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In today’s situation, private investors would probably have required considerably higher yields on sovereign bonds – as was the case in 2011 and 2012 – if they did not know that the ECB was buying large volumes of these bonds. No treatment is without side-effects. The same goes for low interest rates: there is little incentive to reduce debt and measures that could have strengthened government budgets can be postponed. Firms that are not making money can continue to operate. Monetary policy in Europe has been stretched to its limits. What monetary policy can do is to build a bridge – from the old economy in crisis to a new economy. But someone else – and something else – must create solid ground on the other side. Otherwise, the bridge will be left hanging in mid-air. Keynes would probably have supported the ECB’s policy. Without countermeasures, a crisis can become a catastrophe. A slower process of economic restructuring may be a reasonable price to pay. Europe is again seeing a modest pick-up in economic growth. Unemployment has reached the peak and is falling in countries such as Germany, Ireland and Spain. It is a slow process and the ordeal can seem unnecessarily protracted, but at least things are moving in the right direction. Can the crisis in Europe be curbed? The answer is probably yes, provided authorities succeed in establishing a form of coordination that has so far been absent. At a deeper level, there is a need for structural and institutional reforms. | In contrast to most European countries, Norway also has room for manoeuvre on the fiscal front, if necessary. But – as in the rest of Europe – the authorities cannot solve the deeper challenge, namely the need to establish new private sector activity. This is a task for the business sector. What the authorities can do is to establish framework conditions that promote innovation and growth. Hayek and Keynes In my introduction, I posed the question: can crises be curbed? quickly followed by: can misjudged attempts to curb a crisis sow the seeds of an even deeper crisis? Keynes and Hayek did not come to agreement on how a crisis should be managed. Their debate is still relevant today. Keynes advocated the use of public spending to curb crises. 6 See Financial Stability Board (FSB) (2011), “Key Attributes of Effective Resolution Regimes for Financial Institutions” and FSB (2015) “Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution”. 7 The first pillar of the European Banking Union, the Single Supervisory Mechanism (SSM), with the ECB as supervisory authority for the 130 largest banks in the euro area, started in November 2014. The second pillar of the European Banking Union, the Single Resolution Mechanism (SRM), became operational in January 2015 and the joint crisis resolution authority, the Single Resolution Board, started its work. 6 BIS central bankers’ speeches Hayek warned against such a policy: the misjudged application of government measures could easily lead to deeper crises and credit bubbles. Both were right. | 1 |
Neither has the Riksbank's outlook for the Swedish economy changed very much over the summer. However, new statistics indicate slightly stronger growth during the first half of this year compared with June. This means that the outlook for the Swedish economy now appears somewhat brighter than at that time. The repo rate cuts totalling 0.75 percentage points have also contributed to this. However, compared with August when we had our last Executive Board monetary policy meeting, we have not changed our assessment markedly. The Riksbank's assessment is now that continued stable growth in incomes, wealth and employment will contribute to smooth and relatively robust growth in household consumption. During 2004 and 2005 an increase in investment is also expected, although there are no signs of a turnaround yet. Some upturn in exports is now expected to occur in much the same way as usually happens during economic upturns. However, as a similar upturn is expected in imports, the net export contribution to GDP growth will be limited. Public consumption is expected to grow by approximately 1 per cent per year over the coming years. The improved economic activity will lead to slightly higher resource utilisation than forecast in the June Inflation Report, which in turn means that wages in the private sector are expected to rise at a marginally higher rate during 2004 and 2005. As a result, domestic cost pressure will also be slightly higher during these years. | The move to increase the resources for money laundering and terrorism financing investigations by the domestic law enforcement agencies, which currently is the emerging trend, needs to be supported with swift actions from the FIU and prompt response from reporting institutions. Another is that, at the international level, Malaysia will continue to enhance multilateral and bilateral relationships. I am happy to inform that we have recently concluded an MoU with the National Bank of Cambodia, bringing the total number of MoUs signed to 18. We have and will continue to provide assistance to countries in the Asia/Pacific region. Second is to provide greater focus in enhancing the competency and capacity of key stakeholders, i.e., the analysts, law enforcement officers and compliance officers. Despite the unfavourable economic condition, human resources and capacity building remain as one of our top focus. We plan to roll out capacity building programmes for analysts and enforcement officers covering fundamental, intermediate and advance level training programmes. The Certified Financial Investigators Programme, or CFIP, i.e., our flagship basic programme for financial investigators has produced 83 investigators with knowledge on the Anti-Money Laundering and Anti-Terrorism Financing Act 2001, as well as financial investigation techniques. We are open to collaborate with our foreign counterparts to conduct advanced level workshops. The third area is to further improve the quality of analysis. High quality STRs underpins an effective mechanism as quality STRs provide valuable intelligence for investigations. | 0 |
Price stability is not sufficient for financial stability The two decades leading up to the financial crisis had been characterized, across the developed world, by low and stable inflation, and, by historical standards, by exceptionally stable output growth. It is not by chance, indeed, that macroeconomists labeled those years as the “Great Moderation” era. At the same time, however, as extensively documented in particular by the BIS in several perceptive, early papers, 1 those years had been also characterized, compared with the previous portion of the post-WWII era, by a significantly more frequent occurrence of asset price bubbles and subsequent crashes. A longer-term perspective clearly shows that the occurrence of asset prices booms and busts under conditions of price stability, far from being a “fluke” of the Great Moderation era, had been, in fact, quite common. Until the outbreak of World War I, indeed, metallic standards had dominated for centuries, guaranteeing an extent of price stability which is, by today’s standards, virtually unimaginable. Just to mention a single example, the price level in England in 1661, five years before the Great Fire of London, had been virtually the same as that prevailing in 1913, one year before the collapse of the international Gold Standard. In spite of such remarkable price stability, however, metallic standards had been recurrently plagued by financial crises and asset prices booms and busts, from the South Sea bubble of 1 See in particular Claudio Borio and William White (2003), “Wither Monetary and Financial Stability? | Jarle Bergo: Oil revenues, monetary policy and economic cycles Lecture by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at the Telemark University College, Bø, 13 November 2002. The text below may differ slightly from the actual presentation. The lecture is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 30 October and on previous speeches. * * * Petroleum activities constitute an important part of the Norwegian economy. A sound economic policy and high oil prices have contributed to the highest current account and budget surpluses that have been recorded in any OECD country. In 1998 when oil prices were down to USD 10 per barrel, we also recorded a surplus that came to 4 per cent of GDP measured in terms of government net financial investment. Societies that suddenly gain access to wealth have a tendency to spend the money and then fall into decline. Access to an abundance of natural resources can result in slower growth. The explanation may be that time and resources are spent on grabbing as large a share as possible of the acquired wealth. Historical experience therefore suggests that it is important to have decision-making systems to provide protection against individual groups gaining strong control over Norway’s petroleum wealth. In addition we must maintain and develop incentives to acquire knowledge and engage in innovative work. | 0 |
