absence of severe market shocks. However, I would argue that what we’ve been observing is also, in part, a by-product of continuously greater transparency that has characterized the foreign exchange market over the past several years. Moreover, I am convinced that the increased transparency in the foreign exchange markets is beneficial: for the foreign exchange community, for financial markets in general, and for the global economy as a whole. Before explaining what I mean by greater transparency and why I believe it is so beneficial, I would like to take a quick look at the record itself. Is the talk about declining volatility reflected in hard evidence? Yes, it largely is. | The result, again, is a more efficient allocation of global capital than would otherwise be possible. To the extent, therefore, that reduced volatility in the foreign exchange market stems from improved transparency, I would view this result as a beneficial by-product -- one that also contributes to the ultimate goal of economic and monetary policy: namely, sustained growth and a stable price environment. The move toward increased transparency in global markets and the accompanying relative decline in foreign exchange market volatility and trading ranges that we have observed in the last year and a half have posed considerable challenges to market makers, spot traders, and brokers, on both an institutional and a personal level. There is an axiom in these markets that volatility is good for market makers. I believe that this is a short-sighted view. On the contrary, I BIS Review 60/1997 -6- would submit that excessive volatility not only frightens investors, but also potentially undermines growth and, in so doing, benefits none of us. As a result, I cannot help but conclude that stable -- and not volatile -- markets are in the best interests of both central banks and the financial community. Stability in foreign exchange and other financial markets, along with price stability, is vital to the promotion of sustainable economic growth and rising living standards for everyone. | 1 |
However, after several years of strong growth, resources are now in short supply. With the substantial number of businesses now facing capacity constraints, we can expect inflation to pick up. It is uncertain whether inflation will then rise quickly or only gradually near target. Strong export growth, high oil investment and after a period higher growth in general government demand have contributed to the upswing in production and employment. But the low level of interest rates has also been a prominent driving force. This reflects the dynamics inherent in interest-rate setting. Low interest rates have stimulated demand and production and should lead to higher inflation, to which we are now reacting by raising interest rates. Under inflation targeting, it is important to be mindful of the effects of higher interest rates on the krone exchange rate when inflation is low. Interest rate developments in other countries are thus of importance to interest rates in Norway. BIS Review 15/2007 5 Unemployment has declined sharply in recent quarters. The pace of decline and the level of unemployment are reminiscent of two earlier cyclical peaks, one in the mid-1980s and the one that began at the end of the 1990s and continued into the present decade. Both booms culminated in sharply accelerating cost and wage inflation. Some of the driving forces that have boosted the growth potential of the Norwegian economy and restrained inflation may diminish. Prices for imported goods are no longer decelerating at the same pace. Labour market conditions are tightening in Sweden and Poland. | Durmuş Yılmaz: Green shoots – how vigorous and how sustainable? Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the Conference on “Green shoots – how vigorous and how sustainable”, IMF-World Bank Annual Meetings 2009, Istanbul, 5 October 2009. * * * Ladies and gentlemen, First of all, I would like to welcome everyone to Istanbul. It is a great pleasure for me to be here addressing such a distinguished audience as we convene for the 2009 Annual Meetings. “Green shoots” has been a popular metaphor to describe the recovery process. And today, I will try to elaborate on our path to build a career as a prudent gardener. I want to begin with discussing the path that brought us to this crisis. Then, I will talk about the recovery signals in both global and Turkish economy. I will conclude my speech with my thoughts on the solidity and sustainability of these signals. As is well known, financial strains originated in advanced economies abruptly mutated into a full-blown crisis and had a devastating effect on international capital markets. As the crisis intensified, measures of perceived risk escalated to record levels and major financial institutions suffered massive losses. At the same time, liquidity shortages, tighter credit conditions, and heightened uncertainty were associated with a sharp decline in both private consumption and investment spending. In fact, many economies fell into recession or have seen their growth rates decline sharply. | 0 |
One of the tasks of this board, which will be located at the ECB, will be to gather and analyse information that may be of significance to the stability of the financial system in the EU. If the work of the council is to be effective, it is important that it will be able to be forthright about the risks it sees and that the message it delivers is not obscured by political considerations. In order to strengthen the coordination of financial supervision in the EU, the existing committees for collaboration on the supervision of banking, securities and insurance operations are now being converted into authorities. This will give these bodies greater powers to intervene. Concluding thoughts So, it is clear that financial crises are nothing new. What distinguishes this crisis from earlier ones is its global extent and extreme complexity. Basically, it is about the fact that the flows in the financial system have increased dramatically at the same time as the system has become increasingly complex and difficult to oversee. The mutual dependence of the various markets has increased. This means that crises can more quickly and more forcefully hit an increasing number of economies at the same time. The current crisis has demonstrated this in no uncertain terms. This crisis has probably already passed its peak. Extensive efforts are now underway around the world to design a regulatory and supervisory system that will reduce the risks of a new major financial crisis. We need a better insight into the build-up of global risks. | One reassuring point is that the major UK banks and building societies were tested against precisely this scenario by the Bank of England in 2015 and demonstrated they had the resilience to weather such a shock and carry on lending to the UK economy. Conclusion Looking back over the last two years, I think that the slow healing story can still explain where we are and provide a guide to our future prospects. But the story has to be adapted in the face of more UK and world weakness than I had expected and this weakness might be signalling that there are deeper structural factors at work. Nonetheless, my central projection remains that the UK economy will continue to grow solidly and that inflation will return to target over the next few years. But, as always, policymakers need to be alive to the possible meaning of disappointments, to be very sensitive to the possibility of changing temperatures around them, and to the risk of unfortunate events. We have a range of tools at our disposal and should be ready to use them whichever risk materialises. BIS central bankers’ speeches 7 | 0 |
They too are predominantly retail, not wholesale banks, operating a very traditional business model, one that has largely shielded them from the problems of the international financial turmoil of these last years. They take deposits from (mainly) small local savers and make loans to (mainly) small or medium-sized local businesses and help people buy their houses by providing mortgages. Their officers, like those of the cooperative banks elsewhere, belong to the community in which they operate and generally know their customers and the local environment. In addition, one of them is involved in the European Investment Fund’s Jeremie programme, a programme designed specifically to help small and medium sized enterprises. The bank in question has committed over EUR 5 million over a period of three years to some 280 local SME beneficiaries under the programme. Indeed, one could say that it is mainly in their ownership structure that the local commercial banks, which are joint stock (or “shareholder value”) banks, differ from cooperative banks. In all other respects they are not very different. So that leaves us with the question: is there or is there not scope for setting up a cooperative bank in Malta? Is there or isn’t there space for such an institution? Or is the local market too small, while our community is being adequately served by the banks already operating here? I think it is not for me to answer these questions. | Cooperative banks also have a significant presence in South Korea, Japan, Canada, Morocco, Mexico and Brazil. So the question immediately arises: how come that no such institution has ever been set up in Malta? After all one would have thought that the idea of cooperation and solidarity, and the spirit of the Seven Basic Principles of the International Cooperative Alliance (ICA) would have a strong appeal in Malta. These seven principles consist of: voluntary and open membership; democratic member control; member economic participation; autonomy and independence; education, training and information of members and employees; cooperation with other cooperatives; and, especially, concern for the community. Moreover, we do have cooperatives in other spheres of activity here, and these have been around for some time. Indeed, the start of the cooperative movement in Malta dates back to the later years of the 19th century (around 1884), and the first form of legislation regulating cooperatives here – the Cooperative Societies Ordinance 1946 – came into effect on 12th December of that year. Initially the movement took root in the agriculture and fisheries sector, which in those times employed a significant part of the population. But later, as Malta developed socially and economically, the movement continued to flourish and to expand, and new cooperatives were set up in practically every sector of the economy. Indeed, there are currently some 60 cooperatives in Malta, with over 5000 members, spread over a wide range of activities. | 1 |
The fact is that there is often not much resource slack in the economy also makes it hard to discern a clear empirical relationship. Unfortunately, in this episode, we don't need a precise estimate of slack to be highly confident that the level of slack in the labor market is at or above the record of the post-World War II period. Although the headline unemployment rate of 9.8 percent is about one percentage point below its level at the end of the 1981-82 recession, other, more indicative measures paint a bleaker picture. For example, the prime age male unemployment rate is at a record high, by a significant margin. The labor market data released last Friday showed the September value at 10.4 percent, an increase of 6.5 percentage points from the start of the recession. In contrast, in the 1981-82 recession the prime age male unemployment rate peaked at 9.3 percent, rising by 4.2 percentage points from the start of that recession. Over the post-World War II period as a whole, it was only in the wake of the 1981-82 and 1990-91 recessions that the prime age male unemployment rate remained above 6 percent for more than just a few months. In addition, during all post-war expansions, the prime age male unemployment rate has fallen below 5 percent, even during the short expansion of 1980-81. Currently, even under very optimistic forecasts for the economy, it appears very unlikely that the prime age male unemployment rate will dip below 6 percent before 2011. | I am happy to report that this experience has been a successful one, particularly from the point of view of monetary autonomy. Indeed, the Basic Law has, since 1 July 1997, provided Hong Kong with far greater autonomy in its monetary and financial affairs, and this autonomy has been confirmed in practice by the clear confidence that the Central Government has placed in our ability to manage things on our own. I make this point, not because Macau needs any reassurance from Hong Kong, but because it is a striking illustration of how some of the deepest forebodings about future events can often be the product of the most dismal misjudgements. Two years ago, gloomy scenarios were being painted - not about an Asian financial crisis - but about the impending demise of Hong Kong’s monetary autonomy under Chinese rule: about the breaking of the link between the Hong Kong dollar and the U.S. dollar, the absorption of Hong Kong’s substantial foreign reserves by the Mainland, and so on. Of course, nothing of the kind has happened, and there may well be lessons here to apply to some of the more lurid scenarios that are being drawn up for the first of January 2000. Our topic this morning, however, is not the Year 2000 problem, but the perennial question of how to devise sustainable and realistic monetary and exchange rate policies in an uncertain global financial environment. | 0 |
When international investors lost confidence in the ability of governments to defend the fixed exchange rate, the countries encountered difficulties. Sharp currency depreciations and major readjustments followed in many countries. Even though economies in this region have fared well in recent years, the experience may have left its mark. A number of Asian countries, China in particular, have chosen to keep their currencies pegged to the US dollar. As long as the Chinese authorities are successful in keeping the exchange rate fairly fixed, competitiveness and a trade surplus will be maintained. However, 3 2 US Bureau of Labor Statistics. International Labor Comparisons. Manufacturing in China. http://www.bls.gov/fls/china.htm BIS central bankers’ speeches such a policy is at the expense of deficit countries, which would have preferred to see an adjustment in the yuan exchange rate. China’s exchange rate policy is therefore under strong pressure, especially from the US. But China’s economic strategy is based on its own experience and the experience of others. First, China has chosen to focus on the export of finished manufactured goods rather than domestic consumption as the basis for growth. So far, this has resulted in dynamic developments where growth has been kept high owing to increasing opportunities for people in rural areas to move to new jobs in towns and cities. A stable exchange rate has contributed to predictable operating parameters for a rapidly growing export industry and has held up competitiveness. | Since the global financial crisis (GFC) giant steps have been taken at the G20 to strengthen international policy coordination and cooperation. Overall there are two opposing 2 BIS central bankers’ speeches developments affecting the IMS. On the one hand, the significant reforms since the GFC have strengthened the IMS. But on the other hand, growing interconnectedness especially through increased international investment positions together with unconventional monetary policies pose challenges to the IMS. In these global circumstances, having faced the deterioration in inflation and its outlook reflecting the pass-through from the TL depreciation and domestic factors and elevated volatility in capital flows together with tightening global financial conditions the Central Bank of Turkey has been following a tight monetary policy to fight inflation, taking liquidity stabilizing measures for the foreign currency market and ensuring the stability of the financial system. This policy framework was announced as a “road map” document back in August 2015 outlining monetary policy, foreign currency liquidity and financial stability related measures and aimed at alleviating policy tradeoffs. The key idea is to provide market making facilities to the local banks when they face financial stresses in the global markets. They are then allowed to borrow in foreign currencies from the central bank and use their all liquid assets irrespective of their denominations i.e., local currency and foreign currency denominated assets as collateral when they borrow from the central bank in any currency. BIS central bankers’ speeches 3 | 0 |
Similar decrease in reallocation was found in the United Kingdom by the Bank of England 6. Financing constraints also hit more particularly R&D financing: according to a Banque de France study 7, R&D investment share becomes procyclical when credit constraints bites and does not increase proportionally in upturns. As the Great Recession was global, years of R&D efforts lost cannot be recovered by the purchase of technology from abroad, as all countries have been hit. In the medium term, this will weigh on productivity growth, which is partly fed by technical innovation. Financing constraints may contribute to a depressed investment, especially in industries with heavier reliance on external finance or lower asset tangibility 8, which can slowdown capital stock and hence potential growth, but also lead to its aging and weigh on its productivity through the use of older equipment vintages. As we can see on this graph from a Banque de France study 9, both the great Depression and the great Recession led to a significant ageing of the equipment stock. The Governing Council of the ECB has been particularly conscious of the acute strains in the financial system over recent years and the impairment of the credit channel. In particular, it has been concerned that bank deleveraging could reduce the supply of credit and undermine the supportive effects of lower interest rates on firms’ balance sheets. This could have been a significant “headwind” for monetary policy and has reinforced the case for decisive action. | In particular, I would like to mention: • The historical links with the public sector, such as in India where public banks still dominate the banking sector and • Banking sector expertise both in a rural environment, especially relevant for India, and in large industrial groups, as indeed Indian industrial groups are active internationally. In this respect, I am very pleased to participate with the RBI in the launching of the first French-Indian Financial Forum on May 16, in Mumbai. Thank you for your attention. 4 BIS Review 64/2007 | 0 |
Mr Duisenberg outlines the future development of the financial sector in the euro area Speech by Willem F Duisenberg, President of the European Central Bank, at the XXIVth IOSCO Annual Conference in Lisbon on 25 May 1999. Introduction The euro area constitutes a large economy, of a size comparable to that of the United States. That fact alone places the euro and the euro area financial system firmly “centre stage” in the global economy. Consequently, it is essential for the euro area financial system to be stable and efficient, not only for the benefit of the euro area economy itself, but also for the world economy. The introduction of the euro on 1 January 1999 had a profound impact on financial systems both within and outside the euro area. Part of this impact was immediately evident in the rapid integration of money markets and the replacement of national currencies by the euro in foreign exchange markets. The fact that the changeover to the euro progressed smoothly is a reassuring indication that the euro area financial system is able to remain stable during times of structural change. However, a further part of the impact on financial systems – most likely the greater part – will be experienced over a longer period of time. The euro is likely to become one of the major factors reshaping both the domestic financial system of the euro area and the global financial system. | Area-wide equity indices have been made available by various market participants, thus providing investors with opportunities to monitor area-wide equity positions as well as, in some instances, positions in area-wide industrial sectors. The fact that the euro area (and EU) equity markets are becoming more integrated, more liquid and deeper is good for market efficiency, and a more efficient allocation of capital should mean that equity financing becomes more readily available for companies. I should also like to mention that a prudent, harmonised regulatory framework, on the one hand, and harmonised market practices, on the other, are key factors guaranteeing a favourable outcome for these structural changes. In these areas a lot of work is under way, and much has still to be achieved in order to pave the way for truly integrated financial markets. Harmonisation in, for example, repurchase agreements, national company laws including bankruptcy laws, and other aspects of the legal and regulatory framework, would enhance legal clarity and certainty and thereby improve the efficiency and stability of the financial markets. Indeed, the European Commission recently published an Action Plan containing priorities and timetables for measures aimed at improving the single market for financial services. In the Action Plan, measures are proposed to advance the harmonisation of the legal framework and market information, as well as to facilitate investors’ operations throughout the single market. In this respect, I should also like to pay tribute to the International Organization of Securities Commissions (IOSCO) for its efforts. | 1 |
If you may recall, the key takeaway from my talk last year is that the Thai economy is like a car which has good suspension, but whose engine is in need of an overhaul in order to move faster. Our sound external position and strong financial institutions are analogous to that good suspension, which has so far afforded us a smooth ride on the bumpy road of global financial volatility. It has been almost a year since our last check-up, and as it has indeed been an eventful year, I would like to start my talk today by revisiting how the conditions of our car have developed since then. In the second part of my talk, I will discuss how the Bank of Thailand will contribute to the engine overhauling process – along with the private sector and the government which have already launched several initiatives. In the span of just 8 months since my last Thailand Focus address, the global economy has gone through several turbulent periods. If you all may recall, on the first working day of the year, the Shanghai Stock Index fell by 7%, with two circuit breakers triggered in one day. Crude oil prices saw a steady rise from below 30 USD per barrel to over 50 USD, before being struck in a back-and-forth market within the 40 to 50 USD range. Besides, we have again witnessed multiple rounds of volatility in the global financial markets as a result of shifting expectations of the Fed’s rate hikes. | On top of the promotion of e-commerce, PromptPay together with other e-Payment initiatives, for example shared point of sales (POS) terminals, digital tax messaging, standardized QR codes, will lead to significant reduction in costs of cash management and paper processing, currently borne by banks, businesses, consumers, as well as the Bank of Thailand. In addition, the move from cash-based transactions to more electronic-based transactions can potentially reduce incidences of corruption and improve governance through greater transparency. On the regulatory front, an important development is the crafting of the Payment System Act which aims to consolidate fragmented laws and regulations governing electronic payments. The Act will set out business rules and regulatory framework for our payment systems that meet international standards. To date, the Act has been endorsed by the cabinet and expected to soon be presented to the National Legislative Assembly. Let me say a few words about FinTech. We view FinTech as an important addition to our financial service ecosystem. FinTech would give consumers more options and save operating costs for financial institution and service providers. On a bright side, FinTech firms are agile and efficient by nature. Yet allowing certain types of them to run freely may destabilize the ecosystem. We need to promote financial innovation while ensuring that potential risks from its misuse would not contribute to systemic risks’ build-up. Equally important, there needs to be adequate consumer protection. The Bank of Thailand aims to foster a symbiosis between FinTech and our current financial ecosystem. | 1 |
[24] The same protections do not exist at the global level or are much weaker in other regional trading blocs such as NAFTA. The history of the United States itself illustrates the difficulty of aligning the approaches of individual states to improve working conditions. In the early 20th century, there was a growing concern in several US states about the lack of a social safety net, especially for the elderly. But individual states feared that providing social security would impose, in the words of the time, “a heavy tax burden on the industries of the state that would put them at a disadvantage in competition with neighboring states unburdened by a pension system.”[25] The lack of coordination created a severe underprovision of social security, which was exacerbated by the Great Depression. In 1934, half of the population over 65 were in poverty. [26] This was only resolved through the passing of the federal Social Security Act in 1935, which enabled states to coordinate in providing social security. In a similar way, the EU provides a powerful coordination function that allows countries to achieve goals that they could not realise alone. And the EU is able in turn to export some of its 4 / 10 BIS central bankers' speeches standards globally. The EU is the top trading partner of 80 countries, compared with just over 20 for the United States. [27] That allows the EU to insist on higher labour and product standards abroad via trade agreements,[28]as well as protecting local producers at home. | As Jean Monnet said, “we need a Europe for that which is essential … a Europe for what nations cannot do alone.”[1] Sovereignty in an interconnected world On the whole, European citizens appear to welcome the benefits brought about by economic integration through the EU. [2] The free movement of people, goods and services – that is, the Single Market – is routinely seen by citizens as the EU’s most positive achievement. In the euro area, 75% of people are in favour of the euro and Monetary Union, and 71% of Europeans support the EU’s common trade policy. Yet at the same time, public attitudes towards the EU’s political structures seem to be hardening. Average trust in the EU stands at 42%, down from 57% in 2007. This decline has taken place against the backdrop of a general loss of faith in public institutions. Trust in national governments and parliaments has dropped to just 35%. This tension between economic integration and political cooperation is fuelled by a powerful belief that there is an inherent trade-off between EU membership and the ability of countries to exercise sovereignty. In this way of thinking, if citizens want to be able to exert more control over their destinies, they have to loosen the EU’s political structures. But this belief is wrong. It is wrong because it conflates independence with sovereignty. | 1 |
