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However, the revision will work only if necessary policy stance is adopted. For this reason, the second pillar of monetary policy comprises the implementation of a monetary tightening that is consistent with the new inflation targets. Newly set targets are references that would help decision makers in the economy understand the reasoning behind the policy stance, i.e. the factors that have led to monetary tightening and the extent of monetary tightening if and when necessary. In other words, the Central Bank has announced, via the target revision, the limits of its tolerance to the first round impacts of supply side shocks. While concluding my speech, I would like to extend my thanks to the Central Bank of Argentina, and all other institutions and individuals who contributed to the organization of this significant event. Thank you. 4 BIS Review 109/2008 | Low oil prices amplified the fall in investment in the petroleum sector. At the beginning of 1999, the outlook for the Norwegian economy seemed fairly bleak. In this situation, the possibility that Norway would enter a recession of a type that would further reduce confidence in the krone was considered a definite risk. This is why Norges Bank decided at the beginning of 1999 to reduce interest rates. Owing to the uncertainty associated with economic developments and the effects of interest rate changes, Norges Bank adopts a gradual approach to the setting of interest rates. Interest rates were therefore reduced in five steps by a total of 2.50 percentage points in the period from 28 January to 23 September 1999. The lowering of interest rates contributed to strengthening the krone. 6 BIS Review 7/2001 In mid-1999, Norges Bank considered the risk of a recession of a type that would reduce confidence in the krone to be substantially reduced. In addition to the reduction in interest rates, this was partly due to brighter prospects for international growth and higher commodity prices. However, we still envisaged a growth pause in the Norwegian economy. The projections for price and cost inflation in the next few years were then in accord with the corresponding aim for inflation for the ECB. | 0 |
For instance, equity derivatives is a rapidly growing area, as it offers a more flexible alternative to investing in the underlying assets. This is especially attractive to institutional investors and hedge fund managers. To this end, SIBA is establishing a task force to explore the potential of equities derivatives and structured products. I understand the task force will identify the range of derivative products that Singapore could focus on, study the competitiveness of Singapore as an equity derivative centre, and determine the infrastructure necessary to support the growth of this industry. I look forward to the active participation of SIBA members in helping to grow the product offerings available here. Conclusion Over the last 30 years, SIBA has made significant contributions to the development of Singapore's investment banking industry and capital markets. Going forward, it is vital for the association to remain relevant in the ever-changing market environment in order to ensure its continued success. MAS is committed to working in partnership with SIBA, to develop Singapore's financial sector and to raise industry standards and best practices. We look forward to working closely with SIBA, and trust that SIBA will emerge as an even stronger industry champion of investment banking activities in Singapore in the years to come. Thank you. 3/3 | [22] Just recently, the Eurosystem adjusted the pricing of the securities lending programme as of November 2020,[23] to reflect changes in euro area repo market conditions since December 2016 and to ensure that the Eurosystem securities lending facilities remain an effective backstop. This pricing adjustment has resulted in a pronounced increase in the ECB’s securities lending activity as measured by the outstanding balance of securities on loan. Counterparty feedback received to date suggests that the new pricing does not constitute a material change in policy but might help to alleviate some pressure in the repo market ahead of the year-end. There are two other factors that have further alleviated collateral scarcity after December 2016. First, the set of securities eligible for APP purchases was expanded in January 2017. Second, anecdotal evidence suggests that the use of private securities lending operations has increased. [24] The conference paper by Jank, Moench and Schneider (2019) investigates the re-use of collateral in response to scarcity induced by the Eurosystem’s large-scale asset purchases. [25] Since March 2020, excess liquidity and the size of the Eurosystem balance sheet have increased further, driven by the implementation of additional asset purchases under the PEPP and the APP, as well as the allotment of the TLTROs. Although the increase in asset purchases since March was substantial, scarcity effects have not become more pronounced. [26] Most importantly, COVID-19 related fiscal measures have led to a higher supply of government bonds, thus mitigating the effect of asset purchases on collateral scarcity. | 0 |
In this regard, the ECB’s recent moves to reduce its main refinancing rate to 0.05%, its deposit facility rate to –0.2%, and to commence large-scale asset purchases are both timely and welcome. In an environment of low rates everywhere, even Bank Rate of ½% might look high-yielding. And the fear of a bad outcome abroad could trigger safe-haven capital flows into the UK that push the value of sterling higher, making exporting more challenging, with knock-on implications for wages and prices here. That would come against the backdrop of a 5 ½ per cent sterling appreciation on a tradeweighted basis in the last year (Chart 9), which has extended the currency’s appreciation to around 17 per cent since its trough two years ago. These moves are reinforcing the disinflationary impulse from abroad, which could take a while to pass through to the sterling prices in the shops.14 5. Getting back to target in the UK All of this puts a premium on generating the domestic inflation necessary to return inflation to the target. We are on track to do that. The UK economy is performing well. UK growth is solid, unemployment is coming down, and jobs have risen by 600,000 in the past year. Wage growth is showing signs of picking up, rising to 3% for the economy as a whole at the end of last year, and to 3.3% in the private sector.15 Average hours worked continue to recover on a strong upward trend. | A sustainable financial system, oriented to new long-term horizons and prudential to risks, serves to channel savings into the most competitive sectors of the economy. * * * In the following, I would like to address the above-listed topics in more details, focusing on key points of the Bank of Albania’s work. 1. Economic and financial developments in 2010 According to INSTAT data, the Albanian economy is estimated to have grown by 3.9 % this year. Compared to 2009, economic growth is more balanced in terms of sectorial distribution and demand components. During 2010, the Albanian economy was characterised by gradual improvement of the aggregate demand and further consolidation of the macroeconomic stability. Economic development was followed by price stability, while the public debt and current account deficit narrowed. Economic growth relied mainly on foreign demand and increased Albanian exports, while domestic demand was sluggish. The latter decelerated due to public finances consolidation and budget deficit reduction in 2010, while consumer spending and private investments were affected by insecurity about the future and presence of spare capacities. Fiscal policy was oriented towards fiscal consolidation in 2010, following the stimulating nature in 2009. Fiscal consolidation accelerated especially in 2010 H2, following the approval of the revised budget. This consolidation was present on both, income and expenditure sides. Budget revenues increased by 8.4% y-o-y, reflecting the economic growth, expansion of taxpayers’ base, and privatisation receipts. On the other hand, budget expenditures decreased by 4.5%, attributable to reduction of government capital expenditures. | 0 |
For Mr Keynes and the Classicists, they would have been anything but.13 For example, an early set of papers found “excess volatility” in asset prices relative to future dividends and earnings.14 Investor myopia was one interpretation, with too great a weight on near-term dividends causing even transitory changes to affect valuation.15 Using an augmented version of this basic asset pricing framework, Miles (1993) tested formally for excessive discounting of future cash-flows using company-level equity price data from the UK between 1980 and 1988, finding evidence of short-termism over this period. Similar approaches applied to longer time-series across a range of countries reached broadly similar conclusions.16 Yet, latterly, the quantitative evidence appears, as in the mid-1970s, to have dried up. This time the efficient markets hypothesis cannot be held responsible, for it has come under increasingly critical scrutiny. Instead we have seen scraps of evidence drawn from the types of surveys familiar from the 1960s. For example, among asset managers, a 2004 MORI survey of members of the Investment Managers Association (IMA) and the National Association of Pension Funds (NAPF) asked if investment mandates created short-termism. A third of NAPF members and two-thirds of IMA members agreed. In 2006, a CFA (Chartered Financial Analyst) symposium of financial institutions concluded “the obsession with short-term results by investors, asset management firms, and corporate managers collectively leads to the unintended consequences of destroying long-term value, decreasing market efficiency, reducing investment returns, and impeding efforts to strengthen corporate governance”. Echoes, here, of Graham’s anti-social voting machine. | Between May 2000 and March 2001, the BIS sold 220 tonnes on behalf of the SNB. For the first 120 tonnes, the SNB paid the BIS a fixed commission while the performance risk resided with the SNB. For the next 100 tonnes, the BIS agreed to pay the average price of the AM and PM London gold fixing plus a small fixed premium. In April 2001, the Governing Board decided that there was no reason to continue to sell through the BIS. The SNB now had the necessary professionals, know-how, trading resources and contacts to the international gold market to trade directly. Two types of selling operations were subsequently pursued: spot sales in the market and sales programs with price caps. Over the next three and a half years, 730 tonnes were sold directly in the spot market. For these sales, the SNB used 25 counterparties in four different continents. In an effort to receive consistently competitive pricing, the Governing Board allowed the SNB traders to become two-way participants in the market. In other words, traders were allowed to buy gold on an intra-day basis up to two thirds of the daily allocated sales volume. Overall, the sales had to be conducted within a clearly defined corridor which was structured around daily sales volumes of approximately one tonne (Figure 5). Typically, the Bank of England was used for the physical settlement of these operations. Apart from spot operations, 350 tonnes were sold through option programs. | 0 |
We have supported the European integration process of Albania through the continuous dialogue process with our European partners and by continuing the alignment of the banking legislation with Acquis Communautaire; the Bank of Albania has supplied the Albanian economy with qualitative coins and banknotes; we have intensified the efforts for the financial education of public and expansion of financial inclusion; we have managed the international reserves in compliance with the best principles of the field; the Bank of Albania has contributed in the economic dialogue through advises, publications and scientific conferences; and we have further developed and expanded the gamma of the financial statistics. Last, further progress has been achieved for the improvement of the institution governance, through the update of risk management systems and for ensuring the business continuity. In view of the organised cyber-attacks the country faced with in 2022, the Bank of Albania has paid special attention to enhancing the sustainability of banking system, financial markets and payment systems operated by the Bank of Albania, by collaborating with specialised national agencies and international partners. Honourable Members of Parliament, Meeting our mission and legal duties, realising the commitments in view of the mediumterm development strategy, and complying with the recommendations left by the Parliament of Albania for 2022, have been important objectives guiding the activity of the Bank of Albania throughout 2022. This philosophy will continue to lead our work in 2023 onwards. Concluding, allow me to re-emphasise that price stability has been and remains the main mission of the Bank of Albania. | Indeed, the reaction of fiscal policy has also been swift and timely, both at the global and at the European level. National authorities approved sizable fiscal policy packages, focused on providing income support to firms and households, and on shielding the health-care system. It is worth noting the role of liquidity support schemes for firms, in the form of loans with favourable conditions, new credit facilities and public guarantees. In this setting, supranational support at the European level has also been fundamental. In this regard, since the degree of economic and financial interdependence within Europe is very high, joint action is clearly the most effective means of ensuring that the economic effects of the pandemic are overcome within a short period and at a lower cost for each and every country. Taking this into account, the European Council has agreed on a European recovery fund (Next Generation EU). The fund will be financed on the capital markets, with the European Commission borrowing, on behalf of the Union, an amount of up to € billion between 2021 and 2026. The spending and investment arising from the use of this fund will be pivotal to entrenching the economic recovery and reducing the potentially permanent consequences of the crisis. Nor should we forget the reaction of micro- and macro-financial supervisory authorities, which has also been crucial. First, supervisory processes have been adapted to free up banks’ operational resources so that they may be used to ensure business continuity. | 0 |
Given the healthy public finances in Thailand (with 9 years of fiscal surplus prior to 1997), the expanding foreign private sector debt was interpreted as a sign of euphoria and confidence in the emergence of a new tiger of Asia. In Europe, a similar story of mispricing occurred when some peripheral nations were able to access financing at a much cheaper rate than the country’s underlying credit rating would have allowed them to do so - and this was made possible out of sheer membership of the Euro zone. A single currency and a convergence in risk rating, like our BIS central bankers’ speeches 1 fixed exchange rate, gave the market a false sense of security that encouraged borrowing beyond our means and without proper risk management. Second, both crises occurred as a result of a failure to fulfill the necessary “pre-conditions”. In Asia, they were preconditions for liberalization, and in Europe they were preconditions for integration. A number of Asian countries embarked on ambitious liberalization programs with insufficient safeguards, appropriate infrastructure and policy tools. Liberalizing capital flows while still maintaining a fixed exchange rate system eventually ran up against the impossible trinity. The country must give up control over monetary policy. Recourse to macroprudential policies to stem the excessive bank credit expansion and asset price inflation, was not well-known then. Along the same line, the currency union proceeded without the necessary preconditions for integration. | In the case of Asia, the sharp devaluation and swift recovery in exports led the Asian economies to become addicted to large volume of export at low prices. And, in the case of Thailand, with little incentive to invest in research and development to raise the products’ value and enhance human capital, the average growth of labor productivity3 had trended down from the 1990s to 2000s. Ladies and gentlemen, This brings me to my third part on the lessons from the Asian financial crisis. I would like to offer three reflections that may not necessarily pertain to Europe but may provide food for thought for policymakers. First, conventional policy prescriptions may not be appropriate for unusual circumstances and there is no one-size-fits-all solution. Asia was a case in point of ill-timed austerity measures. Public sector debt in Thailand then was less than 15% of GDP; yet the policy prescription for Thailand was to tighten fiscal policy and maintain tight monetary policy, resulting in (interbank) interest rate rising from 10% at the beginning of 1997 to over 20% at the end of 1997. With large private external debt beyond the ability of the country to service, a way out should have been debt restructuring with international creditors to give the country a breathing space and avoid the painful shock from the sharp reversal in capital. | 1 |
Our history and that of the region is paved with stabilization measures based on the exchange rate, which generated severe setbacks, and ended in balance of payments crisis, financial turmoil and economic disasters. For this reason, we have evolved into a floating exchange rate regime, which permits to better reconcile the stability of the Chilean economy with the volatility of the external scenario. This is not the time or the place for a lengthy discussion on the subject; suffice it to recall that every economic crisis in Chile over the past fifty years – except the recession of 2009 we are leaving behind with unprecedented vigor – have been associated to exchange rate misalignments and rigidities. Furthermore, a very significant element to explain why the emerging economies were spared the worst effects of the recent global crisis was that their currencies floated, which allowed them to absorb the shocks, eliminated the invitation to investors to wager against currency weakening and opened room to relax monetary policy and provide liquidity. However, although a floating exchange rate has many advantages for economic and financial stability, it may happen that, at times of high uncertainty or excessive optimism, financial flows could persistently push the real exchange rate away from its medium- and long-term fundamentals, with negative effects on the economy. In such situations, the Central Bank may intervene in the foreign exchange market with the purpose of mitigating or eliminating these imbalances. | Such a policy has sought to save the transitory income from copper, cushioning the impact of terms of trade cycles on fiscal expenditure, demand, and the real exchange rate. When confronted with the worst international recession since the Great Depression, this fiscal prudence allowed putting in place countercyclical measures that had no precedent in our economic history. In the present circumstances where the economy has already gained momentum, it is adequate to withdraw part of the fiscal stimulus. The plan of gradual reduction of the structural fiscal deficit announced by the government will contribute to moderate demand and remove some pressure from the real exchange rate, although its effects will become apparent gradually over time. Beyond the business cycle, it is also worth mentioning that the persistence of high copper prices in the world markets has been translating into better expectations for its long-term price. In the first five years of the fiscal rule of structural balance, the average reference price for copper was, in real terms as of today, $ per pound; now it is more than twice, at $ per pound. The higher earnings from copper have allowed financing an important increase in public spending as a percentage of GDP and greater transfers over the past few years. This situation has consequences also on the real exchange rate. | 1 |
The more the international investment community succeeds in differentiating each country’s prospects, the better the outcome will be, both for investors’ returns as well as the countries involved. Ladies and gentlemen, I have spent much of my remarks talking about the challenges of financial integration. It is important, however, not to lose sight of the bigger picture. The benefits of being part of an open and integrated global economic and financial system are immense and should be embraced. The question is not whether to be integrated, but how to best do it in a way 4 BIS central bankers’ speeches that avoids a drift towards financial protectionism. Success on this front ensures that the legacy we leave for the generations behind us is one of opportunities rather than problems. In choosing the appropriate strategies, a balance has to be struck between boldness and humility. We should be bold in our willingness to question conventional wisdom and try new initiatives. But in a constantly evolving global economy, we must remain humble about our understanding of how things work and be acutely aware of the limits of our knowledge. As Albert Einstein once said “The difference between genius and stupidity is that genius has its limits.” At an institution for learning such as this, I think it is fitting to end with that quote. Thank you for your attention. BIS central bankers’ speeches 5 | Apart from answering to shareholder interests, the board of directors and management also have a fiduciary duty to their policy-holders. Sound internal risk management and controls are needed to protect policy-holders' interests. Currently, our regulations oblige the Appointed Actuary to take responsibility for monitoring the financial soundness of life insurance companies. But the Board and management cannot just sit back and rely on the actuaries. Board and management themselves must acquire a better awareness and understanding of actuarial assessment. We need to set clear expectations of the role that the Board and management play, in ensuring the financial soundness of their companies. MAS will work with industry and professional associations to set out guidelines for this important area. In Singapore, we established the Corporate Governance Code for listed companies last year. MAS has tightened corporate governance standards for local banks. We recently required auditor rotation for local banks, a policy which we had been considering for some time, even before the latest wave of accounting scandals. For insurance companies, we are currently working on a draft corporate governance framework. MAS is consulting the industry and will issue guidelines for internal governance for local boards of directors, as well as guidelines for the roles and responsibilities of Principal Officers of insurance companies. | 0 |
Less than 150 thousand private dwellings, on average, were built in the UK between 2005 and 2014 – compared to estimates that 200-250 thousand that would be needed to keep up with growing demand (Barker 2004). 7 The FCA carried out its Mortgage Market Review over 2011 to 2012. The recommendations were implemented in early 2014 and required lenders to test the affordability of new loans. The test was not prescribed by the FCA but rather for each lender to implement their own. 8 In 2017 the FPC clarified that the 3pp stress should apply to the reversion rate at the moment of origination. 5 5 All speeches are available online at www.bankofengland.co.uk/news/speeches 5 The stress test on the major banks then in train indicated that they had sufficient capital to absorb very major losses from their mortgage portfolios.9 The risks did not seem to lie primarily on the lender side. And the experience in the UK, with full recourse mortgages was that households would do everything possible to pay their mortgages, cutting consumption to do so.10 But even though, as a result, mortgage defaults were relatively low in the crisis, high mortgage debt did appear to have had an impact more generally. Evidence from the crisis supported the view that more debt is associated with deeper downturns. | Second, at the time of the action, the FPC did not have powers of direction in relation to borrower focussed macro-prudential risks. The Committee’s powers of direction were confined to bank capital. The FPC’s actions in 2014 took the form of recommendations to the PRA and FCA under the Committee’s general recommendation powers. In response to a request from the Chancellor of the Exchequer to review its powers in relation to the housing and mortgage market and advise on whether any changes were necessary, later in 2014 the Committee recommended that it be given the power of direction in relation to debt to income and loan to value.23 Parliament approved these new powers for the owner-occupier market in 2015. Conclusion There has, since the crisis, been a lively and often intense debate about the most appropriate allocation of macro-prudential responsibilities and powers between authorities in different jurisdictions. There is also currently a debate in train about the powers and responsibilities of central banks in different fields, including macro-prudential policy. That is a subject for another, probably longer, speech. I would only point out that no matter how responsibilities are organised, there needs to be some mechanism for assessing and addressing the macro prudential risks that can flow from borrower balance sheets. And that if this responsibility is allocated to a technocratic as opposed to a political authority, it is particularly imperative that there is maximum transparency and accountability around that authority’s approach and justification for action. | 1 |
So what could account for the recent poor productivity performance? One possibility is that the weakness of measured productivity growth may exaggerate the true extent of underlying weakness. Let me explain. An encouraging aspect of the recent recession is that although unemployment increased, it rose by far less than we might have feared given the depth of the recession. The recent data on employment and unemployment are worrying in that context, with unemployment edging up over the summer, after having previously fallen by over 50,000 from its peak in early 2010. If this weakening in the labour market continues that could materially change the relationship between output and employment. But to date, companies appeared to have held onto a greater proportion of their labour force than in past recessions. My own experience of speaking to businesses at the depth of the recession is that this was driven by a desire to retain valuable skills and experience. Many companies had learned from past experience how difficult it is to re-employ skilled workers once let go. But a consequence of this labour hoarding is that the amount of output produced per worker fell very sharply, in many cases partly because working hours were cut back. And although there has been some rebound since then, the level of labour productivity has still not recovered to its previous level. This greater retention of labour suggests that firms may be sitting on a substantial degree of spare capacity. | More 11 The impact on the physical capital stock would be compounded to the extent that the recession also weighed on the growth in human capital. In particular, employees ability to “learn by doing” on the job or through job related training is likely to have been reduced as a result of the decline in average hours during the recession. Weale (2010) suggests that the learning by doing channel could eventually reduce aggregate labour productivity by around ½%. 12 “Investigating the characteristics of patents and the businesses which hold them”, Thomas, A., Economic and Labour Market Review, April 2011 BIS central bankers’ speeches 5 generally, the amount of management time devoted to raising finance and managing banking relationships has increased very substantially, diverting attention from the search for new products and new markets. It is impossible to quantify with any precision the effect that strains within the banking system have had on the growth of productivity over the past few years. But evidence from previous periods of financial turmoil suggests that the effect might be material. In particular, research by the IMF suggests that persistent falls in TFP growth following banking crises can account on average for around one third of the loss of output seen following such episodes (IMF 2009). So where does all this leave us? As I warned you upfront, I don’t think there is a single, simple explanation for the recent surprising weakness of productivity. Some of it may well get revised away. | 1 |
The market’s belief that a too big to fail firm is more likely to be rescued in the event of distress than other firms weakens the degree of market discipline exerted by capital providers and counterparties. Since the government does not charge for this implicit guarantee, this reduces the firm’s cost of funds and incents the firm to take more risk than would be the case if there were no prospect of rescue and funding costs were higher. The fact that firms deemed by the market to be too big to fail enjoy an artificial subsidy in the form of lower funding costs distorts competition to the detriment of smaller, less complex firms. This advantage, in turn, creates an unfortunate incentive for firms to get even larger and more complex. As a result, the funding benefit of being seen to be too big to fail causes the financial system to become skewed toward larger and more complex firms in ways that are unrelated to true economies of scale and scope. Thus, the too big to fail problem consists of two intertwined issues. The first is that the negative consequences to the financial system and to the economy from failure for a given set of firms are unacceptably high. This is the financial stability risk. The second is that anticipated interventions to prevent catastrophic failure create an uneven playing field. | So far, the results of these questionnaires have been indirectly reflected in the periodical analysis and reports and in other different papers of the central bank. The further consolidation of these indicators, paves the path of their publication for the purpose of being used by the economic agents, as an extra way of communicating with the central bank. A preliminary step in this direction is also the consolidation of the applied methodology for calculating these indices, through a professional expertise as that of IFO. The undertaken steps, in expanding and consolidating the statistical basis of the monetary authority in real time, will enable the management on time of the situations and challenges, which are lead by economic development and the further integration of the regional markets. Coordination of the work between regional central banks for adopting the methodology and the indices enables the maximal use of existing knowledge basis on the specific features of our region, against that of the most developed economies. The use of the same methodology for establishing the indices will make it easier to compare them to each other. In parallel, these indicators will serve as a communication tool with the international institutions, specialized in best presenting and identifying the priorities according to the countries and with the foreign investors interested in our country. BIS Review 118/2006 1 Our purpose is to maximally adapt the indices we are drafting to the best international practices in this field, far from voluntarily solutions. | 0 |
Over the next years, supervision and regulation within EU will change and improve significantly with the ECB and NCBs playing an important role. Being part of ESCB, BNB is going to take an active part in the process. Third, the next six years will be crucial to accomplishing one of the country’s major commitments stemming from the EU accession Treaty, namely the adoption of the euro as a national currency. The preparation for this has been a priority for the BNB over the past six years with a significant part of the work in legal, technical and operational terms having already been completed. This task will continue as a major priority in the next six years. Adopting the singe currency by an EU member state is not and cannot be a unilateral decision. In addition to fulfilling the Maastricht criteria, we should also be able to convince all our EU partners of our readiness and capacity to be part of the euro area. This is why the BNB and its Governor need the utmost confidence; this is why I resigned to make it easiest for the Parliament to take a decision. In conclusion, demonstrating effectively compliance with the principle of predictability, I am going to submit to the Office of the Speaker of the National Assembly a nomination for the election of a Deputy Governor in charge of the Issue Department as this Deputy Governor’s term of office expires on October 22. | Thomas Jordan: Real estate prices falling in the US, rising in Switzerland – implications for the SNB’s monetary policy Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the Hochschule für Technik und Wirtschaft, Chur, 18 December 2007. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Developments in the real estate market are important for monetary policy. Real estate markets can influence inflation and economic cycles, but also the stability of the financial system. Property bubbles can result in a massive misdirection of capital and thus give rise to lengthy and difficult adjustment processes. Therefore, the SNB closely monitors developments on the real estate markets both in Switzerland and abroad. The economic outlook is still clouded by undesirable developments on the US real estate market, notably in the period 2004-2006. Given the size of the United States and the broad international spread of investments in the US mortgage market, these distortions have had a serious impact on the world’s financial markets and on global economic development. For some years now, Switzerland too has been experiencing a construction boom and a relatively sharp rise in property prices in certain regions and in given market segments. Comparison of the Swiss and US real estate markets shows, however, that these markets differ in a number of key respects. | 0 |
1.3 The necessary constraints on model risk that the package contains should not be gold plated in the European transposition 1/3 BIS central bankers' speeches The Basel 3 Final Agreement constrains overly aggressive internal models thanks to the introduction of the output floor at the highest level of consolidation. The EU should beware of not adding unnecessary constraints that would increase the impact of the output floor in a superequivalent way. In addition, in Europe, Pillar 2 requirements also cover model risks – whereas it is not the case for US banks, which do not have a specific Pillar 2 add on in their capital requirements. We therefore have to find a way in Europe, in some form or another, to eliminate any overlapping capital charges. 1.4 The need for a stabilization of the regulatory framework after the implementation of Basel 3 finalization We are now coming to an end of this regulatory cycle with the implementation of the Basel 3 finalization. Back in November 2020, the GHoS clearly committed the BCBS to abstain from major regulatory changes in the Basel framework in the near future. We need that banks focus now on other challenges in particular those related to the sustainability of their business models and those related to the new risks such as climate related risks or cyber-risks. 2. The stress testing framework in Europe: past, present and future Now, let me turn to the topic of the stress test in this second part of my remarks. | This exercise proved to be both very useful and reassuring: thanks to the improvement of banks’ capital position with the implementation of Basel 3, and despite the high level of uncertainty triggered by the ongoing pandemic, it shows that the European banking system is resilient to a very severe adverse shock. 2.3 Stress testing should also prove helpful for banks to assess and manage their exposure to climate change related risks The forward-looking perspective of stress tests should prove particularly helpful for banks and their supervisors to handle emerging risks such as climate change. Building on the work carried out by the Network of central banks and supervisors for the Greening of the Financial System (NGFS): we, at the ACPR and Banque de France, have recently conducted such an exercise, with French Banks and Insurers. Beyond helping us identify at an early stage their shortcomings and limitations that we will need to overcome, such stress test have provided us with initial 2/3 BIS central bankers' speeches assessment of climate change-related risks, exposures of French financial institutions, which appears actually to be moderate. But may be more importantly, it has proved helpful to us in incentivizing financial institutions to give the proper level of priority and resources to the monitoring and management of climate-related risks. | 1 |