Simultaneously, we have prolonged the maturity span of injecting operations to smooth down the upward slope of interest rate curve and we have expanded the base of eligible collateral to facilitate the access of financial institution in liquid funds. These operations of the Bank of Albania have helped control on interest rate level. Bank of Albania’s intervention has been more effective in controlling the short-term interest rates. The long-term interest rates of Government securities and loans revealed rising tendencies, owing to the Government’s demand for financing and the increased sensitiveness of the banking system towards liquidity indicators. In parallel, the depreciating exchange rate trends have complemented the easier monetary conditions framework, providing advantage to exports and trade deficit improvement. However, as we have constantly underscored in our statements, the Bank of Albania has been attentive to managing the momentary stimulus, aiming above all the achievement of its target for maintaining the macroeconomic stability, by preserving internal and external balances. Annual inflation in the first semester 2009 was 2.0 percent, recording a fall compared to inflation rates of the last year, but remaining within the Bank of Albania’s targeted band. Low inflation rates over the first semester of the current year are due to the weakening of inflationary pressures on the demand and supply side, consequent to raw materials price cut in the international market and the economic activity slowdown at home. | In order to avoid having crisis management being held up by conflicts of interests more than necessary, I am personally inclined to believe that a general key that is fixed once and for all is the preferred choice. Possible ways forward The title of this speech is a question: “Are we ready to deal with a cross-border banking crisis in Europe?” Regrettably, the answer is no! Before we can say we are anywhere near “ready”, we must deal with some serious challenges. In particular, we need to solve the problem of how to organise supervision, crisis management and crisis resolution for cross-border banks. Given the great complexity of the issue, achieving a practical solution will not be an easy task, and there is no altogether ideal solution. The amount of work that has already been set up for us on the European regulatory agenda is already quite staggering, which suggests that everything may not be achieved in the next few years. But we must not use this as an excuse for not starting to deal with these important issues. We can at least start the analytical process, take stock of the problems and examine the pros and cons of different solutions. The longer we wait to get this process started, the greater the risk that we’ll end up in a very serious mess. I, for one, certainly hope that we manage to have some solution in place before the next major financial disaster in Europe occurs. | 0 |
Staff at the Federal Reserve has been using new data sets, analytics, and extensive market intelligence to deepen our understanding of the impact of these changes on money market dynamics. What follows is an illustration of this enhanced understanding. In the pre-crisis monetary policy framework, banks’ regulatory obligation to hold reserves was primarily driven by the required reserves framework, set forth in the Federal Reserve Act and Regulation D. 21 This framework involved banks meeting their requirement over a 14-day reserves maintenance period, as well as various other incentives that promoted short-term, but not extremely high-frequency, bank balance sheet management activity to maintain reserves at required levels—and the Federal Reserve had built analytics to provide good visibility into it. Today, while the Regulation D framework is still around, it is no longer likely to be the binding constraint on reserve levels for most large banks. 22 The new factors driving reserves demand appear to vary by financial institution, and seem to depend on a complex interplay of numerous new features of the financial system. On the regulatory side, these include the Liquidity Coverage Ratio (LCR), banks’ internal stress tests of their liquidity adequacy, supervisory expectations related to banks’ ability to monetize their liquidity portfolios during periods of financial stress, and the incorporation of liquidity into resolution planning. Other important factors include increased bank aversion to incurring intraday overdrafts, higher bank investor and creditor expectations for liquidity, and a lower opportunity cost of holding reserves relative to before the crisis. | In and of itself, this shift seems likely to have made money markets more segmented, and more prone to the “turbulence” in response to shocks I mentioned earlier. Longer term, this regulatory shift has catalyzed a deep and complex impact on the structure of money markets, which is still unfolding nearly two years later. These effects have included an ongoing increase in the role of FHLB advances as means of intermediation between government money funds and financial firms, as well as ongoing efforts by a wide variety of borrowers and lenders to broaden their counterparty lists and consider new operating frameworks so as to best accomplish their business objectives in the new money market environment. For example, although the FHLBs for years focused their liquidity management on the federal funds market because it provides a high degree of intraday liquidity, they are now beginning to explore greater use of bilateral repo, as that market has similar characteristics and can at times provide them with a higher return. It is likely that these ongoing shifts in money market structure have contributed to fluctuations in rates and spreads, and that they will continue to do so. 11 I view fluctuations in term money market rates of the magnitudes seen recently as normal parts of market functioning during a period of structural change. Wholesale dollar funding, though more expensive, has remained readily available both in the United States and abroad. | 1 |