We also need to ensure the harmonised application of banking regulations in all Banking Union countries, and avoid the risk of fragmentation, which would reduce the expected benefits of a union. It is also vital to strengthen the integration of European financial markets. The action plan for the Capital Markets Union, launched by the Commission in 2015, has allowed a few advances to be made, with the creation of European cross-border funds and a pan-European retirement savings product. We must go even further on this, and create a genuine Financing Union for Investment and Innovation, that would better channel Europe’s savings surplus (3% of GDP) towards productive investment, by shoring up companies’ capital and increasing their ability to develop and innovate. For this, we need to (i) facilitate cross-border investment by harmonising accounting, tax and bankruptcy rules; (ii) develop incentives for equity financing; (iii) develop European securities and savings products (venture capital funds, green bonds, securitised portfolios, etc.) aimed at providing long-term, diversified financing to Member States. Finally, with its strong international commitment on climate issues, Europe must play its full role in initiatives to tackle the risks linked to climate change. The Banque de France was one of the founders of the NGFS or Network for the Greening of the Financial System, and provides secretariat services for the platform which now has 42 members and 8 observers, representing 5 continents. | Ten years after Lehman Brothers, the financial system is now safer The crisis that followed the Lehman collapse demonstrated the importance of a sound financial system that could withstand shocks without hampering the financing of the economy. The economies that, after a macroeconomic shock, suffer a financial shock because their banking sector is too fragile, experience more serious and protracted crises. This lesson led to a vast reform programme of financial system regulation and supervision in order to address the many shortcomings that led to the development of significant vulnerabilities. 1.1 MANY OF THE SHORTCOMINGS IN THE REGULATORY AND SUPERVISORY FRAMEWORK HAVE BEEN REDUCED A comprehensive reform was thus carried out, covering practically all the areas of the financial system, focusing on four main areas: (a) Shoring up the resilience of financial institutions For banks, under the impetus of the G20 and the Financial Stability Board (FSB), the Basel Committee has established new prudential rules, “Basel III", whose main features aim to enhance the level and quality of capital, limit the use of financial leverage and introduce new liquidity requirements. These rules must ensure that banks are able to cope with short-term pressures on their refinancing and regulate their transformation activity. Lastly, the framework introduces for the first time a “macroprudential” component, consisting of a countercyclical capital buffer and a surcharge for global systemically important banks (additional capital and leverage ratio). Most G20 jurisdictions have adopted this framework. | 1 |
Denny H Kalyalya: High performance leadership Opening speech by Dr Denny H Kalyalya, Deputy Governor of the Bank of Zambia, at the Opening of the High Performance Leadership Workshop, Lusaka, 9 August 2010. * * * Chairperson Workshop facilitators from MCA International Directors and Assistant Directors Other Participants Ladies and gentlemen On behalf of Bank of Zambia Senior Management and indeed on my own behalf, I wish to welcome you all to this important workshop, on High Performance Leadership, organized by our Human Resources Department in conjunction with MCA International. I commend the Human Resources Department for taking the initiative to organise this workshop, which is intended to facilitate exchange of information and views on appropriate leadership attributes to help us enhance our performance as leaders in our respective positions. Ladies and gentlemen, as you are aware, our key role as a central bank is to deliver low and stable prices and maintain financial system stability. In spite of the global economic downturn, our country is enjoying relative economic stability, with good prospects for the future following the recent and on-going significant economic transformation of our economy. Due to implementation of appropriate macroeconomic policies: i. The country has registered positive real GDP growth for the past 10 years and over the last five years, real GDP growth rate has averaged 6% annually; ii. Inflation and exchange rates developments have also been favourable. | Those techniques are tried and tested in the US, and are the basis for resolutions of regular commercial banks in many other countries. They do not involve taxpayer solvency support. I am doubtful, however, whether those established techniques would work for a complex investment bank or a global commercial bank. Universal banks are typically run on an integrated basis, across functions and regions, so that capital can be reallocated easily as opportunities shift around. It would be a nightmare to execute over a weekend a split of any of these groups, with multiple entities across scores of countries, into those parts providing services that must be sustained at all costs and a remainder that could be wound down as part of a resolution. Moreover, this is not just a matter of critical versus not-so-critical services. Even if, contrary to my doubts, it were possible to execute that separation in the midst of a crisis, winding down a complex trading book would be hugely hazardous, with very nasty spillovers to the rest of the financial system. Quite separately, P&A techniques might also fall short in handling the failure of mediumsized commercial banks in highly concentrated banking systems. Crudely, there may be few or even no potential buyers of the deposit book in such circumstances. That is the background to the so-called ‘bailin’ technique which, within the official sector, takes its inspiration from the way insolvency practitioners effect a capital restructuring of distressed but viable non-financial firms – for example, Chapter XI in the US. | 0 |
8 Lastly, in the case of consumer prices, the scenarios presented in September envisaged that, following the notable slowdown in recent months, the headline inflation rate would be negative for 2020 as a whole (-0.2% under scenario 1 and -0.3% under scenario 2). In the following two years it would only rise very gradually (to 1% and 1.2% under scenario 1 and to 0.8% and 1.1% under scenario 2), underpinned by the progressive recovery in aggregate demand and some quickening in the energy component of prices. Yet since these scenarios were released in September, various indicators have been published which enable their current validity to be assessed, albeit qualitatively. In any event, the Banco de España will update its forecasts in December, in a joint exercise with the Eurosystem. First, it is important to note that the INE’s preliminary estimate for the quarter-on-quarter GDP growth rate for Q3 a few days ago was, at 16.7%, practically in line with the rate estimated in early September in the context of scenario 1 (16.6%). However, as I pointed out earlier, a wide range of indicators would suggest that the recovery progressively lost momentum in Q3. This would essentially be related to the rapid increase in the number of COVID-19 infections observed in Spain in recent months. | In any event, looking ahead, the public pension system will face additional pressures on the spending side, stemming from a significant expected increase in the population of retirement age, relative to the population of working age, owing to demographic factors.10 Reforms made in recent years have addressed these pressures; among other measures, a gradual raising of the retirement age, a sustainability factor linking initial pensions to future life expectancy developments, and a new pension adjustment mechanism that takes into account the system’s balance have been introduced. These reforms represent a considerable improvement to the system’s financial sustainability. However, in the absence of further changes to the system’s revenues, strict application of the new adjustment mechanism will give rise to systematic decreases in pensioners’ real income. Also, according to the various estimates available, eliminating the new adjustment index and returning to inflation indexed pensions, as recommended by the Toledo Pact Commission, would generate an increase in pension spending of around 3 pp of GDP over the period to 2050.11 Moreover, the date on which the sustainability factor (which adjusts the initial pension amount in accordance with life expectancy developments) will begin to be applied has been put back from 2018 to 2023 at the earliest. According to AIReF calculations, the introduction 10 My address at the meeting of the Toledo Pact Commission last September was devoted to analysing this issue. | 1 |
Caleb M Fundanga: How the Bank of Zambia’s policies are impacting Eastern Province developments Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Eastern Province Chamber of Commerce and Industry Open Meeting, Chipata, 17 January 2008. * * * • The Chairman – Eastern Province Chamber of Commerce and Industry (EPCCI) • Members of the Executive Committee – EPCCI • EPCCI Members • Invited Guests • Ladies and Gentlemen First and foremost, I must state that I am pleased to have finally made the trip to Eastern Province under the invitation of the EPCCI. The visit was planned for last year but due to other commitments I could not make it. In this regard, I made it a point to make sure that I visit the province before the end of the first quarter. I am happy that we have actualized our plans during the first month. It is our hope that we will also be able to visit other provincial towns off the line of rail during the course of the year. Mr. Chairman, one may question what is the purpose of the Bank of Zambia to visit these outlying areas? The answer is simple and is drawn from our mission statement – which is “to formulate and implement monetary and supervisory policies that will ensure price and financial system stability”. Our visit is therefore, to enable us assess the extent to which our policies are impacting development in the Eastern Province. | The completion of the Mchinji Railway project must therefore be expeditiously dealt with. As a country we need to seek more export ventures in terms of products and markets. It is important to note that by November 2007, year-to-date non-traditional exports had increased by 25.6% to $ million from $ million recorded during the corresponding period in 2006. Our statistics show that burley tobacco and cotton lint have had a significant contribution to the non-traditional export figures in the years 2005 and 2006 (although indications are that for the year 2007, the figures will be lower after farmers opted to plant maize given the lower prices offered for their tobacco and cotton produce). Ladies and gentlemen, with the improved economic activity in Eastern Province, we have noted an increased demand for cash through the sub-chest run by Barclays Bank Zambia Plc. This has been exemplified by fewer deposits at the sub-chest each successive period. Our investigations have revealed that this is driven by the high intensity of cash transactions within the region, largely because very few people, particularly the small-scale farmers, have bank accounts. We implore you to encourage the use of non-cash payments for your transactions. It is not only a safer means of transacting but it also enables the authorities to keep track of the level of economic activity in the area. In this regard, we also ask that the commercial banks design products and services whose cost structures are suitable for the economic environment of the region. | 1 |
But what might scare people the most is not necessarily what we should focus on the most. Transition risks, the ones related to the adjustment towards a low-carbon economy, are less visible long-term risks that have not yet materialised. Nevertheless, we need to be prepared for these as well. Transition costs and uncertainties about the winners and losers will certainly create strong market volatility and lead to adverse aggregate macroeconomic outcomes. According to our first estimates made by the ACPR – the French supervisor –, 11 13% of French banks’ total net credit exposure is to sectors vulnerable to transition risks. The DNB conducted a similar exercise and found roughly the same exposure for Dutch lenders.12 Financial institutions may object that the timeframe for the materialisation of these risks is far beyond their investment horizon and the average maturity of their balance sheets. They may argue that their exposures can be adjusted progressively if needed. In my view, it is delusional to think that when risks become perceptible, everyone will be able to cut their exposures at the same time and in an orderly fashion. My hope is that the current momentum among supervisors around the world will help us to better measure and mitigate the long-term risks associated with climate change, and hence smooth the transition. In this regard, we, as supervisors, should collectively move forward in two priority areas. [slide 4] Our first priority should be the identification and disclosure of existing exposures in the financial sector, or “the snapshot of risks”. | There is also much uncertainty about the intensity of the recovery in the final months of the year, in view of the recent course of the pandemic in Europe. The short-term indicators available, such as the PMI for October, among others, point to a slowdown in the growth of activity in the euro area in the fourth quarter. Most worrying is that the widespread implementation of new measures to contain the health crisis could lead to a significant additional slowdown or even a contraction, at least in certain countries or sectors. Therefore, the outlook for the euro area economy continues to be highly uncertain and the risks are tilted to the downside. Specifically, the ECB’s latest projections, dating from end-September, envisage a baseline scenario where the prolongation over the coming quarters of the improvement seen since May would not prevent the area’s GDP from declining by 8%, followed by a recovery of 5% in 2021. Achieving these figures appears to be called into question, since one of the assumptions of this baseline scenario is that the epidemiological situation will not worsen in 3 the short term, something which developments since the projection cut-off date seem to be disproving. As regards the inflation outlook for the euro area, the ECB expects a very modest rise this year of only 0.3%, increasing to 1% in 2021 and 1.3% in 2022, far from the medium-term price stability target. | 0 |
In fact, now standing at 5.9 percent, the unemployment rate has fallen about 4 percentage points from its high – and a full percentage point over the last year. Other measures of labor market health also suggest significant improvements: Notably, layoff rates are low and job opening rates are back to their prerecession levels. But we still aren’t back to full labor market health. At 5.9 percent, the unemployment rate remains above what most people think of as its long-run neutral level. For example, according to the central tendency in the FOMC’s latest Summary of Economic Projections, 1 the estimate of the neutral unemployment rate is between 5-1/4 to 5-1/2 percent, with my own judgment at the bottom of this range. This leaves a significant gap between our goal and current conditions. Moreover, the labor force participation rate has dropped a good deal. Most of the decline in labor force participation since 2000 is due to demographic trends, such as baby boomers moving into retirement age, and long-running trends, such as reductions in male and teenage labor force participation. These trends are structural in nature, and monetary policy is not the appropriate policy tool to address them. Nonetheless, the labor force participation rate has fallen somewhat more than what would be expected given these structural trends. And it is 1 2 Federal Open Market Committee (2014). BIS central bankers’ speeches also lower than what would be expected from its historical relationship with the unemployment rate. | And when achieving the dual mandate called for additional monetary policy accommodation, the FOMC turned to other less conventional approaches, such as large-scale asset purchase programs – what many of you have heard referred to as “QE,” or quantitative easing – and forward guidance about how long the fed funds rate is likely to remain near zero. I believe these efforts have been very beneficial in helping the economy make significant progress and bringing us back closer to our policy goals. Today, with economic conditions much improved, many people are asking when Fed policy will return to normal. That is an excellent question. So in my remarks this morning I will discuss my outlook for the economy and how that outlook and the risks around it shape my views about the appropriate timing and pace of eventual policy normalization. In particular, I expect that there will be further improvements in economic activity over the next three years and that these will be accompanied by additional declines in the unemployment rate toward more normal levels. At the same time, I expect inflation to rise gradually toward the FOMC’s 2 percent target. These forecasts are predicated on maintaining a highly accommodative stance of monetary policy for a considerable time. Indeed, given our recent experience, I feel that before the Fed raises rates, we should have a great deal of confidence that we won’t be forced to backtrack on our moves and face another painful period at the ZLB. | 1 |
But speaking for my own generation studying economics in the nineties – we were idealistic. In my PhD programme, I was joined by people from all over the world who had great hopes for free trade and sensible economic policy, and what the two could do for their own countries and for the world at large. And yes, the invisible hand has performed many miracles since then. Prosperity has grown by leaps and bounds worldwide. In the past 30 years, 1.2 billion people have risen out of abject poverty. To be more specific, in 1990 some 36% of the world’s population lived on the equivalent of less than two US dollars a day. Now only 9% are that destitute. In the West, globalisation has also been a key to improved living standards and price stability over the past 30 years, with the continuous emergence of new ways to make production cheaper and more efficient by moving it between countries. It also created innumerable international opportunities for well-educated people. But there is a dark side to this upbeat picture. Although globalisation narrowed the gap between rich and poor countries, it widened the income gap within many countries. Although the overall outcome has been profit, the benefits have been distributed unequally, and some groups in society lose out. Income inequality has therefore grown in most Western countries in recent years. | Prasarn Trairatvorakul: Managing the economy at a crossroads Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Foreign Correspondents’ Club of Thailand (FCCT), Bangkok, 3 July 2014. * * * Distinguished Guests, Ladies and Gentlemen, It is my pleasure to be here once again, to address the oldest press club in Southeast Asia. I congratulate you for the outstanding works in Thailand over these years. Journalism is indeed a special profession, one whose status is sometimes hailed as “the fourth pillar of the state” alongside the legislature, the executive and the judiciary. Such privilege comes with a somber weight of commitment to accurate reporting and balanced viewpoints. These qualities are needed more than ever today, as there is much public demand to understand the implications of the recent political development. I will share with you today my early assessment from a policymaker’s standpoint, regarding the latest economic outlook and key challenges to public policy lying ahead. Current economic assessments First, let me give you a brief summary of where we are. The buildup of political tension late last year came at an unfortunate time for the economy. The economic activity was already hampered by weak domestic demand amid high household debt and a lackluster global economy. As the political uncertainties persisted, the repercussion on consumer and business confidence grew, denting private consumption and investment. | 0 |
Uniformly, every institution that has engaged in internal testing also has indicated that this process indeed located further Year 2000 problems that needed repair. Thus, in spite of extensive repair efforts, some problems were not isolated until internal future date tests were performed. This underscores why every organization must build in a program of rigorous internal testing as a part of its Year 2000 project schedule, even for applications designed to be Year 2000 compliant. Moreover, the internal testing process cannot wait until the last minute. Experience has shown that testing programs overall typically consume over 50% of the resources allocated to Year 2000 projects. External tests are conducted by an institution to assess the risks in repaired and internally tested systems where they interface with systems of other institutions. External tests are particularly important where the interface is proprietary or specific to the particular business activity and the dependency on the external interface is critical. For the most critical systems, in particular payment and settlement systems, external testing must be done, and should be done carefully. External tests can take a variety of forms. Point-to-point tests verify the ability of an institution to transmit and receive data with another entity. End-to-end tests take this one step further and verify the ability of an institution originating a transaction to transmit test data to a recipient through an intermediary which correctly performs business functions using that data. End-to-end tests are particularly appropriate for real-time, interactive applications. | Some information can in fact be downright misleading. For example, a firm may engage in internal testing and locate a number of Year 2000-related problems in its systems. Of course, it is the process of this testing that will enable the firm to locate and overcome these problems. Thus, disclosing its internal test results in isolation could give a false impression of its readiness. In general, comprehensive self-disclosure in written form, supplemented by a willingness to answer specific questions, is proving to be the most effective way of sharing information. Another issue that often comes up in this context is the question of certification. External parties, whether auditors or examiners, cannot realistically certify Year 2000 compliance. The best that they can do is focus on the effectiveness of the process that the organization has established. Oversight by these third parties should not be seen as a substitute for an organization’s own due diligence, an area in which internal audit departments have traditionally played a leading role. Internal auditors also could be useful in helping firms develop their Year 2000 disclosures. Another concern is the existence of possible legal obstacles that may stand in the way of Year 2000 information sharing. In the United States, several efforts have been made to limit or remove these obstacles, and such efforts may be needed in other countries as well. For example, a ruling was issued by our Justice Department limiting the extent to which Year 2000 information sharing could be viewed as a violation of antitrust laws. | 1 |
The continuing shift of resources to meet the demand for better public services means that private demand must grow much more slowly over the next few years. In turn, that would enable the trade deficit to stabilise and eventually fall back. The second uncertainty facing the UK is the slowdown in the world economy, and, in particular, the downturn in the United States. In 2000, the world economy grew by 4.7%, the highest rate for twelve years. And, stimulated by an increase in productivity growth, the US growth rate had reached almost 6% a year in the first half of 2000. Such a rate was unlikely to have proved sustainable. Over the past five years productivity growth in the United States has risen markedly. Labour productivity growth rose by more than 1 percentage point a year to an average of 2½%-3% between 1995 and 2000. Some of this rise was the impact of new technology on efficiency, and some was the result of greater investment in IT – capital deepening – which added significantly to the amount of capital with which each employee was working. But demand rose even more rapidly than the supply of output, leading to a large current account deficit. The external imbalance was the mirror image of the internal imbalance. So a slowdown in the US was not only unsurprising, it was desirable. But the speed of the turn-round in the US has taken most commentators by surprise. | Despite the global financial crisis and European sovereign debt problems, the Islamic capital markets have shown unparalleled resilience over the past few years. In particular, the sukuk market climbed to new heights for the fourth year in a row, with global sukuk issuance exceeding $ billion in 2012, three times higher than that before the global financial crisis.2 1 Source: KFH Research. 2 Source: KFH Research. BIS central bankers’ speeches 1 Strengths of Hong Kong in developing Islamic finance 6. Hong Kong is well positioned to add momentum to the globalisation of Islamic finance. As a free and open economy and major international financial centre, Hong Kong has developed a highly liquid and deep capital market with a strong presence of international financial intermediaries and a diverse base of borrowers and investors, a well-established financial infrastructure, a sound legal system, a transparent regulatory framework and a simple tax regime. 7. In addition to these general capabilities in financial intermediation, Hong Kong can play a unique and pivotal role in bridging the investment needs from the Middle East and the funding needs in Mainland China. 8. Many Middle East investors are now actively looking for investment opportunities beyond their domestic borders to diversify their investment portfolios. This trend has been supported by the huge pool of oil-driven liquidity in the Middle East. | 0 |