I should add that while IAS 39 applies to all users of financial instruments, I illustrate its implications below with particular reference to banking. Who and what are accounts for? It is widely accepted that published audited accounts are prepared first and foremost for the owners of a business, that is the shareholders. However, it is often maintained that this information also meets the needs of other stakeholders, including creditors, customers, employees and so on. And so it does up to a point. Yet there are many users who have an interest in the financial position of a firm. On the face of it, it would be rather surprising if a single presentation was ideal for all of them. Let me try to illustrate this for the financial world - where the Bank’s financial stability remit runs - by looking at the respective needs of shareholders, depositors and regulators of banks. Shareholders are particularly interested in the returns being earned by a bank (its profitability), both current and prospective. They are looking mainly at the economic value of the going concern. The focus of depositors, regulators and authorities concerned with systemic stability, on the other hand, is likely to be on whether bank liabilities will be repaid on demand or when due. Two specific examples may help to illustrate these different perspectives: the treatment of “own-credit risk” and the valuation of sight deposits. | With pressures on their capital and new capital expensive where it is available, banks are likely to attempt to increase their margins and to slow down new lending, thereby reducing their capital requirements, for example by tightening non-price terms and conditions on new loans. One factor which regulators are watching carefully at present is the impact of the shift this month to the Basle II system of capital requirements for European banks. While Basle II improves on its predecessor and removes many undesirable incentives, it retains some procyclical features and any transition needs to be managed carefully. 8 The impact on expectations and confidence The other channel by which the financial market turbulence is likely to have macroeconomic effects is by prompting more cautious behaviour by households and firms. This might simply reflect uncertainty about the future. Firms may temporarily postpone investment because of greater uncertainty about the future path of demand. We saw an effect like this after 9/11 for example. But it might also reflect a revision by households and firms about the sustainable path of income and wealth in the coming years. The change in expectations may reflect the higher costs of borrowing and a higher risk of unemployment. Again a reduction in confidence about future growth may lead directly to lower consumption and investment. It is also likely to affect equity and property markets. Potential buyers may decide to wait before purchasing if they sense that there is a chance that prices may fall. Such behaviour can be self-fulfilling. | 0 |
These cover, in particular, monetary and financial statistics, namely MFI balance sheet data, MFI interest rate statistics, investment funds statistics and statistics on securitisation, as well as consolidated banking data. Information from market data providers, available via the ECB’s Market Database, as well as from international institutions such as the Bank for International Settlements (BIS), Eurostat or the International Monetary Fund (IMF), which is part of the datasets collected by the ECB, complements the set of information to support the ESRB’s analysis and deliberations. Cooperation is under way to ensure that the new legislative initiatives of the three ESAs incorporate ESRB requirements to the extent that they can be addressed by using supervisory data. Extensive work has already been carried out with the EBA and EIOPA on the new supervisory templates to be introduced in the next few years. Given the need for agility in responding to new data to cover ESRB requests for information, work on procedures to conduct ad hoc surveys has been carried out, ensuring that the confidentiality issues are duly resolved. All this work requires a very close and ongoing cooperation not only within the ESCB, but also with the ESAs and national supervisory authorities, within other collaboration fora and with many other stakeholders, in particular in the industries concerned, as well as with international organisations in the context of the G20 initiatives. This cooperation is ensured through a Contact Group recently appointed by the ESRB Steering Committee at my request, and it has already proved to be very useful. | Finally, I will highlight what is missing and mention a number of important ongoing initiatives that could help to overcoming the key challenges in terms data that we still need to deal with. 2. The macro-prudential oversight function and the role of the ECB Let me start by reflecting on the macro-prudential oversight function. There are three main components in the macro-prudential oversight process. The first concerns the surveillance needed to identify plausible and (systemically) important sources of risks and vulnerabilities on the basis of an analysis of the individual and collective strength and robustness of the constituent parts of the financial system – institutions, markets and infrastructures. The second involves the assessment of the potential costs and the ability of the financial system to cope with these costs should some combination of the identified risks and vulnerabilities materialise. This requires the ability to measure (and model) the potential costs and to calibrate the plausibility and importance of the various risks. The third component is the possible policy response that needs to be clearly justified and interlinked with systemic risk assessments. In particular, it should inform policy decisions on the appropriate timing of interventions and the selection of tools. The role that the ECB and the national central banks of the EU Member States play in contributing to financial stability is set out in the Treaty on European Union. | 1 |
FIDE Forum and ICILF – working together to increase their impact and influence It is against this backdrop of growing demand that FIDE Forum has stepped in to offer financial institutions a platform to connect with potential directors from both within and outside Malaysia. The Directors Register achieves this in two ways. Firstly, by identifying board-ready individuals who already have the necessary skills, knowledge and experience. And secondly, by initiating into the talent pool individuals who have the calibre to serve on financial institution boards, but require development in certain areas, such as those specific to the banking or insurance industry. By significantly widening the supply sources, this initiative is in many ways a game-changing initiative to strengthen the talent pipeline for financial institution boards. The Directors Register complements the education programmes that have already been introduced for financial institution directors under ICLIF. The FIDE programme has become a standard bearer for exceptional directors’ education with its deep dive into the nuts and bolts of practical governance, its link to supervisory expectations, and a delivery approach that effectively combines the use of exceptional faculty and the rich experience, knowledge and insights of the participants. To date, more than 600 directors from financial institutions, including directors from the regional offices of both foreign and domestic financial institutions, have attended the FIDE programme. This has had a visible impact that in bringing about important positive changes in how boards function and interact with senior management. | Conclusion As a source as well as a destination for investments, Asia presents compelling prospects for the hedge fund industry. Singapore’s strategic location makes us well-placed to serve as a hub with strong physical connectivity, trade and financial linkages to the rest of Asia. Together with our strong commitment to growing a well-regulated fund management industry, this makes Singapore an ideal vantage point for asset managers to understand Asia and to manage pan-Asian investments. So it leaves me now to congratulate SALT on its inaugural Asian leg of the SALT Conference. I wish all of you a fruitful conference ahead. Thank you. 7 Preqin/Global ARC Study of Asian Institutional Hedge Fund Investments 2012 BIS central bankers’ speeches 3 | 0 |
The causes of this downturn are very different from those of most recent recessions and, as I have just described, the policy response on this occasion has been much quicker and more decisive. There is also a third factor that needs to be borne in mind when drawing lessons from history. This is the first recession in the UK for nearly 20 years. The structure of our economy has changed significantly since the early 1990s, and even more so since the early 1980s and 1970s. The UK economy has undergone extensive reforms and deregulation, and businesses have been transformed by the implementation of new technology and the effects of globalisation. It is hard to quantify precisely the various ways in which the structure of the economy has changed. The appropriate data are not always available and it may be a long time until the effects are discernible in aggregate economic statistics. Importantly, the significance of some of these structural reforms may not be fully apparent until the economy is subjected to a substantial shock. For example, one consequence of globalisation is that supply chains around the world are far more integrated. This is likely to have played an important role in the speed and synchronisation of the world downturn, as the effects of falling demand in a few countries were translated into lower orders and production in many in a matter of weeks. That increased integration is also likely to affect the speed and nature of the recovery. | Note: standard deviation of inflation is calculated from quarterly observations of annual inflation; standard deviation of output growth is calculated using annualised quarterly observations of output growth. BIS Review 36/2005 13 | 0 |
Many might believe that since Norges Bank’s key policy rate is set every six weeks, there might be scope for correction should it transpire that economic developments were not as expected. To a certain extent this is the case. But since it takes time for the effects of our decisions to come into evidence, our scope for correction is in reality rather narrow. Setting the key rate at an inappropriate level for a period of time, may have serious consequences for the Norwegian economy. Without complete and reliable information at our disposal, it is easy to err. A number of studies have shown that in such situations humans often resort to more or less qualified guesses, gut feelings or rules of thumb. Allow me to offer an example involving distance judgement. Ordinarily, the closer an object is, the more clearly we will see it. Thus, if they see an object clearly, most people will perceive it as nearby. But when the astronauts landed on the moon, they had great difficulty judging distances, nearly always underestimating them. The reason was that visibility was unusually clear and they were in a landscape without known references. 11 One approach to uncertainty is to do what others do in similar circumstances. The UK decided to abandon the gold standard in summer 1931. In practice this meant a devaluation of the pound sterling against the US dollar. A few days later, Norway and the other Nordic countries decided to follow suit. | This exceeds the typical life span of a bank exposure, as well as the typical 1/4 BIS central bankers' speeches control and planning horizon of a financial institution. Risk management tools, models and scenarios are not designed to capture the long-term nature of climate-related risks.3 Nonetheless, real impacts are already being felt and we must develop the tools to assess and manage them. Second, climate change is complex—the impacts are uncertain, non-linear and hard-to-predict. Trusted credit models, for example, may prove less useful if the historical patterns of the frequency and severity of weather-related shocks become a poor guide to the distribution of future losses. Asset prices may move sharply, and unpredictably, as consensus views change and future impacts are priced today. Moreover, transition risks may stem from second-order, indirect effects like the impact on supply chains, sectoral shifts or worker productivity, which are inherently difficult to model and predict. Third, we face significant data gaps. Climate change is a global phenomenon, but risks should be assessed locally, which requires new data such as asset-specific, geo-spatial data. Borrower-specific analysis requires data, for example, on asset utilization and climate effects for particular industries at particular locations. Such granular data is currently limited and requires significant resources to acquire and process, but greater transparency about the physical location of assets will allow institutions to better assess exposures to at-risk borrowers or to specific geographic risks. As supervisors, we can consider climate-related risks in terms of both microprudential and macroprudential objectives. | 0 |
But I think that, rather than an expense, we should consider enhanced systems or governance as long-term investments. Despite the difficulties, we are seeing adjustments to bank business models, partly as a result of the pandemic but also in response to a trend that had been under way for some time. Headway is being made in digitalisation and process optimisation, which may impact internal control functions. We are also seeing greater resort to outsourcing, and nimbler and more flexible ways of working are being implemented. All these trends involve changes that redress problems and improve efficiency. But, regrettably, they also pose additional risks. It thus seems that neither banks nor supervisors can lower their guard as regards risk. In fact, I believe future work is guaranteed for those of us who make a living from risk measurement and management. Financial education I will conclude referring to an area which I believe is not given sufficient attention, despite it being crucial for ensuring a responsible financial culture that will contribute to the future economic viability of banks, companies and individuals. Clearly, end-financial consumers, especially individuals, are the weakest part of the customerbank relationship. That makes it important for banks to take the utmost care when they advise customers to take up their services. 5/6 BIS central bankers' speeches But we must acknowledge that a shortfall in financial knowledge among citizens is the starting point here. And this may have prompted mistaken decision-making. | Moreover, as we have witnessed, these losses tend to increase precisely during the immediate aftermath of a crisis, when some of the questionable commercial practices are exposed. Consequently, a clear procyclical effect may ensue. For all these reasons, we supervisors and banks must focus our efforts on mitigating nonfinancial risk. How can we reduce it? Unlike other risks, it is not a case of considering what banks should do, but how they should do it. The issue is to improve the quality of internal procedures, IT systems, the governance structure and the compliance function. In addition to material aspects, many of these improvements involve a cultural change which, undoubtedly, is doomed to fail unless resolutely supported by each bank’s management. What is needed here is the involvement of the board of directors, which should consider the management of non-financial risk as part of its regular monitoring tasks, instead of confining itself to reacting to problems that may arise in the event of control failures. Naturally, the board cannot perform its functions if it does not receive the appropriate information from its operating and risk-management and control units, known as the “first and second lines of defence”. And, of course, it also needs to have an internal audit function as a third line of defence. Obviously, considering a strengthening of control functions is not straightforward in the current context. Such improvements usually entail additional expenses that add pressure to the sector’s already-diminished profitability. | 1 |
2 Providing forecasts based on both a constant interest rate and market expectations give information not only about the sign but may also give some guidance about the range. See, for example, the following citation from the Bank of England’s Inflation Report of February 2008: “Under market interest rates, the central projection for inflation was a little above the target in the medium term, while under constant interest rates, it was below the target.” This suggests that the likely interest rate path lies somewhere between a constant rate and market expectations. BIS Review 132/2008 1 Publishing endogenous interest rate paths raises a number of issues, and there is disagreement among both academics and central bankers on whether being that precise about future policy intentions is beneficial or not. The key issue in the debate is whether such communication implies guidance or noise. Some of the arguments for transparency relate to the beneficial effects when private agents understand the central bank’s reaction function, such that market interest rates will adjust more appropriately to economic news. Publishing the interest rate forecast may not be sufficient to communicate the central bank’s reaction function, as one specific forecast does not in itself convey much information about how the central bank responds to various shocks. One could argue that three ingredients are required; 1) the forecasts, 2) how the central bank responds to shocks, and 3) the criteria underlying the forecasts and reaction function. | One of the aims of the merger is to be better positioned to compete with global companies. New market entrants and lower entry barriers promote competition, but there are other mechanisms that could weaken competition in the longer term. One example is if one or a small number of multinationals become dominant payment service providers at the global level. The key words are digital platforms and network effects. Marketplaces such as stock exchanges and shopping centres have existed for a long time. But digital marketplaces, known as platforms, are far more scalable. Well-known examples of digital platforms are Google, Facebook and the classified ad portal Finn.no. These platforms achieve competitive advantage by gathering information about customers, eliminating time-consuming tasks and simplifying users’ everyday lives. Platforms have network effects. Competition can be impaired if platform companies exploit their market power. A large user base makes it profitable for other service providers to develop complementary services. Because of network effects, dominant platforms can achieve a nearmonopoly position. Operators that control parts of the payment infrastructure can shut out competitors. For instance, Apple Pay is the only option for contactless payments based on near-field communication (NFC), using Apple’s iPhones. A number of countries are considering whether this constitutes abuse of a dominant market position. In Norway, this would be a matter for the competition authorities. 1/5 BIS central bankers' speeches Payment solutions should build on a common underlying infrastructure that enables payments to be carried out swiftly, safely and at low cost. | 0 |
Interest rates have been on the increase recently in most parts of the world and capital is not as cheap as before, although it can still be procured at very low rates. Conditions in capital markets in general are therefore more likely to tighten in the coming years. Influential as economic developments on both sides of the Atlantic may be for the Icelandic economy, the way we handle our own affairs is still important. The crucial consideration is to achieve a rapid reduction in macroeconomic imbalances and restore stability. To do so, domestic demand must be reduced. Part of this process will occur automatically with the completion of ongoing investments in the aluminium and power sectors. Much has changed since the meeting a year ago, some things for the better, and others not. The current account deficit run up last year will not be forgotten for a long time – it even managed to trump the most pessimistic forecasts. Fortunately, clear signs of a gradual contraction are now visible, but this improvement is likely to be slower than we had previously expected, especially on account of foreign debt service. The Board of Governors of the Central Bank decided yesterday to leave the Bank’s policy rate unchanged at 14.25%, at the level where it has been since December. By contrast, the day before last year’s annual meeting, the Board of Governors raised the policy rate by 0.75 percentage points. | They responded positively to the Bank’s recommendations, and there was no question that credit growth slowed substantially. However, there are now many indications of a return to the earlier situation, so the Bank must reiterate its words of warning. At the same time as the Central Bank announced its interest rate decision yesterday, it published Monetary Bulletin. This outlines the main assumptions behind the Bank’s decision along with indications about its policy in the near future and the viewpoints it considers important to bear in mind for economic policy. In the current edition, major changes were made to the assumptions behind the baseline forecast, which enhance both the credibility of the forecast and monetary policy transparency. By doing so, the Central Bank of Iceland joined the vanguard of the inflation-targeting central banks. Monetary Bulletin reveals that inflation developments have turned rather more favourable than the Bank’s previous forecast had indicated, and although underlying inflation was somewhat higher in February and March than was hoped, the Bank expects both headline and underlying inflation to decrease rapidly in the next months. By both measures, inflation will be close to target from the middle of 2008. There is no doubt that this outcome is largely thanks to the tight monetary stance, which included raising the policy rate by 3.75 percentage points last year. As usual it should be pointed out – and especially in the current climate – that exchange rate uncertainties can complicate this picture. | 1 |
The banking sector in the Balkans is dominated by foreign-owned banks. In Albania, subsidiaries of foreign banks account for around 78% of banking sector assets, while those from European countries account for 48%. The Bank of Albania is the Resolution Authority for seven subsidiaries of EU based banking groups, of which four are classified as systemically important under the mandate of the Single Resolution Board (SRB). Due to this, the signing of cooperation agreements between the resolution authorities of the banking group and the local authorities where the subsidiary operates is very important for coordinating actions, exchanging data for planning and implementing the resolution, and coordinating crisis management. I have the pleasure to share with you the news that the Bank of Albania has signed an important cooperation agreement with the Single Resolution Board, i.e., the Resolution Authority of the Banking Union, on 3 October 2018. Dear ladies and gentlemen, This Conference is the culmination of our work over the past 18 months for developing a complete framework for bank recovery and resolution. For this reason, the presence of colleagues from supervisory and resolution authorities from various entities assumes special importance. We have representatives from the European Union at the central level, from individual countries of the European Union and representatives from countries of the region, national and foreign bankers as well as the representatives of the media. This presence means sharing experiences and opportunity to evaluate what has been done. | However, the indications are that overdue payments pose a huge problem for businesses in general and in particular for VSEs: at end-2014, outstanding payment claims amounted to EUR 600 billion, of which some EUR 420 billion were owed by private sector firms… and the remainder by the public sector. This requirement should of course apply equally to the public sector, both at national and local level. Various surveys and qualitative assessments show that the situation has stopped improving in the past few months, and that payment times are no longer falling, and in some cases may even be increasing again. Long payment times are not just a financial problem for VSEs, they also place a brake on their expansion, as they spend too much time chasing up overdue invoices, time that could better be devoted to growing the business and investing. The government is acutely aware of this issue and, in conjunction with the Observatory for Payment Times, is taking decisive action to resolve it. The Banque de France intends to help reduce these difficulties by drawing attention to all the solutions available to help small businesses. It will work actively with the Observatory for Business Financing, as well as through its day-to-day contacts with credit institutions and financing companies, to help develop financial products that can better reduce this obstacle to VSE growth. The determined efforts that the Banque de France intends to undertake or to participate in, will of course benefit greatly from your input here today at this symposium. | 0 |
As we noted in the presentations we made before this Commission and the Senate in full last December, the world economy is undergoing a process of recovery in two speeds, generating significant foreign exchange tensions. In early January the Board announced a program of foreign-currency purchases to alleviate these tensions and increase Chile’s international reserves to match those of other emerging economies. Such program involves the purchase of 12 billion US dollars over a period that ends in December this year. Three months into the process, the Bank has bought a little over 3 billion dollars. The peso/dollar parity is now around 3 percent above the level that prevailed before the purchase announcement, fluctuating in the range of 465 to 500 pesos per dollar. The overall trends that have determined an appreciation of the currencies of most emerging economies – including the Chilean peso – are still present. We believe that without the intervention the peso would have appreciated even more. The resolution of growth imbalances around the world will probably take some time, but sooner or later the differences between emerging and developed economies will narrow, mitigating pressures on our currency. Beyond these fluctuations, the gains in competitiveness that our country needs in order to remain on the path to development will be achieved not with actions that artificially increase the level of the nominal exchange rate, but rather with structural reforms that will improve productivity and, therefore, the competitive stance of our exports. | 8 BIS central bankers’ speeches Figure 6 GDP growth (percent) 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 08 09 Annual change 10 11 (1) -6 Quarter-on-quarter change (2) (1) Dark blue shows growth range for GDP forecast for 2011 in Monetary Policy Report of March 2011. (2) Seasonally-adjusted series. Source: Central Bank of Chile. Table 2 Economic growth (annual change, percent) 2009 GDP Domestic demand Domestic demand ((w/o inventory change) Gross fixed capital formation Total consumption Goods and services exports Goods and services imports Current account (% GDP) -1.7 -5.9 -2.9 -15.9 1.9 -6.4 -14.6 1.6 2010 5.2 16.4 11.5 18.8 9.3 1.9 29.5 1.9 2011 (f) 5.5-6.5 7.6 8.7 13.9 7.0 6.8 9.6 1.2 (f) Forecast. Source: Central Bank of Chile. BIS central bankers’ speeches 9 Figure 7 MPR and expectations (percent) 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 07 08 09 10 EES Mar.11 11 FOS 2Q Mar.11 12 13 MPR Source: Central Bank of Chile. | 1 |
Ex ante, they won’t know for sure which is which. Plausibly, it might not be economical to put controls in place for every single innovation on an assumption of ‘exponential growth’. So when exponential growth occurs, controls can sometimes be left behind. Maybe something like that helps to explain the backlog in credit derivative confirmations, which the FSA cautioned banks about a few months ago. Growth in the market has been relentless. And to the concerns about confirmations have been added concerns, amongst practitioners, about unnotified assignments of credit derivative positions, related in part to the growth of hedge fund participation in the structured credit market. If something really bad were to happen, the system would, perhaps, be less robust than otherwise if dealers were not sure about who their counterparties were, etc. This is the type of challenge where collaboration across the industry is needed; and where individual firms’ incentives are stronger if they can each be confident that their peers are taking broadly the same actions. What I have in mind is the disincentive a firm faces in being tough with a hedge fund client if they doubt their peers will take the same line. Bodies such as ISDA have a role to play here, and I understand are doing so. Collective elements in atomistic markets So, where are the risks? They are all around us all of the time, of course. Some will crystallise. But that need not lead to disorder. | In particular, the Riksbank follows a direct inflation targeting strategy in which monetary policy is almost exclusively guided by inflation forecasts of about two years ahead. In contrast, the Eurosystem relies on two pillars, thereby focusing on the medium term, and does not give such a predominant role to inflation forecasts as the Riksbank. In our view, the Riksbank has achieved high standards with regard to transparency and accountability, as is for example evidenced by its comprehensive quarterly inflation report. In more recent years, the Riksbank has enjoyed a fair measure of success in gaining control over domestic price developments, as supported by its strong performance in fighting inflation, and in overcoming a deep recession in the early 1990s. Its track record also demonstrates that price stability in Sweden was given a high priority long before this was formally recognised by an amendment to the Riksbank Act at the start of 1999. The Eurosystem’s stability-oriented monetary policy strategy rests on two pillars, which are both important when the Governing Council discusses monetary, financial and economic developments at its biweekly meetings. The first pillar, which is a prominent role for money, takes into account the essentially monetary origins of inflation over the medium to long term. It recognises that empirical studies show a stable long-term relationship between money and prices in the euro area. Therefore, in the euro area, monetary developments constitute an important guide for the conduct of monetary policy and it is essential to analyse and monitor the development of monetary aggregates closely. | 0 |
Further advancement towards greater international integration will be considered to provide Malaysian consumers with greater access to world-class products and services, while further catalysing the development of the domestic industry towards meeting international best practices and standards. This will include the issuance of new licences in specialized lines and greater opportunities for internationally-reputed insurers to acquire equity interests in, or forge strategic alliances with domestic players, both in the direct insurance as well as re-insurance sectors. The progression towards further deregulation and liberalisation will continue to be managed at an appropriate pace, taking into account the development of the supporting infrastructure and the level of substantive progress achieved by domestic institutions, in order to ensure market stability. Next on the agenda in the development of the domestic financial system is the formation of investment banks. This is aimed at further enhancing the delivery of financial services to the wholesale and corporate sector. With this rationalisation, the business community will have a more streamlined access to banking services to fulfil their wider range of requirements. Comprehensive changes to the organisational structure of the development financial institutions have also been undertaken to provide a clearer scope and focus to service the needs of targeted sectors. At the same time, measures were also instituted to expand the role of the credit guarantee agency to further facilitate the development of the small and medium enterprises, a critical component of the nation's economy. | Mojmír Hampl: A digital currency useful for central banks? Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, at the 7th BBVA Seminar for Public Sector Investors and Issuers, Bilbao, 27 February 2018. * * * Ladies and gentlemen, Let me begin by thanking BBVA for their kind invitation to this event. It is a pleasure to speak in front of this knowledgeable and receptive audience, and it is a pleasure for me in particular to be in Bilbao for the first time in my life. Cryptocurrencies, digital currencies, and especially bitcoin have become almost household names over the last couple of months. What is especially interesting and curious for this place – as some of you might know – is that among the hundreds of cryptocurrencies introduced in the last couple of years is one called “bilur”, which means “chain” in Euskara, the Basque language. Bilur is unique for being the first cryptocurrency explicitly linked to the price of oil. By the way, the second part of the label “cryptocurrency”, namely the currency part, is a misnomer in my eyes. No existing cryptocurrency for the time being conforms to the three basic functions of money: a store of value, a unit of account, and a medium of exchange. One cannot store value in an asset that can get 30%–50% cheaper or more expensive in a matter of days. | 0 |