The regional economies recognise the importance of developing the capital market. Thus, coordinated efforts through various initiatives have been undertaken to remove impediments to the development of these markets. Confronted by the current climate of uncertainty in the global economy and financial markets, our resolve has most certainly been to maintain constant vigilance towards all sources of risks and vulnerabilities and to preserve economic and financial stability. Efforts are also on going in financial and corporate sector reforms to strengthen our financial and economic foundations. The progress achieved thus far has strengthened the resilience of regional economies and financial systems. At the same time, measures have also been put in place by many of the regional economies to manage the risks from both external and internal sources. From the Malaysian perspective as a small emerging market economy, the long-term solution is to enhance resilience and increase the tolerance level to absorb volatility and to be in a position to withstand external shocks and any slowdown in global growth. It is the underlying economic and financial foundations and its strength that will determine the capacity and resilience, and thus, the ability to ride out the storms and take advantage of the opportunities that the external environment accords to achieve sustainable performance over the medium and longer-term. 4 BIS Review 62/2002 | The long run containment in inflation necessarily relies on containment of monetary expansion and increase in production in the country, particularly by improving productivity. As the Central Bank, what we can do? Obviously we cannot produce goods or services for the consumption of the economy, but certainly we can create the right conducive environment enabling the country’s economic performance. Why should the Central Bank be interested in productivity? Our role is to maintain economic and price stability and financial system stability. We also provide necessary payments and settlement infrastructure. We advise the government in economic affairs and policy making, and we provide important agency services such as exchange control, public debt management, provident fund management and regional development activity. In all these functions, our Mission is to “contribute to Sri Lanka’s prosperity”. At the same time, the Central Bank widely pronounces the theme of “success through productivity”. 4 BIS Review 116/2008 But, obviously this cannot be done by ourselves… The success through productivity needs a consolidated national effort. That is why we all have to push ourselves to a greater productivity level. We have to, • work smarter, • combine better, • deliver results, • get it right. It should be noted that the private sector has continued to make commendable efforts in order to improve productivity in the country. What can the ICC Sri Lanka do? ICC Sri Lanka too can play a prominent and essential role. | 0 |
Out of that pain and misery emerged a consensus – a hard won consensus – that low and stable inflation was a prerequisite for economic prosperity. More recently, though, there have been some worrying signs that cracks may be appearing in that consensus. A sense that inflation is somehow yesterday’s war. That central banks should focus more on growth. That a period of higher inflation may even aid the recovery. This is dangerous talk. It sometimes feels like we’ve been here before. One of the mistakes made by policymakers in the late 1960s was to allow inflation to get out of control after nearly two decades of price 2 King (1997), “Inflation targeting 5 years on”, speech given at the London School of Economics. 3 King (1997), “Changes in UK monetary policy: Rules and discretion in practice”, Journal of Monetary Economics. 4 George (1999), Annual Cornwall Lecture. BIS central bankers’ speeches 3 stability. As Sir Alec Cairncross, who worked in a host of senior economic roles in the heart of the civil service during this period, put it “...governments in the last years of the 1960s …allowed inflation expectations to develop that proved increasingly difficult to extinguish” (Cairncross 1992). There is little doubt that policymakers of that time had a strong aversion to inflation, but they were complacent about the risks posed by further stimulus. It would be irresponsible to repeat the same mistakes again. How do we ensure that the lessons of yesteryear are not forgotten? | And ultimately delivering low and stable inflation is the best contribution monetary policy can make to achieving a robust and sustainable recovery. The trade off between growth and inflation Let me turn now to the second issue I wanted to discuss today which concerns the operation of monetary policy and, in particular, the likely trade-off between growth and inflation in the current environment. As I said, in February the MPC made clear that we thought it appropriate to bring inflation back to target more slowly than usual in order to support the nascent recovery. But is there a case for monetary policy going even further? What if, as some commentators have claimed, it were possible for the MPC to inject additional monetary stimulus, thereby providing even greater support to growth, with relatively little consequence for inflation. Stronger growth with little or no higher inflation: surely that would be a good use of the MPC’s flexibility? There are two strands of argument put forward as to why the current trade-off between growth and inflation may be unusually favourable. The first is that cost and price pressures in the current environment may be relatively insensitive to the degree of slack in our economy. If that were the case, the economy could grow relatively rapidly, absorbing spare resources and capacity, without putting much upward pressure on wages and prices. In economists’ speak, the so-called Phillips curve – which sketches out the relationship between spare capacity and cost and price pressures – may be relatively flat at the moment. | 1 |
However, the official forecast is that, overall, these territorial governments will still post a deficit in 2007 despite the benign economic circumstances over the last few years. Second, budgetary stability should be accompanied by an improvement in the quality of public finances to secure advances in the allocation of factors of production, particularly human and technological factors, and in the efficiency of the economy. The spending policies included in the draft Budget give priority to areas of key importance for improving productivity, such as increased resources for research and development, education and infrastructure, although other priority items entail increases in current primary spending. It is important that the envisaged increase in resource allocation be managed efficiently through the use of better suited mechanisms to assess and select public policies so as to enable real increases in productivity. The budget is not, however, the only instrument, nor often the most appropriate one, to achieve the aim of raising the efficiency of the economy. Structural policies designed to make BIS Review 130/2007 5 factor and product markets more flexible will be called on to make an essential contribution to this aim and, for this purpose, it is necessary to persevere with and extend the processes of liberalisation undertaken in recent years. Policies of this type, which enable growth potential to be raised and make for the efficient allocation of resources in the economy, are pivotal in the present conjuncture, which, as stated earlier, requires a rebalancing of the sources of growth of the Spanish economy. | 3 I set out our ambitions for the Fintech Hub in my speech “Open to Fintech”, available at https://www.bankofengland.co.uk/speech/2018/dave-ramsden-speech-hmts-international-fintech-conference. 4 See https://www.gov.uk/government/publications/cryptoassets-taskforce 5 See https://www.bankofengland.co.uk/news/2018/november/boe-boc-mas-joint-report-digital-transformation-in-cross-border-payments 1 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 financial services might evolve over the next decade as part of the Bank’s Future of Finance project6; and analysing everything from the potential role of BigTechs in financial services to the implications of Open Banking and PSD2. But instead of looking back, I want to stay faithful to the spirit of today’s session and look forward to the contributions the Bank can make to the future of finance. Fintech is one of the Bank’s seven strategic priorities for 2019. In particular I’ll discuss three key areas of Fintech Hub focus in 2019: payments; unbundling; and artificial intelligence.7 Payments The first area I’ll focus on is payments. While the Bank is not nearly as old as the Guildhall, this year we are celebrating 325 years as the UK’s central bank; that includes 325 years of providing foundational payments services. Payments have become increasingly digital in recent years, and there are now hundreds of alternative payment methods8 available; recent years have seen a significant diversification of payment companies with new entrants to the market, such as e-money institutions and technology companies – which is why the subject is of interest to the Fintech Hub. | 0 |