A first cost is that it may create confusion as to the objective of the monetary authorities: inflation or the exchange rate. In our case, we have dealt with this through transparent mechanisms whereby we anticipate the amounts and terms of interventions, and by maintaining a flexible exchange rate. In addition it has always been clear that the exchange rate is not an objective and the main goal of the Central Bank is price stability. A second cost is of a financial nature. Foreign reserves are invested in highly liquid and secure instruments of developed countries, whose interest rates are lower than those of domestic instruments used to finance their acquisition. Conversely, the benefits of having these reserves are the enhanced security they provide in case of an abrupt cut of external financing. These benefits are hard to measure, but it is reasonable to expect that they will decline as the availability of reserves increases, as has been occurring in Chile since 2008. Allow me to express some final thoughts. Final thoughts News during these last weeks have led us to a scenario in which the effects of the deteriorating external situation that we forecast some time back are not evident and in which inflationary pressures stemming from a higher cost of energy have resurfaced. Hence, if a few months ago it was clear that the most likely scenario for monetary policy in emerging economies was a further loosening, today it is much less clear so. | In October we had revised down our growth forecasts for Sweden and abroad considerably and in December we revised the forecasts down by as much again; the economic slowdown had hit with even greater force than we had earlier expected. The weaker krona together with the fall in energy and food prices appeared to some extent to be able to counteract the severe slowdown in the economy. According to our forecast in December, Swedish GDP will decline by 0.5 per cent in 2009, but recover during 2010, when growth increases to approximately 2 per cent. We also revised down the inflation forecast substantially, primarily because of falling energy prices and declining interest expenditure for households. According to our assessment, CPI inflation will on average be just over 1 per cent in 2009. However, inflation will then rise towards the target level at the end of 2010, as economic activity improves and the effects of falling energy prices and interest expenditure no longer affect the inflation figures. The assessment in December was that resource utilisation would be lower than normal over the coming years, while inflation would undershoot the target for a while. Given this, we Executive Board members were agreed that a substantial and long-lasting cut in the repo rate was needed to avoid an unnecessarily long period of inflation undershooting the target and of weak real economic development. Nor were there any advantages to adjusting the repo rate in gradual stages. | 0 |
Stefan Ingves: Introduction on monetary policy Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the Riksdag Committee on Finance, Stockholm, 3 March 2011. * * * I was here as recently as two days ago to discuss the development of housing prices and household indebtedness. Today, I am here to discuss monetary policy. 1 After several years of crisis management, it feels positive to return to discussing more “usual” monetary policy issues. When I was here a year ago, I showed a picture of a skater on the ice. Having been out on thin ice, I considered we had returned to thicker ice. Today, I would instead say that we’re back on dry land. To use a different metaphor, Sweden, with its small, open economy, could be described as being a small boat on a wide ocean. The financial crisis required “Sailboat Sweden” to navigate some dramatically stormy waters. After such a traumatic experience, it is natural to try to lift your gaze and ask certain all-embracing questions: Where have we come from? Where are we now? Where are we going? Personally, I would be just a little worried if I found myself aboard a boat without knowing where I boarded it, its current position or final destination. Let me therefore attempt to give you my answers to these questions as they concern Sweden’s economy. Where have we come from? | One of the forms taken by this unease is that of rising government bond rates in these countries, which is further increasing the burden of debt (see Slide 8). The high levels of public debt are partially a consequence of the fiscal policy stimulation packages introduced during the crisis. In many cases, the situation has been exacerbated by the excessively weak development of public finances in the years leading up to the crisis. Several countries are now facing a difficult balancing act. On one hand, significant fiscal policy tightening will be necessary for a long time to come in order to reduce public debt to a more reasonable level. On the other hand, this tightening must not be so comprehensive as to threaten the economic recovery. Hopefully the planned European Financial Stability Facility will have a beneficial effect, but the public finance problems will characterise developments for a long time to come, one way or another. The United States also has a large and growing central government debt, and it will require comprehensive fiscal policy tightening to gain control over this development. One advantage is that US government bond rates are still low (see Slide 1). Moreover, asset purchases by the US central bank have contributed towards keeping interest rates down. These expansive financial conditions, together with high profits within the corporate sector, suggest that the recovery will pick up further speed, despite the need for fiscal policy tightening. | 1 |
In order to achieve this, Eesti Pank is of the opinion that in addition to the steps taken in February, this year's fiscal deficit needs to be reduced by a further 6.5 billion kroons. In addition to fiscal consolidation, it is important to ensure long-term fiscal sustainability. Once the acute crisis is over, the first thing to do is to achieve fiscal balance. Then it is necessary to restore the public sector's extensive fiscal reserves. The national budget strategy recently approved by the government creates a necessary macro framework according to which the budget should reach balance by 2011. Eesti Pank is of the opinion the new strategy is a timely and ambitious document which requires cooperation also at Riigikogu level. Taking into account that government expenditure as a ratio to GDP has soared, budget adjustment must be done primarily on the expenditure side. Tax revenue increases may support the adjustment, but they should not play the main role. If only tax advances were used to finance costs at the current level, Estonia's long-term economic growth would be imperilled. Also, we support the principles of the current tax policy, according to which the share of indirect and pollution taxes would increase on account of direct taxes. I would like to emphasise once again that the measures taken over the past half a year in both the public and the private sector have improved Estonia's ability to exit the crisis. | It is clear the events that took place at the end of the last and at the beginning of this year were real challenges for the Estonian monetary and financial system, testing their resilience and ability to adjust to the changing external environment. Today I dare to look at the situation with moderate optimism and repeat what has already been said in March: Estonia has all the possibilities of successfully passing through the crisis. BIS Review 91/2009 1 Estonia's monetary policy and financial stability in 2008 Turning to the tasks of Eesti Pank, I would like to start with an overview of the functioning of the monetary policy framework. The objective of Eesti Pank, member of the European System of Central Banks, is to ensure price stability in Estonia. To this end, we rest on the currency peg to the euro, the currency board arrangement and the EU exchange rate mechanism ERM II. The success of this system is confirmed by the slowdown in the price rise which started in 2008, and the halt in the growth rate of consumer prices in recent months. Looking ahead, Eesti Pank forecasts the price level to decline somewhat in both this and next year. It is clear the Estonian monetary policy or the monetary policy framework will not and must not be changed. The exchange rate of the Estonian kroon will remain as it is and we will accede to the euro area at the current exchange rate. | 1 |
Talent with these new capabilities have tended to be short in supply. The demand for such talent with the new competencies and skills is made even more complex and challenging by the changing character and nature of the talent itself. Firstly, there is now greater mobility of the talent within industries, between industries and across borders. No longer can organisations rely on employment to retirement. The potential for retention has become challenging with the motivation of the workforce now becoming highly different. Among the factors that are important for the new generation is for the job to be interesting, challenging and fulfilling. They are drawn to greater engagement with the leadership, greater empowerment and being accorded greater exposure and potential for future development. A lack of recognition of the changes in the motivation of the new generation of the talent will not only present itself as a major challenge for human capital management but it is also likely to affect the harmonisation and cohesiveness of the organisation and its overall performance. Talent in the financial sector Let me say a few words about the specific talent challenges in the financial sector. The structural changes taking place in the financial system and the recent global financial crisis has and continues to drive dramatic change in the financial industry. Financial institutions are facing increased regulation, greater uncertainty in the operating environment, uneven competitive conditions and a severely damaged reputation in many parts of the world. These developments have important implications for the financial services workforce. | So, the key to success for CDI clearly lies beyond technology. We need to find the right commercial incentive for all to benefit and create the network effect. 30. Similarly, for the mBridge project, technical interoperability is key but relatively straight forward. The platform now has the flexibility to allow central banks to easily connect through CBDCs or traditional payment systems. But that won’t attract more jurisdictions to join by itself. To do that, the platform needs to account for policy and business challenges. How to build-in different regulatory requirements like anti-money laundering, how to ensure sufficient on-chain foreign exchange liquidity, or how to develop a shared legal framework are all challenging but necessary tasks. The project team will focus on these issues, which are well beyond technology, in taking the project to its next stage. Closing 31. The HKMA began its fintech journey six years ago. We have come a long way, reached some important milestones, kept pace with our peers, and are now pressing on into uncharted territory. But like everyone else, we are still exploring, experimenting and learning. And as we continue our journey, we will stay radically open-minded, learn from our failures and keep trying, and go well beyond technology to achieve network effects. 32. As I said at the beginning, Hong Kong will continue on the road of fintech adoption. Many exciting developments are taking place, and you are bound to see interesting sights and meet interesting people on the way. | 0 |
That is a lot of ifs and, as I have noted, a further provision is that if the standstill is supported by IMF lending into arrears, it would need to be subject to strict conditionality. But again these conditions could usefully borrow from the corresponding provisions attached to corporate workout standstills. In both cases, the standstill should be subject to a strict time limit; it should allow for a full release of all relevant information from debtor to creditors on a timely basis; it should facilitate equitable treatment of similar types of creditors (for example through the formation of 6 BIS Review 67/2001 bank creditor and bondholder committees); it should provide for the seniority of any new money; and above all it should deliver the rapid presentation of a restructuring plan to creditors. What this means is that any sovereign debt standstill would need to be orderly, efficient, equitable and expeditious. Easier said than done, of course, especially given the fact that generally no single organisation represents the disparate group of private creditors. But, as with corporate workout standstills, the key is to reduce the incentives for creditors to rush for the exits. Of course, some have argued that attempts to negotiate a standstill could have the opposite effect, in other words they could prompt a rush for the exits. But longer-term investors benefit from country runs being forestalled, so the net effect might be a beneficial switch from short-run to long-run investors. | In my recent appearance before the Lower House Budget Committee, I referred to the growing debt of companies and, in particular, of households as one of the sources of medium-term risk to the scenario of sustained growth and the tendency towards the re-balancing of the Spanish economy that I have set out today. Given the importance of the issue, I believe it would be useful to reiterate what I consider is a balanced analysis of this phenomenon. The Banco de España has been on a vigilant footing regarding the rate at which corporate and, especially, household debt has been growing in recent years, particularly given that most of such debt is floating-rate. This tends to increase households' exposure to potentially unfavourable changes in their income or in the cost of borrowing. Such exposure may particularly affect those segments of the population whose room for manoeuvre in these situations is more limited. There is thus no reason for complacency. 4 BIS Review 117/2006 A balanced analysis requires the joint assessment of all factors making up the household financial position. In this connection, it should be remembered that the payments associated with the debt incurred have grown at a substantially lesser extent than the volume of the debt and, at present, they account for a proportion of household income which, at the aggregate level, is still fairly moderate. The value of household financial and non-financial assets has also risen considerably in recent years. | 0 |
Up to a certain amount, banks’ demand for central bank reserves is completely inelastic (due to central bank reserve requirements, internal and external liquidity regulation and other factors). Beyond this amount, however, the decision to hold excess reserves responds to risk-return considerations as for any other asset: if a bank decides to hold a certain amount of excess reserves, it is because their risk-adjusted return dominates that of other assets. As I mentioned earlier, while an individual bank can decide to hold less excess reserves, in the short run the banking system as a whole cannot dispose of excess reserves. Since, in equilibrium, supply must equal demand, if interest rates on central bank deposits (the riskfree remuneration of excess reserves) are at levels such that demand for reserves exceeds supply, banks will be willing to hold on to the excess reserves present in the market. This is likely to be the case in a situation of high risk aversion, where – like today – the risk premia demanded to hold risky assets are so high that their risk-adjusted return is lower than that offered by the deposit rate. If, however, banks become more willing to accept risks, their demand for excess reserves for a given deposit rate will decrease and they will look for more attractive alternative uses for these funds: riskier assets and/or loans. | Repairing the single market for capital is a collective endeavour in which the ECB has a role to play – but to be fully effective that role needs to be coordinated with the European Commission, European Supervisory Authorities and market participants themselves. Breaking the feedback loop between bank and sovereign credit should also be a priority. To this effect, steps should be taken towards a unified regime for bank resolution and beyond that, towards establishing a single European banking resolution authority. Finally, the “Financial Compact” should also include the completion of the single euro payment area. Payments are at the very heart of a corporate’s activity and I am not sure that they always get the attention they deserve. Nowadays, more than 50% of the trade of the 27 EU countries takes place within the EU – and that trade is mainly based on cashless payments. With the introduction of the single currency there could no longer be any differentiation between national and cross-border euro payments: they should all be “domestic”. The Single Euro Payments Area project, in short “SEPA”, came to fill this void; its aim is to establish a single market for retail cashless euro payments by overcoming technical, legal and market barriers, so that people can make euro payments throughout Europe as easily, securely and efficiently as within their own countries. Using the SEPA payment instruments, companies can make all euro-denominated payments centrally, from a single account, using the same format. | 1 |
Just as monetary policy represents the first line of defence in managing the business cycle, regulation and supervision of financial institutions must be the first line of defence in maintaining financial stability. It is not sufficient for individual banks to be solid. Banks are closely interlinked. They obtain funding from common sources and from one another, and large portions of loan exposures are in the same markets. High credit growth can result in financial imbalances that have system-wide effects. System-wide risk is therefore far greater than the risk of individual banks. BIS central bankers’ speeches 15 The financial crisis showed the severe damage that can be caused when insufficient attention is paid to system-wide financial risk. Banking regulation has therefore been strengthened by including a macroprudential component. The instruments employed are not new, but an important difference is that banks are required to hold more equity capital than previously. The required level is based on the overall risks to the financial system. Some requirements may vary over time, such as the countercyclical capital buffer. The regulation of the Norwegian financial sector is in line with international standards. In recent years, a number of instruments have been implemented in Norway to mitigate risk in the banking system. In response to the sharp rise in real estate prices and household debt, the countercyclical capital buffer has been increased and bank lending standards tightened. Moreover, capital surcharges have been introduced for systemically important banks. | A lower policy rate may thus have less effect on lending rates than normal, weakening the impact of monetary policy. Over the past year, inflation among many of Norway’s trading partners has approached zero. For many years monetary policy was aimed at preventing high inflation, while it must now seek to avoid inflation that is too low. Central banks are in new territory. A period of low inflation is not necessarily a problem as long as confidence in the inflation target remains firm. But when the room for further policy rate cuts is close to being exhausted, steadily falling inflation could lead to a dangerous downward spiral. For every notch that expected future inflation falls, real interest rates rise. This has a contractionary effect on the economy. In recent years, concerns about falling inflation expectations have prompted central banks to cut policy rates further and to deploy unconventional measures. It has been argued that these monetary policy measures are necessary to avoid a further fall in inflation as a result of a stronger exchange rate. Interest rate cuts that lead to a currency depreciation push up inflation. But countries cannot all weaken their currencies at the same time. If many countries cut interest rates to boost inflation via a weaker currency, the benefit may not materialise, while interest rates remain too low with respect to other considerations. 14 BIS central bankers’ speeches The financial crisis created unusually strong headwinds in the global economy. | 1 |
BIS central bankers’ speeches 7 8 BIS central bankers’ speeches BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches BIS central bankers’ speeches 13 14 BIS central bankers’ speeches BIS central bankers’ speeches 15 | (2) Considers long-term interest rates on corporate and bank bonds with over 9-year duration, except for BBB bonds, which considers more than 8-year duration. Sources: Central Bank of Chile and LVA Índices. Figure 4 Stock-index volatility (*) (annualized percentage) 60 Hungary July-December 2011 50 France Germany Spain Russia Brazil S. Korea Chile Turkey Mexico Australia Hong Kong U.K. U.S.A. Taiwan India Colombia N. Zealand Philippines China 40 30 20 Peru 10 0 0 10 20 30 January-June 2011 40 50 60 (*) Calculated with daily return of stock indexes, base 100=2010. Data at 16 December. Fuentes: Banco Central de Chile a base de información de Bloomberg. 8 BIS central bankers’ speeches Figure 5 Retail sales and new car sales Emploment and unemployment rate (index, centered on mean of period (1)(2) (index, 2003=100) 1990-2010) 40 225 375 30 200 300 20 10 175 225 150 150 -10 125 75 100 0 0 -20 -30 -40 90 93 96 99 02 05 08 11 06 07 08 09 10 11 Non-durables New cars Employment Unemployment Durables (1) Sold in moving quarter. (2) Seasonally-adjusted series. Sources: Chile's National Automobile Association, Central Bank of Chile, Chile's National Chamber of Commerce, and Ricaurte, M (2011), “Indicadores de Mercado Laboral para la Comparación de las Crisis Asiática y Financiera Internacional,” preliminary document, Central Bank of Chile, June. | 0 |
Bank liquidity remains at historically high levels, and this, coupled with the fierce competition for new lending business, has pushed down lending margins, particularly in the all-important mortgage portfolio. 1 BIS Review 93/2000 It is not only that the market is not growing as fast as it did. The traditional, local players are also beginning to encounter more pressure from global firms, non-bank entrants and competing sources of finance. The competitive environment is giving added impetus to the need for banks to consider how they can use the new technology, and particularly the internet, to drive down costs and broaden income sources. In Hong Kong around 20 banks have introduced transactional banking services for retail customers. Many have already introduced corporate banking services through the internet, or will shortly do so. So far the take-up of these services seems in general to be rather slow. However, a few banks have achieved reasonable levels of usage by customers either because they were early movers or because of their leading market position. Customer acceptance of the internet will undoubtedly grow. But it will not happen overnight, and the contribution to the bottom line will be slow to emerge. In the meantime, the banks will have to bear the extra costs of the investment in the new technology, while margins may come under pressure from the increased ability of consumers to shop around and compare prices. | Is the market not better handled by the private sector without public intervention? According to the law, the Riksbank is to promote a safe and efficient payment system. Like most central banks, the Riksbank is heavily involved in large value payments, running and providing credit to the RIX-system, where payments can be made in central bank money. Here the central bank role is simple to explain. But why should we be involved in the small value payments handled in the card market? Safety problems, although they may be important, are usually not systemic in nature. And in a well-functioning market, economic efficiency should be attained by the market itself, without public intervention. In my view, central bank involvement is appropriate only in the cases of market failure, coordination problems of some magnitude or the presence of obstacles outside the market itself. Usually, they 2 relate to efficiency rather than safety. Typically, we would ask questions such as 1. Are there legal and regulatory impediments to market development and innovation? 2. Are market conditions competitive? 3. Are security and operating standards and infrastructure arrangements efficient? 4. Are settlement services, however provided, safe and efficient? To answer these questions, we follow the market for retail payments and we try to exchange information and cooperate with other relevant public and private bodies. In the card payment market, issues of competition, pricing and security are of particular importance. I shall comment shortly on the first two of these. | 0 |