Looking at the prospects and having in mind the country’s strategy for expeditious accession to the euro area, however, this is a macroeconomic variable which faces the country with the greatest challenges. The inflation criterion, as defined in the Maastricht Treaty (this is not the place to deal with the issue how good this definition is), is very strict and requires a purposeful policy going beyond the monetary and fiscal policies. In Bulgaria’s case, under the currency regime of fixed exchange rate and extremely conservative fiscal policy, untapped prospects should be sought in encouraging competition and improving the business climate, thus ensuring to the economy the flexibility to respond to exogenous changes (including with regard to the prices of raw materials) and enabling supply to react more promptly to increases in demand (both domestic and external). In the past year, inflation reached 6.5 % under the strong proinflationary impact of the increase in the prices of energy resources (direct contribution of 1.0 % in the overall price increase).In addition, the largescale floods resulted in an unexpected increase in foodstuff prices (contribution of 2.6 % in the overall price increase). This year, inflation is expected to decline to 6.0%. The slow process of decreasing inflation is mainly determined by the harmonization of indirect taxes with the minimum levels in the EU, pursued early in the year. | Consistent with this, we can see that in their published accounts, banks are placing a fair value on some of their assets which is below the book value. 2 BIS central bankers’ speeches This evidence, while informative, does not, for me at least, get to a conclusion on the need to add more nominal capital, or more particularly how much capital to add. To do that, we need to know more about the contribution of these various possible causes of market values of banks’ capital, and that must be the key next step in the work. On this, I would ask for the insights of banks themselves and analysts, because as I always say, I know one thing for sure, we don’t have a monopoly of wisdom, and this is a tough question. But, it is a key question, because the danger of a very slow resolution of the capital gap is that new lending to the economy is seriously restrained. This is the Japanese threat, based on the recent history of Japan, and the basis of the argument that a more aggressive approach to re-capitalising banks will create more support for new lending. Moreover, it does illustrate why we see a close interaction of the FPC’s two objectives, of resilience and growth. I need to see more evidence and analysis of why market values of banks’ capital are low before I can determine what and how much needs to be done. | 0 |
32 All speeches are available online at www.bankofengland.co.uk/speeches 32 Table 3: Regressions of labour share on UK-listed firms’ mark-ups Log labour share Log labour share Log labour share Log mark-up -0.094*** (0.019) -0.093*** (0.024) -0.067*** (0.020) Log mark-up squared -0.024 (0.019) Concentration Log mark-up * concentration (interaction term) -0.033 (0.020) 0.061 (0.074) 0.062 (0.073) -0.225 (0.151) -0.233 (0.151) Firm fixed effects Yes Yes Yes Time fixed effects Yes Yes Yes N 21997 17218 17218 0.013 0.014 0.015 R 2 Sources: Thomson Reuters Worldscope and Bank calculations. Notes: Standard errors in parentheses; * p < 0.10; ** p < 0.05; ***p < 0.01 Labour share defined as nominal wage bill divided by nominal value-added, where value-added is defined as the sum of operating income (before depreciation, depletion and amortisation costs) and labour expenses. To deal with outliers, we trim observations where the measured labour share is less than zero or greater than one before running regressions. 33 All speeches are available online at www.bankofengland.co.uk/speeches 33 Chart 13: Impact of mark-up shock on annual inflation, output gap and policy rate Annual inflation: Output gap: 34 All speeches are available online at www.bankofengland.co.uk/speeches 34 Policy rate: Sources: Bank calculations. Notes: COMPASS contains various mark-ups shocks. For simplicity, the shock shown here is the value-added mark-up shock. | And it is also clear that that transition in thinking needs to lead soon to transition in action, if we are to reduce these financial risks in a timely manner and so avoid a late and abrupt transition to the low carbon economy to which governments have committed. To make this happen, we need to learn by doing, to identify decision-useful information that will support the necessary transition; and we need to identify the barriers to the mainstreaming of green finance so that the transition can be financed in practice. It’s a tough ask that gets more pressing by the day. The prize could not be more important. We must keep up the good work. 7 https://www.banque-france.fr/en/financial-stability/international-role/network-greening-financial-system 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 References Carney, M. (2015), “Breaking the Tragedy of the Horizon – climate change and financial stability”, speech given at Lloyd’s of London, September 2015. Carney, M. (2016), “Resolving the climate paradox”, Arthur Burns Memorial Lecture, Berlin September 2016. Climate Bonds Initiative (2017) “Bonds and Climate Change, The State of the Market 2017”. Climate Bonds Initiative and UNEP Inquiry into the Design of a Sustainable Financial System (2015) “Scaling up green bond markets for sustainable development”. OECD (2016), “A quantitative framework for analysing potential bond contributions in a low-carbon transition”. PRA (2015), The Impact of Climate Change on the UK Insurance Sector. Scott, M., Van Huizen, J. & Jung, C. The Bank of England’s response to climate change. 98–109 (Bank of England, 2017). | 0 |
The gap between actual and potential growth does not appear to be completely closed, while the Riksbank and others perceive that this gap is well and truly closed in the USA. 5 BIS Review 89/2000 There are thus a few pieces of the puzzle remaining before we can feel convinced that Sweden is moving towards a US development: how large is the IT sector in the Swedish economy? How important is the IT sector to the rest of the Swedish economy? What does IT mean to productivity in Sweden? Unfortunately I have to say now that we know too little about this. We know that productivity in Sweden has developed unevenly during the 1990s - a disjointed period disturbed by a bank crisis, currency crisis and problems with public finances. Investment has developed more weakly than in the USA, although it has picked up in recent years. Capital intensity does not, therefore, explain the growth in productivity. What does become more evident, on the other hand, is a break in trend in that part of productivity attributed to technology and more efficient organisation, ie total factor productivity TFP (slide 5). This showed a weak and tentative development up to the mid-1990s, but has really picked up over the last five years. 5. | 8 S weden US A 9 G e r m a n y1 0 s o u r c e s : N e t p r o f it, F T 11 12 U s e r s o f in te r n e t b a n k in g s e r v ic e s s o u r c e s : S a lo m o n S m it h B a r n e y , F T S weden 13 US A G e r m a n y1 4 15 16 M o b ile u s e r s s o u r c e s : N e t Pr o f it , F T S w e d e n1 7 US A G e r m a n y1 8 19 20 Users of m o b i l e in t e r n e t s o u r c e s : N e t Pr o f it , Ip s o s , F T S w e d e n2 1 US A 22 G e rm a ny 23 However, Sweden’s relatively high growth rate and low inflation rate can at the same time be partly explained by the fact that we are still absorbing spare resources and labour laid off in connection with the crisis at the beginning of the 1990s. | 1 |
These properties would provide supporting evidence of the economic reasonableness of the calibration. And it would provide assurance that the package is serving its policyholder protection purpose. In particular, as MA portfolios become more diverse then a question arises as to whether the assets currently backing a book of business are assets that another party would be able and willing to take as funding. To achieve a material reduction in the level and sensitivity of the current risk margin, the PRA considers it necessary for the design of the MA to appropriately reflect uncertainty around future credit risk experience that would likely be reflected in any transfer price. The FS is the key determinant as to the amount of any expected future investment profit firms can recognise upfront. A calibration of the FS that is too low exposes firms to risk that this future investment profit does not emerge in practice and the associated implications this would have on their ability to meet their liabilities as they fall due. A successful outcome of the Solvency II review will be DB scheme members, trustees and insurance policyholders having long-term confidence in the resilience of the insurance sector, and in the security of their benefits. Page 9 Conclusions and next steps Solvency II has only been in force for around six years, but we have already learnt a lot. Particularly in respect of the relationship between the regulatory framework and firms’ business models. | Whilst we would not expect all assets to achieve the same MA, these disparities do give rise to questions as to the extent to which MA benefit is excessively influencing investment choices: and whether those behaviours are prudent and delivering the best outcome for the UK economy. Furthermore – Chart 5 shows a relatively small proportion of firms’ asset holdings are driving the majority of their MA benefit[4]. Whilst firms are expected have a diverse range of assets matching their liabilities, this raises the question of whether the current MA framework adequately captures the risks and uncertainties associated with the unique and innovative assets that tend to be the most MA-efficient. Naturally, investment in new asset types with some bespoke and novel features raises new and important questions for the prudential regulator: Do firms have the right risk management capabilities and the governance to apply them rigorously and robustly? Is the regulatory solvency regime suitable for them or is a square peg being forced to fit a round hole? The PRA has always focused on ensuring that investments in these new asset types do not break the link between risk exposures and their valuation and capital requirements. The most notable example of this is the extensive work we have undertaken on Equity Release Mortgages. The assessment of valuation and risk in assets with more bespoke features inherently requires more judgement, and relies much more on firms’ own internal assumptions and much less on public information. Firms argue that they are good at making these assessments. | 1 |
Its level of linguistic complexity is 5 years lower than the Inflation Report, making it accessible to around 14 million more people, or around a quarter of the adult population. A third example is the Bank’s flagship publication, the Inflation Report. In November, the Bank for the first time published the Report in three layers: Layer 3 was the usual “50 page, 50 chart” version; Layer 2 was the “1-2 page, 1-2 chart” version; and Layer 1 was the “1 line, 1 chart” version. With a level of complexity more than 6 years below Layer 3, Layers 1 and 2 in principle could reach an extra 21 million people. Early evidence suggests this layering has helped in reaching a broader audience. Website hits on the November Inflation Report were double the average from earlier quarters. These extra hits were entirely accounted for by Layers 1 and 2, while Layer 3 hits were essentially unchanged. This suggests that layering has enabled the MPC to reach a new, wider audience without cannibalising its existing audience. 42 Producing simplified material, like layering, is neither a short cut nor an easy option. Nor is it simply an act of communication. Message simplification is an act of policy. As such, simplified messages need to be agreed and signed-off by policy committees – as were the Layer 1 and 2 messages in the Bank’s November Inflation Report. They are another example of the Marshall McLuhan maxim of the medium becoming the message. | Improvements in the SDDS and more transparency regarding Article IV reports, letters of Intent and policy papers will certainly improve risk assessment. This could help prevent economic problems from turning into crises and to prevent contagion to other countries. Progress has to be made as regards incentives for sound management. The creation of the CCL is a step in this direction. Designing appropriate incentives is the more effective way to make Members adopt more prudent debt management, effective banking supervision… Given the large number of institutions and fora involved in the efforts aiming at a better global financial architecture, the creation of the Financial Stability Forum reflects an important effort to coordinate work in progress and identify issues not yet addressed. THE EUROPEAN MONETARY UNION WILL YIELD A SUBSTANTIAL CONTRIBUTION TO BETTER ECONOMIC AND MONETARY EQUILIBRIUM IN THE WORLD The introduction of the euro six months ago is the other major event I would like to deal with now. The irreversible nature of this change has convinced an increasing number of political and economic actors that the success of the euro is a necessity for Europe. It is a keystone of the single market. It is clear that, now and for the future, we have to face a number of challenges to make this success sustainable. | 0 |
The Iranian sanctions are designed to stifle the Iranian regime’s nuclear ambitions. The Cuban sanctions are intended to hinder the advancement of communism in the Americas and to change an oppressive regime through a trade embargo. For U.S. financial institutions, which operate on the basis of a public charter issued in the United States, the public purposes supporting economic sanctions and the detailed sanctions regulations are in harmony. With respect to rule compliance, the staff will follow those rules not simply because they are required to but also because they want to. While I am not here to speak for foreign institutions that have committed sanctions evasion, including BNPP, my sense from the evidence is that these institutions looked at economic sanctions very differently. They looked at economic sanctions as technical “American” rules that were not seen as consistent with the organization’s and the home country’s larger value system. In Europe, they found no similar sanctions, and there it was perfectly legal at the BIS central bankers’ speeches 1 time to do business with these sanctioned jurisdictions. Some European bankers almost naturally adopted the view that there was no value system underlying the technical American legal rule. The foreign institutions saw the situation as providing financial services to just another country; not to a country committing genocide; not to a country building a nuclear weapon; and not to a country fostering a dehumanizing ideology. This failure to correlate the rule with the value is the root of real mischief. | Thomas C Baxter, Jr: Reflections on the new compliance landscape Remarks by Mr Thomas C Baxter, Jr, Executive Vice President and General Counsel of the Federal Reserve Bank of New York, at “The New Compliance Landscape: Increasing Roles – Increasing Risks” Conference, New York City, 23 July 2014. * * * The views expressed are the views of the author and do not necessarily reflect the views of the Federal Reserve Bank of New York, or any component of the Federal Reserve System. Let me begin by thanking the Risk Management Association, PWC, Debevoise & Plimpton, and my friend Paul Lee for inviting me to participate in this conference. Of course, I need to give what sometimes sounds like a Miranda warning – my remarks are personal, and do not represent an official position of the Federal Reserve Bank of New York, or any part of the Federal Reserve System. There is nothing I will say that can be used against them. I am going to address three specific compliance problems: economic sanctions, tax evasion, and foreign corrupt practices. I will use these three compliance problems to illustrate a larger point about organizational culture. If organizational values do not support the rules that organizations use to guide the behavior of employees, and worse, if organizational values actually conflict with those rules, the organization is headed for troubled territory. In my remaining time, I will elaborate on this fundamental point. Let me start with economic sanctions. | 1 |
Only then are we able to exercise thoughtful judgment. There will be a balance between supporting innovation and technology use, while pre-empting new or heightened risks that these may present. MAS takes an even-handed approach by providing a regulatory regime that is risk-proportionate across the range of institutions involved in regulated financial activities. We seek to provide the environment, and even to encourage new FinTech and other players to establish themselves to compete, collaborate and innovate. We allow for adoption of technology and innovation in 3/5 BIS central bankers' speeches financial services, especially those that hold promise in raising efficiency, in creating new opportunities, in enabling new or value-adding services or simply to manage risks better. MAS adopts a “materiality and proportionality” test, and seeks to right-size regulations to be fitfor-purpose; for both traditional as well as new business models, according to the risks the activity poses. For example, in the new Payment Services Bill that MAS has consulted on, regulatory requirements for payment activities will be differentiated according to the risks that specific activities pose rather than apply a uniform set of regulations on all payment service providers. Regulation comes in when the risk posed becomes material or crosses a threshold. The weight of regulation must be proportionate to that risk. Singapore is one of the first jurisdictions to have established regulatory sandboxes where firms can experiment their innovative solutions in a contained environment, with access to a limited pool of actual customers. | This is what the FinTech players have sought to do, and this is what banks are fighting back on. Banks will have the advantage of being highly regulated and trusted, that smaller and newer players may find it hard to challenge. The general consensus is that many FinTechs and the established financial institutions will collaborate. There is a natural synergy here: (a) Collaboration with financial institutions enables FinTech players and technology firms to broaden their reach. (b) On the flip side, FinTech solutions present established financial institutions with opportunities to enhance their product offerings or to improve operational productivity. McKinsey estimated that enhancing digital capacity and adopting technologies could result in productivity gains worth roughly $ billion for the global banking industry by 20252. But the competition will remain intense. Large internet-based firms with their massive customer base can be serious contenders for customer mind-share and wallets including in the area of financial services. There is another development that has gained traction. We see the emergence of fully digital banks that operate entirely online with no physical branches, but are able to provide similar services as the traditional brick-and-mortar banks. Fidor Bank, founded in Germany, is one such example. WeBank in China is another. DBS’ Digibank, a mobile-only bank in India, is also completely branchless and in less than two years, have signed up more than 1.5 million 2/5 BIS central bankers' speeches customers. All three have different origins and operate very different business models. | 1 |
A more granular disclosure of data could allow the construction of more meaningful sets of indicators and prevent misleading comparisons across institutions. On the analysis of capital adequacy, uncertainly about the computation of risk-weighted assets is shifting the focus to indicators calculated on the basis of total assets or tangible assets, balance-sheet equity and leverage ratios. Clearly, in the medium-term, a higher quality of data for financial stability surveillance and assessment may also be achieved through a better disclosure policy on the part of financial institutions. Benefits would come also from timely and harmonised reporting. 5. What is missing: remaining data gaps and other challenges confronting macro-prudential analysis While data gaps can never be closed in full – also because they are a moving target – attempts to reduce these gaps are vital. With respect to macro-level data, efforts to improve the effective coverage of the so-called shadow banking sector – i.e. of credit intermediation, liquidity and maturity transformation activities that take place outside the regulated banking system – need to be continued. Important components of the shadow banking system include certain money market funds, structured investment vehicles, off-balance-sheet vehicles (reliant on banks’ credit lines) and securities lenders. Although some progress has been made, data gaps remain that render the proper monitoring and assessment of systemic risks arising from securities financing transactions (notable via repurchase agreements and securities lending) unfeasible. Challenges also arise from the activities of the shadow banking system that go beyond a specific group of entities or types of business. | It allows countries to leverage on the respective comparative advantage and complementarities to reinforce mutual growth. This would be important in the current environment to facilitate cross border economic activity. The liberalisation of the capital account in the form of removing restrictions to foreign exchange transactions would also increase the flexibility of managing such foreign exchange transactions. This would increase the potential to better manage its associated risks, while BIS central bankers’ speeches 1 the increased efficiency gains would also reduce the cost of doing business. Finally, it is also argued that in a more liberalised environment, there would be greater market discipline which would in turn promote financial stability in the domestic financial system. This however, relies on a sufficient level of disclosure and transparency to allow the efficient functioning of the markets. The internationalization of financial systems is however, not without risks and challenges. The risk of contagion following from the increased connectivity increases significantly, in terms of the extent and speed. The contagion can result from external events and developments that can range from failure of large and important international financial institution to the eruption of wars or political incidents that have regional or global repercussions. Meanwhile, global developments including from global policy spillovers have also resulted in more volatile capital flows. The increased openness of the financial system also increases the vulnerability to economic cycles in other parts of the world. | 0 |
Adrian, Tobias, and Hyun Song Shin (2009), “Financial Intermediaries and Monetary Economics”, in Friedman, Benjamin M., and Michael Woodford, eds., Handbook of Monetary Economics, Volume 3a and 3b, forthcoming. Bank for International Settlements (2009), 79th Annual Report, www.bis.org. Bean, Charles R. (2009), “The Great Moderation, the Great Panic and the Great Contraction”, Schumpeter Lecture, Annual Congress of the European Economic Association, www.bankofengland.co.uk. Bernanke, Ben S. (2010), “Monetary Policy and the Housing Bubble,” speech on January 3, 2010, www.federal.reserve. Blinder, Alan S. (2010), “How Central Should the Central Bank Be?” CEPS Working Paper No. 198. Borio, Claudio and Haibin Zhu (2008), “Capital Regulation, Risk-taking and Monetary Policy: A Missing Link in the Transmission Mechanism?” Bank for International Settlements Working Paper 268. Borio, Claudio and White, William R. (2003), “Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes”, in Monetary Policy and Uncertainty: Adapting to a Changing Economy, Federal Reserve Bank of Kansas City Jackson Hole Symposium, 131–212. BIS Review 16/2010 7 Carney, Mark (2009), “Some Considerations on Using Monetary Policy to Stabilize Economic Activity”, in Financial Stability and Macroeconomic Policy, Federal Reserve Bank of Kansas City Jackson Hole Symposium. Cecchetti, Stephen, Hans Genberg, and Sushil Wadhwani (2002), “Asset Prices in a Flexible Inflation Targeting Framework”, in Hunter, W., G. Kaufman, and M. Pomerleano, eds., Asset Price Bubbles: The Implications for Monetary, Regulatory and International Policies, Cambridge, 427–444. Curdia, Vasco, and Michael Woodford (2009), “Credit Frictions and Optimal Monetary Policy”, working paper. | We are also looking very seriously into the possibility of a wholesale central bank digital currency: it would play a key role as the safest settlement asset, and would thus continue to anchor the monetary and financial system, even as the latter becomes partially tokenised. This is why the Banque de France is going to add, alongside some of you, three more experiments to the nine already carried out; it is also with this in mind that the Bank organised a pioneering international conference on 27 September on the tokenisation of finance. On a regulatory level, France was one of the first to propose a new DASP status under its 2019 PACTE Law, which has since been attributed to 54 players. Europe has provided a pioneering regulatory framework for crypto-assets thanks to the MiCA regulation; following the agreement obtained under the French presidency, it is crucial that it be adopted, and as quickly as possible. In the meantime, we will remain extremely vigilant regarding the risk of regulatory arbitrage in Europe. On a global level, it is imperative that the other large jurisdictions – including the largest one – now implement the shared recommendations of the G20 and FSB on consumer protection, financial stability and the prevention of money laundering. We all confirmed our agreement last week in Washington: this is good news for “trusted innovation”, but we need to turn our words into action on everything, and quickly, following the examples of France and Europe. | 0 |
To achieve this, it is key that commercial banks are involved in the transmission of such funds. In addition, money transfer companies like Western Union and Money Gram have played a significant role in transferring remittances. Their wide geographical extension throughout the country covering many rural areas has complemented adequately the rather slow expansion of the banking sector in facilitating money transfers. The recent development of the payment BIS Review 2/2010 1 system in Zambia has also played a key role in the movement of funds through official means. Nevertheless, unofficial flows still remain high signifying a business opportunity for banks. However, banks and other financial institutions, despite being safer, are perceived to be more expensive than the alternative unofficial means to the point of inducing many people in diaspora to stick to unofficial means. It is therefore important for banks to be mindful of their cost structures for such services. In this regard, the Bank of Zambia welcomes the introduction of the “Ecobank Rapid Transfer” and the “Non-Resident African Account which we have been informed will be lower cost products. This will no doubt increase the level of access to financial services in the country as well as enhance the level of competition by increasing the number of participants in the market. We hope that the introduction of these lower cost products will push the transfer commissions in this market downwards. | The opportunity, primarily for banks and other financial institutions, is to find ways to leverage Zambians in the diaspora to use remittance services that will both be profitable for the banks and will also provide them and their families with greater financial access. I thank you for your attention. 2 BIS Review 2/2010 | 1 |
And since we will only purchase bonds with a remaining maturity of between one and three years, there will still be ample room for market discipline on governments at longer maturities. Second, our actions will not lead to inflation. The weak overall economic situation, combined with slow money growth, means that the risks of inflation are currently very low over the medium term. Our interventions will not change this outlook. In fact, for every euro we inject with our interventions, we will withdraw a euro. So they will not affect monetary conditions. Furthermore, we see no signs that our announcement has affected inflation expectations. They are firmly anchored because we have always delivered price stability. And citizens can trust that we will continue to do so: price stability remains our mandate and our sole objective. Third, our actions will not lead to greater risks for taxpayers in Germany. Taxpayers are protected by the fact that our interventions will take place only in countries with sound economic and fiscal policies. Their continued commitment to these policies will be ensured by the ESM programme. And the ECB will assess compliance with this programme in full independence. Moreover, by normalising conditions in financial markets, our actions will help reverse the capital flows into Germany that are creating some distortions here. This should ultimately support the savers, pension funds and insurance companies that depend on interest income. And it should reduce TARGET2 imbalances. | Nevertheless, the exchange rate remains an important driver of future inflation in the euro area. Certainly, the appreciation that took place since mid-2012 had an impact on price stability. In the present context, an appreciated exchange rate is a risk to the sustainability of the recovery. Recent monetary policy measures Let me now move to explaining our monetary policy stance. We decided on a number of monetary policy measures in early June. These measures are aimed at providing additional monetary policy accommodation by supporting lending to the real economy. In line with our price stability mandate, these decisions are an essential contribution to bringing inflation rates closer to 2%. They will also contribute to a further strengthening of the recovery. • Specifically, we lowered all key interest rates further. Our main refinancing rate now stands at 0.15%. Accordingly, our deposit facility rate has been cut to a negative level and now stands at –0.10%. • We will conduct targeted longer-term refinancing operations (TLTROs) as of September 2014. In these operations, banks will be entitled to borrow from the Eurosystem, conditional on their lending to the private non-financial sector, with loans to households for house purchase being excluded. • In addition, we are intensifying our work in preparation of possible outright purchases in the market for asset-backed securities (ABSs). | 0 |
François Villeroy de Galhau: New Year wishes to the Paris financial centre New Year wishes to the Paris financial centre by Mr François Villeroy de Galhau, Governor of the Bank of France, Paris, 15 January 2020. * * * I would like to welcome you for this for this happy tradition of extending my New Year wishes to the Paris financial centre. But there are not just financial players here, there are also elected representatives, the press, and many associations that work with us. I would like to start by extending to you, on behalf of the Banque de France and the ACPR, our warmest wishes for 2020, for you and all of your staff. And a special thought goes to all those who are struggling with transport difficulties, or those who have, sadly, been the victim of the unacceptable attacks on branches. Within this tradition, I would like to welcome some new developments: the arrival of Dominique Laboureix as Secretary General of ACPR, alongside Patrick Montagner, Bertrand Peyret, Frédéric Visnovsky, and Emmanuelle Assouan, who will now be in charge of financial stability issues. In a world as hectic as ours, it is risky to make professional wishes. However, I will hazard three wishes for the financial sector in our country: that 2020 will be a year of stabilisation, a year of adaptation and a year of inclusion. | 3 – A year of inclusion We can look forward to two real advances in inclusion in 2019: a fifth consecutive year of declining household over-indebtedness, by almost 40% over this period, and the implementation of a cap on bank charges at EUR 25 per month for more than three million vulnerable customers. Within this population, the specific offer – capping charges at EUR 20 per month and EUR 200 per year – now benefits 464,000 customers, or an increase of 32% compared with end-2017. I would like to take this opportunity to thank the banking community, which has worked hard to meet its commitments. Now, these commitments must be enhanced, and sustained. Enhanced in 2020: banks must detect fragile customers even more efficiently; they must correct the few remaining shortcomings; and they must raise awareness of their specific offers. These commitments must be sustained over time, and will be monitored by the ACPR, and by the Observatory for Banking Inclusion, which I chair, with an active role for the associations. Climate change will also be the priority in 2020. And you can count on the determination of the Banque de France and ACPR – with its new Climate and Sustainable Finance Committee – to support the greening of the financial sector. We will conduct the first climatic stress tests in the coming months. The aim of this exercise is twofold: to better identify the resilience of banks and insurers to climate risks, and to speed up the methodological work in order to have quality assessments. | 1 |
(2017) ”Designing New Money The Policy Trilemma of Central Bank Digital Currency”. CBS Working Paper, June 2017, and Bordo, M. and Levin, A. (2017) ”Central Bank Digital Currency and the Future of Monetary Policy”. Economics Working Paper 17104 Hoover Institution. 29 The banks would still have access to central bank money as they have reserves at the Riksbank. 11 [15] An e-krona system could work for the instant settlement of payments around the clock. We are also analysing the possibility of getting certain parts of it to work off-line. This could turn out to be important, not least in a crisis situation. In addition, there exists a risk for cyberattacks, which may increase in the future. I consider that Sweden’s preparedness will be weakened if, in a serious crisis or the event of war, we have not decided in advance how households and companies will pay for fuel, food and other necessities. Making it possible to make payments off-line may also be necessary to ensure that payments can be executed in all parts of the country. Any e-krona would also have to be designed bearing in mind that there are certain groups in society that presently experience problems with the disappearance of cash as, for various reasons, they find it difficult to use digital solutions. This may include older people, disabled people or people without access to bank cards for economic or other reasons. | It is important to note that no specific values have been defined for significant changes, such as the fluctuation margins of 2¼ per cent, 6 per cent and 15 per cent used by the EU countries in their exchange rate regime. Significant must be given an economic content. A reasonable interpretation is that exchange rate movements must not influence expectations concerning price and cost inflation to the extent that changes in the exchange rate become self-reinforcing. The expressions with a view to, over time, aimed at and based on also show that Norges Bank has considerable scope for exercising discretion. Exercising discretion In exercising this discretion, Norges Bank places emphasis on the fundamental conditions for achieving exchange rate stability over time. Price and cost inflation must be brought down to the level aimed at by the euro countries. At the same time, monetary policy must not in itself contribute to a deflationary recession. The regulation’s requirement with regard to returning the exchange rate to its initial range * may – if stretched – imply an element of “parity policy” . For example, in a scenario with a sharp and prolonged fall in oil prices, the krone exchange rate may remain outside the initial range for a longer period. If Norges Bank responds by raising interest rates in order to force the krone back to its initial range, monetary policy could lead to a recession that will undermine confidence in the krone. | 0 |