In the short term, however, there may be a conflict between how quickly we should aim to bring inflation back to target and the aim of high and stable employment. When we set the policy rate, we weigh these considerations against each other. Inflation is now markedly above the target. We could have raised the policy rate higher and faster than we have so far. Inflation might then have come down faster. The reason we are taking a while to bring down inflation is that our job is also to contribute to high and stable employment. We do not want to restrain the economy more than that required to tame inflation. Chart 8: Prospects for lower price inflation and somewhat higher unemployment The Bank's forecasts in March indicate that inflation will move down towards 2 percent over the coming years. If developments turn out as projected, inflation will return to target with little rise in unemployment. There is substantial uncertainty about the outlook. The future policy rate path will depend on economic developments. Problems in some US and Swiss banks have led to large movements in global financial markets over the spring. The authorities in these two countries have intervened to reduce the risk of contagion to other institutions and markets. The turmoil has had only a limited impact on funding costs for Norwegian banks and mortgage finance companies. Norwegian banks are profitable, solid, and have ample liquidity. They are well positioned to cope with higher losses and market stress. | Ida Wolden Bache: The conduct of monetary policy Introductory statement by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the hearing of the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament) in connection with the Storting's deliberations on the Financial Market Report, 9 May 2023. *** Accompanying charts of the speech Thank you for this opportunity to report on the conduct of monetary policy. When I was here in April last year, Norges Bank had started a gradual normalisation of the policy rate following the coronavirus pandemic. Chart 1: In March 2022, a gradual rise in the policy rate was envisaged The Norwegian economy had recovered after the sharp downturn during the pandemic. High energy prices and a sharp rise in international goods prices had driven up consumer price inflation to a level markedly above the inflation target. Economic activity was strong, and job vacancies were high. Norges Bank expected rising wage growth and higher imported goods inflation to push up inflation through the year, and overall price inflation was projected to be 3.4 percent in 2022. The policy rate was projected to rise towards 2 percent over spring 2023. Chart 2: The policy rate has been raised more than projected a year ago These forecasts were less than accurate. The policy rate has been raised faster and more than projected in March 2022. | 1 |
The collection of data on financial assets and liabilities at household level ceased with the abolition of the wealth tax in 2007. The financial and national accounts do provide some information on how households’ various financial and real assets have changed on aggregate. But when it comes to wealth developments for individuals, we do not have much to go on, as the statistics in principle came to a stop in 2007. There have been admirable attempts to estimate developments since then via the capitalisation of incomes and expenditure s, but the quality cannot of course be compared with register data. 6 Several commissions in recent times have noted that there is a substantial need for up-to-date wealth statistics at individual level to be able to analyse specific questions such as financial stability risks and over-indebtedness, but also to gain a deeper insight into the income distribution in general.7 Distributional effect of reduced unemployment and higher employment important So far we have discussed the different channels by which an expansionary monetary policy can affect income distribution via capital gains, yield and interest rates. As you will note, however, I have avoided saying anything specific about the size of the distributional effects. As I mentioned earlier, it is difficult to determine exactly how large these effects are and not even their direction is always evident. But rising stock prices and thereby larger profits when selling these assets will tend, all else being equal, to lead to a more unequal income distribution. | My point is that the analysis would benefit from having a broader perspective. We should look beyond the household stretch to household strain, which encompasses more structural factors. I would refer to two dimensions of the household strain: quality of living and inequality of income, savings, and access to credit. 1. Quality of living: - overcrowding – CEE countries have the highest concentration of dependent children, and the lowest number of rooms per person (Figure 4 and 5); - poor living conditions – CEE countries have the largest share of population living in poor conditions (Figure 6); - high risk of poverty or social exclusion (Figure 7) – despite having high ownership rates, CEE countries have high shares of people at risk of poverty or social exclusion (slightly declining after EU integration); 2 - To partially compensate for the low quality of living, and given the social pressure of a high ownership rate, property taxes are relatively low in CEE countries (Figure 8); - Low quality of living creates pressure for new housing, despite financial difficulties to service new loans. It also creates pressure for migration, with longterm implications for financial stability. 2. Inequality: - Income inequality: Romania, Bulgaria and Czech Republic have the highest Gini coefficient in the EU (Figure 9); - Housing cost overburden: If we adjust for rent-related costs (as CEE countries have high ownership), many CEE countries are on top. | 0 |
Vítor Constâncio: Implications of the Single Supervisory Mechanism (SSM) on the European System of Financial Supervision (ESFS) Speech by Mr Vítor Constâncio, Vice-President of the European Central Bank, at a Public Hearing on Financial Supervision in the EU, Brussels, 24 May 2013. * * * Ladies and gentlemen, Thank you very much for inviting me to open this session on the implications of the Single Supervisory Mechanism (SSM) on the European System of Financial Supervision (ESFS). At present, the only answer that can really be given on this issue is, “it depends”. While the SSM will in principle be just another supervisor around the table, its impact on the ESFS will clearly depend on how many Member States eventually decide to join. In our view, the more Member States take part, the better it will be for the functioning of the ESFS and the single market more generally. First, having as many as possible countries in the SSM will reduce the scope for coordination failures. This will in turn facilitate the coordination function of the European Banking Authority. Second, a larger SSM is the best way to safeguard the single market in financial services. The more membership overlaps between the EU and the SSM, the more consistent will be the application of supervisory and regulatory practices. | Communications strategies are now seen as a crucial part of central bank activity, and no just as icing on the cake. The BIS Review 71/2004 1 emphasis now is increasingly on forging links, building bridges and storing up political capital and public goodwill that will help us deal better with the next crisis. Similar observations might be made on the subject of the effectiveness of central banks - surely the result that we all strive for. Radical changes in our functions, progress in technology, and the process of accountability have all dictated cuts in staffing and resources, and various forms of streamlining and re-engineering. Much of this can be healthy and refreshing. But we should also be mindful of the need for flexibility, for some reserve capacity to deal with sudden and unexpected events. This is why the increasing focus on strategic planning and risk management, reflected in your discussions this week, is welcome. There is, of course, much still to be done on these subjects. I understand that the discussions over the past few days have been lively and, at times, quite passionate. There is, I think, one main reason for this - and it is the same reason why this meeting has attracted such an excellent attendance. Central bank governance is a field in which great change is taking place. A number of drivers are forcing this change. | 0 |