The size of the gap, combined with the limited growth differentials, suggests that the process of real convergence will be a very slow one, likely to continue far beyond the tentative dates for EU accession and for the adoption of the euro. Hence, although differences in income levels are compatible with membership of EMU, it is important for accession countries to progress in the process of real convergence with the euro area. In particular, real convergence can help to create economic cohesion within EMU and promote integration between Members States. Further real convergence will also help to minimise the risks and the effects of asymmetric shocks. Against this background, it seems crucial that accession countries pursue structural policies that enhance the potential output growth of their economies. 2. Inflation developments With regard to inflation developments, I should like to stress that, on the whole, the accession countries have made remarkable progress in bringing inflation down to single-digit rates. Inflation in the accession countries is expected to average around 6%-7% by the end of this year. However, reducing inflation from relatively low levels to even lower ones is clearly a difficult task. Evidence points to a number of micro and macroeconomic factors which affect current inflation rates in the accession countries. These include ongoing price liberalisation, privatisation processes, relatively expansionary fiscal policies and stubborn inflation expectations. | Corporates which used to solely rely on external financing can now explore the additional option of internal funding through their CTC setup in Hong Kong. 21. And, the qualifying profits derived from corporate treasury activities and transactions conducted by qualifying CTCs will benefit from a half-rate concession. In other words, the applicable tax rate will be cut from the current 16.5% to 8.25%. Broadly speaking, the scope of this concession encompasses corporate finance, liquidity 4 BIS central bankers’ speeches management and risk management activities typically conducted by CTCs for their non-Hong Kong associated corporations. The concessionary tax rate at 8.25% will be among the most competitive in the region and can be obtained through simple election as part of a corporation’s tax filing process. In other words, no separate, complicated approval process will be involved. 22. And, I’m delighted to say the relevant bill to give effect to these changes is now with the Legislative Council and the Government hopes to have the bill passed by the middle of the year. Closing 23. Ladies and gentlemen, looking at today’s programme, I note that many of the themes I have mentioned will be addressed by treasury professionals in greater depth. I hope the upcoming sessions will inspire new ideas for treasury management, and I wish you all a very successful conference. Thank you. BIS central bankers’ speeches 5 | 0 |
that the krona has been affected by a net outflow of capital from Sweden. The development of the krona and the stock market has shown a strong correlation since the beginning of 2000. This is probably connected with foreign investors selling Swedish shares in line with falls on the stock market, which has affected Sweden more than other countries, as a large part of the stock market value is owned by foreign investors. Moreover, Swedish investors have bought a large amount of foreign shares, which is probably connected with the new pension system and the freer investment regulations for the AP pension funds. It has been possible for the AP pension funds to increase their foreign exchange exposure, i.e. the percentage of foreign assets, from 10 to 15 per cent with effect from this year. The funds can increase their exposure by five percentage points a year to a maximum of 40 per cent in 2006. On top of this comes a factor that is difficult to explain on the basis of classical exchange rate theories. The krona is affected to a large extent by general unease on the global financial markets. During times of financial unrest the krona weakens when investors leave the Swedish market for ones considered a safer investment. This was particularly noticeable during the Mexico crisis of 1995 and the Asia crisis of 1997-98. The recent unrest on the financial markets in connection with uncertainty over the global business climate has once again had a negative effect on the krona. | The key thrust of this plan is to develop a new real-time Retail Payments Platform that will serve as both a catalyst and enabler for innovative payments in Malaysia. This should meet the needs of consumers and businesses who increasingly expect payments on-demand where funds are available to the recipient immediately. In this regard, I would like to call upon the financial industry to jointly work with MyClear in the development of such new real-time Retail Payments Platform. Conclusion Payment and Settlement Systems are the foundation that underpin the financial market infrastructure and serve as a catalyst for economic growth. Hence, efforts to promote the BIS central bankers’ speeches 3 resilience, interoperability and competition of such systems are of utmost importance. This has been and will continue to form the key thrust in Bank Negara Malaysia’s policy work in delivering our mandate of fostering safe, efficient and reliable payment systems. There are immense opportunities and new sources of growth including expanding financial accessibility to the underserved that is made possible from greater standardization and interoperability of the payment systems, as well as, innovation. Hence, in today’s rapidly evolving and highly competitive environment, the financial community should capitalise on such enabling environment, and collaborate through standardisation and interoperability, to lower costs, foster innovation and deliver better value proposition and choices to their customers. 4 BIS central bankers’ speeches | 0 |
I believe that it may be difficult in practice to make the monetary policy decisions on the assumption that the financial stability policy is regarded as given, and vice versa.5 Let me also say, in this context, a few words in general about whether monetary policy and financial stability policy should be regarded as different types of policy with different goals and means. When regarded as principles and concepts it is of course the case that financial stability is quite different from stability in the inflation rate and the real economy, that is, what central banks with flexible inflation targeting strive to achieve. Logically, one could thus argue that monetary policy and financial stability policy are two different types of policy that should be conducted quite separately. But I am not sure how meaningful this distinction is in practice. Personally, I have not regarded financial stability as merely a goal, but just as much a means, or a condition, for attaining a stable real economy and stable inflation. Assessments of developments in the financial sector must, as far as possible, be included in the macroeconomic assessments. Financial unrest and instability often lead to demand in the economy being too low and inflation undershooting the target. If one considers that there are both ”normal” economic cycles and less frequent credit and debt cycles, the upturns in both cycles are not necessarily synchronised. | Our currency was created in 1850, and the coins of that time were in circulation in 1907, when the National Bank started operations. We still use these coins today for our day-to-day payments. This is tangible proof of our country’s monetary stability. “A franc remains a franc,” declared the President of the Swiss Confederation in a radio address one day after the 1936 devaluation, in an endeavour to reassure the Swiss people about the abolition of the gold standard. I am pleased to be able to say today – 100 years after the National Bank started business – that a franc has indeed remained a franc. All this could not have been achieved if our policy did not enjoy broad support in our country. I would therefore like to conclude by expressing sincere thanks; first of all to the federal and cantonal authorities for the support that they have given us, particularly in difficult times when we had to make unpopular decisions for the sake of monetary stability. Second, I would like to thank the business community for its understanding of our policy, even at times when we assessed the situation differently or when monetary constraints necessitated painful adjustments. And, finally, my thanks go to the Swiss people for their unwavering confidence in our institution and their support for our monetary autonomy over the last 100 years. BIS Review 71/2007 3 May the National Bank continue to enjoy such broad support! | 0 |
In this case, the potential validators disclose their identity to the entire ecosystem, and they are entrusted this role according to their reputation rather than their economic interest. Not only is this mechanism more efficient and more agile, but it is 7 See, for example, the case of JP Coin. 8 https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/. 3 particularly useful in situations with a low number of participants and where potential validators already enjoy trust. The environment in which crypto-assets operate is also characterised by the presence of a wide range of players9 whose services are essential to provide structure and contribute to the proper functioning of the system. Thus, in addition to crypto-asset issuers, there are platforms that help dematerialise pre-existing assets, infrastructures that facilitate the trading and exchange of crypto-assets, institutions that receive, transfer and/or execute third-party orders, as well as market-makers, code developers, providers of custody, wallet and consultancy services and a long list of others. It is, therefore, a highly complex universe, and this complexity is heightened by the fact that these players are based on a broad range of jurisdictions. In this regard, we should also bear in mind the world of decentralised finance (DeFi), which aims to replicate the dynamics of the provision of financial products and services, but in a decentralised and fully automated environment, thus removing the need for intermediaries. The growing importance of crypto-assets With such a wealth of initiatives, the significant developments experienced by cryptoasset markets in recent times may come as no surprise. | Beyond their likely contribution to, e.g., making payments more efficient or to driving innovation in financial markets, crypto-assets pose a number of important risks for the financial stability which could, eventually, become a material source of concern for relevant authorities if not accompanied by effective mitigation measures, as emphasised in the G20 communiqué of 18 February.2 I will begin my speech by describing the defining characteristics of the phenomenon and recent developments, before turning to the specific risks to financial stability that they may pose. I will end by highlighting some of the main elements shaping the current response of regulators and supervisors and the challenges that lie ahead. The complex universe of crypto-assets The term crypto-asset is oftentimes used to refer to a wide range of highly heterogeneous assets whose common trait is that they are a digital representation of value or a set of contractual rights. In contrast with other digital assets already in circulation, they rely on distributed ledger technology (DLT) to be transferred, traded and stored. In addition, unlike central bank digital currencies (CBDCs), they are not backed by a central bank or any other public authority. To simplify somewhat, they can be said to share certain standard technical features, such as (i) a decentralised ledger, (ii) the use of encryption techniques to secure communications over open networks, and (iii) the deployment of protocols that allow to automatically execute different types of transactions. | 1 |
Second, that the Committee has been not open enough. Let me start with the first criticism. From its first meeting in June 1997 to the end of that year, the Committee was unanimous on all six occasions. Output appeared to be above trend, the labour market was continuing to tighten, and there was a need to slow the growth of domestic demand in order to reduce pressure on supply capacity. Interest rates were raised at each meeting between June and August, and again in November. At that point the Committee was accused of acting like a “politburo”. But in January 1998 the first disagreement occurred. The Committee voted by five votes to three (the ninth member, John Vickers, did not join the MPC until June of last year) to hold interest rates constant. In February and March the Committee was evenly divided, and the Governor used his casting vote in favour of an unchanged level of interest rates. Disagreements continued and in June the Committee voted 8 to 1 to raise interest rates for, as it turned out, the last time in that interest rate cycle. By now, many commentators were disillusioned with the evidence of disagreements within the Committee. If I single out Philip Stephens from the Financial Times it is only because his description, written in July 1998, of unhappiness with the Committee was more vivid and articulate than most. He wrote: 5 BIS Review 63/1999 “The Committee has thus far lacked both leadership and predictability. | James McAndrews: Credit growth and economic activity after the Great Recession Remarks by Mr James McAndrews, Executive Vice President and Director of Research of the Federal Reserve Bank of New York, at the Economic Press Briefing on Student Loans, Federal Reserve Bank of New York, New York City, 16 February 2015. * * * Accompanying tables and figures can be found at the end of the speech. Good morning and let me welcome you to our press briefing focusing on developments in the student loan market. My remarks will concentrate on the role of credit markets more generally during this economic expansion. As a reminder, these remarks reflect my own views, and not those of the Federal Reserve Bank of New York or of the Federal Reserve System. First, let me say a few words on the current economic outlook. Real GDP grew 2.4 percent over the course of 2014. As New York Fed President Dudley noted earlier this month, despite what appears to be a soft first quarter, we expect that real GDP growth will continue over the next couple of years at a similar rate, supported by solid underlying fundamentals and accommodative financial conditions. Unemployment should continue to decline and approach 5 percent by late this year. Because of the recent sharp fall in oil prices and the appreciation of the dollar, inflation will be very low over the coming months. | 0 |
The Bank of Thailand has been working closely with the banking communities in Thailand, on how to implement it in practices. · Though we applaud the Basel Committee in their efforts to create a framework that is more sensitive to risk and incentive compatible, I believe there are many areas which would benefit from closer consultation with the academia. · First, to apply the Internal Rating-Based approach or the IRB approach of the New Accord requires a substantial build-up of capacity: Human resource, Database, Business model re-engineering, to name but few. · As far as the data on the default probability on credit risk is concerned, most countries that just embarked on developing the required database will be at a disadvantage with a shorter and probably less representative series. Moreover, for those just recovering from crisis such as Thailand, the implied risk from such series collected during the crisis period will be higher than average over a complete business cycle. Thus, developing countries will find a high cost before emerging from crisis. Ladies and gentlemen, · This pro-cyclical aspect of the default statistics may be an important issue for the global economic recovery. · Secondly, some technical aspects remain unclear. In many cases, capital is being calculated to support both expected and unexpected losses, and overly costly. · Thirdly, the proposed capital charge for operational risk needs to be made more refined, incentive compatible to risk management, and more practical and less cumbersome in its application. | The solution centres on a programme of Government guaranteed bond issue that would provide for the full financing of the estimated cost. This programme of bond issuance will run for a maximum period of twenty years, and the financings will be provided for in the Government budget. This incorporation is projected to keep the share of the debt-service ratio to an average of 13.6% of the Government budget in the first decade and 11.5% in the second decade. This means that there will be little crowding-out effects on the Government’s investment expenditure in the period ahead, while the public debt stock-to-GDP is projected to trend down in the long term. With this programme, Thailand’s long-term fiscal sustainability is now assured. With monetary stability in place and fiscal stability enshrined in the Government’s long-term fiscal sustainability framework, I believe the operating environment in Thailand in the period ahead will be more assured and remain conducive to growth. But to really put the growth engine back on its feet, notably the recovery of the domestic demand, more works will have to be done at the micro level to remove the bottlenecks that inhibits the real economy. This leads to our second challenge: to put the banking system back to normal lending. Our banking system is returning to health and profitability with strengthened capital base, and a much lower level of non-performing loans. Yet, the growth in credit has been very minimal with deposit growth rising and liquidity remaining ample. | 1 |
The latest released January economic figures point to more strength in the fourth quarter of 2001 than we had anticipated, given the event on September 11. And, with the current more supportive fiscal and monetary policy stance as well as the expectation of a rebound in the US, the overall environment this year is more conducive to growth than last year. From this vantage point, we are of the view that the economy could grow by 2-3 per cent this year while inflationary pressure would be virtually absent. A continuing expansion in domestic demand and a rebound in exports in the latter half of the year would be the key drivers of this year’s growth. The outlook for inflation remains tame, with core inflation expected to hover around 1-1.5 per cent, well within the target corridor of 0-3.5 per cent. Last year, notwithstanding the slowdown in the global markets, the Thai economy exhibited a noted degree of resiliency. While the world economy was in a slump, Thailand’s exports did not fall to the extent observed in many countries in the region. And, even as export fell by about 7 per cent, output growth remained positive in every quarter. In terms of macroeconomic stability, we saw an improvement both on the domestic and external fronts. In fact, Thailand external position strengthened significantly over 2001. The current account registered a large surplus and external debt continued to fall sharply in 2001. Our reserve position remains strong. | Surprisingly, in the light of the fall in G7 saving, UK long-term real interest rates as measured by the forward rates implied by the yields on index-linked gilts - are near their lowest levels for twenty years. US and euro-denominated rates are also low relative to past experience. There may be other factors that have offset the effect of fiscal policy on real interest rates, such as demographic developments and higher saving and more open capital markets outside the G7. But there remains a risk, as discussed in the Bank’s recent Financial Stability Review, of an unwinding of low long-term real interest rates as the stimulus from highly accommodative monetary policies across the G7 economies is gradually withdrawn. What do these arguments mean for monetary policy today? They imply, I believe, three main challenges for central banks. First, the factors that affect the level of real interest rates in capital markets around the world also determine whether a given official interest rate is an expansionary or restraining influence on demand. When driving a car we normally know whether our foot is on the accelerator or the brake. That is less obvious in the case of monetary policy - hence the debate among economists about the level of the so-called neutral interest rate. Uncertainty about the extent to which monetary policy is applying the accelerator or the brake justifies central bankers’ continued interest in the monetary and credit aggregates which contain information about the pace of nominal activity and hence future inflation. | 0 |
But transmission through the exchange rate channel is uncertain and volatile, as the exchange rate is also an asset price that fluctuates with speculative capital flows and can deviate from equilibrium over extended periods and then correct quite suddenly. Unless the financial system is that much better protected, this process can interact negatively with financial stability, as was the case in Iceland during the financial crisis. From a theoretical standpoint, it is possible to resolve or mitigate the problem facing small countries in this regard in three ways: by joining a currency union, adapting monetary policy to that prevailing in larger economies even though it is not suitable for domestic conditions, or imposing restrictions or other measures that directly reduce non-residents’ profits on carry trade. As has already emerged, such measures are being examined by the Central Bank, and they could constitute part of our arsenal of policy instruments after the capital controls have been lifted. But we mustn’t think that they represent some sort of magic bullet. Such instruments would have adverse side effects and could push international obligations to their limits, particularly if they are designed for maximum efficacy. But experience shows that it could be risky not to have them if they are needed, but we must attempt to conduct other matters so as to ensure that they will be needed as seldom as possible. | In other words, monetary policy is always implemented under conditions of uncertainty – to varying degrees, of course. This is why we consider a large number of economic indicators and use several models. Furthermore, we do not put a single economist in front of a computer and assign that person the task of determining the monetary stance; instead, we have a committee that exchanges opinions and assesses the current situation and outlook at the time in question. The observations I have just made are general in nature and apply to large and small countries alike. But we know that monetary policy in small, open economies is accompanied by particular challenges – challenges that we must take into consideration when developing a monetary policy framework for Iceland. In this context, it should be noted, first of all, that smaller economies generally have a tendency to be more volatile than larger ones, owing both to less economic diversity and the greater relative weight of individual shocks. Second, the relative weight of the tradable sector is often greater than in larger economies. Because of this, economic developments are more dependent on the exchange rate, and pass-through from the exchange rate to inflation is generally stronger. Third, financial markets are shallower than in larger economies, other things being equal, and this contributes to greater volatility of financial prices. Fourth, in an environment of unrestricted capital flows and increasing international financial integration, the possibility for small economies to affect their own financial conditions through monetary policy diminishes. | 1 |
I was head of government during the critical period of 1999-2000 and I know exactly how difficult it is to adjust domestic consumption, even by two percentage points of GDP only. This time, the difficulty posed by the adjustment will be perceived as rather big, because it must be accomplished after several years of significant increases in consumption. The trend seemed to go on forever, which led to the decoupling between aspirations and real possibilities to fulfil them. Therefore, it is adequate to adjust domestic demand sooner rather than later, as long as we still enjoy a marked economic growth, given that at this point adjustment implies only resizing and not amputation. An essential issue that the Romanian society must solve without delay refers to what should be adjusted first: consumption or investment. I realise that we must ponder on this matter. The question is whether we should opt for buying an increasing number of cars or set aside resources in order to build the adequate road infrastructure. In a few years, the former choice could lead us to a total traffic jam, and the only additional consumption left for us could be that of carbon monoxide released by the exhaust pipes. This example is not only metaphorical. | In 1999, Romania’s GDP stood at merely EUR 33 billion, while GDP per capita was lower than EUR 1,500. This leap, which led to significant changes including higher consumer standards, will have to be accompanied by similar progress in understanding economic issues, so that the path forward should be as smooth as possible. If we look at the long-term development of the Romanian society, the decade elapsed since the launch of Ziarul Financiar is a significant landmark, which can be compared with the significant upturn after World War I and the achievement of the Grand Union of 1918. At such turning points, the quantitative developments, which are nonetheless important, need to be accompanied by qualitative changes that are related to social philosophy as a whole, as well as to progress in national standards and values. From this perspective, the opinionmakers and the press in general play a major role. Economic newspapers in particular find themselves in a very special position. As a matter of fact, the National Bank of Romania has steadily promoted economic education and has done its best to raise journalists’ level of professionalism when approaching economic issues. Let us remember that Ziarul Financiar was launched ten years ago in the very Marble Hall of the NBR. Numerous occasions have arisen over the years when NBR representatives participated in events organised by Ziarul Financiar and vice versa. There has been a steadfast dialogue benefiting, in my opinion, both Ziarul Financiar journalists and central bank experts. | 1 |