I have ventured to outline three lessons that are hopefully are universally valid. But we can never be sure. I mentioned Ibsen’s “Enemy of the People”. Allow me to conclude with Doctor Stockmann’s comments: Riksbank’s was not permitted to print banknotes when it was founded. In Norway, Jørgen Thormølen issued banknotes in September 1695. His venture lasted a year! See Anders Bjarne Fossen (1978), Jørgen Thormølen. Forretningsmann, storreder, finansgeni [Jørgen Thormølen. Businessman, shipping magnate, financial genius]. Eirnar Blaauw A.S, Bergen. 25 In Act I of Part II of Goethe’s Faust, published in 1832, the Emperor is in financial difficulties. Mephistopheles convinces him to print paper money backed by gold that has yet to be mined to boost economic activity. This works for a while, until soaring inflation destroys the economy. Jens Weidmann, the President of the Bundesbank, spoke of the dangers posed by overly unrestricted monetary policy, based on Faust, during the festival “Goethe und das Geld” in Frankfurt in September 2012: http://www.bundesbank.de/Redaktion/ EN/Reden/2012/2012_09_20_weidmann_money_creaktion_and_responsibility.html 10 BIS central bankers’ speeches Yes, believe me or not, as you like; but truths are by no means as long-lived as Methuselah – as some folk imagine. A normally constituted truth lives, let us say, as a rule seventeen or eighteen, or at most twenty years –seldom longer.26 Ibsen’s play has been long-lived. It is still performed all over the world, 130 years after it was written. Not because the Norway of the 1880s never loses its appeal, nor because Doctor Stockmann found eternal truths. | From a medium-term perspective, and even when conditions are established that will free up the flow of credit from the banking sector to the 4 BIS Review 52/2009 real economy, it cannot be expected that rates of expansion will rise again to the heights of recent years. The de-leveraging process underway in the banking sector, and in the economy in general, is not a passing fad, but rather a means of achieving lower and more sustainable debt positions. One way of making up for the lower rates of credit expansion, and thus countering the foreseeable narrowing of net interest margins, would be to diversify banking activity into new business segments. In principle, diversification is a positive thing, but it must be undertaken with caution. Experience shows that both in Spain and internationally, only on limited occasions can an institution's sound knowledge of its core business be directly transferred to activities that lie further afield. Accordingly, those in charge of institutions should show prudence and avoid what can be termed contrived diversification processes and carefully assess their entry into unfamiliar market segments in which they lack experience. Second, in the short term bad debts will keep rising and so the pressure on loan loss provisions will continue to be high. It is true that the reduction in interest rates will bring relief for households and firms and help to limit the impact of the rise in bad debts, but the contractionary phase of the cycle will foreseeably last some quarters. | 0 |
The participation of banks in the debt guarantee schemes is voluntary, and the very limited use of these guarantees may reflect a decline in the demand for credit and/or the desire of the banks to continue deleveraging their balance sheets. It is, however, important to ensure that other constraining factors are addressed, for example that the disincentives associated with the provision or pricing of these debt guarantees are promptly addressed, so as to help banks finance additional lending to the private sector. Possible further measures A relevant question is whether the tight financing conditions and the continuing stresses on the banking system require further measures by governments and central banks in order to help revive the extension of bank credit to the economy. The answer regarding the need and the nature of potential further measures depends on the causes or determinants of the prevailing financing conditions and on the structure of the financial system. To the extent that (i) financial market stresses, (ii) the deleveraging process, (iii) uncertainty about the economic outlook and about potential further bank losses, and (iv) low confidence impair the functioning of the credit and bank funding markets and the transmission of the effects of monetary policy, “non-standard” measures aimed at reducing funding uncertainty and enhancing the functioning of the credit market and, consequently, the monetary policy transmission mechanism, may represent possible courses of action. | The prompt implementation of the proposed financial reforms will not only foster sustainable growth and financial stability in the long run, but it should also contribute to boosting confidence in the financial system in the short run, thus promoting economic recovery. Fiscal policy Last, and definitely not least, it is also essential for sustainable growth and prosperity that confidence in the long-term soundness of public finances is maintained. Government deficits and public debts are rising substantially in most countries as a result of the economic downturn, discretionary measures to stimulate the economy, and the funding of the bank support schemes. This is partly inevitable – due to the downturn – and partly necessary – to help stabilise the economy and the financial system – in the short run. But it is also imperative that fiscal policies are designed and implemented in a manner that strikes the right balance between the need to support the economy’s recovery and the need to preserve the confidence in the soundness and sustainability of public finances which is key for the long-term performance of the economy. III. Conclusion I have used the word “confidence” several times. The severity and duration of the current economic and financial crisis is partly a consequence of the reduced confidence in the prospects of the economy and the soundness of the financial system. | 1 |
Lars Nyberg: Financial reforms and financial crises - Swedish experiences Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at the Central Bank of Sri Lanka, Colombo, 28 March 2006. * * * Let me begin by thanking you for the invitation to come hear and speak today. It is a great honour to be asked to give a speech within the framework of this prestigious lecture series. On many occasions I – and several of my colleagues at the Riksbank – have described the financial crisis in Sweden at the beginning of the 1990s, both here in Colombo and in other contexts. That is because this crisis made a considerable impression on the Swedish economy, resulting in low – and during a number of years negative – growth and high unemployment. However it also made an impression in terms of making us consider what basic conditions were necessary to ensure that a financial system functions smoothly. There were many interacting factors behind the crisis experienced in Sweden. Mistakes made by bank management, by the supervisory authority and by politicians made the situation worse for the real economy. These mistakes were probably due to some extent to the financial markets having been regulated for almost half a century and so this affected the financial agents' way of thinking and perception of reality. | Incentives for increased saving were not actually introduced until the crisis was actually upon us and then they only helped reinforce the decline. It may seem something of a paradox that international organisations, such as the Basel Committee, are now implementing a number of new regulations – such as Basel II – despite the fact that the old regulations had negative effects and were therefore abolished. However, these are a completely different type of regulation. The old regulations were aimed at prohibition and other strict controls, while modern regulations give the banks plenty of flexibility to offer their services as long as they meet certain fundamental conditions. For instance, Basel II allows the banks to determine their own risktaking to a great extent, as long as they have adequate risk management and capital reserves. The experiences of regulation and the crisis also show clearly how important it is that the central bank can make independent decisions regarding the interest rate according to objectives set by parliament, for instance, to maintain inflation or the exchange rate at a stable level. If there are no guidelines for the interest rate, or if the parties that determine the interest rate have differing interests, it will often be set too low for the purpose of benefiting borrowers, investment and central government consumption. This was the case in Sweden during the years of regulation. Apart from leading to higher inflation and pressure on the exchange rate, exaggeratedly low interest rates also have a negative effect on the financial sector. | 1 |
Implementation of the New Accord (a) Overview Today, the Committee is close to finalizing the new capital framework, and I know that many banks and supervisors in different countries have already begun to think about the practical implications 2 BIS Review 7/2003 surrounding implementation. This second stage of the Basel II effort is close on the horizon, and both banks and supervisors must give serious thought to what they need to do to get ready. I’d like to spend a few moments describing some of the efforts currently underway. It is no secret that implementation of the New Accord will require a substantial resource commitment on the part of banks and supervisors alike. I think it is important to emphasize that the efforts banks will need to undertake to comply with Basel II build on the efforts that some large and well-managed banks already had in train before the new framework was contemplated. I know that many banks are devoting more attention to enhance tracking and assessment of the quality of the loans they make. Further, banks have been looking to strengthen their credit assessments by employing experts who do not stand to gain from overly favorable reviews. Time and effort has also been invested in working to pull all of this together in a management information and control system that produces timely and accurate reports for senior management review. | BIS Review 7/2003 1 To respond to these challenges, the Committee has sought to develop a more flexible and forwardlooking capital adequacy framework - one that better reflects the risks facing banks and encourages them to make ongoing improvements in their risk assessment capabilities. The Committee believes that all banks should be subject to a capital adequacy framework comprising minimum capital requirements, supervisory review, and market discipline. As you know, these are the three "pillars" of the New Accord. Each is an essential element for ensuring the safety and soundness of banks worldwide. In contrast, the current Accord only has one pillar - minimum capital requirements. As we all agree, risk management is a dynamic process and one that will continue to evolve. Consequently, the New Accord is designed to accommodate future changes in the way banks measure and manage their risks by giving banks a range of options for calculating capital charges and incentives for using best practices. Banks will be expected to apply the option most appropriate to the complexity of their own operations and risk management capabilities. For credit risk, the range of options begins with the standardized approach and extends to the internal ratings based (IRB) approach. The standardized approach, as you know, is structurally similar to the 1988 Accord, where banks are required to differentiate their exposures into broad categories, such as loans they have made to corporate and sovereign borrowers or banks. | 1 |
Faced with a pressing need to provide additional accommodation, we were forced to turn to innovative, but controversial, unconventional monetary policies. These policies have been extremely helpful. But there is no denying that they were second-best options; the ZLB had made lowering the fed funds rate, which is our first-best interest rate tool, infeasible. Everyone will welcome a return to more normal times and a reliance on the traditional policy framework of adjustments to the federal funds rate. But the decision about when to begin to raise rates shouldn’t be made prematurely. Rather, the decision for policy liftoff has to be made for the right reasons – that is, it should be dictated by economic conditions. I have said many times that I agree with Minneapolis Fed President Narayana Kocherlakota: Policy at all times must be goal-oriented. 16 Our experiences since the crisis began and current economic conditions are highly unusual. The FOMC should not simply set its policy instruments by mechanically aligning them with historical norms if those norms are not relevant harbingers for the attainment of both of our dual mandate goals. Rather, our policy instruments should be set to achieve our ultimate goals as efficaciously as possible given current and prospective economic conditions, all the while with an eye on managing against important risks to the outlook. What does that mean now? I believe that the biggest risk we face today is prematurely engineering restrictive monetary conditions. | In addition, they find that the rate of involuntary part-time employment, which is still very high, also has a substantial influence on wage growth. 13 Putting it all together, their estimates say that if labor market conditions were at their 2005–07 levels, average real wage growth would be roughly 1/2 to 1 percentage point higher over the past year – another sign of the cyclical shortfall in labor market health. To sum up, with many important measures of labor market activity still well short of our estimates of cyclical norms, I believe it is a bit premature to say that we are close to our full employment target – the labor market is not yet calling for business-as-usual monetary policy That said, while it has taken longer than anyone would like, our progress has been good. Indeed, there is good reason to anticipate that we will achieve full employment and price stability within the FOMC’s current forecast horizon. Notably, in the Committee’s Summary of Economic Projections released a week and a half ago, most participants anticipated that the unemployment rate would return to its long-run neutral level by the end of 2016 and that inflation then would be in the range of 1-3/4 to 2 percent. A balanced approach to monetary policy Now let me turn to my views on monetary policy. I can’t speak to my FOMC colleagues’ forecasts and how they interact with their views regarding appropriate policy. | 1 |
By the 1970s, an era of supervision – as distinct from regulation – had begun in the UK. The more recent history of insurance regulation over the last century is a major topic in its own right, so I only propose to outline a few points. In 1923, the Industrial Assurance Act introduced a Commissioner to discharge statutory powers on behalf of the Board of Trade, with the idea of specific regulatory bodies introduced 21. By 1946, the regulatory framework had expanded to include motor, aviation and transit insurance and, significantly, the deposit system was replaced by a more sophisticated solvency margin which specified that a particular margin of assets over liabilities should be maintained. 22. A string of high-profile failures in the 1960s and 1970s – including the failure of Fire, Auto and Marine which left 400,000 (mostly motor) policyholders uninsured, and an even bigger failure in 1971 when Vehicle & General, with 1.2 million policyholders, collapsed – led to demands for further reform 23 at a time when a wave of consumer protection laws beyond the insurance sector had put regulation firmly on the agenda in any event. Relatively speaking, up until the 1970s, individuals running insurance companies attracted scarce regulatory attention. This all changed in the 1970s when conditions around the fitness and propriety of senior individuals were introduced. | Despite not being labelled as such, this arrangement seems in some way similar to a modern-day life insurance policy. And yet back then, perhaps unsurprisingly, the subscriptions paid by members were not subject to any protections or oversight – indeed, when a burial society did run out of money, it was commonplace simply to issue a notice to convey the demise of the society and the fact that funeral expenses would no longer be met. There is also evidence that soldiers in the Roman army were paid a lump sum at retirement, despite the fact that contributions were not made throughout the soldier’s lifetime. By medieval times, the Church had become one of the largest employers and had started occasionally to issue pensions to clergymen. One such example involved Nicholas Thorne, a former abbot of St Augustine’s monastery, who was living in difficult circumstances. Thorne had voluntarily retired, apparently stricken by a guilty conscience after he acquired some documentation on behalf of the abbey through bribery at the Court of Rome. The scandal led him to retire to an ordinary monastery in Yorkshire, but when his old comrades heard of his infirmity and weakness, they awarded him an ex gratia pension of 10 marks a year 4. It seems unlikely that the Church extended such gestures on a regular basis, but from this point onwards we can see evidence of pension provision via employers (the Church and King), particularly for notable individuals in society where reliance on charity alone would not suffice. | 1 |
Still, this characterization is based on very crude generalizations; in reality, EMEs spread over a broad range of possibilities for each dimension and different combinations of them. The question is then to what extent does such variety of cases make a difference for the spillover from changes in global financial conditions and what role does the exchange rate (ER) play in it. How important are global financial and business cycles to EMEs compared to local ones? To address this issue from an EME’s perspective, a first question refers to the relative importance of externally-induced shocks as compared to purely domestic ones. Even if the Global Financial Cycle were a very powerful force, as long as countries can still get into troubles of their own, macro policy, including the ER regime, may make an important difference. A review of the last 40 years of economic history reveals many episodes during which cyclical turning points originated in domestic, rather than foreign, shocks. In Latin America in particular, many of the major shocks of the 1980s, 1990s, and early 2000s originated locally, usually from misconceived policies, private sector exuberance, or inadequate regulations. The fact that these shocks showed up as large current account deficits surely reflects the degree of dependence of governments and business on external funding, but that does not exempt local conditions from being the main source of the imbalances. | However, the idea had already been raised as an objective since the founding of the European Community in the 1957 Treaty of Rome. Moving, trading, and establishing a presence or providing services in any EU country appears as something evident today. Yet the single market did not come into force until 1993. Admittedly, we tend not to properly value most things that seem evident to us. But the free movement of goods, capital, services and persons is one of the EU’s major achievements. At the start of the process, in 1985, around 300 measures to achieve this goal were identified. A whole series of internal obstacles and borders progressively disappeared. Changes were made to key mechanisms to allow for progress, introducing the qualified majority as opposed to the unanimity required until that point. It was opted to pursue the minimal rather than full harmonisation of national regulations, which the EU partners acknowledged as equivalent. The history of the single market shows, as Voltaire asserted, that perfect is on many occasions the enemy of good. The lack of headway in achieving the single market before 1985 was no doubt due to competition-busting practices maintained by national authorities, but also to the difficulty of reaching unanimous agreements in the Council and to the pursuit of overly detailed legislative harmonisation. The situation was unlocked after opting for goals which, a priori, were less ambitious. In fact, certain administrative barriers remain, e.g. | 0 |
2 General aspects of the European regulations The European Union, as reflected in the FSB’s second Peer Review on Resolution Regimes published in 2016, is one of the jurisdictions where the Key Attributes have been most rigorously implemented. Allow me to highlight some of the main features. First, the regulations consider resolution as an alternative mechanism to ordinary insolvency procedures in the mercantile realm, applicable to banks only in specific circumstances pertaining to the public interest. In particular, resolution shall only be applicable to those banks whose failure may generate risks to financial stability, given that they perform critical functions. Second, the use of public funds to support vulnerable institutions is severely restricted. The contribution of any form of State aid – except that received in connection with a stress test – is understood to be a symptom of the institution’s non-viability and, therefore, it may precipitate resolution or, where appropriate, the liquidation in mercantile terms of the institution. Once the institution has been declared in resolution, the regulations require a bail-in for creditors. The ensuing assumption of losses must exceed a minimum amount equivalent to 8% of the bank’s liabilities as a prerequisite for attaining access to public funds, which includes the Single Resolution Fund. Lastly, so as to be able to carry out the bail-in, all institutions liable to be subject to resolution, i.e. | The recent “tech-stock bubble” provides us with an illustration of such a difficulty: while one was witnessing the “irrational exuberance” in 1996, the surge in capital spending associated with the development of new technologies resulted in a faster productivity growth, which in turn boosted equity prices. At that time, uncertainties about fundamentals (was there an American miracle?) made difficult a proper assessment of asset valuations, although the large movements in asset prices where a concern for central banks. However, when expectations reverse, for example due to the reassessment of expected profitability in the economy, and consequently asset prices decrease, the point is to determine whether the attitude of the central bank ought to be different in order to preserve monetary and financial stability. That is, some could argue that the central bank’s response should be asymmetric. In the booming phase, as long as price stability is not endangered, central banks do not react to the rise in asset prices. Conversely, in the recession phase or when a bubble bursts, central banks could consider reacting if they deem that monetary and financial stability is endangered. What could then restrain them from doing it? | 0 |
It remains as strong as ever. Despite the difficult conditions and the unusual challenges that have characterized the last two years, all important monetary policy decisions have been reached by consensus, a consensus which emerged from in-depth and intensive analyses and discussions. The current course of Swiss monetary policy, particularly the decision to introduce a minimum exchange rate, is the result of a deep-rooted consensus of this kind. The SNB will thus continue to enforce the minimum rate with the utmost determination and remains prepared to buy foreign currency in unlimited quantities. The Swiss franc is still highly valued, but it should depreciate further in the future. Let me now return to my topic. I will start by presenting general pre-crisis assessments of the state of monetary policy and will then examine how central banks’ policies may have contributed to the financial crisis. After considering these issues, I will be in position to assess the alternative courses of action available to central banks in general, and the SNB in particular, to derive principles for a future in which financial and price stability are better reconciled with one another. I. The Great Moderation: a success of monetary policy? Let me start by considering the state of many developed economies, to include Switzerland, before the onset of the crisis. In contrast with the episodes of high inflation which prevailed in the 1970’s, rates of inflation were subsequently stable and low for some twenty years. | In spite of the fact that there has long been a significant surplus of liquidity in the Czech money market, this lack of confidence caused a deterioration of the proper functioning of the market. The Czech National Bank launched the liquidity-supplying facility in October 2008. Czech government bonds were made eligible as collateral in these operations. This technical measure was aimed at limiting the potential spreading of problems from foreign financial markets to the Czech financial sector. The situation calmed down at the end of 2008. Overall, the financial crisis itself has had only a limited primary impact on the Czech financial market due to its low exposure to toxic assets and focus on domestic business in local currency. Nevertheless, the country was affected by an increase in risk aversion to the whole of Central and Eastern Europe, due mainly to the problems of some countries which needed financing from abroad. The Czech Republic is among the countries that provide loans to some of them or participate in lending schemes organised by international institutions. The financial crisis has led to a significant decrease in global economic activity. As the Czech economy is very open and export-oriented, the loss of demand from major trading partners was reflected in weaker domestic economic activity and therefore banks became more cautious in providing credit to the business sector and subsequently to households. Weak foreign demand is thus probably the most severe factor stemming from the global financial crisis that is affecting the Czech economy. | 0 |
3/5 BIS central bankers' speeches Singapore can support the financing needs of Chinese companies expanding into Southeast Asia and beyond. Take for example, the New Hope Group, an agricultural and food processing company based in Western China. It has been raising funds in Singapore for its overseas expansion. Or companies such as Chongqing Western Modern Logistics Industry Zone Development Construction and Chongqing Grain Group. They have issued close to $ billion of bonds from Singapore. Bond issuance by Chinese issuers in Singapore almost doubled in 2017 to reach $ billion. More than 25% of this amount was issued by first-time Chinese issuers in Singapore. Singapore’ Asian Bond Grant Scheme will help such first-time issuers by offsetting a part of their typical issuance costs. Haier Group, a leading Chinese consumer electronics player, benefitted from this scheme when it issued a $ billion perpetual debt security in Singapore. Third, enhancing risk management for Chinese firms. Chongqing and Singapore can explore joint projects to mitigate the economic impact of natural catastrophe risks in the Western Region. One example is through piloting a natural catastrophe insurance pool. Similar initiatives are underway in Southeast Asia – and we could share experiences. In May this year, ASEAN+3 Finance Ministers agreed to establish the Southeast Asia Disaster Risk Insurance Facility (“SEADRIF”), which provides disaster risk financing, and a regional catastrophe risk insurance pool for participating ASEAN member states. | On the other hand, the growth prospects are gloomier, with global growth forecast trimmed by 1.3 p.p., with similar downgrade for the CESEE region (1.7 p.p), where growth is revised down to 3.0% on average. The economic loss will not be contained during this year, as visible by downward revision for the next year, as well. Overall, while current recession is not a central scenario, the risk thereof is not out of the window. Against this background, policymakers are faced with delicate trade-offs - how to address the risk of stalled recovery/ recession, while curbing the rising inflation? Fiscal and monetary policy again are expected to play their role in mitigating social costs, although now in a more complex environment than during the pandemic, which calls for different division of labour. In a high–inflation 2/4 BIS - Central bankers' speeches environment, monetary and fiscal policy cannot work hand in hand to support demand, as they did when the pandemics emerged. Now central banks do not have leeway to focus on other objectives beyond their traditional remit. They have to remain focused on their mandate of medium-term price stability, which requires gradual normalization of monetary policy. Short-term effects of the crisis have to be addressed by using fiscal policy tools, which given the tight fiscal space need to be well-targeted and time-bound. Another argument that supports the above is that despite normalization, monetary policy will remain accommodative as observed by historically low real policy rates. | 0 |
The Federal Reserve began its efforts to remove policy accommodation with its overnight policy rate at the zero lower bound and with a large portfolio of long-duration securities. Normalization, therefore, has two parts: increasing the overnight rate, and reducing securities holdings. Short-Term Rate Normalization First, let’s discuss overnight rates. The current monetary policy implementation framework relies on providing the market with two overnight investment opportunities to help steer short-term interest rates: interest on reserves (IOR), which is the Federal Reserve’s main tool to control interest rates, and the overnight reverse repurchase agreement (ON RRP) facility, a secondary tool. 6 This framework has proven to be extremely effective at controlling federal funds rates. As shown in Figure 1, it has maintained the EFFR within the FOMC’s target range on all but one day. 7 Looking at the distribution of traded rates within both the federal funds and eurodollar funding markets, as shown in Figure 2, it is also clear that the framework has broadly fostered trading at rates well within the target range. Indeed, the difference between the 25th and 75th percentiles of the rate distribution has consistently remained very tight over the course of rate normalization. 8 6 Potter, “Money Markets after Liftoff: Assessment to Date and the Road Ahead,” February 22, 2016, provides a detailed discussion of the new framework. For a discussion of the new and old frameworks, see Ihrig, Meade, Weinbach (2015). | Let me take a few examples: steps have been taken in harmonising elements of insolvency frameworks, such as ‘early restructuring’ and ‘second chance’. But these do not cover the conditions for opening insolvency proceedings nor the ranking of claims. As such, they are not enough to facilitate cross-border investment. Similarly, more should be done to remove overlaps in cross-border withholding taxes and reduce home bias in investment strategies. In my view, we need a single rulebook in a wide range of areas also covering consumer protection, anti-money laundering, or accounting rules for a successful CMU. Another reason for a limited “CMU effect” is that some of the agreed initiatives were only recently implemented. Take the securitisation package, for example. Important technical regulatory acts are still pending which prevent the new framework from being applied in full and are a source of uncertainty for those who would like to use it. It is therefore too early to assess the success of this measure. More importantly however, some proposals will not deliver their full potential. In the case of the pan-European personal pension product, the recent agreement gave birth to a rather complex product for which key elements are left to the discretion of Member States. Lack of ambition in the cross-border portability of the instrument may limit its capacity to facilitate labour mobility and the mobilisation of savings across borders in the absence of geographical diversification requirement for investments. | 0 |
Tarisa Watanagase: The road ahead for central banks – meeting new challenges to financial stability Luncheon talk by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the Foreign Correspondents Club of Thailand, Bangkok, 20 July 2010. * * * Distinguished FCCT Members and Guests, Ladies and Gentlemen, First of all, I would like to thank the FCCT Board for inviting me to deliver this luncheon talk as part of the Club’s newly established Speaker’s Lunch Series. To this, I am honored as well as delighted to be back. It was exactly two years ago when I was here for the Club’s dinner program in July 2008, and let me tell you that I very much enjoyed our Q&A session then. I certainly look forward to participating in such a lively exchange again this afternoon. The topic of my talk today is “The Road Ahead for Central Banks: Meeting New Challenges to Financial Stability,” in which I will share with you my views on the roles of central banks regarding the maintenance of financial stability, with particular reference to those at the Bank of Thailand during the past few years and going forward. This talk will be divided into three parts. The first part will be about the changing global view on financial stability policies as a result of the recent global financial crisis. The second part will be a summary of what the Bank of Thailand has done with regard to the maintenance of Thailand’s financial stability. | However, not all incumbent banks are able to fully bridge the technology gap, particularly for newer services; d. This results in migration towards digitally-focused challenger banks such as Atom, Fidor and Monzo that will provide similar services of traditional banks, but utilise technology to deliver faster and cheaper services that better meet the needs of customers; and e. The implication of this is that the landscape of finance will remain largely filed by banks, but a new breed of purely digital banks will gain in significance. The names that we immediately think of for financial services will change from the current banks that we are so familiar with. The fourth scenario is what I call ‘the Tech take-over’ a. Like scenario one, this is a more extreme and less probable scenario, but still one that is worth a thought. In this scenario, technology adoption by incumbent banks is low, with a high level of fragmentation among finance providers; b. However, in contrast to scenario three, technology firms enter as the new preferred provider, successfully capturing the loyalty of consumers due to superior ability in using data to deliver customer-centric solutions; c. Financial services will thus be offered via a wide range of providers such as social networks (e.g. Facebook, Wechat) and e-commerce platforms (e.g. Amazon, Alibaba); and d. Growing comfort with the ability of technology to ensure secured transactions also gives rise to the popularity of peer-to-peer financial services. | 0 |
Michael C Bonello: Nexus of Basel II and financial stability Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the Annual Seminar of the Institute of Financial Services (IFS), Floriana, 14 May 2010. * * * I would first like to thank the Institute for inviting me to their Annual Seminar, which this year focuses on the topical, but complex subject of risk, capital and financial stability after the financial crisis. My remarks will concentrate on the lessons learned and on some open questions being addressed by international standard setters. In the introduction to his recent book “Good value”, Stephen Green, the Group Chairman of HSBC Holdings plc, recalls his thoughts one day in April 2008 on the shores of Lake Como against the background of an unfolding global financial crisis. He describes that time as one of those moments in history when it seems as if the tectonic plates are shifting, striking at the roots of what we had taken for granted for a quarter of a century. | Modelling the desired behaviors sets a powerful example and serves as a form of behavioral risk mitigation. All of these actions reflect choices that a firm makes, either implicitly or explicitly, that can build cultural capital. On the other hand, cultural capital can also decline or deteriorate as a result of internal choices. For example, overt incidences of misconduct such as a trading scandal or a legal issue, deviations between employees’ actual experiences and a firms’ stated values, or observations of 2/5 BIS central bankers' speeches inappropriate behavior that is tolerated or even rewarded can all contribute to the depreciation of a firm’s cultural capital. This decline can be self-reinforcing as certain behaviors are rewarded and individuals advance in an organization, or the composition of the workforce changes as employees choose to work at firms with higher cultural capital. The Pandemic’s Impact on Cultural Capital While the discussion so far has focused on how internal choices that a firm or its employees make can impact cultural capital, it is equally true that external factors have the potential to have a similar impact. For example, changes to social norms around what constitutes acceptable workplace practices can alter behavioral norms inside a firm. The nation-wide racial justice movement is another example of an external factor that could impact the internal culture, based on the choices a firm makes in its response. The current COVID-19 pandemic will also surely impact cultural capital in unpredictable and enduring ways. | 0 |