In the slightly longer term, questions also remain about the outlook for global trade at large, a factor that has a substantial impact on an export-dependent country such as Sweden. According to some analysts, the development of global trade is now weaker than implied by historical links with global growth.10 If this is the case, is it because companies have less access to trade credits in the wake of the financial crisis or because there has been a structural shift in the growth curve for global trade? It is perhaps not reasonable to expect the high rates of growth that we saw in the early 2000s – and which were boosted by globalisation in the wake of technological development, lower transports costs, increased specialisation, China joining the WTO and so on – to continue. It is also important to monitor how Swedish exports develop in relation to global trade. These are complex questions that it is probably too soon to answer. However, there is every reason to return to these questions too, particularly with regard to the potential consequences for Sweden. All in all, the Riksbank’s assessment from the September Monetary Policy Update is nevertheless that 10 See, for example, the World Trade Organization (2013) BIS central bankers’ speeches 9 economic activity abroad will, if only gradually, make a positive contribution to Swedish growth. Figure 7 What can we expect of world trade? | The Labuan IBFC's competitiveness will be further enhanced through a revision of the pricing structure pertaining to incorporation and maintenance fee charges. There will be an annual reviews and prices will be revised in response to competitive market developments. The Labuan IBFC will also leverage on the national strategy of the Malaysian Islamic Financial Centre by promoting Syariah-compliant trusts and foundation. These products will complement Islamic financial products and services already available in Kuala Lumpur. Efforts will also be taken to further develop Labuan's captive insurance business which has enjoyed commendable growth over the years. Conclusion Ladies and Gentlemen, The establishment of Labuan as an international offshore financial centre in 1990 was indeed a bold step in its time. We are now seeing the payoffs from this initiative. With the transformation of Labuan as an International Business and Financial Centre, our ambition will be taken further. The new name signals that Labuan is ready to take on the much broader and larger role. The new name also represents a commitment. A commitment for the future. To demonstrate this commitment, the Government and the regulators have put in place the supportive and enabling environment to promote a more connected and more cost effective environment. Continued initiatives will also be taken to remove any impediments and obstacles to a more efficient delivery system and to advance forward the Labuan IBFC. 2 BIS Review 10/2008 The responsibility for ensuring the ambitions of the Labuan IBFC to be realised, is however, a shared responsibility. | 0 |
I began by saying that the State Bank of Vietnam is currently in a situation similar to that of the Swedish Riksbank just over a decade ago. However, it is also the case that the conditions are different in certain respects. One difference is that the Swedish credit and money markets had been deregulated completely during the 1980s and early 1990s. This meant, for instance, that the central government issued bonds, through public auctions and at predetermined times, and actively attempted to promote the development of a secondary market. Thus, there was already a clear channel through which monetary policy could have an effect. Another difference was that we in Sweden had the support of a long tradition of comprehensive production of public statistics that made our work easier. These are factors that, as I understand it, do not apply to the same extent here in Vietnam, at least not yet. Vietnam has thus – like all countries – its own special conditions that may need to be taken into account and may make it difficult to formulate monetary policy as an exact blueprint of the system in 7 For a detailed discussion of “central bank transparency”, see, for instance, Chapter 1 of Blinder, A.S., (2004), The Quiet Revolution – Central Banking Goes Modern, Yale University Press. 6 BIS Review 52/2006 another country. | Inflation targeting is thus much more demanding than a fixed exchange rate regime with regard to the central bank’s analytical work and its ability to communicate its policy. Whether this is something that should be regarded as a disadvantage or not is of course a question of judgement. For the Riksbank, the transition to inflation targeting heralded the start of a fairly comprehensive increase in competence in the field of economics. The number of PhD economists at the Riksbank has risen sharply in recent years and our research in areas related to monetary policy has expanded considerably. Financial stability Let me now move on to the other central component of an efficient payment system. This concerns the stability in the financial system; particularly in the financial institutions that supply payment services, i.e. primarily the banks. Financial stability is currently regarded, parallel to the price stability target, as the main task of a modern central bank. The financial system has essentially three main tasks: converting savings into financing, managing risk and providing efficient channels of payment. Let me give a basic example. A bank receives savings from households which it then lends to other households or to companies that need to invest. Banks are specialists at valuing, monitoring and managing credit risks in the households and companies to which they lend. | 1 |
Marvin’s intellectual pursuit of all aspects of the ZLB logically drove him to explore the possibility for currency to have a digital component. Although many think of central bank digital currencies as a new-fangled idea, Marvin was thinking deeply about the prospect long ago. This has become one of the hot topics in the world of central banks today. The conversation that Marvin began in Woodstock in 1999 became the basis for discussions that were had later on at the FOMC meeting in January 2002. At that FOMC meeting, Marvin expanded upon the idea of asset purchases as a policy tool that he had proposed in his paper at the conference in Woodstock. He emphasized that the Fed asset purchases can affect financial conditions and thereby the economy. He was expanding the conversation away from thinking about conventional monetary policy to unconventional options, like the balance sheet. Importantly, he distinguished between central bank purchases of short-term government securities, as the Bank of Japan was doing at that time, versus purchases of longer-term securities. Marvin viewed purchases of short-term securities as ineffective under the ZLB, while he saw purchases of longer-duration securities as potentially powerful owing to a “preferred habitat” motive on the part of investors. Of course, large-scale asset purchases later became a tool of critical importance for easing financial conditions in the United States and abroad. Although the consequences of the predicted Y2K glitch were minimal, the ZLB became a central issue when the financial crisis hit. | These show how Marvin’s insights shaped some of the most prominent discussions in monetary policy. Before I do so, it’s helpful to look back about 20 years. As the clock ticked down on the 20th century, many people’s attention was not on the ZLB. Most were more concerned about the millennium bug that had the world on high alert. Truth be told, the ZLB wasn’t perceived to be a looming problem in the United States back in 1999. The economy was doing very well and the target federal funds rate was 5-1/2 percent at the end of the year. Up until then, the only historical reference points for the ZLB were from the Great Depression of the 1930s and, more recently, Japan in the 1990s. It was simply not part of the experience of postwar Europe or the Americas. However, a small group of economists, with Marvin at the forefront, was asking whether the ZLB could pose a challenge here in the U.S. and, if so, what would be the consequences and potential remedies. Researchers and policymakers began to turn the dial up on the discussion around the ZLB. | 1 |