Norges Bank has recently estimated a relation for house prices. The model contains effects of the housing stock, the unemployment rate, banks’ lending rates after tax, total wage income in the economy and an indicator of household expectations concerning their own financial situation and the Norwegian economy. In the work on the relation, we did not find any evidence to suggest that migration or demographic conditions have strong direct effects on house prices. However, demographic changes may affect prices indirectly by affecting overall wage income in the economy. The estimated relation provides a good explanation of house price developments in recent years. High wage income has pushed up house prices. The contribution from interest rate changes has also been high in the last two years but has diminished somewhat recently. In the model, interest rate changes have a strong short-term effect. House prices in Norway have risen substantially since 1995. House prices have also risen rapidly in many other countries. The IMF has expressed concern that house prices may be too high in relation to fundamentals in some countries. In Norway, there have been signs recently of a slower rise in house prices. The seasonally adjusted, monthly rise has been low since November 2004, but it edged up again in April. On the other hand, the time it takes to sell a dwelling has declined further, whereas the number of dwellings sold remains high. Housing starts increased substantially in 2004 as a result of high house prices, low interest rates and a favourable economic outlook. | At the same time, higher asset prices provide scope for raising larger secured loans. When negative news appears and spreads, investments do not match expectations and the sentiment is reversed, asset prices fall. Banks’ security is reduced. Borrowers experience problems in servicing their debt. Demand and income developments are weakened and banks’ losses increase. The sharp rise in house prices and household debt has increased the interest in the interplay between monetary policy and the stability of the financial system. Financial stability and price stability are mutually reinforcing. Financial stability facilitates a stable supply of credit and stable capital flows and underpins the transmission mechanisms for monetary policy. Price stability strengthens financial stability. Low and stable inflation provides households and enterprises with a clear indication of changes in relative prices. This makes it easier for economic agents to make the right decisions and leads to greater price stability in financial and property markets than would otherwise be the case. Developments in credit and asset prices have an influence on inflation. We take this into account in our interest-rate setting. We are also aware of the potential risks to financial stability. The current low interest rates make it easy to service debt. The household interest burden, i.e. interest expenses after tax in relation to the sum of interest expenses and disposable income, is low despite strong growth in debt. The interest burden will increase, however, when the interest rate reaches a more normal level. Only 14 per cent of household loans are fixed-interest loans. | 1 |
Where possible, individual functions - personnel, finance, property services - are benchmarked against equivalent functions in private sector firms. However the Bank’s cost effectiveness in all functions, even those where benchmarks are hard to identify, is monitored closely by management and is subject also to the scrutiny of the Court of the Bank of England. Corporate governance The role of Court and changes to the Bank’s corporate governance arrangements is the second area I would like to address. The powers of Court to oversee the operations of the Bank were substantially enhanced by the 1998 Act. In particular the Act: (a) requires the Court of the Bank to determine our Objectives and Strategy for the year; and (b) sets up a non-Executive Committee to review the Executive’s performance against the Objectives. This is chaired by our Senior Non-Executive, a position formally designated under the Act. So our latest Annual Report for the year to February 2000 sets out the Bank’s ten key Objectives for the year, includes a long description by the Executive of the Bank’s performance against the Objectives; and finally a section, written by the Non-Executives, commenting on our performance. The aim of the Act was quite plainly to increase the level of transparency of our operations; and to raise the accountability of the Executive to Court as a whole, and in particular to the Non-Executive Directors appointed to review our performance. Risk control Thirdly, I would like to comment on the enhancements we have made to our risk controls. | On the Friday before the monthly MPC meeting we meet with the Economics and Markets staff of the Bank, in what is known as pre-MPC, to go through the latest data; and this process takes a whole morning. Doing it on a Friday allows us a few days to commission any additional work we need ahead of the MPC meeting itself. This is held in our main committee room under the watchful eye of Augustus John’s portrait of Montagu Norman (Governor of the Bank between 1920 and 1944) and starts on a Wednesday afternoon. This meeting is given over to a discussion of the key issues raised by the data presented at the pre-MPC; and of any tactical considerations. The following day, Thursday morning, we meet and after a brief resume of the previous day’s discussion from the Governor, proceed to go around the table with each member indicating the factors he or she considers relevant and his or her vote. The policy decision (ie interest rates up, down or constant) is released to the market at 12 noon on the Thursday. The minutes of the meeting, including the individual votes of members, are released two weeks later. Much has been written about the MPC’s constitution and operation, but perhaps I might make a few observations. In the first place, whilst there is a good deal of talk about the Bank of England’s independence, it is important to put this in context. | 1 |
One is the target variable, in which case I believe we should consider changing to an index upon which policy rate changes do not have such a major direct impact as on the CPI. Another is an interval surrounding the target. The main reason for considering a reintroduction of an interval is the need to constantly remind people that monetary policy is pursued under significant uncertainty and that the Riksbank is not able to fine-tune the economy and inflation. I look forward to continued discussions about these issues. BIS central bankers’ speeches 9 References Dorich, José, Nicholas Labelle, Vadym Lepetyuk and Rhys Mendes (2015), Assessing the Benefits of a Higher Inflation Target. Under publication in Staff Discussion Papers, Bank of Canada. The Economic Commission (1993), “Nya villkor för ekonomi och politik.” (New conditions for the economy and policy) (In Swedish) The Economic Commission's proposal, SOU 1993:16. Flodén, Martin (2015), Sweden needs its inflation target. Speech at Fores, 13 October. Fromlet, Hubert (2015), “Så kan Riksbanken fungera bättre.” (How the Riksbank can work more efficiently) (In Swedish) Svenska Dagbladet Debate, 13 November, http://www.svd.se/ekonom-sa-kan-riksbanken-fungera-battre. Heikensten, Lars and Anders Vredin (2012), “Akademikerna och penningpolitiken” (Academics and monetary policy) (In Swedish). In Per Molander (ed. ), “Kunskapen och makten – om det offentliga beslutsfattandets kunskapsförsörjning” (Knowledge and power – on public decisionmaking knowledge management) (In Swedish) Atlantis, Stockholm. Johansson, Jesper (2015), How is inflation measured? Economic Commentary no. 5, 2015. | At international level, there should be an efficient cooperative framework adapted to the diversity of risks and challenges raised by stablecoins. The second action is to foster the major private project to create a unified, innovative and autonomous European solution, the European Payments Initiative (EPI). The Eurosystem has supported it right from the start. Concretely, EPI will provide citizens with an innovative and competitive European payment solution, as an alternative to the dominant and extra-European players already established in Europe or the Bigtechs in the future. EPI will be a company based within the EU, controlled by European authorities: we will thus have greater control over its risks, its economic model for meeting European consumers’ needs, and how it uses its data. Let me pay tribute to those who are driving the EPI project, and encourage them to implement it as quickly as possible. We need to speed up Autumn 2021’s “go/no go” decision stage and the governing bodies also have to be put in place as soon as possible to help EPI deploy on a pan-European scale. Public authorities are and will remain completely committed in their support: the European Commission, in order to validate the economic model; ministers in the different countries – starting with France and Germany. We as Eurosystem are committed to providing the underlying settlement infrastructures, including TIPS, which is a powerful European asset. And EPI will be most welcome to participate in the front-end prototype of CBDC. | 0 |
At the same time, however, changes in the structure of the financial system and an increase in product complexity could make a crisis more difficult to manage and perhaps more damaging. Consolidation has produced a system in which a smaller number of financial institutions, banks and non-banks, account for a substantially larger share of financial intermediation. Therefore, while the probability of a major crisis induced by the financial failure of a major institution may be lower, the damage associated with such an event could be higher. An event large enough to threaten the solvency or liquidity of one of these core institutions could have more severe impact on the stability of the system than was the case in a less concentrated market. The substantial increase in the role of hedge funds in our financial system also complicates the challenge of risk management. Although hedge funds help improve the efficiency of our system and BIS Review 28/2005 1 may also contribute to greater stability over time by absorbing risks that other institutions would not absorb, they may also introduce some uncertainty into market dynamics in conditions of stress. The rapid growth in instruments for risk transfer, most recently in the credit world, has produced a large universe of exposures in complex products, whose future value is uncertain and difficult to model. | Stress regimes need to capture market risk and credit risk across the firm, incorporating exposures in priced credit products, such as credit default swaps and structured credit products, and the strong linkages between these priced credits and traditional credit 2 BIS Review 28/2005 instruments such as bank loans. Stress regimes need to take into account the effects of a firm’s own actions and trading strategies on market prices during times of stress, and the constraints on their room for maneuver imposed by size. Banks hold a special place in our financial system, and most of our focus on improving the regulatory framework for capital will always be on banks. Getting to a greater degree of comfort about the adequacy of the capital cushion for banks is a necessary but not sufficient condition for achieving a higher level of comfort about the resilience of our financial system. This point applies equally well to non-bank financial firms that play critical roles in our financial system. These institutions, too, need to have internal controls and risk management systems and capital levels commensurate with their critical role in the financial system. The SEC’s initiative to implement internal-models-based regulatory capital requirements for securities firms as part of the Consolidated Supervised Entity (CSE) framework will help bring more consistency and more sophistication across banks and securities firms in the capital treatment of traded positions. | 1 |
Time is limited, and this is, after all, a luncheon speech, so I shall not go into detail about these standards. The point to make here is that, as an international financial centre, we have no alternative but to implement these standards as fully as we possibly can and as soon as international agreements have been reached on them. Many of these standards will be, to put it mildly, quite onerous. In this connection, I wish to ensure you all that the HKMA has been adopting a proactive approach in participating in the relevant international standard setting forums and in influencing the standard setting processes in the best interests of Hong Kong. We have also consulted widely in Hong Kong. Insofar as the banks are concerned, there is a clear need for bank management to allocate adequate resources to the process of implementation, which will involve substantial changes to IT systems and compliance arrangements. For Basle II, for example, banks should not be acting under the misapprehension that they can simply sub-contract the implementation processes to third party service vendors, such as their external auditors. Active involvement of bank management is crucial in ensuring that most, if not all of these international standards are properly incorporated into the daily operations of banks, especially since each bank may face different focuses and challenges in the process. | Equally, we are confident that full implementation of the Swiss ‘too big to fail’ regulations will reduce the false incentives that underlie the issue and create the necessary conditions for resolving the issue here in Switzerland. The state should no longer be obliged to use government funds to bail out a bank. Page 12/14 Bibliography Afonso, Gara, João A. C. Santos and James Traina (2014), Do ‘too-big-to-fail’ banks take on more risk?, Federal Reserve Bank of New York, Economic Policy Review, 20 (2), pp. 41–58. Alessandri, Piergiorgio and Andrew G. Haldane (2009), Banking on the State, speech given at the Federal Reserve Bank of Chicago Twelfth Annual International Banking Conference, Chicago, 25 September. Basel Committee on Banking Supervision (2016), Explanatory note on the revised minimum capital requirements for market risk. Bernanke, Ben (2006), Modern risk management and banking supervision, speech held at Stonier Graduate School of Banking, Washington, D.C., 12 June. Branson, Mark (2011), The case for more and higher quality capital, FINMA annual media conference, Berne, 22 March. Cecchetti, Stephen G. (2014), The jury is in, Centre for Economic Policy Research, Policy Insight No. 76. FDF (2016), Bericht des Eidgenössischen Finanzdepartements über die Anhörung zu Änderungen der Eigenmittelverordnung und der Bankenverordnung (Eigenmittelanforderungen Banken – Rekalibrierung TBTF und Kategorisierung). FDF (2017), Erläuternder Bericht zur Änderung der Eigenmittelverordnung (leverage ratio und Risikoverteilung) FINMA (2009), Financial market crisis and financial market supervision, report. Gambacorta, Leonardo and Hyun Song Shin (2016), Why bank capital matters for monetary policy, Bank for International Settlements, BIS Working Papers, 558. | 0 |
Like when we Executive Board members take a decision on what interest rate path is needed for inflation to be close to the target of 2 per cent a couple of years ahead. How much do we need to change it and how quickly? Decisions in times of uncertainty and how we manage this is a recurring theme today. You members of the Committee on Finance will later be asking questions on the basis of the material for assessing monetary policy published by the Riksbank on 16 February.2 Your views on our interest rate decisions of recent years – whether you consider they were wellbalanced given the information at the disposal of the Executive Board at the time the 1 This calculation is based on the SEK/USD exchange rate on the respective auction date. 2 See “Material for assessing monetary policy 2006-2008”. BIS Review 23/2009 1 decision was made – comprise important information for us. I am therefore looking forward to discussing the assessment later, during the actual hearing. But first I would like to talk about how the financial crisis affects the conditions for our policy. I shall also discuss the most recent interest rate decision and our readiness for dealing with unexpected economic developments. The financial crisis affects the conditions for monetary policy For a long time, the global financial crisis only had a fairly limited effect on the Swedish economy. | Arnór Sighvatsson: The logic behind the capital account liberalisation strategy Speech by Mr Arnór Sighvatsson, Deputy Governor of the Central Bank of Iceland, at a meeting of the Iceland Chamber of Commerce, Reykjavík, 15 December 2011. * * * Ladies and gentlemen On 25 March 2011, the Central Bank published a capital account liberalisation strategy allowing for removal of the capital controls in two phases. Phase I would focus on channelling unstable króna assets, particularly those held by non-residents, into the hands of investors willing to take a long-term exposure on the króna. In Phase II, other controls would be lifted. The strategy is relatively terse as regards Phase II, as a number of things could change before it can be launched. As a consequence, Phase II will be drafted in greater detail at a later stage. Therefore, in my presentation today, I will focus on Phase I and attempt to explain why the individual steps within it are being taken in the order specified in the strategy. The main problem the strategy is attempting to solve is lack of confidence: in the domestic economy, the currency, and the Government’s capacity to service its debt. Confidence between individuals and between firms, domestic and foreign alike, is a precious commodity whose true value is only realised when lost. The reason confidence plays such a vital role in the mechanics of the economy is that each party’s confidence depends on the confidence of all the others. | 0 |
Those who prefer cash also say that to a certain extent it may be a case of old habits dying hard, or that they happened to have cash on them and therefore used it. Those who prefer cards say instead that one of the reasons is that they do not like to walk around with cash. A comparison of the interviewees’ attitudes to cash and cards also reveals that cash is perceived as being more secure, while cards are seen as being somewhat less secure. There is also a clear generational aspect to the choice of means of payment. The youngest age group, those under 25, feel a greater sense of security when using cards than the other age groups and are more than willing to use their cards to pay small sums. Those who are 45 or older pay with cash to a greater extent. The oldest age group, those who are 65 or older, prefer to pay with cash, even when they buy something that costs over SEK 500. This tendency is the same now as it was in the previous survey. What does it cost to pay? Should the trend towards increasing card payments and decreasing cash payments be regarded as positive or negative? One way of attempting to answer this question is to consider the cost to society of various payments. If the payment system is to be efficient, these payments should reasonably cost as little as possible. | The future size of the Petroleum Fund depends on oil price developments. The guideline ensures that we only use the return on wealth that has already been accumulated. This makes policy robust to changes in oil prices and ensures that petroleum wealth will be of benefit both today and in the future. The guideline provides a framework that contributes to making the central government budget an appropriate tool for setting political priorities. It sets a limit on the share of petroleum revenues that the government can use each year and does not distinguish between domestic and foreign spending. This eliminates the waste of resources that two separate budgets would necessarily entail. The government invests petroleum wealth in foreign securities through the Petroleum Fund. Government wealth is thereby more diversified. These investments have no impact on the Norwegian capital market. Both mainland private saving and business fixed investment have been high in recent years. In Norway, credit and capital markets nevertheless feature some weaknesses, with thin securities markets and a narrow investor and ownership base compared with other countries. The reasons, and hence the solutions, can probably be found in the structure of the taxation of dwellings, property and financial assets, in a high level of state ownership of enterprises and in the organisation of pension saving in Norway. Investing even more government capital in Norway would reduce the return on investments in the Norwegian business sector and prompt other investors to invest elsewhere. | 0 |
Keynes was focusing on the demand side and on how to get out of the bust, whereas Hayek was focusing on the supply side and on how an economy got into the bust in the first place. While a great deal has been done to understand the reasons behind financial instability, many questions remain unsolved. So the discussion continues and when it comes to crises prevention, two conventional pieces of policy advice seem to emerge. The first line of defense is moral suasion. The central bank could warn market participants in various ways that they are becoming overly optimistic in their expectations about future cash flows, if we are talking for instance about stocks or real estate. The problem with moral suasion is that it is difficult to calm down a market that is rushing to new highs. Talk rather than action is often not enough. Still, if a bubble is starting to build up, it may be worth a try. This is one reason why several central banks have began to publish financial stability reports. In this way one can perhaps broaden the public discussion about what is happening. The second line of defense is prudential regulation. However, the way prudential regulation is done in practice raises two, interrelated problems. The first has to do with the fact that most financial crises stem not from individual banks getting into difficulties and affecting others by contagion. | Here I am thinking about variables like the economy’s potential growth rate, the output gap and the NAIRU etc. Why should identifying asset market misalignments, excessive credit growth and a rapid decline in private financial balances be more difficult than forming an opinion about variables such as these? My view about monetary policy in this respect is of course closely bound up with my experience of the Swedish banking crisis, but it is also in line with a central bank’s mandate to achieve long-run price stability. If anything, a financial crisis substantially increases the risk of outright deflation after some time. The central bank could manage this risk in two ways: by at least trying to prevent the bubble from building up by tightening monetary policy at an early stage, and then by loosening monetary policy aggressively if a bubble builds up and bursts anyway. To my mind, both such actions would be in line with focusing on long-run price stability, whether the central bank follows an explicit or an implicit inflation targeting approach. Although I will be leaving my job as governor of the Bank of Sweden towards the end of this year, I have no qualms about forecasting that financial stability will remain on the agenda and be a key challenge for financial authorities for many years to come. 2 BIS Review 68/2002 | 1 |
Over the years, the Bank established specialised institutions to enrich the talent ecosystem. These institutions, namely INCEIF, ISRA, IBFIM, the Chartered Institute of Islamic Finance Professionals (CIIF) and the Association of Shariah Advisors in Islamic Finance Malaysia (ASAS) have collectively contributed towards sustainable development of professionals and expertise in the industry. I am pleased to note that the industry has significantly benefitted from the contribution of these institutions. INCEIF is now widely recognised as a global university in Islamic finance and has enrolled more than 2,000 students from 80 countries and produced over 1,000 graduates to date. ISRA plays an instrumental role as a dedicated Shariah research arm as well as a knowledge repository for Islamic finance. It is known as one of the key players in Islamic finance research globally and has emerged as the top contributor in Islamic finance research between 2011–2013. IBFIM, which is the industry training arm, has also made significant achievements with over 6,400 participants attending its training programmes in 2015. In raising the bar of professionalism, the Chartered Institute of Islamic Finance Professionals as the first professional body in Islamic finance seeks to promote the highest standards of professional practice amongst Islamic finance practitioners. Two standards on the admission of members and accreditation of institutions have been issued in November last year and two more are anticipated in 2016. ASAS, with prominent scholars as its members, has also embarked on various initiatives that have contributed towards its objective of inculcating the highest level of professionalism of Shariah advisors. | This initiative is also an important milestone in terms of academia-industry cooperation in equipping our students with industry relevant and contemporary application of Shariah contracts in Islamic financial products and services. Given the new content on the subject matter, a pre-condition to successfully implement the learning guide is to train and expose lecturers to multiple disciplines of subject matters. Particularly, as the applications of the Shariah and operational requirements cover various fields that include legal, accounting, risk management and information technology. Developmental training is a critical component as it enables the imparting of knowledge effectively. Strategising talent deployment While it is acknowledged that the role of learning institutions is essential to develop talent with higher skill sets, the industry also has an important role to ensure effective deployment of graduates as they enter the workforce. The number of graduates is indeed increasing at a rapid rate. The general feedback of Shariah graduates however is the lack of opportunities for employment. But the reality is that the industry still grapples with shortage of the right talent that can lead and energise innovation. A solution is to reconcile the expectation gaps of the industry and graduates. Talent enrichment program is one area where we can pursue to bring out the best of student talent. Enrichment programmes in areas beyond Shariah, such as leadership training at the early stage of recruitment would strengthen the confidence of Shariah students and provide the required exposure for them to understand and appreciate the intricacies of business environment. | 1 |