That is why, in the UK, the Monetary Policy Committee periodically takes stock of developments and updates its estimates of key variables such as the equilibrium rates of interest and unemployment. 34 The MPC provided our assessment of the equilibrium rate of interest – the interest rate that sustains inflation at target and output at potential – in its August Inflation Report. The equilibrium interest rate provides a way to think about the forces acting on the economy, and whether policy is stimulative or contractionary. It is affected by shorter-term influences, such as headwinds to demand, and by slow-moving structural factors that affect the balance between the demand for capital and the stock of wealth available to finance it. For open economies like the UK and Ireland, those factors will be heavily influenced by global developments. As the MPC noted at the time, increased automation could push the equilibrium interest rate up or down. On the one hand, the increases in productivity that result could increase businesses’ demand for capital, pushing up the equilibrium interest rate for a period – and permanently if automation raises productivity growth. 35 On the other hand, however, increases in inequality would likely shift income to those with lower propensities to consume, 36 increasing the stock saving and pushing the equilibrium rate down. | 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 But such big transitions take time. Workers generally cannot move seamlessly to new jobs in which they can be productive. The benefits of the First Industrial Revolution, which began in the latter half of the 18 th th 7 century, were not felt fully in productivity and wages until the second half of the 19 . th Indeed, at the start of the 19 century in the UK, despite a sharp pickup in productivity, wage growth stalled and the labour share fell – a period dubbed “Engels’ pause”. A Framework for Examining Technical Change and the Labour Market 8 To understand such dynamics it helps to have a common conceptual framework. The impact of technological change on employment and wages can be depicted as the sum of three major effects: destruction, productivity and creation. The destruction effect is the focus of most alarmist accounts: the replacement of labour by technology, with an associated reduction in labour demand, wages and employment. Less commonly acknowledged are the positive effects on aggregate demand of new technologies, what can be termed the productivity effect. This effect is analogous to the classic Say’s law in which supply creates its own demand. Technology makes those in work more productive, in time boosting wages and increasing the returns to those who own capital. This greater income boosts aggregate demand and leans against the destruction effect. | 1 |
The existence of abundant natural resources can be a mixed blessing. Experience elsewhere suggests that the sudden occurrence of major income flows tends to undermine future production potential. In the long term, it is difficult to ensure an efficient distribution of wealth between and within generations without triggering rent-seeking behaviour among households and firms. In the short term, the volatility in income flows and in terms of trade poses a challenge for monetary and fiscal policy. The mixed blessing of national wealth is not a new problem. Vigilant observers were already aware of this in the 17th century. In modern economic language, the Moroccan ambassador to Spain pointed to the problem of deteriorating competitiveness 300 years ago (see Chart 2). The main long-term challenge to economic policy is how the returns on petroleum wealth can be phased into the economy without a deterioration of our future growth potential. Even with our substantial petroleum reserves, human capital is by far our most important resource. It accounts for over 80 per cent of Norway’s national wealth (present value of future labour). Income from oil and gas is transferred to financial assets through the government budget. These transfers are large in terms of GDP, but still minor compared with our human capital. Oil and gas reserves account for about 7 percent of national wealth today, whereas in 2030 these reserves will be reduced to only 1-2 per cent. To meet these challenges, the Norwegian Government Petroleum Fund was established on 22 June 1990. | Combined with low growth abroad and increased trade with low-cost countries such as China, this has led to a fall in import prices. The relatively high price increases of Norwegian products reflect high wage growth and a tight labour market. The krone exchange rate, measured against the trade-weighted index, has appreciated around 13 per cent in the last two years. However, the krone was exceptionally weak in mid-2000. The krone is 4-5 per cent stronger today than in the early 1990s, and about as strong as the previous high in early 1997. Thus, the recent strong showing of the krone is not without precedent. Changes in the oil price have time and again been an important factor behind exchange rate movements. Empirical evidence shows that the exchange rate is affected mainly by large fluctuations in the oil price. The krone tends to depreciate if the oil price is very low, as happened during the Russian crisis in 1998. On the other hand, the krone did not appreciate accordingly when the oil price surged from 1999 onwards. Hence, the relationship between the oil price and the exchange rate has not been evident for the last two years. Since late 2001, however, our currency may have been used as a hedge against the upside risk to the oil price, and this may have contributed to its appreciation. Another factor behind the appreciation of the krone is the current low risk premium in global currency markets (measured by a global risk index, GRI). | 1 |
Gent Sejko: Economic and financial developments in Albania during 2017 and objectives for 2018 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting organised by the Albanian Association of Banks, Tirana, 21 December 2017. * * * Honourable AAB Chairman, Dear banking system executives, Dear friends and colleagues, As always, it a pleasure for me to be together with banking system executives in Albania, in this annual end-of-year event organized under the auspices of the Albanian Association of Banks. In my address, I would like to briefly focus on highlights that have characterised the economic and financial developments in Albania over 2017, as well as on some of our objectives for 2018. Albanian economy The Albanian economy seems to be experiencing an overall positive moment of recovery, from both the global and the regional perspective. Economic activity continued to grow reflecting the favourable financial environment, improvement of confidence, impulses generated by employment gains and the high levels of foreign direct investments, as well as the positive momentum in the economies of our trading partners. In terms of aggregate demand, growth was driven by the expansion of private consumption and investments, and the improvement of the balance of trade with abroad, especially in the third quarter. In response to the improvement by around 10.5% of the trade deficit in goods and services, the current account deficit fell to 4.6% of the GDP in the third quarter, one of the lowest levels in the last decade. | At the very least, firms and households are likely to delay major expenditure decisions until things become clearer. And this may act as a drag on the recovery in activity. The rise in the cost of security and insurance will also probably have a more long-lasting effect on activity. Discussion of the attacks has somewhat obscured the fact that the world economy seemed to be slowing more rapidly than expected even before 11 September. Overall activity in the US had been weak, despite continued strength in some sectors, notably retail. And the euro area grew by just 0.1% in the second quarter, as net trade slowed sharply. The monetary policy reaction has of course been rapid. In the United States, in particular, interest rates have already been reduced by four percentage points since the start of the year. And fiscal policy has been expanded. These actions should clearly stimulate demand. But, as is always the case, the size and timing of these effects is extremely hard to judge. 2 BIS Review 87/2001 So far this year, the UK economy has fared rather better than its main trading partners. GDP growth has slowed from the peaks it reached during 2000. But the economy still grew by 0.6% in the first quarter of this year, and 0.4% in the second. Much of that strength, of course, reflects domestic demand growth, and particularly household consumption, which rose a further 1.3% in Q2. In many ways, this should not be a surprise. | 0 |
On the assumption that the three-month Libor remains unchanged at 0.75%, annual inflation is forecast to stand at 0.5% in 2006 and reach 1.4% in 2007. Inflation prospects for the medium term now look more positive than they did at the March assessment. A correction to the expansionary monetary policy pursued by the SNB for a long time now will be necessary if the economic outlook improves. Should the Swiss franc appreciate rapidly, the Swiss National Bank will respond appropriately. What were the most important factors that led to our decision to leave the three-month Libor rate unchanged? Before answering this question, I would like to briefly outline the situation we are facing. I will begin by presenting the economic environment, and then go on to describe the monetary situation. As far as economic activity is concerned, we have revised our evaluation downwards since the last monetary policy assessment. In the final quarter of 2004, the Swiss economy slipped slightly, accompanying a rise in the price of oil and a decline in the dollar in the period from October to December. Both of these factors also had an unfavourable impact on the European economy. Contrary to the expectations expressed at our last monetary policy assessment, economic activity in Switzerland remained restrained in the first quarter. Despite a slight increase in domestic demand, GDP stagnated compared with the previous quarter. This disappointing result was mainly attributable to export developments. Companies were faced with slack demand and consequently limited their volume of investment. | Now that the euro has been introduced, there is still work to be done to ensure that the monetary union also functions properly in the longer run. One of the major challenges is to achieve a good working relationship in the euro area between the single monetary policy and other components of economic policy. Achieving this interaction can be difficult even at the national level. Sweden’s problems in the 1980s are a good example: fiscal policy was not sufficiently tight to counter the rapid expansion of credit and neither was the supply side functioning all that well, which also contributed to the overheating. In the monetary union, the single monetary policy has to mesh with the national fiscal, wage and structural policies of eleven countries. While decisions about the other components of economic policy are still mainly national, they are highly important for the monetary union’s success. It is envisaged that good interaction will be achieved in that the euro countries monitor each other and jointly discuss their national policies. Starting from mutually agreed policy guidelines, each EU country is to present regular accounts of how it intends to fulfil the common objectives. If a country’s policy diverges from the agreed guidelines, the idea is that other countries will protest at an early stage; each country must shoulder its share of the responsibility for this. The work of constructing uniform rules has made most progress in the field of fiscal policy. | 0 |
As I said in Washington three years ago: when bankers were pushing back against our core agenda, in no other aspect of human endeavour do men and women not strive to learn and improve. So onto the foundations we must now build the pillars of diversity, trust and openness that will support a global financial system serving the global economy to its full potential. Finance is a means to end. It is the real economy that delivers prosperity. The next phase of reform will give businesses and households the confidence that finance, far from being a threat to them, is here to serve them in their work to deliver prosperity. Reform should stop only when industry and society are content and finance justifiably proud. Thank you. 30 Haldane (2014). BIS central bankers’ speeches 15 Appendix 16 BIS central bankers’ speeches BIS central bankers’ speeches 17 18 BIS central bankers’ speeches BIS central bankers’ speeches 19 20 BIS central bankers’ speeches References Bank of England (2014a), How fair and effective are the fixed income, foreign exchange and commodities markets?, www.bankofengland.co.uk/markets/Documents/femr/consultation271014.pdf. Bank of England (2014b), The Bank of England’s Sterling Monetary Framework, www.bankofengland.co.uk/markets/Documents/money/publications/redbook.pdf. Bank of England Financial Policy Committee (2014c), The FPC’s review of the leverage ratio: a consultation paper, www.bankofengland.co.uk/financialstability/Documents/fpc/fs_cp.pdf. Banziger, H, Picot, R and Stracke, C (2014), Enhanced Disclosure Task Force, 2014 Progress Report, www.financialstabilityboard.org/wp-content/uploads/r_140930a.pdf. Basel Committee on Banking Supervision (2010a), Macroeconomic impact assessment of OTC derivatives regulatory reforms. | Another initiative of the Bank of Thailand to promote digital payment services is the Thai standard QR code for payment. The Standardized QR Code makes epayment seamless across platforms regardless of which bank or non-bank service provider merchants and consumers are using. In just eight months since its implementations, more than two million merchants in Thailand now accept epayment through QR code, and this figure will continue to grow. Having a common standard for QR code will indeed generate benefits beyond payment convenience. The common standard will help ensure that no incumbent service providers has an advantage of locking merchants with their QR formats, and allow new and innovative payment service providers to easily enter the market. The standard will also help facilitate the move towards information-based lending for SMEs as their payment transaction information can be consolidated. Given that the payment standard was developed together with five global credit card companies using EMVCo, it could serve as a platform to enhance financial connectivity in the region. Thai banks and payment service providers have begun to work with partners in our neighboring countries to facilitate cross-border payments using the standardized QR code. This standardized QR code was a product that went through the Bank of Thailand’s regulatory sandbox. Going forward, there are a few high-impact 7/10 technologies or applications which are being developed and tested in the Bank of Thailand’s regulatory sandbox. The first one is an extension of our standardized QR code to include other means of payment, including credit card. | 0 |
And what has been called the Wimbledonisation of the UK financial markets – the sale of nearly all the British merchant banks and stockbrokers and the dominance of foreign players – gives confidence to prospective market participants that the competitive environment is genuinely open to all comers. London is also a growing centre for Islamic banking. Finally, London may be benefiting from measures elsewhere; certainly in the years since the Enron and WorldCom scandals, commentators have suggested that the application of the Sarbanes-Oxley legislation to foreign firms listing in New York may have encouraged some firms to list here instead. But the single most important factor is the first one suggested by economists: London’s comparative advantage lies in its skilled labour and financial know-how both in the financial firms and in the professions which support them. The free movement of labour within the European Union, and relative openness to immigration by those with specific expertise from outside it, has also meant that employers in the financial sector can access the world labour market. And the relative flexibility of the labour market here in the UK compared to others in Europe may also be a factor. That concentration of skilled labour has spurred competition and innovation. We have seen a very striking illustration of this in the last few years with the rapid growth of hedge fund management and private equity firms in London. | Much of the following also applies to Latvia and Lithuania as the other two Baltic countries. To start with, the share of energy and food in the consumer basket is still somewhat higher in our countries than the average in the euro area. This meant that rapid rises in the prices of energy and food in particular consequently had a bigger impact on our inflation readings. Compounding this, price setting has traditionally been more flexible in the Baltic region than in other euro area countries, meaning that both rises and falls in commodity prices are translated more swiftly to consumer prices. Administered prices are also flexible and governments have allowed higher global energy prices to pass through quickly to regulated prices, while governments in some other euro area countries have been more cautious. High energy prices have also passed through to consumer prices in Estonia particularly fast because Estonian households have generally preferred to have flexible prices in their utility contracts. This had been a smart choice in most previous years, but it cost us dearly in 2022. It meant that any price increases in the wholesale markets for electricity in particular were immediately reflected in the prices paid by households. The increases in the prices of electricity that Estonian households experienced in the first half of last year were indeed dramatic. | 0 |
With the king’s signature on 14 June 1816, the foundations of the monetary system were laid. A new currency was issued – the speciedaler. And Norway’s first bank was founded and named, not surprisingly, Norges Bank. Branches were established in the largest towns, and the Bank’s first headquarters was located here in Trondheim, a twelve-day journey from the government in Christiania (now Oslo), and even farther from Stockholm 1. This provided a geographical distance from king and government, in addition to the more important formal distance. The people’s elected representatives at Eidsvoll had taken responsibility for the monetary system, as stated in Article 75 c of the Constitution: “It devolves upon the Storting […] to supervise the monetary affairs of the Realm”. The Storting, the Norwegian parliament, and not the king, would be Norges Bank’s employer. The king would no longer have the authority to print money at will. Although bitter memories of the decline of the monetary system during the Napoleonic Wars lay behind this decision, it was also inspired by the ideas of Enlightenment philosophers. Absolute monarchy under the Danish king was to be replaced by the sovereignty of the people and the separation of powers. Institutions with clearly distinguished roles would foster confidence and prevent the arbitrary use of power. To restore confidence in the monetary system, the promise of a stable monetary value had to be supported by concrete values. There could be no more empty promises. | BIS central bankers’ speeches 3 In the early stages of Norges Bank’s history, lending to retail customers was an important part of the Bank’s public mission. This task has since been transferred to other agents. This is a rational division of responsibility. At the same time, the Bank is true to its role as the bankers’ bank, for better and for worse. When bank lending is impaired, the costs to society are considerable. A central bank cannot stand on the sidelines when banks’ sources of credit are drying up, and we keep a vigilant eye on financial markets and offer advice on measures we regard as necessary. With the increased complexity of money and financial markets, this task has become more demanding, but also increasingly important. Issuing banknotes is still the central bank’s responsibility. People must be confident that the banknotes they hold in their hands are genuine. Thus, beneath their elaborate exterior lie increasingly advanced security features. Beautifully illustrated banknotes can also function as a calling card for Norway. We are looking forward to launching the new series of banknotes – which all embody the shared theme of “The Sea” – over the next couple of years. But for a modern central bank, the responsibility for means of payment stretches far beyond banknotes and coins. We can use deposit money to make payments quickly and efficiently – as long as the payment system functions as it should. The core of Norway’s electronic payment system is located in Norges Bank. | 1 |
Hong Kong also boasts a vibrant offshore renminbi bond market, again, the largest outside Mainland China, with some RMB340 billion bonds outstanding. More than 200 banks from all over the world are using our renminbi clearing platform to conduct a wide range of business activities. The goal of the HKMA, among other things, is to promote offshore renminbi business development through securing the necessary policy headroom, facilitating liquidity management and building a robust infrastructure for conducting the business. 3. To make this possible, we have put in place a RMB400 billion currency swap agreement with the People’s Bank of China, which can be activated when market conditions warrant. We have also made available renminbi liquidity facilities to banks in Hong Kong, in the form of an intraday repo facility of RMB10 billion, and a bilateral repo line of RMB2 billion with each of the seven Primary Liquidity Providers. In terms of our renminbi real time gross settlement system, currently around RMB800 billion worth of transactions go through the system every day. So, you can see clearly why we have sought to further develop renminbi business. 4. Secondly, the promotion of asset management. We want to attract Mainland and overseas asset managers to Hong Kong. We have made numerous trips to the Mainland and overseas to meet with asset managers, often on a one-on-one basis, to explain to them the benefits of establishing in Hong Kong. And, our work is paying off. | We would not charge negative interest if we did not regard this as being absolutely crucial for us in fulfilling our mandate. It is of great importance to us for the Swiss people to understand why our current monetary policy is appropriate in its full context, and what impact it has for Switzerland as a whole. Page 2/8 Protracted decline in global interest rates To explain to you why the negative interest rate is necessary, I need to take a broader perspective and look back at the past quarter of a century. The level of interest rates has fallen markedly worldwide over this period. Chart 1 shows that the nominal yields on 10-year government bonds in Switzerland, Germany and the US have been declining since the 1990s. There are various factors behind this downward movement. The first of these is the success central banks have had in their efforts to combat inflation. After the negative experiences with high inflation rates in the 1970s and 1980s, at the beginning of the 1990s many central banks started striving to achieve price stability. Inflation subsequently fell, and so too did the rates of interest on savings accounts and financial market yields. After all, if the money on a savings account retains its value thanks to inflation being lower, the interest no longer needs to compensate for any erosion in value. Lower inflation and the attendant decline in the level of nominal interest rates are essentially a positive development for households and companies alike. | 0 |
Signs of moderation were witnessed in various economic activities, such as consumption and investment, as well as in government spending, despite signs of a rise in some exports. As the political deadlock lingers, tourism has begun to feel the impact. In the last MPC meeting of April 23rd, the committee projected that the Thai economy in will grow less in 2014 than the previously assessed at 2.7 percent. This will be mainly due to the weaker-than-expected economic momentum in the first quarter of the year and the political impasse posing downside risks to domestic demand and tourism. However, the economy is expected to resume its normal growth in 2015. 4. Notwithstanding the short-term headwinds, there are also causes for optimism. Global economic activity has been firming up. Growth has gathered momentum in the US, the Euro area and Japan. Recent government’s attempts in China to reform the financial sector should support sustained growth in the longer term, although with some impacts on short-term growth. In emerging economies, the turbulence in financial markets has somewhat receded following these economies’ attempts to address vulnerabilities and also in Thailand, the financial market has stabilized. Volatilities in foreign exchange market have been contained. The IMF, in their April report, projected that the global economy will grow at 3.6 per cent this year, which is an improvement from 3.0 percent growth last year. This more favorable external environment should benefit export-reliant countries such as Thailand. Medium-term challenges 5. | For example, the HKMA supervises the banks that are located in Hong Kong, and it is unlawful for anyone to solicit for deposits in Hong Kong without authorisation. But if you click onto the website of someone in a far-off country and are seduced into transferring funds into a deposit with them, we may not be able to help you if things subsequently go wrong. This is a fairly simplistic example and I’m sure that everyone in this audience, at least, would be alert to the risks and would act with the necessary caution. But the proverbial man in the street, who may nowadays have his own internet access, may be more gullible. Moreover, there may be products on offer that are more subtle and beguiling than a straight deposit, and very seductively packaged too; all of us here today are potential victims to some sort of dupe; it is a brave person, or perhaps an arrogant one, who would deny that vulnerability. A still more significant manifestation of the internet, with potentially sinister consequences, is the speed which it brings to all dealings. Generally we marvel at the instant availability of up-to-date information, and the capability to act upon it, if we so desire, by a return click of the mouse. If the response is simply an e-mail message to a friend or colleague, the scope for loss or damage may be limited, but, even then, how often do we later rue the impulsive riposte? | 0 |
This has allowed the banking sector to have a different focus from the one it had during the global financial crisis in 2008 or during the local problems in the sector in 2014. In these previous episodes, the banking sector was mainly engaged in solving problems within the sector. In the Covid crisis over the recent two years, the banking sector was not concerned with its own problems, but mainly with alleviating the effects of the crisis on businesses and households and subsequently with the recovery and speed-up of the economy. In this sense, the Covid crisis legitimised an important qualitative change in the position of the banking sector – from a source of problems in the past to an important factor in their resolution in recent years. Significantly, the banking sector absorbed and implemented successfully and without shocks the anti-crisis package of measures approved by the BNB, amounting to about 9% of the GDP, as well as a private moratorium on loan repayments by businesses and households. At the same time, credit activity not only did not stagnate, but increased. According to the latest data from the 2021 monetary statistics, loans to businesses and households grew year-on-year by 4.1% and 12.5%, respectively. Good operational performance was underpinned by progress on important strategic tasks. October 2021 marked the one-year anniversary of the country’s accession as a full member to the European Banking Union. The assessment of this participation by both the ECB and the BNB is unequivocally positive. | For its part, the BNB is ready, as it has been thus far, to implement the full range of measures, within its mandate, to mitigate and neutralise the manifestation of risks in relation to banks. The overarching objective of these measures is to preserve and further strengthen the capital reserves and the high loss-absorbing capacity of banks against potential deterioration in their loan portfolios and to ensure that the stability of the system is maintained, including in the event of less favourable than expected exogenous economic and financial developments. 2/3 BIS central bankers' speeches In 2021, the BNB twice increased the level of the countercyclical capital buffer to reach 1.5% and confirmed the level of the systemic risk buffer at 3%. The BNB will continue to require banks to maintain adequate capital buffers against potential losses arising from the realisation of cyclical systemic risk. This risk currently arises mainly from active residential lending to households, as well as lending secured by commercial real estate. At this stage, the focus will continue to be on the implementation of macroprudential measures targeting banks’ capital, but the BNB stands ready to implement additional measures, if necessary, including borrower-based. More strategically, the BNB has already mobilised serious efforts in the project for the adoption of the euro in Bulgaria. The tasks on the way to achieving this goal go beyond the banking sector, but will also strongly involve the banks. | 1 |
Indeed, the bank can gainfully advance to venture abroad to explore new business opportunities in the regional markets. The growth prospects will also be further strengthened by the overall performance of the industry and the sound and mutually reinforcing inter-linkages of the various market components in the Islamic financial system. In closing, I would like to take this opportunity to congratulate BIMB Holdings Berhad, Bank Islam Malaysia Berhad, Dubai Financial LLC and Lembaga Tabung Haji for their contributions in the successful completion of the share subscription agreement for Bank Islam. I wish Bank Islam and its shareholders every success in taking the Bank to greater heights in its future endeavours. Thank you. 2 BIS Review 99/2006 | Joseph Yam: The ADB challenge to help Asia return to stable and sustainable growth Statement by Mr Joseph Yam, Alternate Governor of the Hong Kong Monetary Authority, at the 35th Asian Development Bank Annual Meeting, Shanghai, 10-12 May 2002. * * * Mr President, I would like to first congratulate you on your re-election as the President of the Bank. I would also like to thank the Government and the people of the People’s Republic of China for their hospitality in hosting this year’s Annual Meeting in this magnificent city of Shanghai, itself a powerful symbol of tradition and modernisation. I also express my sincere appreciation to the Bank’s management and staff for the excellent arrangements made for this meeting. I join others in adding our special welcome to our new member of the Bank – Portugal. Poverty is reduced more extensively at times of fast economic growth but less so when growth slows. The past year has been a difficult one for the poor. Amid the synchronised slowdown of major industrial economies, economic growth has been slow and uneven in Asia. The terrorist attacks on the US on 11 September shocked the world. The Enron debacle and the Argentine economic crisis cast long shadows on the equity and financial markets worldwide. Against this background, the task of poverty reduction is made more daunting and pressing. However, I must commend the Bank for meeting the challenges of last year by mapping out and implementing the Long-term Strategic Framework. | 0 |
Second, a lot more was done, by the Bank and others, to establish support for the goal of price stability – not as a political tenet but as a technical prerequisite for a well-functioning economy. This ran through the speeches of Robin Leigh-Pemberton, Eddie George and Mervyn King in the late 1980s and early 1990s, as well as in Bank research. Analytically, energised by the current Governor when Chief Economist, the Bank put resources into analysing the costs of inflation, and into contributing to the so-called time-consistency literature on the central importance of mechanisms to underpin trust in a monetary authority’s declared commitments. 11 And in more public spheres, Eddie George’s speeches in the early 1990s repeatedly stressed the emergence of a consensus, domestically and internationally, about macroeconomic policy goals and means. Price stability was not 6 See Letter to The Times from 364 Academic Economists, April 1981. 7 Notably Samuel Brittan and Peter Jay. See, for example, Sir Samuel Brittan’s 1981 paper “How to end the “monetarist” controversy: a journalists reflections on output, jobs, prices and money”, London: IEA. 8 See Lawson, N., 1984, “The British Experiment”, The Fifth Mais Lecture at City University Business School, June. 9 These differences of emphasis emerged during the review of macroeconomic policy objectives and instruments discussed in Chapter 36 of Lord Lawson’s book “A View from Number Eleven”. 10 See Nigel Lawson’s 1984 Mais Lecture, op. | It plunged many economies into recession, considerably weakened public finances in many countries and, generally, entailed considerable losses in well-being. Fortunately, and this is a positive message worth emphasising, the authorities’ response was generally correct. In a relatively short time, sweeping regulatory changes – which you will be able to review in detail in this conference – were ushered in. Moreover, the euro area has managed, at unprecedented speed, to launch an institutional reform, namely the banking union, whose scope cannot be overstated and which entails the strengthening of the Monetary Union. In Spain, I believe the work done in reforming our financial system has had very satisfactory results. International agencies, in particular the IMF and the European Commission, have repeatedly testified to these results. So too have the markets, where there have been significant increases in the valuation of instruments issued by Spanish banks. And, most recently, there was further acknowledgement in the comprehensive assessment of the European banking sector by the ECB and the European Banking Authority. Given the importance of this exercise, as a prior step to the start-up of the Single Supervisory Mechanism (SSM), allow me to refer to the results disclosed yesterday, before discussing the most significant measures taken in Spain to strengthen the financial system and highlighting some of the challenges to be faced in the near future. | 0 |