those two difficulties combine to produce a perception of asymmetry in IMF surveillance. It may be compounded by a more fundamental and natural asymmetry between surplus and deficit countries, when it comes to implementing adjustment measures. And, some would say, there might also be a de facto asymmetry between reserve and non reserve currencies, although, as I shall mention later, the situation is more subtle. These difficulties were apparent during the last part of the 20th century. They led to many discussions about the proper role and organisation of the IMF 1. But what makes the “disciplinary” approach almost impracticable today are the changes that have occurred in the world at the turn of the 21st century. The world today stands in stark contrast with both the Bretton Woods era and the period that followed immediately: The first – and most obvious – difference is the number of countries that are active participants to the system and have a stake in its functioning. The monetary and financial world is becoming increasingly “multipolar”. While the current system comprises three currency blocs, at least one (the Chinese RMB) and may be other additional systemic currencies will emerge in the future. Greater diversity goes with increased complexity. “Hegemonic” systems are easier to build and manage than multipolar ones where responsibility is more diffuse. So, in the future, one can expect that coordination problems will be more difficult to solve. | Then, the collapse of a major financial player mid-September 2008 transformed a large-scale crisis of confidence into a global financial panic. Financial intermediaries scrambled to restore liquidity buffers, shed risk and tightened lending conditions. Collectively, they engaged in a large-scale process of “deleveraging”. Credit spreads surged and trading activity in a large number of markets collapsed. In these unprecedented circumstances, the ECB’s primary mission was to preserve price stability, in line with our definition – below 2% but close to 2% – and therefore contribute to financial stability. As the inflationary pressures seen over the summer of 2008 receded, we swiftly reduced our policy interest rate in a tight series of steps down to 1%. This interest rate level has not been experienced in the countries of the euro area at any time in recent history. In parallel, we had to tackle the paralysis of inter-bank transactions in the money market. As you know, the flow of credit is primarily channelled by banks in the euro area. A complete breakdown in the funding relationships that constitute the money market would have derailed the bank lending channel altogether. The interruption of the bank lending channel would have made our policy action ineffective. It could have turned the financial crisis into a profound depression. This is what motivated the second tier of our approach to crisis management: what we refer to as our policy of “enhanced credit support”. | 0 |
Average life expectancy continued to rise sharply over the period, however. When it then became increasingly obvious during the 1990s that the ATP system was also going to be under-financed, a number of years of political debate passed before a majority of the Swedish parliament could agree on a new pension system that would be sustainable in the long term. With the implementation of the premium-reserve pension reform of 1998, a system was created that indeed is not guaranteed to result in high pensions for pension savers, but that at least will enable the public finances to bear the costs as an increasing number of people retire. However, Sweden is not the only country to be facing a difficult demographic challenge, quite the reverse. In the euro area, some countries will have a considerably larger frequency of retirement in the coming decades, which means that in 30 years there will be twice the number of pensioners per worker compared with today. Nevertheless, until recently pension reforms in most euro area countries have been conspicuous by their absence. In addition, the majority of these countries have only used a system whereby current pensioners are paid directly by current workers, and no funds have been reserved. The fact that this is unsustainable in the long run has been obvious for a long period. Yet, it has been politically impossible to bring about the kind of reforms that we in Sweden succeeded in introducing through political accord. | These are significant challenges, considering that the current employment rate averages around 64 per cent and the potential growth rate is close to 2 per cent. Furthermore, during the past two years employment growth has stagnated, and several economies are experiencing zero growth or even recession. For Sweden, the outlook is somewhat better. Growth has been comparatively favourable in recent years, despite the considerable international slowdown. However, employment growth has also been weak here, and recently we have even witnessed a decline in employment. The employment rate in Sweden nevertheless exceeds the established target already, as just over 77 per cent of the economically active population are employed in some way. That is not to say that Sweden can feel comfortable about its present situation. The Swedish figures conceal large, increasing numbers on sick leave, falling mean working time and total unemployment - open and hidden - of well above 6 per cent. So creating opportunities to raise employment is a key question for Sweden as well. But it is not only in the labour market where the EU Member States need to take action to attain the goal of the Lisbon agenda. When the World Economic Forum last reviewed how the Lisbon strategy has been implemented, it was found that Europe was lagging behind the US in a number of areas. The biggest differences were in areas such as enterprise environment, network industries, innovation, research and development, and financial services. | 1 |
This is an important discussion, in which the decline of the natural real rate of interest plays a central role. Its measurement, an understanding of its drivers and its relevance to monetary policy are crucial issues that are in the spotlight of academic research and central bank discussions. See, amongst others, Brand, C., Bielecki, M. and Penalver, A. (2018), “The natural rate of interest: estimates, drivers, and challenges to monetary policy”, Occasional Paper Series, No 217, ECB; Bauer, M. D. and Rudebusch, G. D. (2019), “Interest Rates Under Falling Stars”, Federal Reserve Bank of San Francisco Working Paper 2017-16; Kiley, M. T. (2019), "The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges", Finance and Economics Discussion Series 2019-076, Board of Governors of the Federal Reserve System; and Clarida, R. H. (2019), “Monetary Policy, Price Stability, and Equilibrium Bond Yields: Success and Consequences”, Speech at the High-Level Conference on Global Risk, Uncertainty, and Volatility, Zurich, 12 November. I will discuss the drivers of the low level of rates in another speech later this week. [5] Modelling and interpreting the level and the shape of the yield curve is an active field of research. Since Irving Fisher’s “Appreciation and Interest” and John Hicks’s “Value and Capital”, which are sometimes referenced