Presentation of the 2021 Annual Report of the Autorité de contrôle prudentiel et de résolution (ACPR) Press conference, 31 May 2022 Speech by François Villeroy de Galhau, Governor of the Banque de France Chairman of the ACPR Press contact: Mark Deen ([email protected]). Page 1 of 8 Ladies and Gentlemen, I am very pleased to welcome you to our presentation of the Annual Report of the Autorité de contrôle prudentiel et de résolution (ACPR – Prudential Supervision and Resolution Authority), in the company of Jean-Paul Faugère, Vice-Chairman of the ACPR, Dominique Laboureix, Secretary General of the ACPR, and Alain Ménéménis, President of the Sanctions Committee. Last year was marked by a vigorous recovery of our economy, during which our financial sector proved particularly robust (I). 2022 should now see substantial advances on the regulatory front (II). However, the war in Ukraine is posing new risks to the financial sector, calling for heightened vigilance (III). In all these situations, the women and men of the ACPR have worked tirelessly to ensure that the French financial system remains resilient under all circumstances, providing adequate financing to the economy. I would like to extend my warm thanks to them. ** I. The strength of the French financial sector is more than ever an asset for our economy I shall start with just a short word on the situation for insurers, which Jean-Paul Faugère will go into in greater depth. | The Page 6 of 8 ACPR recently conducted a study to compare the features of the different products available: fees, returns, type of underlying assets offered on unit-linked contracts. The results, which show that the current offering needs to be simplified and that we need to think of ways to better share the returns, will be discussed this summer with insurers; we will publish the findings by next autumn, along with the measures chosen in our talks with the industry. Insurers deserve fair remuneration for the technical work that goes into marketing and managing life insurance products: but fair also means open, and technical should not also mean opaque. Among the structural challenges facing the financial sector, there of course remains the issue of climate change. After the pioneering pilot exercise conducted by the ACPR in 2021, we now need to make these climate stress tests compulsory – as is already the case for banks supervised under the Single Supervisory Mechanism – and carry them out very regularly both for banks and insurers. Once the methodology has been refined – and only then – we will be able to draw the appropriate conclusions in terms of capital requirements, starting, as is logical, with Pillar 2.iii III. The financial system and ACPR will need to be mobilised on several fronts to tackle the consequences of the war in Ukraine First, we are paying very close attention to the potential fallout of the RussiaUkraine conflict for financial stability: for the time being it remains limited. | 1 |
32 Post-COVID-19 challenges (i) The need to reduce the structural deficit and public debt The legacy of the current crisis will be a very high level of public debt. Both in our country and abroad, managing such high levels of public debt will be a major challenge once the pandemic is over. In the short term, there is no sensible alternative to budgetary expansion. However, once the pandemic and its economic effects are under control, the need to redress general government finances must take centre stage, to prevent public debt crisis episodes like those experienced in several euro area countries following the last financial crisis. Reducing public debt is also necessary if we are to restore fiscal policy leeway in the medium term as a stabilisation mechanism for future crises. This is particularly important in the euro area, where monetary policy is decided by the ECB based on the overall economic situation. Indeed, the current crisis shows the importance of having healthy public finances that enable powerful fiscal action to be taken without generating doubts about future sustainability. This is a lesson we cannot forget when the effects of the crisis fade. The timeframe for reducing the public debt that we will have at the end of this crisis will be determined by the changes in the interest rate at which the debt is financed, GDP growth in real terms, the inflation rate and the pace at which the primary deficit eases. | 0.5% of annual GDP, to achieve a structural public balance in equilibrium. 9 In this regard, if the ratio between the total tax take and GDP is taken as reference, it stood at approximately 35% last year, around 6 pp lower than that recorded in the euro area as a whole (decreasing to around 3 pp when the arithmetic mean of the various countries is considered). Spain is particularly notable for its low level of consumption taxation, in international comparisons, and for a low revenueraising capacity in respect of environmental taxes. 10 Specifically, the simulation presented on the slide assumes that potential economic growth will stand at slightly above 1%, the GDP deflator will converge towards 2% from the mid-2020s, and average interest rates on debt will rise only moderately from their present levels. 36 Moreover, it should be emphasised that debt reductions would be greater under alternative scenarios in which the potential economic growth rate rises, highlighting the importance of pursuing policies in this respect, which I will now go on to discuss.11 (ii) Policies to foster long-term growth In the strategies to reduce public debt in the medium and long term, the role played by policies to promote sustained growth in activity and employment must be at least as important as that of the multi-year budget plans. | 1 |
For instance, the Bank of England granted the building society emergency liquidity assistance. And HM Treasury abandoned the limits of its existing deposit guarantee, extending them to cover all deposits in Northern Rock without limitation. The question that many people are probably asking is why so much effort was made for one individual financial institution. Public measures of this type could hardly be appropriate if it had been a question of an ordinary engineering company or retail chain that was in financial straits. It is due to two factors. Firstly, it concerns the special role played by the banks and the bank system as a whole in the economy. Secondly, it concerns the special contagion risks in the financial system. In a central bank context, these are usually called systemic risks. Banks and other intermediaries in the credit market who receive deposits from the general public play a central role in the financial system. They contribute, for instance, to facilitating the mediation of capital by acting as intermediaries between depositors and borrowers. They also create the conditions for more efficient mediation of payments in the economy. The banks’ deposit accounts are of central importance for the use of payment cards, credit cards and credit transfers. Many banks also participate in the system for the settlement of BIS Review 30/2008 5 large-value payments supplied by the central bank. The banks and their account systems are therefore a vital part of the payment system. | Consumption should also strengthen further over time, in line with developments in real disposable income, as employment conditions continue to improve. This outlook is also reflected in the new ECB staff macroeconomic projections. The projections foresee average annual real GDP growth in a range between 2.1% and 2.9% in 2007 and between 1.9% and 2.9% in 2008. In comparison with the December Eurosystem staff projections, the ranges projected for real GDP growth in 2007 and 2008 have been revised upwards, largely reflecting the strength of GDP growth in the second half of 2006 and the lower energy prices, which, if sustained, would have a positive impact on real disposable income. In the Governing Council’s view, the risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At longer horizons, risks lie mainly on the downside. The main risks relate to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures and concerns about possible disorderly developments owing to global imbalances. As regards price developments, according to Eurostat’s flash estimate, annual HICP inflation was 1.8% in February 2007, unchanged from January 2007. The fall in headline inflation rates since the summer of 2006 has been predominantly due to lower energy prices. Looking ahead, last year’s volatility in energy prices will lead to significant base effects, affecting the profile of annual inflation rates this year. | 0 |
The phrase is included in the article "the Speech during the Shanghai visit" in the Selected Works of Deng Xiaoping, Volume 3. ("视察上海的谈话"，《邓小平文选》第三卷) 2 BIS Review 98/2006 (now equivalent to over 40% of GDP) into the hands of those who need funding to finance consumption, investment and other economic activities. Currently, domestic savings on the Mainland are mostly trapped in the banking system earning fairly low rates of interest and as a result sustaining or even increasing a savings rate that is already far too high. There is a serious lack of diversity in investment opportunities. The ability of the banking system to allocate funds in accordance with the credit-worthiness of the borrower, although improving, is still not quite efficient in view of the relatively low degree of market orientation in credit allocation. Thus, the overall effectiveness of the financial system on the Mainland in the important task of financial intermediation is not high. There is, of course, room – and there are concrete plans – for improvement. But meanwhile the financial intermediation needs are there and have to be satisfied. This is where, quite clearly, the other financial system of the country can come in. As reform and liberalisation of the financial system on the Mainland continue, allowing the greater play of market forces, there is a need to conduct experiments in specific areas of activity in finance, including currency convertibility. The free market environment of Hong Kong provides the ideal laboratory for conducting such experiments. | At this point, the Bank would practically act as an interface between those parties eligible to participate in the euro area’s open-market operations and foreign exchange transactions and the ECB. This function has implications for both the Bank’s institutional set-up and its operational framework. First, the Bank must have the necessary legal power to carry out these tasks. In this regard, the Central Bank of Malta Act already permits the Bank to hold and exchange virtually any financial instrument and foreign asset. Additionally, however, it requires a good understanding of the operational framework governing such transactions, including the financial instruments and legal documentation that apply to transactions with eligible counterparties, the criteria which determine a counterparty’s eligibility to participate in these transactions and those that determine whether a particular asset can be used as collateral. Whereas most of the instruments currently used by the Central Bank are already in line with those of the European System of Central Banks (ESCB), further adjustments are necessary to achieve full compliance. To this end, the Bank has set up a Monetary Operations Committee and a Foreign Reserves Operations Committee to identify the appropriate additional adjustments to the Bank’s operational framework. The ability to interface with the ECB also requires that the systems which each Member State uses for the settlement of cross-border payments and the transfer of assets – in other words, the payment system and the securities settlement system – are somehow linked with those of the other members. | 0 |
As the financial system changes shape, it seems plausible to think that further change could be necessary. If so, that change would benefit from further research on the costs and benefits of the extended regulatory and central bank safety net. (f) The Macroprudential Policy Framework: As a still-fledgling framework, there are a wide range of questions still surrounding the macroprudential framework. There is no settled, practical approach to defining the breadth of objectives of a macroprudential regime. Should the potential for aggregate demand externalities associated with a debt overhang in the household sector, for instance, fall under the purview of a macroprudential authority? Nor, in the main, is there any settled approach to defining the appropriate set of macroprudential instruments, whether for banks or especially for non-banks, or the optimal strategy for their use to address emerging vulnerabilities. If household debt externalities are within scope, is it better to deal with this risk by restricting mortgage lending directly via loan to income or loan to value limits, or by adding a macroprudential overlay to risk weights on mortgages (Turner (2017))? This lack of a settled approach has some benefits, in making for a diverse range of cross-country experiences. This is giving rise to a period of “learning by doing” among regulators. It does, however, come at some cost. A regime without especially well-defined objectives is likely to suffer greater problems of time-inconsistency. It may also increase uncertainty among outside participants about the likely regulatory policy reaction function. | The shift was towards managing the consequences of greater openness with much more emphasis on the stability of the financial system and its ability otherwise to do harm, both domestically and internationally. What was needed was not just openness, but safe openness. This emphasis was never more evident than during and after the global financial crisis. There was a moment at the height of the financial crisis when it might have been natural to consider forfeiting the commitment to an open financial system in the face of damaging international linkages. That did not happen to our great relief – the G20 nations stood firm to the principles of Bretton Woods and committed to significantly reforming the international financial system and its regulation, by raising global standards for regulating the system and reinforcing the institutional structure. The Covid crisis has been the first big test of those reforms – and it has been a big test. The scorecard to date is encouraging – by no means perfect, but the core of the system has stood up well, which is needless to say a huge relief. In order to preserve this public good of an open world economy and now also an open financial system, has required a commitment to institution building both internationally and domestically. Bretton Woods created the IMF and World Bank, and slightly less directly the GATT and then W TO. | 0 |
We must stick to the reforms that work, in particular the tax credit for competitiveness and investment (CICE) and the Responsibility and Solidarity Pact (RSP), and we need to go further still. The unemployed and youth cannot afford to wait. There are at least four reforms that are a priority, because our neighbours successfully implemented them and they are fully compatible with the European social model that we share: the large-scale development of apprenticeships; simplifications, starting with labour law; the decentralisation of social dialogue to the company level, i.e. as close as possible to the economic and human reality; and lastly, the development of entrepreneurship. Second, we need to mobilise both public and private investment in order to take advantage of the exceptional financing conditions created by our monetary policy. To do so, we need to put the Juncker Plan back on the table. The Juncker Plan has yielded results, but they are insufficient. To support the revival of this Plan, I have proposed the creation of a true European “Financing and Investment Union”. To achieve this, we must combine the Juncker Plan, the European Commission’s plan for a Capital Markets Union, and the Banking Union. The aim is to create synergies in order to achieve three ambitious goals: better channel euro area household savings to productive investment and equity; better pool risks across countries; and thus better finance innovation and the networks our economy needs. This is the direction we should take now. | Long taken for granted, this has become the holy grail of banking regulation and supervision. And it has become the ultimate goal of all the relevant reforms that have been undertaken since the crisis. And much has been done. We have revamped the global standards for capital and liquidity – Basel III. Rules for banks are now much stronger than they were before. And the same is true for supervision. Just think of European banking supervision, which was set up in 2014. All this will help to make banks more resilient, so that they can reliably serve the economy. But there is one thing which neither rules nor supervisors can do. They cannot prevent each and every bank from failing. And in my view, we should not even try to. The possibility of failure is inherent to any kind of business, and it is a core element of well-functioning market economies. 1/9 BIS central bankers' speeches No, it is not the job of supervisors to keep individual banks alive. We, in particular, must not lower our standards to cater for the weakest bank. It would also be wrong to assume that each bank, even the weakest, just needs time to sort itself out. It would be wrong to assume that the local economy just needs to grow for a few more years for the bank to recover. The result would be weak banks that stagger on, zombie-like, barely able to survive in good times. | 0 |
José De Gregorio: Monetary policy and financial stability – an emerging markets perspective Presentation by Mr José De Gregorio, Governor of the Central Bank of Chile, at the Brookings Institution, Washington DC, 17 September 2009. * * * It is a pleasure to participate in this meeting and to speak about the lessons for monetary policy the current crisis is teaching us. The big difference between the current crisis with previous ones in emerging economies is that this time “it was not our fault.” The evidence on the performance of emerging countries facing an unprecedented global downturn shows that some lessons have been properly learned. Today I would like to concentrate on inflation targets, especially in the context of strongly rising and strongly falling commodity prices, financial stability and exchange rate fluctuations. Many of the issues I will be discussing today I have covered in recent presentations elsewhere. Indeed, there is not much new material, but I think those are important issues in conducting monetary policy in emerging countries. 1. The causes of the crisis: was it monetary policy or was it financial fragility? The argument blaming monetary policy for the current crisis claims that low interest rates combined with large current account surpluses in emerging economies, particularly Asian and oil-exporting ones, created an abundance of liquidity that triggered excessive increases in asset prices (bubbles). This was particularly acute in the housing market. When the bubble burst, the crisis erupted. | One issue that will have to be carefully examined in the future is the cause of the real estate boom and the housing crisis, and why it occurred in the United States. At this point it is clear that lending standards were relaxed beyond reason, and financial innovation went too far. 3 2. Inflation targeting and asset prices A corollary of those blaming monetary policy is that, apart from focusing on the variation of the prices of goods and services, it should also take into consideration asset prices, beyond their direct impact on projected inflation. Under an inflation targeting regime, increased lending and asset prices can have repercussions on the inflation outlook, through their impact on the output gap. This would require a monetary policy adjustment to prevent a persistent rise in inflation. Hence, in an inflation targeting regime, asset prices and the level of credit aggregates affect the monetary policy decision to the extent that they affect the inflation perspectives (Bernanke and Gertler, 1999). 2 Interestingly and, according to Blinder and Reis (2005), using Taylor rules as from the first quarter of 1988, the residuals indicate that in all the mentioned episodes the Federal Reserve set the interest rates significantly below those prescribed by the rule. 3 Ellis (2008) shows that in the U.S., households had strong motivation to increase their leverage through tax, legal and regulatory incentives. | 1 |
That opinion could determine the rights of countries most exposed to climate change. It could also touch on the obligations of those most responsible for driving the climate crisis. Let’s now focus on Europe and the possible implications of these developments in international law for my own institution, the ECB. Under the Paris Agreement adopted at COP21 in 2015, many countries committed to the long-term goal of holding the increase in the global average temperature to well below 2°C above pre-industrial levels. [2] To fulfil its commitment as one of parties to the Paris Agreement, the EU last year adopted the European Climate Law. [3] The implications of the Climate Law are significant. Before going into why, let me first explain what the Climate Law does. The Climate Law has three key elements. The first is its objective that the EU reduce its greenhouse gas emissions by at least 55% by 2030, with a new reduction target to be set for 2040. The EU should achieve climate neutrality by 2050 and aim to achieve negative emissions thereafter. The second important element is to ensure that we move towards that objective. The European Commission has established a framework for assessing concrete progress and checking whether national and Union measures are consistent with the objective. It will issue regular reports on the conclusions of these assessments. The third and last element is to ensure that we use the most effective instruments to achieve the objective. | Second, “tilting” the CSPP also serves the ECB’s secondary objective of supporting the general economic policies in the Union. “Tilting” its corporate bond reinvestments towards “greener” companies enables the ECB to align these reinvestments with the objectives set out in the Climate Law, which form part of those economic policies. This action was assessed as also being conducive, and not prejudicial, to price stability. More generally, this measure ensures that the CSPP complies fully with the ECB’s obligations under Article 11 TFEU by integrating the objectives of the Climate Law into the definition and implementation of the ECB’s policies and activities. This is one of the first steps in the ECB’s climate action plan, but the ECB is also looking into other ways to take climate-neutrality objectives into account in its monetary policy – for example, through the collateral that we ask when providing liquidity to banks. For banking supervision, there are several dimensions that I will briefly discuss. Again, we do not directly apply the Climate Law. The Climate Law does not directly relate to our tasks as a banking supervisor nor does it relate to prudential supervision. Therefore the ECB does not impose an obligation on banks to take the necessary measures to contribute to the achievement of the objectives of the Climate Law. However, we cannot ignore it. Not only because we need to integrate environmental obligations into our policies due to Article 11 TFEU, but also since the law will have prudential implications. | 1 |
We feel that this situation has not only come about because of the globalisation of the financial markets, but also because international banks have become increasingly vulnerable over the last few years – vulnerable because of their thirst for profit and their underestimation of the ensuing risks. Second, the banks’ risk measuring and management instruments could not cope with the crisis. Consequently, the actual losses incurred in the area of mortgage-backed securities (MBS) clearly surpassed the potential level calculated by the sophisticated statistical models, and the liquidity haemorrhage suffered by the banks was greater than the most pessimistic scenarios had suggested. In other words, the risk measuring systems failed despite the fact that they were being monitored by the best-informed experts around. This summary may sound a little harsh, but is not intended to put the blame on the banks. Instead, it illustrates that no model can do complete justice to the complexity of financial instruments and the economic environment in which banks operate these days. Third, the events of the last few months raise question marks about the efficiency of the banking supervision standards applied so far. The call for more sophisticated risk measurement systems, supervision and regulation of banks is understandable. There is room for improvement in these areas, and it must be exploited. Nevertheless, it should be pointed out that more extensive regulation on its own represents an unsatisfactory response to the growing complexity of banking activities. | Turmoil on the financial markets The financial storm of the last nine months has challenged our assessment criteria. Such turmoil poses considerable risks for the future. Before I deal with these issues, please allow me first to look at the factors which have brought us to this situation. After several years of rising home prices in the United States, there was a trend reversal to the downside which hit the high-risk sub-prime mortgage segment hard. It was when credit rating agencies began a massive downgrading of sub-prime mortgage-backed securities that the global financial markets realised the full enormity of what was happening. During the summer months of 2007, the prices and liquidity of these securities plummeted. This turn of events alarmed investors. Risk premiums subsequently increased, with uncertainty as to the extent of the losses incurred by banks triggering a general crisis of confidence among financial market participants. Liquidity on the major monetary markets became scarce and there was a return to volatility on the stock markets. Repercussions for Switzerland Switzerland quickly felt the storm due to the exposure of its financial sector. First, our two big banks saw their profitability fall sharply in the second half of 2007. Losses made in connection with their investment activities in the United States were a decisive factor in this respect. One of the big banks even required fresh injections of capital, such was the extent of the losses it suffered. The private banking sector and domestic banking activities continued to flourish, however. | 1 |