This helps spread lending capacity across the country, further contributing to balanced growth and a sustained economic expansion. Trade Good domestic policy cannot, on its own, guarantee balanced growth in an open economy like the UK’s. Our fortunes are also tied to those of our trading partners. In recent years those fortunes have been modest. Demand from the UK’s traditional markets, such as Europe, is a staggering 25% below a continuation of its pre-crisis trend. This is because the UK relies heavily on the slow-growing advanced economies (Chart 1). In contrast, the Commonwealth countries, which account for only a tenth of UK exports, have grown over three percentage points faster on average each year than our major trading partners between 2008–13. The need to diversify trade to faster-growing economies in the Commonwealth and emerging markets is clear. This will require both the continued initiative of UK businesses and a determined trade strategy. In short, we all need to be inspired by another great Scottish figure, David Hume. Hume brilliantly showed that free trade was beneficial to all; that it acquainted nations “with the pleasures of luxury, and the profits of commerce”, spurring them on “to further improvements in every branch of domestic and foreign trade.” 2 His ideas helped usher in the first great era of globalisation during the 19th century. In this wave, the British economy grew twice as fast as during the preceding century (Table 1). | As I mentioned earlier, the UK economy has been growing rapidly. Over the past year, job creation has been the quickest on record, pushing unemployment down to 6.5 per cent. The economy is finally producing as much as it did on the eve of the crisis in 2008, and inflation is back near its 2 per cent target. In short, the UK economy is starting to head back to normal. 1 Bank of England founding charter, 1694. BIS central bankers’ speeches 1 As the economy normalises, Bank Rate will need to start to rise in order to achieve the inflation target. But the MPC has no pre-set course and the timing of any increases in interest rates will be determined by the data. In this regard, the Monetary Policy Committee (MPC) is balancing the implications for inflation of hard evidence of sustained economic momentum against conflicting signals over the degree of slack in the labour market. While some indicators such as wages suggest that there was more labour supply than we had previously thought, it is also true that spare capacity is being used up a bit more rapidly than we had expected. A key judgment for the MPC is when and to what extent these developments will translate into real wage growth, and in turn that wage growth into price pressures. Next month’s Inflation Report provides the next opportunity to update our thinking on these important questions. A durable expansion rests ultimately on moving from anaemic to strong productivity growth. | 1 |
Jean-Pierre Roth: Highly leveraged institutions and financial stability – a case for regulation? Address by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Second Conference on Law and Economics of Risk in Finance, University of St. Gallen, St. Gallen, 29 June 2007. The author thanks Ms Jeanette Henggeler-Müller, Financial Stability Unit of the Swiss National Bank for the first draft of this paper. * * * Highly leveraged institutions (HLIs), or hedge funds, are currently a hot topic. No day passes without a warning about HLIs in the financial press, and HLIs are on the agenda of politicians, supervisors and central bankers in many countries. The German presidency of the EU and the G8 have declared HLIs to be a high priority agenda item. After the collapse of LTCM, the then chairman of the Federal Reserve Bank said that "had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own" 1 . And in the newspaper Bild am Sonntag of 17 April 2005, the German Bundesminister für Arbeit und Soziales accused HLIs of "remaining anonymous, having no face, pouncing on firms like locusts, grazing them and moving on." Why is there such distrust of HLIs? | Figure 4: Mean squared gaps The fact that the extended repo-rate path leads to a better stabilisation of both inflation and resource utilisation is confirmed by the mean squared gaps in Figure 4. The mean squared gap for inflation is the mean squared deviation between the inflation forecast and the inflation target during the forecast period. A lower mean squared gap for inflation entails a better stabilisation of inflation around the target and thus a better attainment of the inflation target. The mean squared gap for output and for hours worked is the mean squared gap for resource utilisation measured in two ways, that is using the output gap and the hours-worked gap during the forecast period. A lower mean squared gap for output or hours worked entails a better stabilisation of resource utilisation around a normal level measured as the output gap or the hours-worked gap. The closer to origo the mean squared gap for inflation and resource utilisation is, the better the stabilisation of inflation and resource utilisation. This case is special as there is no conflict between stabilising inflation and resource utilisation; the extended repo-rate path stabilises both better than the main scenario. This is of course already obvious in Figure 2, so the mean squared gap does not add much new information here. However, the normal situation is considered to be that there is a conflict between stabilising inflation and resource utilisation. | 0 |
In particular, central banks have had little direct experience with the impact of such a reduction in holdings of domestic securities and in reserves. One relevant experience, of course, was the socalled “taper tantrum,” in 2013 which showed that markets can have outsized reactions to changes in balance sheet policy even before they happen. More generally, experience with asset purchase programs, both here and abroad, clearly demonstrates that market volatility can ensue from balance sheet policy changes that market participants perceive as surprising, unclear, or rapid, or are not adequately distinguished from short-term interest rate policy intentions. All of this indicates to me that, at policy turning points like these, central banks should carefully and clearly communicate their intentions, provide as much transparency as possible, focus on one tool at a time, and make transitions in policy implementation as slowly as overall macroeconomic policy objectives permit.4 The rest of my remarks will go as follows. First, I’ll provide an in-a-nutshell summary of the structure of the Federal Reserve’s balance sheet. Then, I will discuss why it is important that the decline in the balance sheet be gradual and predictable, and explain how the FOMC’s plan provides this gradualism and predictability. I will then talk briefly about how the Federal Reserve is ensuring it is prepared for unexpected developments. We will then open things up for questions you may have. The Fed’s balance sheet, in a nutshell Let’s begin by reviewing, at a high level, where the Fed’s balance sheet is today. | Before I begin, I would note that the views I share with you this evening are mine and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.1 Principles and objectives Throughout the history of Federal Reserve operations in financial markets, our approach to engaging with counterparties has been designed to serve the effective implementation of monetary policy. The New York Fed, through its Open Market Desk (the Desk), is in the business of implementing policy as directed by the Federal Open Market Committee (FOMC, or the Committee), and the Desk has demonstrated a willingness to engage with a wide range of counterparties to achieve this objective under the guidance of the Committee. In addition to its role in the implementation of monetary policy, the New York Fed has a number of responsibilities and duties as the fiscal agent for the U.S. Treasury. We have therefore also used our counterparty relationships to assist the activities we undertake in support of the Treasury. Indeed, for decades, the primary dealers have played a critical role not only in open market operations, but also in the underwriting and distribution of newly issued Treasury securities. In addition to carrying out these domestic operations, we stand ready to conduct a number of foreign exchange operations.2 Foreign exchange counterparties are essential to the successful implementation of U.S. foreign exchange policy operations, which are conducted by the Desk but directed and funded generally equally by the Fed and the Treasury. | 0 |
Although this led to an increase in the productivity growth measured during a transitional period, this was at substantial cost to those who lost their jobs and the economy as a whole, as a large part of the economy’s available resources were not utilised. During and directly after the crisis there were also a number of structural changes in the economy that are likely to have affected developments. Fiscal policy was tightened, with an expenditure ceiling and surplus target, while monetary policy was targeted at achieving a low, stable inflation rate. Such a stabilisation of the macroeconomy means that uncertainty about issues such as future tax rates and price developments decrease, which in turn makes it easier for households and firms to plan. Comparative studies of different countries have shown that this can have longer-term effects, partly through a rise in productivity. Furthermore, several markets were opened to both domestic and international competition through deregulation. Greater competition increases the pressure on profitability, which raises motivation for making production and organisations more efficient, for instance with the aid of more modern technology. There were also other types of structural changes in the Swedish economy during the 1990s. Up to the beginning of the 1990s, the number of people employed in the public sector increased, with a corresponding decline in the private sector. After the crisis there was a turnaround, and the private sector’s share began to increase again. | By potential output and potential growth we mean instead the output and growth that is possible without serious imbalances arising in the economy; the level of output at which supply and demand correspond and actual and expected inflation are in line with the central bank’s inflation target (assuming that there is one). The potential output level is not constant over time; it usually shows a growth trend, which is illustrated in Figure 1. This is mainly because technological developments mean that higher output can be achieved with the same amount of factors of production. Another reason could be long-term changes in the factors of production. The change in potential output from year to year is equal to the potential growth of the economy, which thus is the growth rate that is sustainable in the long term. Figure 1 shows the potential output level according to a simple statistical method where the trend, and thereby also the potential growth rate, is allowed to vary over time. The difference between actual and potential output is known as the output gap, and this reflects the cyclical variations in the economy. A negative output gap, that is to say, when actual output is lower than potential output, is usually connected with a recession. The demand pressure for goods, services and the factors of production is then small and there are ample unutilised resources in the economy. Price and wage increases are small and inflation is usually below the central bank’s target level. | 1 |
Lee Hsien Loong: Connecting India and Singapore Keynote address by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the Standard Chartered Bank’s Singapore Conference, Mumbai, 16 January 2004. * * * Introduction I am delighted to be here today to address the Standard Chartered Bank’s Singapore Conference. We stand on the threshold of a major transformation in Asia. With a combined population of 3 billion people, Asia is the largest and most promising region in the world today. It includes Japan, not fully recovered from its post-bubble malaise, but still the second largest economy in the world, with deep capabilities and advanced technology. It includes South Korea, which took painful measures to open up its economy and restructure its chaebol-centred industrial system. And it includes Southeast Asia, whose countries have put behind them the trauma of the Asian Financial Crisis, and are growing and attracting investments again. The biggest stories in Asia are China and India. It has been projected that China’s GDP could overtake Germany in the next four years, Japan by 2015, and the US by 2039. India too is opening up and growing strongly, and could become the 3rd largest economy in the world within 30 years. Globalisation plays a big part in Asia’s vitality. It has resulted in more Foreign Direct Investments (FDI) into Asia, and created jobs and prosperity for Asians. | In parallel, ASEAN is working on a Comprehensive Economic Partnership arrangement with Japan. The US, too, has announced the Enterprise ASEAN Initiative, under which it will pursue agreements with individual ASEAN countries, taking into account their respective progress in economic liberalization. Southeast Asia’s adherence to economic liberalisation and freer trade has helped the region to stay on investors? radar screen. Most of its economies have recovered from the Crisis. Confidence has returned and the economies are growing again. Stock markets have rallied as capital flowed back into the region. The countries have made progress remedying the structural weaknesses that contributed to the crisis. Their finances are now much sounder - with balance of payments in surplus, and foreign reserves accumulating. Thailand is doing particularly well as the fastest growing economy in Southeast Asia. Malaysia, has maintained satisfactory growth rates, as has Indonesia despite the political and security issues. Vietnam escaped the Asian Financial Crisis and is now opening up and taking off. Singapore’s fortune has been more mixed. It weathered the initial storm well, but then got hit hard first by the global electronics downturn and then by SARS. After all these tribulations the Singapore economy is now at last picking up and on a growth path again. Over the longer term, Southeast Asia remains a region of promise, with strong fundamentals. It is outward oriented, with a large and young population, strong emphasis on education, a positive work ethic, good infrastructure, and abundant natural resources. | 1 |
And default itself amplifies losses in the network, most obviously through direct bankruptcy costs, but also through fire sales of the sort already discussed. Moreover, when entities are highly leveraged, they will have only limited capacity to absorb losses, making such a cascade of defaults more prone to occur. A similar network dynamic can occur when institutions are hit by a payment shock, such as the drying up of wholesale funding that occurred at the start of the crisis and again around the time of the collapse of Lehman’s. The analysis of the behaviour of such financial networks is still very much in its infancy 9 . But a key point material to regulatory design is that some types of network will be inherently more stable than others, depending on both the nature of the network and the obligations on its members. For instance, a network where all institutions are of similar importance and exposures are evenly spread is likely to be relatively stable, as the consequences of an adverse shock to any one institution will be spread widely and thinly. In contrast, as we saw with the collapse of Lehman’s, networks in which there are a relatively small number of key players are potentially very susceptible to the failure of a key player. By the same token, a network in which exposures are collateralised or can be netted across the system will be 9 For more discussion of this issue, see Haldane (2009). | BIS Review 101/2009 9 Asset Relief Program (see Taylor, 2009), raised the possibility in investors’ minds of the failure of a whole range of institutions that had previously been considered safe. That is evidenced in the simultaneous sharp spike upwards in the CDS spreads of a number of financial institutions after the collapse of Lehman’s (see Fig. 12). Moreover, the prospect of having to make significant default pay outs called into question the solvency of a key provider of that insurance, AIG. The bottom line of all this is that the information requirements for managing risk escalated rapidly at the same time as investors were waking up to the realisation that the distribution of prospective returns on a range of asset-backed securities was a great deal worse than they thought. Not surprisingly, there was a rush for the exits and a drying up of wholesale funding to institutions that were thought to be at all vulnerable. Moreover, attempts to cope with that by selling off assets ran into an adverse selection problem: if someone is selling an asset, then perhaps that indicates that they know it’s a “lemon”. And even the revelation of central bank support in its role as Lender of Last Resort, far from solving the problem, could be interpreted as a negative signal about an institution, as was so in the case of Northern Rock, for example. | 1 |
That being so, central banks may be able to stabilize demand and output growth more effectively than in the past. Most obviously, cuts in interest rates are now much more likely to be understood as a response to an adverse demand shock rather than as attempts to generate extra demand and jobs in the short run at the cost of stoking up higher medium-term inflation. And so it is easier for central banks to cut interest rates when that would desirable in order to stabilise demand conditions and so keep inflation in line with the target. Related to that, greatly increased transparency across the central banking world makes policy surprises – and so outsized market reactions to policy decisions – somewhat less likely. Second, more competitive and transparent product markets (partly thanks to the internet), together with more flexible labour markets, may have improved the real economy’s ability to absorb nasty shocks without persistent large falls in output. Third, developments in banking probably mean that more households have access to credit to help them to smooth their consumption by borrowing during ‘bad times’. And by routinely distributing more risk to non-banks, the banking system may be less likely to wish or need to conserve capital, refraining from taking risk, when faced with increased demand for liquidity from its corporate and household customers. For these reasons, consumption growth may be less prone to violent lurches than during, say, the 1970s and 1980s. | How much risk a company should take in its core business and in the provision of pensions is obviously a matter for its board. A famous paper in corporate finance 5 finds that, subject to some (admittedly fairly strong) assumptions about tax etc, the market value of a company (measured as the sum of the value of all its financial liabilities, equity and debt) should not depend on its capital structure. Rather, its capital structure affects the risk to equity holders, and so the headline return they should rationally require to compensate for risk. Within this framework, defined-benefit pension schemes can be viewed as deferred compensation and so as entailing a form of indebtedness (in many cases, de facto indexed-linked borrowing) for their sponsors, to be ‘serviced’ alongside their more conventional external indebtedness. Perhaps that has become most obvious when a fund is calculated as being in deficit. It would seem that in recent years there has been a keener awareness of this way of thinking analytically about pension obligations. If there has been an ‘awakening’, maybe it was triggered by a combination of the volatility of the value of equities held by funds, especially when they fell sharply a few years ago; the volatility of the discounted value of their liabilities as long-maturity real rates fell; regulatory requirements governing the closure of deficits; and fluctuations in the net value of funds having for the first time to be reflected in firms’ capital in their financial accounts. | 1 |
We used our main policy tool, the one-week repo auction rate, and macroprudential policy tools in line with the Liraization Strategy. Accordingly, we kept the policy rate (the one-week repo auction rate) unchanged at 14% in the January-July 2022 period. On the other hand, we acted in a proactive manner in the face of intensifying risks of a global recession driven by geopolitical developments and global financial conditions. To limit the effects of these risks on domestic supply, investment and current account surplus capacity and to sustain the structural gains in industrial production and employment, we initiated a rate-cut cycle in August. As of November, we had delivered a rate cut of 500 basis points in total, bringing the policy rate down to 9%. With these decisions, we enabled investments that will strengthen Türkiye's position to continue at suitable financing costs at a time when the global economy was facing supply chain and financing problems. In 2022, we also conducted an effective reserve management to reinforce our international reserves. We created a diversity of sources through deposit accounts converted from foreign exchange, YUVAM accounts that we devised for non-resident citizens, FATSI accounts aimed at bringing physical gold into the financial system, and regulations regarding the selling of a portion of export proceeds to the Central Bank. As a result of all these actions, our international reserves rose by 17% from USD 111 billion at end-2021 to USD 128.8 billion at end-2022. Meanwhile, international reserves of central banks decreased by 6% on a global scale in 2022. | The possible need for speedy assistance necessitates that a central bank must have internal procedures for managing requests for liquidity support and doing so very rapidly. To accomplish this, central banks need to have a detailed crisis plan that can be put in place within very short notice. The crisis plan should include the following types of information: Organisational structure • A division of responsibilities for analysis, information, decision-making, etc. • Staffing requirements for different tasks, with substitutes. Analysis plan • A description of the information necessary to make a decision about whether or not a systemic crisis may occur. • Necessary information about systemically important individual banks. Information strategy • A plan for informing and coordinating information and decisions with the other domestic agencies involved in the crisis. • A plan for informing authorities in other countries about the situation. • A plan for communicating with the financial markets. • A plan for spreading information to the public and media (ex ante and ex post transparency). Plan for implementing ELA • A clear description of the routines which must be followed and the legal requirements which must be met for ELA. Legal procedures, for example contracts, for lending against other collateral than what is normally eligible • An inventory of the instruments available for implementing ELA. • Guidelines for acceptable collateral and appropriate haircuts. | 0 |
For example, in the establishment of shariah parameters and centralization of shariah rulings and the creation of financial instruments that the Central Bank used to mop up liquidity from the financial market on a daily basis. The forward looking plan of our various institutions of higher learning to offer courses in Islamic finance related subjects that have enable a steady supply of talent and workforce to the industry. Equity-based financing Let me touch on the subject of equity-based financing. This subject has captured the imagination of many especially within the academic circles. Some even went to the extent of saying equity-based financing is the heart and soul of Islamic finance. This is a point that will invite a lot of comments and a subject of endless conversation. In practice, somehow, bankers are not into this. In Malaysia and in the Middle East, however, more than 70% are debt-based financing. Why is this so? Let me discuss this point with greater detail. For the benefit of those who are less familiar, in a nutshell Mudharaba is a profit sharing and loss bearing concept where the Financier provides financial investment in a business and the Entrepreneur provides expertise in running the business. The financier gets to share profits and absorb loses and the entrepreneur have a share of the profit Musharaka is where both Financier and Entrepreneur commit to invest financially in a business. In both cases, the profits and losses are shared according to ratios that both Financier and Entrepreneur agrees prior to the venture. | The “non-cash” euro is already in use The final stage of the introduction of the euro will include two changeovers: the changeover to the noncash euro, which concerns all book-entry transactions (cheques, bank accounts, bank card payments, transfers, loans, etc.) and the changeover to the cash euro, which concerns banknotes and coins. This summer, banks in France started to systematically convert bank accounts into euros and provide customers with euro cheque books. In various participating countries, in particular France, all bank accounts have already been converted . It is now up to each citizen in the euro area to establish a new scale of values for the currency and to make payments in euro. In this respect, retailers have a fundamental role to play: their active participation and their readiness to accept payments in euro will greatly facilitate the euro changeover as a whole. The cash euro will be in circulation within 8 weeks As regards the cash euro, the main task now consists in frontloading the banknotes and coins so that, on 1 January 2002, transactions can be carried out smoothly in the best possible security conditions. To achieve this, frontloaded coins are supplied to credit institutions. Banknotes will soon be provided to them (as of 1 December in France). Retailers will also be provided with frontloaded banknotes and coins. | 0 |
When the krona appreciates, this has both a direct effect on inflation, which is pushed down when import prices fall, and an indirect effect in that the demand for Swedish-produced goods and services is affected negatively. Strong krona contributes to low inflation The possibility for monetary policy to steer the exchange rate is limited, but there is nevertheless reason to believe that the krona has become stronger than it would otherwise have been because of our leaning against the wind. If foreign exchange market participants see an increased difference between the yield on a Swedish treasury bill and the yield on foreign equivalents, the Swedish treasury bills and thus the Swedish krona will be more attractive and therefore more expensive – that is, the krona will appreciate. Although it is difficult to see clear links between observed exchange rates and interest rate differentials, a positive interest rate differential usually coincides with a strong krona (see Figure 1). The difficulty in seeing clear links is due to expectations having considerable significance for trade on the financial markets. The market rates and the krona rate do not change when the Riksbank makes its repo-rate decisions, they change when market participants’ expectations of future repo-rate decisions change. Figure 1. | On the other hand, the benefit appears small, quite simply because the effect on indebtedness appears small. 13 8 See Svensson (2013a). BIS central bankers’ speeches Risks linked to household indebtedness should instead be managed by means of measures taken in other areas. The mortgage cap probably already has some impact. Finansinspektionen has also introduced a risk weight floor for mortgages and notified that it intends to raise this, which in practice will increase the banks’ costs for mortgages. The Swedish Bankers’ Association’s recommendation to draw up amortisation plans in line with Finansinspektionen’s notified requirement may also have an effect.14 Nor is there any shortage of ideas for further measures, including the introduction of countercyclical capital buffers, which they now use in Norway. Underneath all this is a problem of a more structural nature, namely a supply of housing that has grown slowly and a housing market that is not functioning efficiently. This has most likely contributed to pushing up the price of housing and consequently indebtedness. Neither monetary policy nor measures in the field of macroprudential policy can resolve this type of structural problem; they must be managed with entirely different measures. Do marginal differences in the repo rate play a role? In the same way as one can question whether a repo rate that is a few tenths of a percentage point higher or lower plays any role with regard to risks linked to household indebtedness, one can also question whether it has any significance for inflation and unemployment. | 1 |
We are already in “extra time” as far as this particular match is concerned, and the score is currently not favourable to us. This sense of urgency is widely shared. The COP25’s slogan “Time for Action is now” clearly reflects this. In addition, less than two weeks ago, the European Parliament declared a climate and environmental emergency, calling for reductions in global emissions to be stepped up and demanding more financial support to fight climate change.3 Today we are honoured to have with us Lord Nicholas Stern, who has been a prominent advocate of this urgency for quite some time. It is well known that one of the main research developments in this field was the 2006 report, commissioned by the British government and led by Lord Stern.4 The report concluded that the benefits of strong and early action far outweighed the economic costs of not acting.5 Two of the main findings of the report were that the costs of stabilising climate were significant but manageable, while delayed action was dangerous and much more costly. Importantly, the report concluded that there was still time to avoid the worst impacts of climate change, if we took strong action. 1 Source: World Meteorological Organization, 3 December 2019, January to October. https://public.wmo.int/en/media/press-release/2019-concludes-decade-of-exceptional-global-heat-and-high-impactweather 2 Intergovernmental Panel on Climate Change (2018). 3 European Parliament, press release 29-11-2019. https://www.europarl.europa.eu/news/en/pressroom/20191121IPR67110/the-european-parliament-declares-climate-emergency 4 http://www.lse.ac.uk/GranthamInstitute/publication/the-economics-of-climate-change-the-stern-review/ 5 https://webarchive.nationalarchives.gov.uk/20100407163608/http://www.hmtreasury.gov.uk/d/Summary_of_Conclusions.pdf 2/5 Of course, it is worth repeating that these conclusions were flagged already in 2006, more than thirteen years ago. | 32 Đ Đ I wish you a fruitful general assembly and annual meeting in Singapore. Thank you. [1] The IMF’s 2019 global growth forecast was lowered to 3.2%, as cited in the World Economic Outlook, July 2019. [2] IMF World Economic Outlook, July 2019 [3] The world’s best performing developing economies are defined as those that have averaged at least 3.5% annual per capita GDP growth over 50 years or 5% annual growth over 20 years, as cited in the McKinsey Global Institute Study on Outperformers Maintaining ASEAN Countries’ Exceptional Growth Report in 2018. [4] Population projections from the UN. The relative market size of ASEAN is cited by the US-ASEAN Business Council in its growth projections for ASEAN in 2050. [5] DBS Bank and the UN Environment, Green Finance Opportunities in ASEAN 2017 [6] ASEAN Green / Social / Sustainability Bonds / Sukuk for October 2019 [7] GCIO Sustainability Reporting in ASEAN Research Report 2018 [8] Nasdaq and Celent July 2018, Global C-Suite Study on Capital Markets Infrastructure Technology [9] Global private equity valuations has grown more than 700% since 2002 in 2017, outpacing public equity market valuations, McKinsey Global Private Markets Review 2019, Private markets come of age. [10] CFA Institute Nov 2018, Capital Formation: The Evolving Role of Public and Private Markets [11] Wall Street Journal Jan 2018, Fewer Listed Companies: Is That Good or Bad for Stock Markets? | 0 |
Brian P Sack: Preparing for a smooth (eventual) exit Remarks by Mr Brian P Sack, Executive Vice President of Markets Group of the Federal Reserve Bank of New York, at the National Association for Business Economics Policy Conference, Arlington, Virginia, 8 March 2010. * * * Thank you for inviting me to speak today. In my remarks, I will provide an update on the progress that the Federal Reserve is making toward preparing for a smooth exit from the extraordinary policy actions that were taken in response to the financial crisis. 1 I should note up front that I will not be providing any information about the likely timing of policy tightening; those decisions will be made and communicated by the Federal Open Market Committee (FOMC). Instead, I will focus my comments on the policy tools and strategy that are likely to be used whenever that exit becomes appropriate. I will also discuss the preparedness of financial markets for the Fed’s exit, in order to assess how financial conditions may evolve as the exit approaches and gets under way. When the time comes to tighten monetary policy, the Federal Reserve will be embarking on a tightening cycle like no other in its history. First, this tightening cycle will have two policy dimensions, in that the FOMC will have to decide on the path of its asset holdings in addition to the path of the short-term interest rate. | Simon Potter: The Foreign Exchange Global Code - lessons learned and next steps Remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, at the 2017 FX Week Conference, New York City, 12 July 2017. * * * I would like to thank Christina Getz and Jamie Pfeifer for their excellent assistance in the preparation of these remarks and colleagues in the global central bank and FX community for numerous insightful comments and suggestions. Good morning. It is a pleasure to return to FX Week USA, and I would like to thank FX Week for the invitation. Foreign exchange (FX) market participants play important roles in their interactions with the New York Fed. They act as FX trading counterparties of the New York Fed and they provide information on market conditions to support the Desk’s monitoring of financial markets and transmission of policy. I am pleased to have the opportunity to speak with you today. Before I begin, I would also like to note that my comments today reflect my own views and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System. However, remarks on the expectations for FX counterparties reflect the policies of the Federal Reserve Bank of New York. At this event two years ago, I highlighted the important role the FX market plays in facilitating the flow of capital across the globe in support of international trade and investment. | 0 |