as the earliest formalisations of the expectations hypothesis of the term structure, hundreds of research papers on the joint dynamics of bond yields of different maturities have been produced. | On the other hand, the objective of bringing inflation up to the target of 2.5 per cent and anchoring inflation expectations suggested in isolation that further interest rate increases should be delayed until there are clearer signs of a further rise in inflation. The trend in prices for consumer goods over the past two or three years is a result of favourable developments in the Norwegian and global economy. The shift in trade towards low-cost countries has led to lower prices and higher real income. In addition, the changes in the world economy have provided Norway with higher income because our terms of trade have improved. Increased competition has curbed the rise in prices for a number of domestically produced goods and services. When inflation deviates substantially from the target for a period, the interest rate will be set with a view to gradually returning it to the target, so that we avoid substantial variations in output and employment. Through the 1990s, inflation generally remained in the interval 1½ – 3½ per cent. Inflation has varied slightly more in the past few years. In a period of increasing cross-border labour flows, substantial technological advances, changes in competitive conditions and new trading patterns, we may, with our very open economy, have to accept a somewhat greater variation in inflation and deviations from the target, as we have witnessed over the past two to three years. An overall assessment implies that the interest rate in the baseline scenario gradually increases to a more normal level. | 0 |
The net banking system result for 2006 stood at a profit of ALL 7.45 billion, about 12.9 percent more than in 2005. Revenues from the principal activity (net income from interest) resulted to 31.2 percent more than in the previous year, reflecting the banking system orientation to activities of higher return and a rise in the overall volume of assets. At end of 2006, the net income from interests was 92.6 percent of the gross banking system incomes, compared to 84 percent at end of 2005. This indicator has recorded constant growth, particularly over three last years, reflecting the overall net income sustainability for the banking system. During 2006, the banking system assets grew by All 127.7 billion, or about ALL 57.6 billion more than the growth of assets noted in 2005. The main contribution to the growth of banking system assets was given by large banks, though their share in the market is downward. The estimates show that the lending activity concentration level is lower than that of assets and deposits concentration. The significant growth of lending has been associated with increased share of nonperforming loans portfolio, by about ALL 3.1 billion compared to end of 2005. The loans portfolio quality indicator, expressed as a ratio of nonperforming loans to total loans portfolio in gross terms, is estimated at 3.1 percent as at year-end, against 2.3 percent as at year-end 2005. The banking system capability of covering loss loans with capital has been downward, but still at good levels. | Rodrigo Vergara: Chile – economic outlook Speech by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, at seminars held during the Annual Meeting of the Inter American Development Bank, Montevideo, Uruguay, 12 March 2012. * * * I thank Luis Oscar Herrera, Enrique Orellana and Tatiana Vargas for helpful comments. I would like to thank you for inviting me to present our views on Chile’s economic situation at this Conference. These last years have been particularly challenging for policymakers worldwide. Periodically we must make decisions in an uncertain environment, weighing the costs and risks of alternative scenarios. For this reason, we welcome opportunities for meetings and discussions such as this, as they allow us to communicate our views in greater detail, as well as to hear other opinions. A better understanding of our decisions strengthens the effectiveness of our policies. More than four years have elapsed since the onset of the financial crisis that triggered the Great Recession. Nonetheless, we are still handling its legacy, experiencing periodic episodes of financial stress that will likely continue for some time. The situation in the Eurozone is complex, due to the interaction among fiscal, financial and macroeconomic vulnerabilities. From a historical viewpoint, growth perspectives for developed countries are weak. The outlook for emerging economies is noticeably better, although we are witnessing a slowdown whose pace is difficult to assess, particularly for China. | 0 |
The structural changes described in it have come to pass. The resulting growth in prosperity was more difficult to predict. The development of an advanced oil service industry is an industrial adventure in its own right. We have extracted large quantities of oil and gas at very favourable prices, and have set aside a sizeable portion of the revenues – to the benefit of future generations. The oil age is far from over. But activity in the petroleum sector has passed the peak. In addition, we must be prepared for lower returns in the oil industry. The white paper also provides a glimpse into a time when belief in government intervention in the economy was far greater than today. That regulatory optimism has diminished significantly. We are left with an important recognition: The key to economic progress is the ability to restructure. We cannot rely solely on the sea to carry us forward: Let me again quote Kielland: “It is not true that the sea is faithless, for it has never promised anything...” Where our journey takes us is our own responsibility. Come what may. Thank you for your attention. BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches BIS central bankers’ speeches 13 14 BIS central bankers’ speeches BIS central bankers’ speeches 15 16 BIS central bankers’ speeches | One is that it takes time for policy to work. A change in interest rates has its peak impact on inflation only after a significant delay – probably eighteen months or more2. One implication is that, fully to offset the inflation we’ve seen through the course of this year, monetary authorities would have to have foreseen the various things that have pushed it up (including, for example, the recent problems with gas supplies). Another is that they would have to have tightened policy pretty aggressively – by enough to push up unemployment materially, with the explicit aim of depressing nominal wage growth – just ahead of or during the first wave of the pandemic. Using the Bank’s economic model, and assuming perfect foresight of the rise in tradable goods prices, a simulation suggests you would have needed comfortably more than an extra 2% points on the rate of unemployment – something around eight hundred thousand jobs – to have kept overall CPI inflation at 2% in the fourth quarter of this year (Charts 5a and 5b). Chart 5a. Tighter monetary policy to achieve 2% inflation now… Per cent Chart 5b. …would have resulted in much higher unemployment Per cent 5.0 6.5 4.0 6.0 3.0 5.5 2.0 5.0 1.0 4.5 2019 2020 2021 2022 Inflation - N21 MPR -1.0 2023 2024 Inflation - Scenario CPI inflation excluding VAT. Sources: ONS and Bank calculations. 7.0 4.0 2019 2020 2021 2022 Unemp. | 0 |