It is likely that a significant portion of these moneys is managed out of Hong Kong. In fact, over 40 Mainland companies providing fund management, securities and futures, insurance, and other services have already established a presence in Hong Kong to manage the funds flowing out of the Mainland and engage in fund advisory businesses. 13. So, the implications from the gradual liberalisation of Mainland China’s capital account are clear. Hong Kong is bound to be a key destination as well as the management hub for the gradual increase in the portfolio flows from Mainland China. This trend will present huge opportunities to financial institutions, private banks, fund managers, and other financial service providers looking to tap these funds. 14. Having said that, one should expect that the process of financial liberalisation in Mainland China will be a gradual and controllable one, in a manner that will fit the Chinese saying of “crossing the river by feeling the stones” so that one can adjust the speed and tactics of crossing the river without fear of falling in and getting drowned. It is, however, important to realise that this process has already begun: this is something that global financial firms, especially asset managers, should not ignore in their business planning process. The wider external use of the RMB 15. RMB. 2 Now, let me move on to the second important trend: the wider external use of the BIS Review 153/2010 16. | Hong Kong is the first and so far the only place outside the Mainland that has developed a RMB bond market. So far, 19 RMB bonds have been launched in Hong Kong with a total issuance size of over 50 billion yuan. The issuer base was expanded from only Mainland Chinese banks at the start, to Mainland subsidiaries of Hong Kong banks and China’s Ministry of Finance in 2009, and further to Hong Kong corporations and international institutions like McDonald’s and the Asian Development Bank this year following an important elucidation regarding the operation of RMB business in Hong Kong in February. 20. The net effect is that any issuers, including foreign corporations and multilateral organisations, are now free to issue RMB bonds in Hong Kong, just as they can issue bonds in any other currencies. Of course, if the proceeds are to be used on the Mainland, the moving of funds into Mainland China will have to meet the requirements there. By the same token, banks can now also offer RMB trade finance, corporate loans, syndicated loans and project finance to their clients in accordance with Hong Kong’s existing banking practices. 21. The latest developments have provided more flexibility and larger scope for the further development of RMB financing activities in Hong Kong. As the pool of offshore RMB funds in Hong Kong continues to grow, there will be huge opportunities for financial institutions to take part in RMB financing as well as in the origination, distribution, investment and trading of RMB bonds. 22. | 1 |
Andrew G Haldane: Twin peaks Speech by Mr Andrew G Haldane, Executive Director of the Bank of England, at the Kenilworth Chamber of Trade Business breakfast, Kenilworth, 17 October 2014. * * * The views are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Maria Barriel, Jeremy Franklin, Clare Macallan and Brad Speigner for assistance in preparing the text. I would also like to thank John Barrdear, Lucy Canham, Rob Elder, David Latto, Richard Harrison, Jeremy Harrison and Martin Weale for their comments and contributions. Back in June, with the cricket season in full swing, my views on the appropriate stance for UK monetary policy were evenly-weighted between the front foot (moving rates sooner) and the back foot (moving them later). With the sun shining, meteorologically and economically, the evidence leaned slightly towards a front foot stance (Haldane (2014)). Underpinning that judgement was the UK’s increasingly well-established and broadly-based economic recovery. Moving in a timely fashion to normalise rates helped avoid the risk of a hastier reaction later. In other words, it supported a limited and gradual subsequent path for interest rate rises. Three months on, with temperatures falling and the football season in full swing, how do economic prospects now look? Has the financial weather changed? How have the economic batting averages evolved? And how has the appropriate monetary stance, back or front foot, been affected? Reasons to the cheerful In many respects, the UK’s recovery remains both strong and well-balanced. | This means that the interest rate should be set so that monetary policy mitigates the risk of a buildup of financial imbalances. Normally, the key policy rate cannot achieve several objectives simultaneously. In the case of conflicting objectives, the choice of interest rate path will involve a trade-off between different considerations. If monetary policy only took into account the low level of inflation, the key policy rate would be rapidly reduced and kept close to zero for a good while. Inflation might then pick up faster, partly as a result of a weaker krone. In the light of the trade-off against other considerations, however, the Bank does not want to accelerate the pace of inflation. The result would be a pronounced impact on output and employment and increased risk of a buildup of financial BIS central bankers’ speeches 5 imbalances. A prolonged period of low interest rates may increase the risk that debt and asset prices will be driven up to levels that are unsustainable over time. When weight is also given to the two other criteria, the interest rate path therefore becomes higher even though the level of the key policy rate is low from a historical perspective. The Norwegian economy is well poised to face new shocks and challenges. While many of our trading partners are struggling with low growth, high unemployment and mounting government debt, the Norwegian economy still features buoyant activity, low unemployment and government budget surpluses. | 0 |
See Department for Business, Energy & Industrial Strategy (2022), 'Energy efficiency: what you need to knowOpens in a new window' 5 See CFRF (2022), 'Climate Financial Risk Forum Guide 2022: Scenario Analysis in Financial FirmsOpens in a new window', NGFS (2023), 'Scenarios PortalOpens in a new window', Bank of England (2021), 'Guidance for participants of the 201 Biennial Exploratory Scenario: Financial risks from climate changeOpens in a new window' 7/7 BIS - Central bankers' speeches | With expectations rising faster than the ability of governments to meet them out of available resources, however, the norms of prudent financial management were put aside and growing resort was made to deficit financing. Understandably, politicians are wary of asking citizens to give up any of the rights they have acquired in the process, especially on the eve of elections. The problem is that there comes a time – and that time is now in Malta as in some older EU members – when the financial burden of an extensive welfare system (itself compounded by the effects of an aging population) and of a large, and relatively inefficient public sector becomes too heavy to bear. It also deprives the economy of both the resources and the flexibility necessary to respond successfully to the competitiveness challenge coming from low-cost or more efficient producers. This is a challenge which cannot be ignored. The people need to be told that certain attitudes and practices are unsustainable, and that the only effective response to the relentless march of globalization, to EU membership and other sources of competitive pressures is nothing less than a culture change, a complete break with the past. I believe it is possible to build an alternative, more efficient system for managing the economy and which nevertheless reconciles the objectives of social cohesion and financial sustainability. It is in this broader context that I have often called for a wider application of means testing. | 0 |
Averages for the periods 1970-1989 and 1995-2003 10 10 9 9 8 8 7 7 1970-1989 1995-2003 6 6 5 5 4 4 3 3 2 2 1 1 0 0 Inflation GDP growth Productivity change, Nominal wage rises, whole economy whole economy Real wage rises, whole economy Open unemployment Source: Statistics Sweden 6 BIS Review 65/2004 3. Open unemployment i different counties Share of the labour force i each county respectively 8 8 7 7 2002 6 6 2003 Norrbottens Gävleborgs Skåne Örebro Dalarnas Västmanlands Värmlands Södermanlands Blekinge 0 Västernorrlands 0 Gotlands 1 Östergötlands 1 Kalmar 2 Västra Götalands 2 Hallands 3 Stockholms 3 Västerbottens 4 Uppsala 4 Kronobergs 5 Jönköpings 5 Source: Statistics Sweden 4. | Residential construction of apartments in apartment blocks in relation to the population increase has been lowest in Stockholm county, followed by Skåne county and Västra Götaland county. One ray of hope is that the number of building permits granted for apartment blocks is continuing to increase, which indicated a continued increase in new production of apartment blocks. Factors such as regulated rents for rental properties, i.e. the utility value system, a lack of land with planning permission in growth regions, the construction of the municipal tax equalisation system, the imbalance between traffic situations and housing in growth regions and long planning processes probably all contribute to the relatively low level of residential construction, even in areas where demand is high. A further restriction is the lack of competition in the construction sector. This is demonstrated in the developments in prices and wages in the sector. Construction workers’ wages have increased more than those of industrial workers in recent years. Another example is that the costs of construction 2 BIS Review 2/2002 materials, which constitute approximately one-third of total construction costs, have shown price increases over and above other industrial products for some time now, with price rises even during periods of low demand. One important explanation for this is the fact that the construction trade is concentrated to a small number of large companies. In some markets, for instance, those for cement, reinforcement steel and plasterboard, one company accounts for more than 50 per cent of total sales. | 0 |
Yet Hong Kong now finds itself with a consumer price level that is 12% below the peak of four years ago, and with a GDP deflator some 15% below its peak and 22% lower relative to that of the US than it was four years ago. What is the explanation, and can one live with this? There is general consensus, supported by both recent IMF analysis and research conducted within the HKMA, that Hong Kong's deflation is predominantly cyclical. I shall return to Hong Kong in a minute, but let me first dwell for a moment on the global slowdown in inflation. Over the past four years the rate of consumer price inflation has averaged 2.5% in the USA, only 1.7% in Euroland, minus 0.3% in Japan, and minus 0.3% in Mainland China. In six other economies of east and south-east Asia taken together, the inflation rate fell to 2.7% on average in these four years as 1 against 4.4% in the preceding four. This widespread slowdown in inflation, and in some cases the emergence of deflation, is not just a cyclical phenomenon. There are, I believe, some more fundamental institutional and structural factors which have been contributing. Underlying forces a. Successful central banks First of these is the commitment of monetary authorities to combatting inflation and their evident success in doing so (or even over-achievement in some instances). With so many of them represented here today, I do not need to elaborate further. b. | ASEAN’s growth story has been supported by greater traction in recent years in regional financial integration which will expand sources of financing and investments for economic activities, deepen the region’s financial markets, and enhance the competitiveness of ASEAN businesses through efficiency gains (for example through lower costs of payments and settlements). Growth and development across the region however does not guarantee equal opportunities for all to lift their social and economic circumstances. Nor can it therefore be assumed that income and wealth divides will narrow. History bears this out, as despite advances in financial globalisation over several decades, income inequality has actually worsened in many parts of the world – including both developing and developed countries. For ASEAN, a key priority has therefore been to ensure that greater economic and financial integration progresses in lockstep with greater financial inclusion. For many policymakers in this room, the challenges are pressing with 265 million or 44% of adults in ASEAN who are still unbanked. This represents nearly half of the adult population in the region who do not have access to safe and reliable basic banking services, with broader implications for health, economic and social outcomes. ASEAN Finance Ministers and Central Bank Governors (AFMGM) have unanimously agreed that financial inclusion should be a policy priority for ASEAN. The Working Committee on Financial Inclusion, or WC-FINC established in April 2016 to carry this mandate forward, has in turn, laid out clear goals to support and accelerate regional initiatives to elevate the level of financial inclusion in ASEAN. | 0 |
The pertinent question to ask, therefore, is whether or not prudential regulation amplifies this natural behaviour by financial market participants. Before analysing the elements of procyclicality that Basel II and international accounting standards may contain, it should be stressed that this set of rules includes numerous positive 4 BIS Review 62/2008 elements. Basel II will entail, and is in fact entailing, notable progress in the management of the risks credit institutions face. Had Basel II been in force some years back, many of the dysfunctions currently lying behind the turbulence would not have taken place. Moreover, international accounting standards, and in particular the financial reporting standards adopted in 2005 by the European Union, contribute to the common goal of a single financial market, since it appears reasonable that companies operating in a single area should be subject to the same accounting rules. Returning to procyclicality, I must remind you that this was a very significant debate during the period Basel II was being prepared. Insofar as capital requirements are more sensitive to risk, it is reasonable to believe that procyclicality is greater, requiring less capital when things go well and more capital when they go badly. The Basel Committee on Banking Supervision was mindful of this and that is why the new regulatory framework for capital includes elements that mitigate it, both under Pillar 1 and under Pillar 2. | Further, in the last few years Spanish institutions have shown notable skill in managing operating costs, becoming some of the most efficient players in the world. In the current circumstances, progress along these lines is even more necessary. Third, and very importantly, some of the international markets on which Spanish institutions have raised financing in recent years have narrowed substantially. In this respect, the lack of discrimination seen in the last few months is surprising, as the markets have similarly penalised products whose features, in terms of level of complexity and risk, are substantially different. This is the case, for example, of Spanish securitisations which, on account of their simplicity, the high quality of the securitised collateral and the low level of bad debts recorded, bear no relation to the more complex structured products used by banks in other countries. A particularly striking case is mortgage covered bonds, whose credit quality is very high and easily measurable. This quality resides in their legal characteristics, since they are backed by the whole of the issuer's mortgage portfolio and their minimum level of overcollateralisation is 25%. However, financial market participants have not taken these arguments into consideration. In fact, banks have to keep explaining to the market the differences in their issues. An effective way of doing so is to start issuing medium-term securities again. And, as mentioned above, congratulations are in order because this is the path successfully taken by some banks in recent months. | 1 |
They provide an opportunity to take stock of the world economy. This year the key word will be “imbalances”. The very word does not bode well for our attempt to balance the economic see-saw at home. So I want to pose three questions. First, what are these imbalances? Second, why have they arisen? Third, do they make it more difficult to balance the UK’s economic see-saw? My first question, then, concerns the nature of the imbalances. Over the past year, there has been a marked recovery of the world economy as the effects on confidence and capital flows of the financial crises in emerging markets were quickly reversed. In the words of the IMF, the global downturn following the crises of 1997 and 1998 “now appears to have been relatively mild and brief”. Growth in most emerging markets has been impressive. But in the three largest economies of the industrialised world - the US, the euro area and Japan - economic growth has been lopsided. In the US, the extraordinary strength of consumption and investment has resulted in annual growth of final domestic demand of over 5% a year since 1996. Output grew impressively, but less fast, so the current account deficit has expanded and it is now not far short of 5% of GDP, a record level. Equally remarkable is the absence of sustained growth in Japan, where output is still no higher now than it was in 1996. A lack of consumer confidence resulted in falling domestic demand and a rising current account surplus. | The forward effective krone exchange rate two years ahead is close to the average level of the effective exchange rate during the 1990s. Nordic countries – institutional differences EU membership Monetary policy regime Sweden Yes Inflation target of 2 per cent (+/- 1 percentage points) Denmark Yes ERM II Finland Yes Member of EMU Iceland Norway No (EEA agreement) No (EEA agreement) Inflation target of 2½ per cent Inflation target of 2½ per cent SG 240802 2 BIS Review 47/2002 Sector composition of NOREX exchanges. June 2002 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0% Stockholm Industrials and materials Financial services Copenhagen IT/Telecom Energy Oslo Consumer goods and services Other SG 240802 Government net cash flow from the petroleum sector and total capital in the Government Petroleum Fund. Per cent of GDP 120 120 90 Total capital (end of year) 90 Net cash flow 60 60 30 30 0 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Source: Ministry of Finance. RNB 02 SG 240802 BIS Review 47/2002 3 GDP Mainland-Norway and employment. | 0 |
Looking over the policy-relevant, medium-term horizon, annual HICP inflation is expected to be in line with price stability. This assessment is supported by available indicators of inflation expectations for the medium term. Risks to price stability over the medium term are broadly balanced. Unexpected further declines in commodity prices or a stronger than expected slowdown in the economy could put downward pressure on inflation, while upside risks to price stability could materialise particularly if the recent fall in commodity prices were to reverse or if domestic price pressures turn out to be stronger than assumed. It is therefore crucial that price and wagesetters fully live up to their responsibilities. Turning to the monetary analysis, the latest evidence confirms a moderating rate of monetary expansion in the euro area. Monetary trends therefore support the view that inflationary pressures and risks are diminishing. In analysing monetary developments it should be recognised that the intensification of the financial market turmoil since mid-September has the potential to affect the evolution of monetary aggregates significantly. Recent money and credit data indicate that this has already had a substantial impact on the behaviour of market participants. Both the broad aggregate M3 and, in particular, the components of M3 that are most closely related to the ongoing financial tensions – such as holdings of money market funds – have shown high month-to-month volatility of late. | As affirmed by the Governing Council at its last monetary policy meeting on 7 September, we expect the key ECB interest rates to remain at present levels for an extended period of time, and well past the horizon of the net asset purchases. Our asset purchase programme (APP), at the current monthly pace of € billion, is intended to run until the end of December this year, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the APP. Later this year we will decide on the calibration of our policy instruments beyond the end of 2017, taking into account the expected path of inflation and the financial conditions needed for a sustained return of inflation rates towards our objective. 1/3 BIS central bankers' speeches The ECB’s monetary policy measures and the favourable effects they are having on borrowing conditions for firms and households, access to financing and credit flows across the euro area are supporting domestic demand and are also facilitating the deleveraging process. In order to reap the full benefits of our monetary policy measures, actions in other economic policy areas remain necessary to strengthen long-term growth and resilience in the euro area. Meanwhile, the condition and resilience of the euro area banking sector has continued to improve. | 0 |
At the same time, it introduced an unweighted capital adequacy requirement – a leverage ratio, to serve as a nonrisk-based backstop to the risk-based capital requirement for banks. The FSB measures are aimed at improving the resolvability of systemically important banks. In particular, requirements have been defined for resolution planning and for the accumulation of gone-concern loss-absorbing capacity. These measures are intended to ensure that systemically important banks can exit the market in an ‘orderly’ fashion in the event of a crisis. 17 18 For example, cf. FINMA (2009), p. 19. Cf. FINMA (2009), p.30 et seq. 19 Cf. Branson (2011), p.5: ‘For several decades we believed that the greater sophistication of risk management techniques allowed us to tolerate thinner capital cushions. We were wrong.’ Page 8/14 b) Swiss TBTF regulations rest on two complementary pillars … In Switzerland, parliament had already passed a package of legislation back in 2011 that recognises the special importance of the ‘too big to fail’ issue and is in line with the international approach. It is based on two complementary pillars with special requirements for systemically important banks. The first pillar defines measures to strengthen the resilience of these banks and thereby reduce the likelihood of a systemically important bank getting into financial distress. In particular, the revised regulations impose stricter capital and liquidity requirements on banks. They have to meet both risk-weighted capital requirements and a leverage ratio requirement. Equity capital allows banks to absorb losses, thus protecting them from insolvency. | Its assessment of the Swiss approach was positive, considering it appropriate in an international comparison. 21 At the same time, the Federal Council concluded that further action was needed in relation to certain parameters. In particular, it stressed that, due to the special significance of ‘too big to fail’ in our country, Switzerland should be at the forefront when it comes to setting resilience requirements. Consequently, it prescribed an increase in capital requirements. These changes have been criticised in some quarters. Concerns were voiced that some of the adjustments were unreasonable and would put banks at a competitive disadvantage internationally. 22 How justified is this criticism? c) … and are designed to be cost-effective All regulations inevitably meet with resistance because they create added costs for the regulated institutions. But it is often the only way to bring about the desired change in conduct. In any discussion of the costs of regulation, it is important to weigh the private costs incurred by those subject to the regulations against the costs to the economy as a whole. As long as the private costs are less than the macroeconomic benefit, then the regulations make economic sense. Yet such a cost/benefit analysis is complex and fraught with uncertainty. The literature is unambiguous on the macroeconomic costs and benefits of the post-crisis increase in capital requirements. 23 The benefits far exceed the costs involved. The benefits of the higher capital requirements are that they reduce the likelihood and the severity of a banking crisis. | 1 |
Over the past decade,1 excluding China, the emerging world has grown at a 4.7 percent annual rate – its fastest rate on record. The EME world is, of course, not monolithic. There are the dynamic large economies, EMEs that are broadly complementary to them, and some countries that are both less complementary and less competitive than their peers. Happily, for the most part, EME success is proving mutually reinforcing, as witnessed by growing intra-EME trade. 1 Based on the International Monetary Fund World Economic Outlook database, covering the period 2001 through 2011 (forecasted). BIS central bankers’ speeches 1 As EME output has grown rapidly, their share of the global economy has increased markedly. EMEs now account for 38 percent of global gross domestic product (GDP), up from 23 percent in 1990. And it is the EMEs, not the developed economies, that have been the engine of global growth in recent years. For example, during the 2000s, EME growth accounted for 59 percent of global growth, up from 33 percent and 25 percent, respectively, in the two preceding decades. By other measures, the EMEs have been even more important. For example, EME growth has been very commodity intensive. Thus, while China is still only two-fifths the size of the United States in GDP terms, it dwarfs the United States in terms of its demand for some key commodities. The growth momentum among the EMEs is the result of years of tough choices and sound decisionmaking across the emerging world. | Of course, as I noted in a speech earlier this year, we will have to monitor inflation expectations closely to ensure that they do not become unanchored. We also need to keep a close eye on the degree to which unit labor cost increases in EMEs and real exchange rate appreciation abroad are passed through into U.S. import prices and consumer inflation. Although the historic evidence is that pass-through has been limited in the United States, we cannot be complacent about this. Meanwhile, we have to recognize that monetary policy works somewhat differently in a world in which a large share of global GDP is part of a de facto dollar block. In particular, we must take into account the feedback loops this creates – how U.S. monetary policy influences financial conditions elsewhere and, how these changes, in turn, influence activity and prices in the United States. At the same time, other nations should recognize that we cannot and do not seek to make monetary policy for the world. Responsibility for ensuring that financial conditions in other nations are appropriate for their own circumstances appropriately lies with their national authorities, and they have a wide range of fiscal, monetary, exchange rate and other policy tools available for this purpose. I do not see any fundamental conflict between U.S. domestic economic objectives and the interests of the global system as a whole. But the existing system of global currency and monetary arrangements does render effective pursuit of these objectives more difficult. | 1 |