Be that as it may, the direct fiscal costs of capital injections into domestic banks, losses on government guarantees, the blanket guarantee of domestic deposits, and the refinancing of the Central Bank are estimated to have amounted to onethird of year-2010 GDP. The net might turn out to be somewhat lower, however; for instance, there will be some recovery on the collateral of CB lending to failed banks. Gross government debt went from under a third of GDP before the crisis to a peak of one GDP, and net debt rose from around a tenth to two-thirds. As a result, there was no fiscal space to save banks 10 times GDP, and attempting to do so would have bankrupted the country. Indeed, Iceland had to embark on a medium-term fiscal consolidation programme even as output was still contracting, in order to stop government debt from reaching an unsustainable level and to rebuild the external confidence needed for the sovereign to regain market access. The overall fiscal effort (measured by changes in the cyclically adjusted primary balance as a percentage of potential GDP) amounted to 10 percentage points 2010–13, more than that of Ireland during the same period (although Ireland will overtake Iceland if the expected effort for 2014 and 15 is added). | Már Guðmundsson: Preserving the credit of the sovereign through a financial sector meltdown – the case of Iceland Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at the International Monetary Seminar 2013 “Sovereign risk, bank risk and central banking”, organised by the Bank of France, Paris, 8 July 2013. * * * I would like to thank Banque de France for inviting me to speak at this interesting seminar. This session is on resolving sovereign debt crises and the relative roles of the public and private sectors in that process. My comments will obviously be based on my own country’s experience during the financial crisis, which is a case of a sovereign debt crisis being avoided in spite of the meltdown of a large part of the financial sector and the country’s deepest recession since the interwar period. That result was achieved by relatively good fiscal position prior to the crisis, by a refusal – based on need rather than stubbornness – to rescue private cross-border banks with public money, and by on-going medium-term fiscal consolidation that was an important part of the economic programme developed in cooperation with the IMF. The bottom line is that all sovereign obligations have been honoured; the sovereign has maintained investment-grade credit ratings and market access. | 1 |
This would bring huge potential benefits for all Member States in terms of enhancing financing for the real economy, managing risks and pooling the resources of investors from European and elsewhere. 4 BIS central bankers’ speeches Conclusion Let me now conclude. What we are aiming for in Banking Union is to create a system that is truly European and not just an inter-governmental framework for national authorities. We have seen that a Banking Union would have made a real difference during the crisis – and for this reason, there is no pressing reason to carry on with national arrangements that have not functioned effectively. I believe that this message has made its way into the SSM legislation. The elements are there for a truly European approach to supervision. And I hope that it will also translate into a strong Single Resolution Mechanism, to be launched as soon as possible. The SSM and the Single Resolution Mechanism are complements and we need progress on both these fronts. As Victor Hugo once remarked, “you can resist an invading army; you cannot resist an idea whose time is come.” I believe that Banking Union is just such an idea. But it now depends on us – as policymakers, as commentators, as citizens – how it is turned into reality. If we are anything less than wholly ambitious, then we will have learned nothing from this crisis. Thank you for your attention. BIS central bankers’ speeches 5 | Global GDP growth has averaged between 3.0 and 3.5% – a sub-trend outcome that we have not been able to break out of since 2011. This is significantly lower than the average of 3.8% that we witnessed before the global financial crisis, between 1990 and 2007. There are some broad themes that have shaped economic outcomes during the last five years. In the advanced economies, there are accommodative monetary policies, fiscal consolidation, and deleveraging. In the emerging economies – a shift toward domestic demand, credit expansion, and a buildup in debt. In both advanced and emerging economies, we have seen slower growth in the key drivers of long-term prosperity – namely trade, investment, and productivity. Everywhere, the pace of structural reforms has been slow. Outlook for 2017 – renewed optimism, higher uncertainty What does 2017 hold for the global economy? Let us consider first what financial markets are saying. Since late last year, the markets have been pricing in higher growth, higher inflation, and higher interest rates. 1/7 BIS central bankers' speeches Long-term bond yields have risen sharply in the advanced economies. Equity prices have surged. This reflation story has been particularly accentuated in US stock and fixed income markets. Reflecting this, the US Dollar has appreciated sharply, rising to its strongest level against the major currencies since 2003. The market narrative goes something like this: The new Administration in the US will inject a substantial fiscal stimulus – based on reduced corporate taxes and higher infrastructure spending. | 0 |
6/18 Meeting the guidelines of the preventative arm of the European Stability and Growth Pact should show the temporary fiscal consolidation path to follow in the future after having managed last year to cut the budget deficit to below 3%. At the same time, a review of the composition of public spending and revenue might also contribute decisively to improving the economy’s potential growth. There is room both to increase the efficiency of public spending and steer its composition towards those items exerting greater influence on the accumulation of physical, technological and human capital, and to re-define the structure of the tax basket in order to make it more conducive to growth. The presence of high tax benefits in our tax system, arising from numerous exemptions, allowances and special low rates, which generate substantial revenue-related losses and distort the efficiency and fairness of the tax system, are a good example of the headroom existing here. Secondly, despite the notable correction to date, the negative net international investment position is still at 77.1% of GDP. And the nation’s gross debt amounts to 166.7% of GDP, only slightly below the peak seen during the crisis. To bring down the debt vis-à-vis the rest of the world, Spain will have to run external surpluses over an extended period of time. And that, in turn, requires maintaining the gains in competitiveness, which throughout the recovery have been based on the moderation of labour and financial costs, and which, hereafter, should rest to a greater extent on increases in productivity. | The regulatory framework governing market practices by the Islamic financial institutions can also be strengthened further to ensure its continued soundness. This will involve the implementation of the prudential standards that have been issued by the Islamic Financial Services Board, the IFSB. Greater transparency through the observance of minimum disclosure requirements needs to be adopted by the industry. Good business practices need to be embedded in all aspects of Islamic financial operations, not only as part of good governance and corporate social responsibility, but also as part of brand building. Market efficiency in conducting Islamic business activities can also be enhanced further to ensure its sustained competitiveness as an intermediation process. As we are advancing into the third phase of the Financial Sector Master Plan, where the environment will become increasingly more liberalised and dynamic, we now have to look beyond the 2010 strategies. A key feature of the new environment is increased competition. The benefit of this trend will be to the consumers and businesses in terms of better prices, better range of products and services that are of a higher quality. This in turn would contribute to the overall performance of the economy. To be at the leading edge of competition, continuous efforts have to be intensified to enhance business efficiency and innovation. In this regard, the Islamic subsidiaries, with their increased autonomy in business operations, would be better positioned to determine their own business strategies and to realise the vast growth potential in the Islamic financial industry. | 0 |
However, I would like to briefly address an aspect of macroeconomic and institutional framework, which has been an important determinant of the extent and magnitude of the national authorities’ response to the crises: the exchange rate regime. A quick glance at the current developments in the region and broader allows us to draw the conclusion that the countries adopting a fixed exchange rate regime have been affected by the global crisis proportionally higher. Moreover, they have been more constrained in terms of responding to the crisis. By contrast, countries adopting a free floating exchange rate regime have been affected by the crisis more mildly and smoothly, and they have preserved higher independence in their economic policies for the mitigation of crisis effects. Obviously, this is not occasional: the free floating exchange rate regime is an important political, economic and institutional investment of emerging countries. Their sacrifices in terms of building reliable monetary and fiscal policies, enhancing public confidence in the respective currencies and national financial institutions are rewarded with the flexibility this regime provides to macroeconomic policies in coping with the crises. Exchange rate volatility mechanism is precisely a mechanism that allows the economy to absorb various shocks. The free floating exchange rate regime, devotedly adopted by the Bank of Albania, allows the Albanian economy to withstand these shocks at minimum cost. Let us leave this mechanism operate smoothly, without excessive reactions from the market or its agents. Any smooth moves towards the exchange rate equilibrium will be in the Albanian economy’s own interest. | Any hasty short-term reactions, like the ones we have been attesting to over the course of the present year and in the early days of this week, bring about individual financial cost to those undertaking them, as well as financial cost to the economy. No economic agent is stronger than the foundations. The high volatility and uncertainty in the foreign exchange market do not have any real base. The euroisation of the economy is a visionary idea, not only for Albania but for the entire region as well, since its final aspiration is the membership into the European Union. It encourages the domestic and the regional market, and the European authorities, to speed up the convergence process. However, convergence in the Euro area is a derivative of continuous structural reforms and strengthening of financial systems, wherein the stability of BIS Review 119/2009 1 the currency is of prime importance. There can be no European integration without a longterm equilibrium of the national and European currency. In the long run, the exchange rate will inevitably reflect the sound foundations of the Albanian economy, which are to remain so. The past years’ equilibriums remain real indicators of the potentials of the Albanian economy. In the long run, we remain deeply convinced of the benefits the free floating exchange rate regime brings about. It will be the passport to and the best support to the Albanian economy in its path to European integration. | 1 |
However, fiscal performance in 2009 was weak, mainly due to the global economic crisis, which reduced domestic revenues. Despite this, Government remained within the programmed domestic financing for the year. 1 December-2009 inflation revised to 12.0% in the Budget Speech for 2010 presented to Parliament on October 9, 2009. BIS Review 53/2010 1 Distinguished Members, the financial sector has remained resilient despite the effects of the recent global financial crisis. Currently, the Zambian financial sector is characterized by high liquidity levels, reflecting tighter lending standards in the wake of the lessons from the global financial crisis leading to marked decline in private sector lending. As a result, the demand for the relatively risk free Government securities has increased causing a decline in yield rates on Government securities. The decline in Government securities yield rates and relatively low inflation experienced since the beginning of the year should contribute to a decline in banks lending rates and thus stimulate borrowing by the private sector. I am aware that the high interest rates in the country pose a very big challenge for our manufacturers to borrow for recapitalisation and expansion of their businesses. Access to finance is essential for the economy to grow and therefore it is necessary that we find ways that could reduce the cost of borrowing to allow key sectors to expand. Ladies and Gentlemen, I wish to reiterate that the economic fundamentals point to a reduction in lending rates. | Caleb M Fundanga: Review of Zambia’s economy Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambia Association of Manufacturer’s Annual General Meeting, Lusaka, 16 April 2010. * * * The President of ZAM – Mr Chance Kabaghe The Vice Presidents (North and South) – Mr Sebastian Kopulande and Mr Eugen Appel The ZAM Executive Committee Captains of Industry Ladies and Gentlemen I feel greatly honoured to officiate at this Annual General Meeting for the Zambia Association of Manufacturers (ZAM). The Bank of Zambia and the Zambia Association of Manufacturers have a long standing relationship which is intertwined in more ways than one. I am sure that without making appropriate policies to support key sectors such as manufacturing, we would be robbing the country of the development that it deserves. I am reliably informed that ZAM has been going through restructuring in the last two years and has achieved a lot in terms of the establishment and making itself relevant not only to its members but to the Government and other stakeholders. It therefore gives me pleasure to stand before you to discuss issues that are pertinent to manufacturing. I am hopeful we will be able to understand the challenges and identify plausible ways of overcoming them for the sector to forge ahead and make a meaningful contribution to the economy. Mr President, the performance of the Zambian economy in 2009 was favourable. | 1 |
But, they do little to reduce investors’ incentives to run at the first sign of trouble. Worthwhile as the steps taken thus far are, we have not come close to fixing all the institutional flaws in our wholesale funding markets. The tri-party repo system and the money fund industry that plays a crucial role financing collateral through it are both still exposed to runs. In fact, in each of these areas, one could argue that the risks have increased compared to prior to the crisis. That is because the Dodd-Frank Act raised the hurdle for the Federal Reserve to exercise its Section 13.3 emergency lending authority and because Congress has explicitly precluded the U.S. Treasury from guaranteeing money market mutual fund assets in the future. With extraordinary interventions ruled out or made much more difficult, this may cause investors to be even more skittish in the future. This is why it is essential to make the system more stable. Turning first to the issue of tri-party repo reform, there is still considerable work to do. In particular, the risk that investors will run at the first sign of trouble persists. That is because the costs of running are very low relative to the potential costs of staying put. The potential costs of staying are elevated in part because investors often don’t have the capacity to take possession of the collateral or liquidate the collateral in an orderly way should a large dealer fail. Both aspects result in run risk, fire sale risk and potential financial instability. | The growing reliance on short-term wholesale funding to finance longer-term assets increased liquidity and maturity mismatch risk. This was particularly dangerous because many of the assets being financed were structured-credit products, some of which were opaque, difficult to value and illiquid. Short-term funding of longer-term assets is inherently unstable particularly in the presence of information and coordination problems. It can be rational for a provider of funds to supply funds on a short-term basis, reasoning that it can exit if there is any uncertainty over the firm’s continued ability to roll over its funding from other sources. But if the use of short-term funding becomes sufficiently widespread, the firm’s roll-over risk increases. In this situation, there is a strong incentive for each lender to “run” if there is any uncertainty that could undermine the borrower’s ability to continue to roll over its funding from other sources. This is the case even if the provider of funds believes that the borrower would remain solvent as long as it retained access to funding on normal terms. Of course, this insight is not a new one. Prior to the establishment of a lender of last resort and retail deposit insurance for banks – which came with the quid pro quo of prudential regulation – bank runs were a regular and disruptive feature of our financial system. These innovations solved the coordination problem and stabilized this source of funding. | 1 |
However, to date, I am pleased to note that one issue has been resolved with regard to the plight of the visually impaired that they were sometimes denied access to own ATM cards and internet banking. The Association of Banks in Malaysia (ABM) together with its council members have worked with the NCBM (National Council of the Blind) and as a result have now reached a solution that enables access to such services by the visually impaired individuals. This is indeed a positive step to move forward. However, there are other immediate needs that have not been addressed. For the banking industry, examples of such needs are: • lower bank counters for wheelchair-bound customers • “Talking ATMs” for the visually impaired • availability of sign language interpreters for the deaf • the need for OKU-friendly bank website to enhance their accessibility to e-banking services, which would augur well with the initiative by Bank Negara Malaysia to promote the usage of e-banking. Banks are encouraged to provide websites which are W3C compliance. The World Wide Web Consortium (W3C) is an international body that provides standards to enhance the web accessibility, enabling people with disabilities to participate equally on the Web, such as providing alternative text for images to allow accessibility by the visually impaired, providing text transcript to allow audio information accessible to the hearing impaired, and many other services. | Zeti Akhtar Aziz: Developing skills for a constantly changing environment Governor's Acceptance Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, for her Honorary Degree of Doctor of Laws from the University of Nottingham, University of Nottingham, Malaysia Campus, Selangor, 21 January 2006. * * * It is indeed my great honour to receive this honorary degree from the University of Nottingham, one of the premier universities in the United Kingdom . It is particularly special to receive this award at the University of Nottingham Malaysia campus, being amongst the first overseas campuses of world-class institutions of higher education that have established a presence in Malaysia. Malaysia and the United Kingdom have a history of close bilateral relations, reinforced by strong economic and financial linkages that span over a period of 200 years. This relationship is particularly evident in the field of education. The British are also known for being pioneers of strong cross-border higher education strategic alliances and partnerships. In Malaysia , we have seen such joint programmes between local and British institutions of higher education since the 1980s. Malaysia values this synergy and partnership with Britain and continuously looks forward to opportunities to further deepen this relationship on a wider range of areas for the mutual benefit of both countries. Significant new trends continue to shape both the global and our domestic economy. The modern world is experiencing continuous dramatic change. | 0 |
Jean-Claude Trichet: Monetary policy in 2003 Introductory statement by Mr Jean-Claude Trichet, Governor of the Bank of France, at the Forum Institut für Management, Frankfurt, 2 December 2002. * * * Introduction Ladies and Gentlemen, It is for me great pleasure to participate in this “International Forum on interest rates” and to exchange views with an audience of prominent players on financial markets. I welcome the initiative of the Forum Institut für Management. In promoting discussions on challenging issues between market practitioners and economists, this contributes to the attractiveness and spirit of financial markets in the euro area. I would like to open these discussions with some remarks on structural issues that one should keep in mind when examining the prospects for financial markets in Europe. Indeed, by achieving its primary objective of pursuing price stability in a medium-term perspective, the monetary policy defined by the Governing Council of the ECB lays the foundations of the success of euro. But these foundations are also embedded in a far-reaching structural dynamic involving notably three components: • financial integration, • financial stability, • and the prospects of European Union enlargement. I would like to make a few remarks on the challenges and opportunities arising from these three – interrelated– topics. 1 Financial integration 1.1 As regards financial integration, the European monetary union has in many respects modified the way in which financial institutions organise their daily business in the euro area. | From a general point of view, volatility is a kind of genetic signature of the price setting mechanism in a competitive market. Prices hover around the equilibrium through successive adjustments. When market participants express widely different views on this equilibrium price, or when the volume of transaction shrinks, volatility usually increases. In this respect, there is a close correlation between the occurrence of crises –such as the revealed insolvency of an emerging country, supply shocks on commodity prices, bursting of equity bubbles– and excessive volatility. Volatility is not an indicator of market inefficiency. However, excessively high volatility has adverse effects on the behaviour of market participants and the real economy. From a corporate management point of view, volatility on capital markets lowers the predictability of the cost of capital. When reviewing investment 10 Source : Report on financial structures – ECB - 2002 11 estimation in « Central banks and financial stability – exploring an intermediate land » – Second ECB central banking conference - 2002 12 BRI – Economic aspects of regional currency areas and the use of foreign currencies – 2002 – document non publié. BIS Review 71/2002 5 opportunities, managers may want to avoid relying too heavily on external finance because of the uncertainties surrounding the cost, or even the sheer availability, of financing. This may lead companies to postpone or downsize investment projects. | 1 |
At the same time, we shall also need to monitor fiscal intentions in the euro area Member States, as they will become more transparent over the autumn. If governments merely adhere to previous deficit targets for 1999, the structural position of budgets in quite a number of countries would effectively deteriorate. This would entail that they would move farther away from, rather than BIS Review 72/1998 -3- approach, the requirements of the Stability and Growth Pact, which calls for the achievement of a budget close to balance or even in surplus. In addition to the review of economic developments, a number of organisational issues were settled. (i) The General Council adopted its Rules of Procedure, which will be published in the Official Journal of the European Communities. You will recall that I informed you that the Governing Council’s Rules of Procedure were adopted in July. (ii) The General Council also decided that the non-euro area national central banks shall pay up 5% of their subscriptions to the capital of the European Central Bank (ECB). However, the four national central banks concerned will not be asked actually to pay in their share as the amount due is less than they can expect to receive as their share in the proceeds of the liquidation of the European Monetary Institute (EMI). Further details on the actual amounts involved are provided in the separate handout that will be issued to you this evening. | It is this Agreement which has now been signed by the President of the ECB and the Governors of the four non-euro area national central banks. The signature by the latter implies their agreement to the operating procedures. It does not, however, imply their participation in ERM II. Further details on the conventions and procedures for ERM II are provided in the separate press release that is being issued to you this evening. The Agreement itself will be published in the Official Journal of the European Communities. (b) Monetary policy issues BIS Review 72/1998 -4- The Governing Council agreed on several issues relating to the monetary policy framework in Stage Three. At the centre of this framework is the report entitled “The single monetary policy in Stage Three: General documentation on ESCB monetary policy instruments and procedures”, which contains a detailed description of the monetary policy instruments and procedures to be applied by the ESCB in Stage Three. The report expands on and updates the material included in an earlier version of the report that was published by the EMI in September 1997. I should like to limit my remarks in this regard to the announcement that a copy of this comprehensive report will be released very shortly, at which time a separate press release explaining the nature and purpose of the documentation will be issued. | 1 |
At the same time, insurers and takaful operators should take advantage of the emergence of new and low-cost distribution channels such as the internet and mobile technology, and adopt multidistribution strategies as a competitive tool to expand the pool of potential customers and cater to a wider range of needs of society. • Secondly, the industry must deliver more positive customer experience. As the industry is operating in a challenging operating conditions with intense pressure to control costs, one should not compromise on the level of customer service standards. Bad perception of the insurance industry can only happen if services rendered are poor. Industry players must always put the customer experience at the center of their business strategy. Once customers are satisfied with the service level, the upside is to improve customer retention and satisfaction. A recent research has shown that there are various factors that influence customers’ decisions to choose or leave an insurer. Although price and rates and product features are the most often cited reason to select and to leave a provider, about 40% of customers say they would consider choosing an insurer because of brand trust and after-sales services. Therefore, insurers and takaful operators need to assess how customers perceive the quality of their interactions, taking into account the views, perceptions, expectations and values of customers. • Thirdly, with more complex products and more sophisticated customer demands, the industry needs more skilled professionals to support the financial sector. The insurance industry need to change their approach in attracting talent. | We have also published a working paper entitled: “Studies on the Validation of Internal Rating Systems” Although validation is foremost the responsibility of banks, supervisors must have a thorough understanding of validation in order to ensure the overall integrity of banks’ activities in this area. I think these principles set out clearly what supervisory expectations are, and should provide a useful guide to the industry. Our work on validation will accelerate over the coming months, although our focus will be more on sharing and cataloguing information and approaches, and not on trying to develop a prescriptive method. Close dialogue with the industry in our work will be of great importance. Let me finish by saying that we, the supervisory community, continue to devote significant resources and efforts to improving the consistency of cross-border implementation. Consequently, the excellent dialogue between supervisors, organisations such as the IIF, and the industry more broadly, must continue in the coming months and years ahead. I welcome the discussions that we have been having, both inside and outside this conference, and look forward to hearing more of your thoughts and perspectives. BIS Review 23/2005 3 | 0 |
Progress in the harmonisation of certain market standards, practices and conventions across the euro BIS Review 72/2000 2 area is reflected in a capital market that is characterised by increased market liquidity, broader maturity spectrum and wider range of financial products. In addition, following the introduction of the euro, the euro area corporate bond market has grown significantly. The activity of private issuers has become more important than that of sovereign issuers, traditionally dominating the euro area bond markets. Positive network externalities and economies of scale have provided incentives for firms to issue their own securities instead of borrowing from banks. However, this trend away from banks towards markets - the so-called disintermediation process - will take time. The development of a broader spectrum of euro-denominated financial instruments will be a gradual process. In addition to the size factor, the international use of a currency is determined by risk factors, since investors may use the euro to hedge their risks through diversification across international currencies. If international investors and issuers consider the euro to be a stable currency, they will hold euro assets to minimise risk in their internationally diversified portfolios. In this context, I should make clear that maintaining price stability not only makes a contribution to improving economic prospects and raising living standards in the euro area, but it is also a major precondition for a currency to play an international role. | However, by maintaining price stability, the ECB almost automatically fosters the attractiveness of the euro as an international currency. Third, the international use of a currency is a complex phenomenon that does not lend itself to ad hoc promotion measures. A currency can be used not only for different functions, but also by different groups of economic agents. In this context, the use of the euro by private agents as an investment and financing currency, as well as a payment and vehicle currency, plays a prominent role. Although the euro is also used by the public sector as a nominal peg and reserve currency, the behaviour of the private sector dominates the internationalisation of the euro. The amount of financial assets managed by the private sector is many times larger than official reserve holdings. In addition, private agents usually adjust their asset management strategies more rapidly than most public sector institutions. But what are the factors behind the internationalisation of a currency? In principle, two basic factors might eventually determine the international role of the euro - size and risk. With regard to the size factor, a broad, deep and liquid euro area capital market may lead to a greater use of the euro through lower transaction costs. This may, in turn, facilitate the development of the euro as a vehicle currency for trade and commodity pricing. Already at this early stage, the introduction of the euro has brought about fundamental structural changes in euro area capital markets. | 1 |
the substantial tax subsidy benefiting homeowners – amplify fluctuations in asset prices and lending. Conclusion The monetary system has changed through history. If we go far enough back in time, money consisted of coins with a certain quantity of silver or gold. The quantity of silver and gold therefore limited the volume of money that could be produced. This ensured that coins were attractive as a means of exchange and as a means of storing value. On the other hand, paper money cost almost nothing to produce and can be therefore be printed in unlimited quantities. Over the past 100 years, there have been several periods when paper money could be redeemed for silver or gold. For example, this was for a long period the case in the Scandinavian Currency Union. In the period after the Second World War and up to the beginning of the 1970s, the US dollar had a fixed price against gold while other currencies had a fixed exchange rate against the US dollar. This was the basis for what was known as the Bretton Woods monetary system. Paper money had a value because the central bank was obligated to redeem it for gold. 8 BIS Review 111/2008 A system whereby paper money can be redeemed for gold is nevertheless more fragile than a system whereby coins must contain a certain quantity of the precious metal. A central bank can quickly cease to redeem paper money for gold, or redeem notes at a lower gold price than prevailing earlier. | Improving the OTC and commodity derivatives markets is a key part of this agenda, It is a complex matter and one in which alignment of details is essential to avoid regulatory arbitrage. BIS central bankers’ speeches 1 The third challenge is to enhance transparency across the board: with regards to markets, institutions, and products. Insufficient information contributes to mispricing of risks, mistrust among market participants, which can result into downturns and crises. At our October meeting of G20 Finance Ministers and Central Banks Governors we will be discussing IOSCO “recommendations to promote markets’ integrity and efficiency to mitigate the risks posed to the financial system by the latest technological developments”. 2. Improving policy discipline globally Aside from a more resilient global financial system, we need to have more disciplined macro policies as the lack of discipline in macroeconomic policies in several countries led to the build-up of unsustainable external imbalances before the financial crisis. There is still a gap between the degree of economic integration and the willingness of policy makers to take into account interdependence and spillovers. Keeping one’s house in order is no longer sufficient in an integrated world. Spillovers from the rest of the world can influence economies considerably. Multilateral surveillance is now being enhanced along two tracks. The informal G20 track and the formal IMF track. The G20 Framework for Strong, Sustainable and Balanced Growth, incorporates a first systematic multilateral assessment of global imbalances. | 0 |
Via this re-evaluation, negative rates loosen the perceived lower bound on the future distribution of short-term interest rates.4 Through this mechanism, negative interest rates have a marked impact on transmission, particularly in the euro area, as they push down the short and medium segment of the risk-free curve, which for the most part is the segment of the curve that determines the pricing of loans to non-financial corporations. It follows that control of this segment of the curve directly influences the level of lending rates. To illustrate the effectiveness of negative policy rates, ECB staff undertook a counterfactual exercise. They constructed the forward curve that would prevail in a scenario without either the negative interest rate policy or the forward guidance on the future path of the policy rates. As shown in Chart 2, the forward curve derived from the overnight index swap curve would be pinned at a higher level and would be distinctly steeper (the dashed blue line on the right) than the forward curve that we observe today (the red curve). 3 / 19 BIS central bankers' speeches While this mainly serves as an illustration, as it is based on a number of assumptions and input parameters, it is indicative of the sort of tighter interest rate constellations that the euro area economy would face in the absence of this important policy tool. Our negative policy rate thus contributes substantially to providing monetary accommodation. | 1 / 19 BIS central bankers' speeches In recent years, the ECB has deployed an innovative, multi-pronged approach in the design of its policy stance. While it is always possible to envisage a wider range of instruments, the current policy mix includes four elements: (i) pushing the policy rate into negative territory, (ii) forward guidance on the future policy path, (iii) the APP, and (iv) TLTROs. Importantly, these measures work as a package, with significant complementarities across the different instruments. I will outline the effectiveness of these four measures. Doing so shows the capacity of our policy framework to provide the monetary accommodation required to return inflation to the mediumterm goal, even when the policy rate is no longer in conventional positive territory. Furthermore, the effectiveness of these tools also provides leeway for further easing if it is required. Negative policy rate (deposit facility rate) The 2014 decision by the ECB to push the relevant policy rate (the deposit facility rate) into 2 / 19 BIS central bankers' speeches negative territory was a crucial policy innovation. Subsequent cuts have taken the deposit facility rate to its current level of minus 40 basis points. An important mechanism that reinforces the impact of negative interest rates relates to the way expectations about the future path of monetary policy are reflected in market interest rates.2 At any point in time, a wide range of future interest rate paths is conceivable and market participants assign probabilities to different parts of this distribution. | 1 |