In June 2014 monetary policy in the euro area embarked on a phase of renewed expansion, aimed both at enhancing monetary policy transmission, in a context of continued bank deleveraging, and increasing policy accommodation in view of persistently weak inflation. Having limited room for manoeuvre on the main refinancing rate, the ECB initiated a series of new unconventional measures. These consisted of our targeted longer-term refinancing operations 2/6 BIS central bankers' speeches (TLTROs), our asset purchase programme for public and private sector securities (APP), and our policy of charging a zero interest rate on main refinancing operations and a negative rate on excess reserves. As the floor of our monetary policy corridor – which by then had become the key instrument steering monetary conditions in the money market – was reduced to negative levels, other short to medium-term market yields dipped below the zero line as well. Given the novelty, scope and size of the measures taken, and given their potential interaction with other public policies, communication of these measures proved to be much more difficult than before the crisis, when we only had to explain how changes in the main policy interest rates affect the economy and ultimately the price level. Likewise, holding the ECB accountable for its monetary policy has also become more difficult. Let me illustrate this difficulty by considering how observers have been using Taylor rules to compare our policy interest rates with rule-based benchmarks. | Since it is forwardlooking the central bank can at least try to foresee future problems or structural changes and meet them through a rate adjustment. The ability to act quickly is essential, as monetary policy acts with some lag and the economic cost of increasing inflation becomes lower if it is checked at an early stage. Another benefit is that the central bank does not become as tied as with a rule, but instead can take account of alternative scenarios and risks. Moreover, these assessments can be regularly updated in the light of new information about economic developments.2 1 This is known as the Taylor rule. The US economics professor John B. Taylor is Under Secretary for International Affairs at the US Department of the Treasury. He has formulated a simple rate-setting rule that has come to be known as the Taylor rule and that has become very popular. This is one of many examples of monetary policy rules. 2 See the speech by Federal Reserve Board Governor Ben S. Bernanke, "The Logic of Monetary Policy" (2004). In his speech Bernanke discusses advantages and disadvantages of following a simple monetary policy rule compared with a forecast-based policy. See also Apel, M., Nessén M., Söderström U. | 0 |
During this period we were steadily reabsorbing the spare capacity created by the recession, and this was reflected in a gradual improvement in the labour market - in a net increase in employment of 1.7 mn people since the end of 1992, and in a persistent fall in unemployment to - as I say - the lowest rate for nearly 20 years. Meanwhile, underlying consumer price inflation has averaged 2.7% over the past 5 years, the lowest rate since the early 1960s - and it has been exactly on target - at 2½% - in each of the past 3 months. About 2 years ago it began to become evident that demand and output growth, in the economy as a whole, was picking up speed. And as we moved into and through 1997, it became increasingly obvious that unless we acted to tighten monetary policy, in order to moderate the rate of growth, we risked overheating, particularly in the labour market, where reports of shortages not just of skilled but even of unskilled workers, were becoming widespread. The situation was seriously complicated by an increasing imbalance between the domestic and the internationally exposed sectors of the economy. Domestic demand for goods, and particularly for services, was unsustainably strong, and large parts of the economy were doing very well on the back of that - though they didn’t make too much of a song and dance about it. | What we have to do, in actually operating monetary policy is to monitor all the relevant evidence as it emerges for signs that the economy is proving to be either stronger or weaker than we expect, and modify our view of the prospect for inflation - and our monetary policy - in the light of that. And in that context I repeat the assurance, which I gave recently to the TUC in Blackpool, that we will act symmetrically. We will be - have been - just as rigorous in reducing interest rates with the overall evidence pointing to the balance of risks to inflation on the downside, as we have been - and will again be - in raising rates with the evidence pointing to a significant or sustained overshoot of the inflation target. Now there are those - perhaps even one or two of you here this evening - who regard this assurance as cold comfort. It misses the point - they say - because the present approach to monetary policy focuses too narrowly on inflation. What we want - they say - is a monetary policy which puts more emphasis on growth and employment. You hear this complaint not just in this country but increasingly these days in Continental Europe. I must say, President, that it leaves me totally bemused. What it suggests is that growth and price stability are seen as alternatives - you can have a bit more of one if you’re prepared to accept a bit less of the other. | 1 |
A guiding principle for us is that the body that is given responsibility for macroprudential policy needs a clear mandate with both the right and obligation to take action against risks that arise and appropriate tools that can be used to limit the risks. The discussion of macroprudential policy also comprises the issue of the Riksbank’s balance sheet, and particularly the foreign-exchange reserve. As you know, the inquiry conducted by Harry Flam recently presented its proposals. Here too, the Riksbank is in the process of formulating its stance. The public are entitled to expect that the authorities act to prevent and manage financial crises in the best possible way All of the things I have talked about here are measures that aim to reduce the risk of a financial crisis recurring, or to limit the damage if a financial crisis nevertheless breaks out. The international process that has come to expression in the Basel III Accord is creating better regulations for the banks in all countries. This also benefits us here in Sweden. Over and above this, however, we have to manage the Swedish banking system and its special characteristics. Sweden is a small open economy with its own currency and large banks. We need special regulations. This means that we, like a number of other countries, want to proceed more quickly and impose stricter requirements than those in the Basel III 10 BIS central bankers’ speeches Accord. However, the measures we have taken so far have already clearly strengthened the Swedish banks. | • RMB deposits grew more than 20% year-on year. • Average daily RMB FX turnover grew more than two times in 2014. RMB is now one of top 5 most actively traded currencies in Singapore. • Aim in coming years is to: o Grow RMB capital market activities, including through promoting RMB bond issuance; o Enhance RMB asset management capabilities, leveraging on RQFII; and o Promote cross-border RMB financing, building on RMB pilot for Suzhou Industrial Park and Tianjin Eco-city. Making concerted efforts in two areas that cut across asset classes: skills and technology. 63. First, SkillsFuture. • We want to be a financial centre that is among leaders globally in workforce skills and expertise, with a strong core of Singaporeans at every level. BIS central bankers’ speeches 9 • MAS in partnership with industry and educational and training institutes, will undertake initiatives to strengthen support for finance professionals to: o o o learn continuously, develop expertise, and make strong contributions throughout their professional careers. 64. Second, Smart Financial Centre. • We want to be a financial centre where innovation is pervasive and technology is used effectively to: o o o o • 10 increase efficiency, create new opportunities, manage risks better, and improve people’s lives. MAS in partnership with industry will drive initiatives to create a vibrant ecosystem for innovation and adoption of new technologies while fostering safety and security. BIS central bankers’ speeches | 0 |
2 BIS central bankers’ speeches The credibility of the central bank and our monetary policy is now a tangible reality for Albania. It is reflected in the trust of our economy in the national currency and its purchasing power in the future. The investment made by the Bank of Albania to earn the public trust has required a lot of efforts to be made, but they get rewarded multiple times with the greater opportunities we have now to stimulate the economy without prejudice to the inflation outlook. Against this background, the Bank of Albania has provided the necessary economic stimulus, while there is still room for other additional monetary stimulus in the medium run. The accommodative policies generally aim at boosting economic activity and domestic demand, in order to keep the consumer prices within the Bank of Albania’s target in the medium run. We have also other reasons to support economic growth. We believe that if the economy grows at its potential rate, there will be substantial impact on the improvement of public and private sectors’ and individuals’ financial balance sheets. Their capacity to pay off past-due financial liabilities will subsequently improve, and their creditworthiness will enhance. I think this is one of the challenges that, on one hand, would restore the macroeconomic equilibrium to the pre-crisis level and, on the other hand, would guarantee the financial sector’s stability in the long run. | The creation of these indicators, their calculation and rating in the relevant markets would create the conditions for the real assessment of the competitive advantages that this district has to offer. The help that the local authorities can give in identifying the competitive advantages and the provision of local statistics are perhaps the best investment they can make for the regional and national development. Today, more than ever before, all the attention of global economy is oriented towards the markets, as the best estimators of the competitive advantages in the global economy. The developments in these markets are bringing about the reconfiguration of the economic powers at a global level. The new commercial and financial trends appear to be in favour of the utilization of natural resources and competitive advantages, through investments in emerging economies, to later import them in the form of final products, ready for consumption. These are advantages for the Albanian economy, which, with the major structural reforms taking place (privatizations, natural and human resources, creativity and the entrepreneurship spirit), enjoys all the opportunities and should play an active role in the regional market and beyond, in the global market. I am optimistic and I do believe in our economy and its potentials. Thanking you for your attention, I welcome any comments. BIS central bankers’ speeches 5 | 1 |
Diagram 2 M o n e y M a r k e t Ag e n ts’ In fla tio n E x p e cta tio n s P e r ce n t 5 5 O c t . ’ 94 4 4 O c t . ’ 95 M a y ’ 96 CPI 3 3 N o v . ’96 ’ 96 2 2 F e b . | The first two post-war decades, for example, when inflation was low, were considerably more stable than the 1970s and 1980s, when inflation was left to rise and there was a series of devaluations, with negative effects on productivity and growth. Moreover, the higher the rate of inflation, the more likely it is that the rate will fluctuate, which accentuates the uncertainty about future inflation. Savers and creditors then require higher compensation for risk: besides compensation for the expected rate of inflation, they will demand a premium for the degree of uncertainty about future inflation. This means higher real interest rates, which weaken the propensity to invest. Furthermore, the more inflation fluctuates and is difficult to forecast, the greater will be its arbitrary and random effects on the distribution of income and wealth. Inflation tends to redistribute from savers and lenders to borrowers, from those with fixed nominal incomes to those who pay such incomes, and so on. Clearly, such arbitrary redistributional effects are hardly in line with a distribution policy based on fairness. 2. Developments since the crisis Several years of good growth Since the upturn from the profound crisis in 1991-93, economic growth in Sweden has averaged 2.8 per cent, which is higher than we were accustomed to in the inflationary 1970s and 1980s. Moreover, the composition of growth has been favourable, with exports and investment predominating (Diagram 1). It should be underscored that this has been accompanied by the lowest level of inflation for decades. | 1 |
The economic activity at home is backed up by an improvement of the overall global climate, during the last two months, by attempting improvement signs of lending activity and by the seasonal effect of summer time. Global economy is being characterised by a more moderated downturn of the economic activity at industrialised countries, accompanied with a growth of the world trading activity and low inflationary pressures at global level. Nevertheless statistical data regarding the Albanian economy still remain at low level, the indirect indicators suggest this later is characterised by a positive economic growth, but slower compared to the succeeding years. The low pace of both retail sales and budget revenues increase, the exports slowdown, the lower expansion of lending to the economy and business and consumer’s confidence indexes show that Albanian economy is going through a slower growth phase relative to the one of previous year. This situation is also mirrored on the low inflationary pressures, revealed by the low level of core inflation, which is a proper appraiser of the domestic demand pressures. In August 2009, annual inflation pointed to 2.2 percent, remaining within the targeted band of the Bank of Albania, but close to its lower limit. Seasonal tendency of prices’ behaviour was confirmed to have the same intensity even during this period, by keeping the inflation value at the same rate with that of the preceding month. | The Asian financial crisis in 1997 taught us a number of painful lessons from volatile capital flows associated with such weak institutions. Since then, we have seen a large number of developing countries moving towards flexible exchange rate regime, adopting inflationtargeting framework, and improving the resilience of financial system. Yet, the challenges from volatile capital flows have become more intensified and we still see the implications of volatile capital flows on our economies. We are, therefore, very fortunate to have with us Mr. Rodrigo de Rato, Managing Director of the IMF, and Mr. Hervé Hannoun, Deputy General Manager of the BIS, to share their views and insight on this issue. I believe that we can greatly benefit from the IMF’s new surveillance framework, which put greater emphasis on the volatile financial market, as well as from the BIS expertise on analysis of capital flows during the morning session. I am certain that their perspectives will be useful in setting the tone for our further discussions on how to better prepare ourselves for the more intensified volatility of capital flows, which, I believe, have been rooted to our current economic environment. Ladies and Gentlemen, Following our discussions on the theme, we will have Dr. Perry Warjiyo and Mr. Richard Murray, our Executive Directors from the IMF to lead our discussions this afternoon on recent developments in global and regional economies with a view to identifying challenges ahead of us. | 0 |
And the US could be the first country to show signs of a turnaround in inflation. 3/7 BIS central bankers' speeches Its output and unemployment gaps are more or less closed. And the recently announced tax cuts could end up boosting aggregate demand beyond the productive capacity of the economy. The structural factors could well be having a “one-off” effect on prices, rather than a continuing dampening impact on inflation. The disinflationary effects of globalisation may not persist for much longer. The world has already globalised considerably over the last two decades. With populist pressures, it is unlikely the trend will continue at the same pace. Technological change may still have some legs to run and its disinflationary effects may persist for a while longer. But will they be strong enough to offset the short-term inflationary pressures from tightening cyclical conditions? So what happens if inflation returns sooner or comes in higher than expected? Central banks will obviously have to tighten monetary policy faster and by more. That in itself should not derail economic growth as long as the tightening is done judiciously and credibly. No central bank wants to cure inflation by creating a recession. But monetary policy tightening has always been a tricky business fraught with risk. More so now, with the economy attuned to a prolonged period of very low interest rates for such a long time. An increase in interest rates could put considerable strain on debt service ratios and lead to sharp cutbacks in household and corporate spending. | Its recommendations have been approved by the IMF and the G8 and include a range of measures to fill particular gaps or put right particular faults in the regulatory system by: • strengthening prudential oversight of capital, liquidity and risk management; implementing Basle II and requiring more capital against, for example, off-balancesheet vehicles, securitisations and tail risk; • enhancing transparency and valuation particularly for complex structured financial products and off-balance sheet vehicles; • changing the role and uses of rating agencies, including by distinguishing ratings of corporates and structured products; • strengthening the authorities’ responsiveness to risk; and • increasing the robustness of arrangements for dealing with financial stress; ensuring central banks’ operational frameworks are flexible enough to deal with extraordinary situations in money markets and mechanisms for dealing with weak or failing banks are put in place. More generally we are discussing in the FSF how the authorities can go further in moderating the financial cycle. Of course monetary policy can play a role in this. One goal of monetary policy is to stabilise the economy in the face of shocks and central banks have always looked at credit and money growth as important indicators of the state of the economy. The rapid growth of credit in 2006 for example was one factor leading the MPC to start raising interest rates. However central banks have been wary of putting a lot of weight on disciplining financial markets by changing interest rates. | 0 |
However, information on why the repo rate is being kept unchanged is in principle just as important for understanding the monetary policy conducted as is information on why the repo rate is being adjusted. Secondly, we have decided to make changes with regard to monetary policy signalling. By this I mean how we on the Executive Board of the Riksbank communicate what we intend to do with the interest rate. Now that we publish an entire path for the interest rate, the need to signal between the meetings has declined. Our conclusion is that there will not normally be any reason between the monetary policy meetings to give an indication of how the interest rate will be set. In exceptional cases, such as when an event occurs that radically changes the economic situation, while there is a long time to go until the next meeting, there may be reasons to signal between two monetary policy meetings. Of course the individual Executive Board members should continue to be able to express their own opinions publicly. But this is above all a question of afterwards clarifying and explaining personal deliberations made in connection with the monetary policy meetings. Differences of opinion within the Executive Board will also, as before, be made clear when the minutes of the meetings are published. This leads me on to the third change we have decided to make. | François Villeroy de Galhau: Secular stagnation and growth measurement Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Secular stagnation and growth measurement conference, organized by the Bank of France, Paris, 16 January 2017. * * * Accompanying slides Ladies and Gentlemen [slide 1], I am very pleased to welcome you all to Paris, for this conference on “secular stagnation and growth measurement”. We should always be cautious when using expressions as categorical as “secular stagnation”, and which describe the long term: Alvin Hansen, who coined it in 1938 with his famous “full recovery or stagnation”, lived long enough – until 1975 – to see thirty years of almost full recovery, instead of stagnation. Nevertheless, this risk, popularized again recently by Larry Summers, is a matter of concern for central bankers. Why? Because a persistent slowdown in trend output growth could make the economy more vulnerable to shocks that push the natural interest rate below the effective lower bound. Whether secular or lasting for many years, very slow growth and inflation also challenge the efficacy of conventional monetary policy tools. They can affect the sustainability of public and private debt. And beyond central banking concerns, they can also alter the functioning of our social models. Let me just clarify that I will not speak about monetary policy today, as we are in our “silent period” before the Governing Council meeting. | 0 |
Nordic Summit 2021 – 25 May 2021 Inflation and monetary policy in a post-Covid-19 world Speech by François Villeroy de Galhau, Governor of the Banque de France Press contact: Mark Deen (mark.deen@banque‐france.fr), Déborah Guedj (deborah.guedj@banque‐ france.fr) Page 1 sur 9 Ladies and Gentlemen, I am delighted to be with you today. Denmark and the Nordics are among the most successful countries in Europe, and even worldwide: a unique mix of economic innovation, social cohesion, and environmental commitment. But today, in the country which is with its currency at the closest frontier of the euro area, you invite me to speak about “Inflation and monetary policy in a postCovid-19 world”. As of 2006, Olivier Blanchard said : “Monetary policy can pretend to be close to science if it can be conducted using simple and robust rules […] Monetary policy must be closer to art if it is frequently confronted to new, poorly anticipated and poorly understood, contingenciesi.” The current debate on monetary policy is a perfect illustration. While a few years and even a year ago everybody feared the disappearance of inflation, the world is now worried by its comeback. While a few months ago the emergency support in the face of the Covid crisis was the No.1 concern, we are now talking about exit and post-Covid world. This is precisely the title of the speech you invited me to give. | Let me be crystal-clear: any hypothesis of a reduction of purchases partly for Q3 or the following quarters is purely speculative. As Christine Lagarde has said, we did not even discuss phasing out at our April Governing Council meeting. Our net purchase volumes will be freely determined until at least March 2022 by our commitment to preserve favorable financing conditions for all economic agents. Our monetary policy can be patient, as the euro area inflation is well below other jurisdictions. Page 5 sur 9 III. Is the ECB efficient in its results? Over the period 1999-2007, inflation averaged 2.1%. But the inflation rate has dropped to only 1.0 % between 2013 and 2019. This is a substantial shortfall. Headline inflation in the US (CPI) experienced a similar decline of 1.1%, having dropped from 2.7% to 1.6% between the two periods, although the gap to the target is smaller. In the euro area, according to Banque de France’s analysis, two factors explain most of the gap between the observed level of inflation and our targetiii. The first one is caused by the Great Recession and the sovereign debt crisis.This set of crises has durably depressed demand and therefore prices, through the Phillips curve; while the slope of the Phillips curve seems to have decreased in recent decades, it is still positive. The Phillips curve remains well alive: in the bad news of “missing inflation”, this is the good news for monetary policy. | 1 |
We decided instead to use top-down assessments of solvency based on market valuations. That pointed to a capital deficit for UK banks of around £ billion, well in excess of others’ estimates. When UK banks were finally recapitalised that Autumn, around £ billion was injected into them by the UK Government. Our calculations had been roughly right, good enough to save the ship. To this day, I believe that if greater amounts had been injected then – perhaps £ billion? - UK banks would have been more willing to lend and the recovery would have been less anaemic. It would have been better to be super-safe ex-ante than super-sorry ex-post. With the ship stabilised, in the UK and globally, the task now was to make it seaworthy. The Overton window of opportunity to affect radical regulatory reform was ajar. But what reform? Having helped explain the dynamics of a complex web during the financial crisis, complexity science could also help in its redesign. Although these regulatory reforms eventually fell short of my up-front ambitions in their scale and scope, they nonetheless moved the system to a decisively better place. The centrepiece of these banking reforms was so-called Basel 3, overseen by the Basel Committee on which I sat.21 The Basel 3 reforms eventually resulted in significant increases in the amounts of capital banks held; the introduction of an international regime for leverage and liquidity; a capital surcharge for the world’s “super-spreader” banks; and a system of counter-cyclical capital regulation to modulate credit cycles. | Denis Beau: The challenges of the digital euro Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the conference "The new challenges of financial regulation”, organised by Labex Réfi, Paris, 19 November 2021. * * * Over the past two years, most central banks around the world have been giving increasing thought to the idea of creating a digital form of their currency, a central bank digital currency (CBDC), to maintain the stabilising role of central bank money in a rapidly changing payments landscape: according to the BIS, about nine out of ten central banks have reported that they have launched studies.To date, only two retail CBDCs have been introduced (in Caribbean archipelagos: the Sand Dollar in the Bahamas and DCash for the Organisation of Eastern Caribbean States), but over twenty pilot projects are underway around the world. This observation naturally raises questions about the timing, form and role of central bank money in tomorrow’s payments landscape and about the role of banks and commercial bank money in a world of stablecoins and central bank digital currencies. | 0 |
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