I will now tell you from my own expertise that denying the need for adjustment is not a viable option. It is nevertheless true that ensuring fiscal sustainability without jeopardising the prospects for economic growth is a major challenge to decision-makers. No doubt the recent heated debates within the European Union and heightening fears about the euro and the euro area could not make things easier. Economic and financial conditions have tightened worldwide, but we, here in Romania, have already grown accustomed that our European dream has to pass exceedingly rigorous and tough exams. I realised a long time ago that the European Union would not bring forth roses on our way there. Even countries with robust economies, the old EU Member States, face major difficulties to integrate into the monetary and fiscal mechanisms, and some are even compelled to seek international support. However, the great benefits that the establishment and enlargement of the European Union has brought about should neither be forgotten, nor denied. The European Union has made Europe a robust economy at global level and, just to quote Romano Prodi, has brought the much-desired peace after centuries of conflicts. Boundaries have gradually been removed and people began to feel they belong to a much larger space than their own country, i.e. an area characterised by peace and democracy. From this perspective, one can say without the risk of being wrong that the history of Europe has moved in a virtuous direction. | For 2010, the SNB is currently expecting real GDP growth of about 1.5%. On the one hand, our export industry is exposed to the relatively hesitant growth in European demand. On the other, Switzerland is well equipped for a recovery. Public finances are relatively healthy, the financial positions of both households and corporates are sound, and the labour market is flexible. The risk of deflation has fallen in the wake of the economic recovery. The most recent SNB inflation forecast from mid-March shows that price stability is not threatened in the short term. The SNB has sufficient leeway to maintain its expansionary monetary policy for the time being. However, the forecast also shows that the current monetary policy cannot be maintained over the entire forecast horizon without compromising medium and long-term price stability. Moreover, this forecast is still associated with considerable uncertainties. The most recent financial market concerns that have arisen about the public finances of individual euro area countries represent a considerable risk in this regard. Over the past few years, Switzerland has benefited from the advent of the euro and the associated increase in European currency stability. Any threat to this currency stability would, by definition, have a negative impact on Switzerland, above all if the Swiss franc were to appreciate sharply due to its role as a safe haven currency. The SNB will not, however, allow such a development to turn into a new deflation hazard for Switzerland. | 0 |
The Fed also backstopped the commercial paper market (formerly funded in large part by money market mutual funds) by introducing the Commercial Paper Funding Facility (CPFF). When wholesale funding for non-residential mortgage securitizations evaporated, the Fed rolled out the Term Asset-Backed Lending Facility (TALF). These actions ultimately stabilized funding markets and crowded back in private funds. But, they were an emergency response, not a sustainable long-term solution. After all, because most of the special Fed liquidity facilities were authorized under Section 13.3 of the Federal Reserve Act, they were required to be temporary in nature and to end when times were no longer “unusual and exigent.” Much has been done over the past few years to mitigate the structural flaws that make wholesale funding a point of weakness in the global financial system. The New York Fed, for example, has led a Federal Reserve effort to make the tri-party repo system more resilient to stress, while the SEC has taken steps to address risks associated with money market mutual funds. Nonetheless, some important issues and vulnerabilities remain. Moreover, because BIS central bankers’ speeches 3 the Dodd-Frank Act raised the hurdle for the Federal Reserve to exercise its Section 13.3 emergency lending authority, extraordinary interventions will be more difficult to undertake, perhaps causing investors to be even more skittish in the future. This is why it is essential to make the system more stable. To that end, I look forward to hearing the insights and suggestions that come out of today’s workshop. | As with bank deposits prior to deposit insurance, this created an incentive for investors to be the first to get out whenever there was any uncertainty over the underlying value of the assets in the fund. By being first in line, they could exit while the fund could still repay at par, leaving others to bear any losses. The longer the investor waited, the greater the risk that the fund would be forced into the fire sale of assets to meet redemptions and end up breaking the buck. As the crisis unfolded, the Federal Reserve, the U.S. Treasury and others took a series of actions to contain the spiral of funding runs and asset fire sales. First, the traditional lender of last resort function was strengthened through the introduction of the Term Auction Facility (TAF) and foreign exchange swaps with foreign central banks. Then, as the crisis intensified, the lender of last resort liquidity provision was extended to directly backstop key wholesale funding markets and made available to certain nonbank firms. The Federal Reserve created a direct backstop to the tri-party repo system through the Primary Dealer Credit Facility (PDCF). When the Reserve Fund broke the buck after the failure of Lehman Brothers, precipitating a run on money market mutual funds, the Treasury guaranteed money market fund assets and the Fed introduced the Asset-Backed Commercial Paper Money Market Fund Liquidation Facility (AMLF). | 1 |
We will seek feedback on these with the industry. 33 I will now turn to the topic of financial scams, a concern of some retail investors. MoneySense runs regular campaigns to remind investors of the need to be on guard against investment scams. I have highlighted here a web page capture of an earlier campaign where MAS had put out an advertisement to resemble a typical online investment scam. The advertisement showed an island property investment. When a consumer navigated to the scam website and indicated interest to invest, he would be told that the island property investment was a scam and he would have lost money if he had invested. He could then learn about how to spot red flags and protect himself when investing. You may be surprised that quite a few people had actually “clicked” to invest into this. Thankfully, there were others who contacted us to alert on this suspicious investment scheme. 34 Some fraudulent websites have also attempted to solicit investments using fabricated information attributed to well-known personalities. Both MAS and the police have issued 4/5 BIS central bankers' speeches advisories on these scams. 35 To safeguard your monies, you should approach all investment propositions with a healthy scepticism and challenge exaggerated claims. As it is often said, if it sounds too good to be true, it is probably not true. 36 Financial education and advisories issued by the authorities will not stop those who are out to cheat investors. | 5 There are three important enablers: a culture of fostering customers’ trust in the financial industry; strong market discipline that incentivises right behaviours; and adequate and timely public disclosures of pertinent information. Engendering trust in the financial industry 6 Let me start with the theme of trust. It was a decade ago that we had the Global Financial Crisis. With a suite of regulatory reforms that followed, the global financial system is generally safer and stronger. Just being safe is not good enough. A vibrant financial sector must be able to support the smooth functioning of credit and money flows. It should meet the savings, investment and insurance protection needs of the people. Investors on their part want to have the confidence that they are treated fairly by financial institutions and that their savings are safe. This is why building trust in our financial institutions is so important. That trust goes beyond doing what is legally required, to include what is good and what is right. 7 Some of you may have seen recent reports on the Royal Commission review in Australia that investigated widespread misconduct issues in its banking industry. Financial institutions in Singapore are generally well regarded. But we have our share of malpractices too, such as the mis-selling of Lehman Minibonds and other structured or complex products. 8 Financial institutions have a duty to act in the best interests of their customers. However, in our supervisory reviews, we have uncovered lapses in conduct. | 1 |
It remains to be seen how well they will succeed and how confidence in the central bank as an independent institution will be affected, as well as what consequences this might have. Independence not a given – the central bank may also need to adapt I think that it is important that the central bank never takes its independence for granted. It should always ask the question of whether the policy it conducts can be expected to result in the economic development that was aimed at when the central bank was granted its independence. An important part of this is, of course, that the central bank does its best to attain the objectives it has been allocated. But another part, which has perhaps not received as much attention, is that the central bank must also take into account fundamental changes in the economy that may make it necessary to adapt its behaviour. There could be many examples of changes in the functioning of the economy that could trigger such a need to adapt. But let me illustrate what I mean with an example that has been highlighted, for instance, in the IMF’s most recent World Economic Outlook. A slightly surprising observation in recent years is that inflation has not fallen very much during the recession connected to the financial crisis, despite a dramatic fall in demand in many countries and a sharp rise in unemployment. The contrast in relation to earlier economic downturns, when inflation fell much more, is fairly surprising. | Barbro Wickman-Parak: Independence, inflation targeting and the importance of not being dead certain Speech by Ms Barbro Wickman-Parak, Deputy Governor of the Sveriges Riksbank, at a breakfast meeting at Skandinaviska Enskilda Banken AB (SEB), Stockholm, 14 May 2013. * * * I would like to thank Mikael Apel, Advisor in the Monetary Policy Department for his help with this speech. An important lesson When one is, as I am, at the end of one’s professional career, it is natural to reflect on what is the most important lesson one has learnt. If one were to try to pass on one important insight to someone who is just beginning their career, what would it be? Of course, it is difficult to give a simple answer to this question, but one insight that would probably come pretty high up on my list is that it is so easy to fasten in what one might scientifically term the “prevailing paradigm”. By this I mean that it is so easy to believe that the means of regarding the world that is currently dominant is the best one and will apply, if not for ever, at least for the foreseeable future. I have come across this phenomenon numerous times during my professional life – and have of course been part of it myself. What is perceived as true and correct has varied from one time to another and sometimes the pendulum has swung violently. | 1 |
In itself, a difference in the weight of a small state and a large state may make sense; but if certain EU member states have a much bigger informal impact than others on the positions that the EU takes in international political or economic forums, the big-impact states may be tempted to “nationalise” the voice of the EU. Many attempts at nationalisation of EU positions are due to what might be called the “French complex”: Some leaders of bigger countries still have not fully absorbed the fact that their country is no longer the superpower it used to be and no longer leads the world, so they often try to abuse their EU-wide voice to support their national interests, positions and agenda. When they call for Europe to speak with “one voice”, they often seem to expect that the single voice of 500 million EU citizens will be the voice of their national leaders, articulating their national tastes and priorities. Of course, the agent, the European Commission as an executive arm of the EU, also sometimes has this temptation to define or steal the voice of the EU. Needless to say, the risk that proper integration will be derailed is particularly high when the two effects mentioned above are combined – when the EU administration ceases to behave as an agent of the less powerful principals but remains under the spell of a few very strong principals. | Companies report a decline in production, employment and orders for both the export and domestic market. Many companies have moved abroad or are planning to move all or parts of their production out of Norway. In recent years, the shipbuilding and engineering industries have sustained the activity level in Norwegian manufacturing. Shipyards experienced a sharp increase in new orders before end-2000 prior to the elimination of support to the shipbuilding industry in Norway and many European countries. The level of new orders has since then been very low, and the order backlog is nearly exhausted. A sharp increase in petroleum investment could provide positive growth impulses to the offshore-related industry. The demand impulses from petroleum investment to the mainland economy may, however, be weaker than has been the case earlier. Construction and installations with a high import content will account for a large share of the increase in investment from 2002 to 2003. Due to the high cost level in Norway, a growing number of contracts are also being awarded to foreign companies. At the same time, Norwegian shipyards are increasingly using foreign subcontractors in low-cost countries. This is having an impact on the Norwegian engineering industry. Many service industries have had to adjust capacity in pace with changes in operating parameters. Investment in service sectors has fallen sharply, and is expected to continue to fall. There is considerable excess capacity in the commercial building market. | 0 |
Given their low levels of productivity relative to the frontier (as represented by US productivity), emerging market economies have enormous scope to raise productivity BIS central bankers’ speeches 3 through capital deepening and adoption of existing technology and modern production methods. • In China, for instance, despite substantial gains in the last two decades, the productivity level is only about 15% that of the US. • In Indonesia and the Philippines, it is only about 10% that in the US • With the right policies, these economies can sustain good rates of productivity growth for a few more decades. A fourth factor impacting long-term economic growth is energy. Some of the world’s largest economies – the US, Japan, China, and India – are also among the largest net importers of oil. Cheaper and more plentiful energy is akin to a supply-side boost to these economies. • The shale gas revolution in the US has markedly reduced its dependence on energy imports and helped to boost industrial competitiveness as energy costs stabilise at a lower level. • It would be unwise to extrapolate too much from the recent fall in oil prices of over 25% (between July and October this year). But a gentle secular decline in the real price of oil is not an unrealistic assumption that, if true, should be a boon to global economic growth. | First, on management oversight and the control culture, the starting point is that the Board of Directors need to understand the risks run by the institution, to set the acceptable limits on these risks, and to ensure that senior management takes the steps necessary to identify, monitor and control these risks. Senior management must then take the responsibility to implement the strategies approved by the Board, to set appropriate internal control procedures, and to monitor the effectiveness of these procedures. This makes it quite clear where the main responsibility for controls rests - and that is fairly and squarely on the shoulders of the institution’s Board of Directors and its senior management, not just on its compliance and audit departments. However, having said that, everyone in an institution shares the responsibility to some extent. A key task for the Board and senior management is to establish the right culture within the institution, a culture in which the importance of internal controls is stressed, and high ethical and integrity standards are promoted. This culture BIS Review 48/1998 -2- will be determined not simply by what the top levels of management say but what they do. For example, do the institution’s remuneration policies reward risk-taking at the expense of prudence? Does senior management display a casual attitude towards breaches of limits? Do they encourage the right attitude towards regulatory compliance? Is there backing and respect at senior levels for the internal audit and compliance functions? | 0 |
Second, real interest rates must also be increased with a view to removing the causes behind the differentials. BIS Review 14/2001 5 Interaction with fiscal policy It is important that the annual budgets are based on a long-term strategy that takes into account possible fluctuations in oil revenues from one year to the next. With large and, to some extent, varying budget revenues, the basis for determining central government expenditure and taxes from one year to the next may easily be impaired. If budget spending is allowed to vary in step with oil prices, the Norwegian economy may experience abrupt shifts and instability. Changes in oil prices may then quickly influence wage and price expectations, the exchange rate and long-term rates. In addition, short-term rates would have to be changed frequently and sharply. Budget tightening and spending growth Percentage change from previous year 3 3 Spending growth 2 2 1 1 0 0 -1 -1 Total effect of the budget -2 93 94 95 96 97 98 99 00 -2 01 In recent years, central government real underlying spending growth has accelerated somewhat. Both in 2000 and 2001, spending growth has been higher than 2 per cent, which is above potential growth in the mainland economy. At the same time, taxes have increased. | The government’s five largest stakes in Norwegian companies can be roughly estimated at NOK 300 billion. In general, concentrated ownership requires a more strategic ownership approach and gives rise to higher risk than diversified ownership. 10 BIS Review14?/2001 Risk associated with state ownership NOK bn 300 The five largest state enterprises Petroleum Fund's bonds Petroleum Fund's equities 200 100 National Insurance Fund's private bonds National Insurance Fund's equities 0 0 10 20 Return risk This is illustrated further in the chart. The composition of government assets is broken down into equities and bonds in the Petroleum Fund and the National Insurance Fund and government ownership interests in the five largest companies. The horizontal axis provides a normal measure of risk, in other words the standard deviation of the return. The risk is estimated on the basis of the historical performance of the companies’ share prices. For unlisted companies, we have used share price performance for comparable international companies. Higher risk means that the assets are more exposed to fluctuations in return. As a whole, the return on the Petroleum Fund and the return on private bond holdings in the National Insurance Fund feature a moderate risk profile. The risk is higher for both the National Insurance Fund’s equities and the state’s ownership interests in the five largest companies. For a given expected return, the owner should aim at reducing risk because future income will then be more secure. | 1 |
There is a concern by the U.S. correspondents 2 BIS central bankers’ speeches transferring funds for Middle Eastern customers that the correspondents might unwittingly be providing services to a terrorist organization, or be enabling a person or affected sovereign to evade economic sanctions. So, the correspondents close accounts for all banks in the Middle East. Similarly, there is a concern by the U.S. correspondents transferring funds for Latin American customers that they might unwittingly be providing financial services to drug traffickers, a money laundering risk. So, they close accounts for all banks located in Mexico, Venezuela and Colombia. The de-risking exercise succeeds in its risk-reducing objective, but it succeeds in an overly broad manner by cutting services indiscriminately to so many. The adverse and unintended consequences for certain regions of the world are clear and present. There are also implications for U.S. policy with respect to the role of the dollar as the international medium of exchange. These issues, while highly consequential, are not the object of my remarks today; rather, they are a symptom of what compliance can lead to – namely, a reason to restrict business activity. Given the size of penalties for violations, and the potential reputational damage associated with this business, it is very difficult to quarrel with the business judgment. The success of compliance over the last 20 years has conditioned business leaders to think about compliance as a pathway to terminate or constrain a risky business relationship. | Levels of savings If we follow the consumption smoothing theory, individual savings behavior is driven by the life-cycle: individuals tend to increase their savings as they earn more and then decrease their savings until they actually become negative when they retire and earn less, thus leading to a hump-shaped pattern for their accumulated wealth. Consequently, as the proportion of the aged population increases, private savings, as a proportion of income, should decrease. However, this decline may be gradual with the negative impact of ageing on the levels of savings prevailing in the longer run. Structure of savings In terms of structure, the fact that elderly people account for an increasing share of the population could change savings habits and have an impact on the demand for certain classes of assets. In particular, given that elderly people are more risk adverse, this could increase the already high demand for low-risk assets. Investment The standard production function exhibits two productive inputs: labour and capital. If the labour force tends to decrease or decelerate because of demography, then the production process may become more capital intensive, leading to a fall in the productivity of new capital and, in theory, a decline in the rate of capital return. Investment could be less dynamic and negatively impact potential growth. This would in turn have an adverse impact on the real interest rate, so that domestic savings and investments would balance. | 0 |
Asset purchases to push down general interest rates and thus further stimulate the economy can be justified under certain conditions, for example in a situation where the credibility of the inflation target is threatened or when the transmission mechanism via the banking system is weakened.44 But I believe that the threshold for extensive purchases of bonds to safeguard the inflation target should be high. There are sometimes negative side effects of extensive asset purchases that we need to take into account, for example, they may have a negative effect on the functioning of the markets. In addition, it can be difficult to liquidate large holdings when the situation normalises. 43 For a discussion of this and an overview of the literature on asset purchases, including the Riksbank's pur- chases, see Akkaya et al. (2023) and Andersson et al. (2022). 44 See also my colleague Martin Flodén's discussion of the effects of the Riksbank's purchases in the speech "The Riksbank's losses do not reflect the socio-economic results", 2022. 23 [30] So we need to learn more about the effects of phasing out or normalising asset holdings. At the moment, of course, there is little experience of this, but we learned back in 2013 that reactions in the financial markets can be strong, when the Federal Reserve announced that it would start tapering its asset purchases. We should consider whether we should not have an exit plan prepared before the next time we need to make major asset purchases. | It follows inevitably from this that there will be tensions and arguments between regulator and regulated. However, these frictions should not be bigger than they have to be – in other words, we should aim for a system in which the burdens on firms created by our regulation are no greater than they need to be to achieve the objectives set by Parliament. Part of this is about the ability to adapt regulation for different types of businesses, as given the enormous diversity of financial firms operating in the UK it is unlikely that one size will fit all in all cases. The other side of this coin is that we cannot run a zero-failure regime. 4. Dynamism and responsiveness. Sometimes these words – “dynamism”, “responsiveness” and indeed “proportionality” above – are understood to imply weak regulation, which unsurprisingly we at the Bank are firmly against. So because of this danger of a whiff of weakness we have thought very carefully about whether it is important to have something like this as part of our list of principles. We have concluded that it is necessary for a simple reason: the financial system is an extraordinarily adaptive organism and is constantly changing. Sometimes this is for good reasons, for instance as it adopts new technologies in order to deliver a better product. | 0 |
These weaknesses make it necessary to design specific policies to address this objective and to adapt the institutional and regulatory framework so that the smooth functioning of the markets will drive the innovation and development of new activities that will focus the productive structure on sectors in which demand and value added are greater. As a result of the launch of the new Plan to achieve a dynamic economy and to foster productivity, certain measures were adopted to promote competitiveness (of a sectoral nature), which will unquestionably play a part in improving productivity. The Banco de España particularly welcomes those measures addressing the financial system. However, what is most important is that this Plan should clearly steer reform policy priorities in the right direction and maintain the momentum of reform. The commitments announced must be implemented ambitiously and complement other actions aimed at fostering improvements in human and technological capital and in the workings of markets and institutions. This is not the appropriate setting for a detailed and exhaustive review of the range of measures and reforms required by the Spanish economy. I have referred only to some of the most necessary ones, but this list would be incomplete if I did not mention steps to mitigate the potential effects of household indebtedness and of house price rises on the sustainability of growth. | A more flexible and efficient labour market is necessary to overcome the distortions that are contributing to a deterioration in competitiveness and to provide an appropriate framework so that firms will find sufficient stimulus for job creation, the introduction of new technologies, the efficient use of factors of production and the enhancement of productivity. 8 BIS Review 45/2005 In this setting, the persistent ratio of temporary to permanent employees, which seems to have encountered a floor at levels above 30%, with the attendant negative consequences for productivity and human capital accumulation, makes it advisable to review the effectiveness of the incentives in force to hire permanent workers in recent years. This would involve redefining the measures designed to reduce non-wage costs linked to this type of employment and introducing incentives to rationalise the use of temporary employment contracts. It is also necessary to set in train a reform of collective bargaining to make the wage-setting mechanisms more flexible, so that compensation is brought into line with the specific conditions of the productive sector and of firms and with the characteristics of workers. This reform would also eliminate, or at least reduce the emphasis on, wage-indexation mechanisms. The stepping-up of investment in training, in physical capital and in technological capital in line with the objectives of the Lisbon Agenda is fundamental for boosting productivity. As mentioned, Spain has notable weaknesses in the areas of innovation and of its incorporation and diffusion in the productive system. | 1 |
In mid-September, Norges Bank submitted a report to the Ministry of Finance. This report carefully examines the reasons for the low level of inflation and the measures that have been implemented to bring inflation back up to target. There are still prospects of low inflation for some time ahead. Developments in other countries indicate that prices for imported goods and services, measured in the producer countries’ currencies, will not rise appreciably. It also takes time for the effects of last year’s appreciation of the krone to dissipate. However, this year’s krone depreciation will gradually have an affect on inflation and thus contribute to higher inflation. The analysis in the June Inflation Report showed that a reduction in the sight deposit rate towards 3 per cent, combined with some depreciation of the krone, could bring inflation up towards the target at 11 the two-year horizon . The prospect of more moderate wage growth ahead could provide a basis for an even lower interest rate and a weaker krone without the projections for inflation exceeding 2.5 per cent in the period. With reduced pressures in the economy and an inflation outlook that is below target at the two-year horizon, Norges Bank has reduced the key rate a number of times in the last year. This summer the interest rate has been reduced in larger steps than has been customary. Interest rate reductions have been an important element in preventing inflation expectations from taking hold at too low a level. | The public sector employs more than one-third of the labour force in Norway. In Northern Norway, public sector employees account for close to 45 per cent of the labour force. The primary industries are important for the counties in Northern Norway, especially the utilisation of the abundant fish resources in the coastal areas. A large part of the fishing industry is export-oriented and is increasingly competing with low-cost countries. These industries will be vulnerable when the rise in domestic costs is high. There are wide regional variations in unemployment. At the end of July, the number of registered unemployed in Northern Norway came to 4.4 per cent of the labour force, which is slightly higher than the national average of 4.1 per cent. Even though the region has somewhat higher unemployment than the national average, the rise in unemployment in Northern Norway has been relatively low in the last year. Unemployment has only risen half as much in Northern Norway as in the rest of the country. The number of unemployed has risen least in the county of Finnmark in the last year. This is probably related to the industry structure which is characterised by a relatively high share of employees in the public service sector. As I have mentioned, a look at the current situation in this part of the country and similar reports from the other regions represent important information in the work on setting interest rates. The short-term nominal interest rate in Norway has now reached a historically very low level. | 1 |
This has been further exacerbated by the low value addition of the agriculture sector in the economy. While the contribution of the crop sector amounts only to 14 percent of GDP, the individual contribution by the sub-crops has been negligible with tea contributing 1 percent, rubber 0.4 percent, coconut 1 percent and paddy 3 percent. Hence, even if the output of agriculture is doubled, it would not make a significant contribution to country’s wealth creation. If agriculture has its limited capacity for an accelerated growth, why not concentrate on industry? This may be a pertinent issue to be addressed at this stage. Certainly, unlike the agriculture, which is faced with the limitation of land, industry does not have any capacity or demand limitations. The nonavailability of raw materials or essential inputs or even the domestic demand for the output does no longer inhibit industrial growth. With globalization of trade and services and the advancements in information and communication technology (ICT), the previous bottlenecks for industrial growth have been efficiently sorted out. In today’s context, industrial outputs do not belong to a particular nation or country. They are jointly held products to which many nations or countries would have contributed. | According to Dr S Arsaratnam 4 , both the Sinhala kings and the Dutch used Arabic traders to export elephants, gems, areca nuts and spices, and import rice, textiles and other requirements in the 16th to early 18th centuries. The British period that followed the Dutch rule is marked by a continuation of the open-economy policy pursued by ancient Sinhala kings. During this period, the country continued to rely on foreign trade for wealth creation and maintaining high standards of living. Hence, the reliance on services, especially commercial services, for wealth creation was not a new policy paradigm for Sri Lanka. Around the time Sri Lanka gained independence from the British rule, the country’s GDP was distributed in the proportion of 46 percent for agriculture, 20 percent for industry and the balance 34 percent for services. The high share of both agriculture and industry amounting to about a two-third of GDP indicated the prevalence of a limit for their continued growth devoid of a vibrant and efficient services sector. This anomaly was to be gradually, and in a slow pace, corrected in the subsequent five decades. In 1960, a slight improvement in the respective shares was observed with agriculture falling to 38 percent and services rising to 45 percent. The period since then recorded a virtual stagnation of services till early 1980s when the country moved to an open economy regime. | 1 |
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