And nor is it clear how the Riksbank and its Executive board should manage questions where national legislation may be in conflict with EU legislation. The Government’s proposal for a new Sveriges Riksbank Act will thus make it more difficult for the Riksbank to rapidly, flexibly and efficiently implement measures when needed – and thereby increase the risks to the Swedish economy. If the proposal becomes a reality, it will hamper the Riksbank’s, and ultimately the state’s, capacity to meet the challenges brought by the new financial environment. This is unfortunate, as the Swedish krona is currently subject to competition in several respects. The Swedish krona needs to continue being an efficient and generally-accepted means of payment so that the Riksbank can continue to deliver financial stability and attain the inflation target. References Alsterlind J., H. Erikson, M. Sandström and D. Vestin (2015), ”How can government bond purchases make monetary policy more expansionary?”, Economic Commentaries, No. 12, Sveriges Riksbank. Apel, M. and C.-A. Claussen (2012), "Monetary policy, interest rates and risk-taking", Economic Review, pp. 2, Sveriges Riksbank. Arner, D., R. Auer, and J. Frost (2020), ”Stablecoins: risks, potential and regulation”, BIS Working paper, No. 905. Armelius, H., C. A. Claussen and A. Reslow (2020), “Withering cash: Is Sweden ahead of the curve or just special?”, Sveriges Riksbank Working paper, No. 393. Auer, R., G. Cornelli and J. Frost (2020), “Rise of the central bank digital currencies: drivers, approaches and technologies”, BIS Working paper, No. 880. 25 [35] Bagehot, W. (1873), Lombard Street: H.S. King, London. | Scenarios however, are not projections, predictions or preferences but rather it provides a way of making sense of uncertainties and in addition it challenges our assumptions about what the future holds. Scenario building today is synonymous with thinking broadly and more freely about a problem, enlarging the frames of reference and involving different worldviews, rather than seeing a situation from a single perspective. Essentially scenario planning interventions have been most useful in supporting the construction of multiple frames of future states of possibilities. The process of scenario planning enhances the evaluation and integration of information and promotes contingency planning. Scenarios are also important for risk management. As risk is inherent in any business activity the framework becomes a useful tool in risk assessment and management. Most of all a major risk in the current environment is the lack of preparedness for how the environment might change and for the new challenges that may emerge. To attempt to predict these changes in any specific manner in this environment would be highly speculative. The risk management process therefore involves preparing for, rather than attempting to predict the change. This would promote an increased level of preparedness to cope with the inevitable changes. Scenarios also help to connect strategies and action plans to our visions. Using scenarios will essentially widen our perspectives, increase our understanding of the issues and developments. It also allows us to see opportunities that we may otherwise miss. New developments emerging would be seen from different angles and perspectives. | 0 |
If these risks are present, then we should face up to the issue with tougher standards and enhanced supervisory oversight rather than leave the issue unaddressed. This has to be a superior approach relative to pretending these firms could not be TBTF and the problem doesn’t exist. Policy measures to reduce the adverse systemic consequences from failure Because no plausible level of capital and liquidity standards will be sufficient to reduce the probability of failure to zero, it also makes sense to work on the other major margin – to reduce the cost of the failure of a large, complex financial firm. We can do this by making changes so that such failures are less likely to impair the functioning of the broader financial system. In this area, although many initiatives are in train, I would conclude that we are still very far from where we need to be. One simple but meaningful step that already has been enacted is to put a brake on the ability of the largest and most complex firms to become even larger and more complex. To this end, the Dodd-Frank Act adds “the risk to stability of the U.S. banking or financial system” as an additional factor to be considered in evaluating a proposed merger or acquisition under the Bank Merger Act and the Bank Holding Company Act. As Governor Daniel Tarullo discussed in a recent speech, there is not a hard and fast rule to be applied here. | And it could do this without actually solving the problem of system risk externalities that aren’t related to balance sheet size. 8 BIS central bankers’ speeches Evaluating the socially optimal size, scope and organizational structure of financial firms is a complicated business, and so is establishing a viable transition path to a system of much smaller firms. It would be helpful in this regard if advocates of break-up solutions would put a bit more flesh on the bones and develop detailed proposals that address essential questions of how such downsizing or functional separation would be accomplished, and what benefits and costs could be expected. Such an analysis should answer several questions: How would you force divestiture (in good times and bad)? Should firms be split up by activity or reduced pro-rata in size? How much would they have to be shrunk in order for the externalities of failure to no longer create TBTF problems? How would global trading and investment banking services and network-type activities be supported? Should some activities be retained in natural monopoly form, but subject to utility type regulation? How costly would it be to replicate support services or to manage liquidity and capital locally? Are there ways of designing size limits that cannot be arbitraged by banks via off-balance-sheet structures and other forms of financial innovation? So far, advocacy for the break-up path has been strong, but without the detail to assess whether this is indeed superior to the course we are currently following. But, I’m openminded. | 1 |
It is too soon to say yet, but we should be prepared to push harder for further standardization should the desired degree of standardization that we are striving for not materialize. 2 BIS central bankers’ speeches I also worry that implementation of the Principles for Financial Market Infrastructures could falter over time. This could happen for several reasons. In particular, we should recognize that there is a tension between the profit motive of for-profit CCPs and full compliance with the PFMIs. Put simply, some CCPs will prefer to avoid the full costs of compliance. In other words, there will always be a risk of a race to the bottom, which we must continually push against. In this respect, the effort could also falter if countries were to fail to enact the relevant legislation and policies to put the PFMIs in practice. For the global system to be robust, the requirements for CCPs will need to be enforced across the different geographic regimes. I am also worried about fragmentation. In particular, I worry about the proliferation of TRs and CCPs geographically – in some cases in each of the major asset classes. In the case of CCPs, fragmentation would bring two costs. First, the netting benefits would be reduced and, second, the system would be more complex. In an ideal world, I would prefer very few, very robust CCPs, rather than a proliferation of many, less robust CCPs. But whether that is what we will get is unclear to me at this point. | This reflects the heightened state of vigilance in Bank Negara Malaysia as we continue to direct significant effort and resources towards strengthening our surveillance. In addition to macro surveillance, the supervision framework is also more forward looking including increased engagements and dialogue with senior management of financial institution, industry leaders, trade bodies and various chambers of commerce for the early detection of emerging issues and developments. BIS Review 58/2009 1 Facilitating access to credit and easing monetary policy Another area of importance is the continuing availability of credit from the banking sector. We have earlier highlighted the rate of growth in outstanding loans. In addition, the government has introduced specific guarantee schemes while Bank Negara Malaysia also, on its part, maintained a monetary policy easing stance that is conducive to achieve the same goal of facilitating access to credit at reasonable cost. At the same time, to assist the household sector, the Agensi Kaunselling dan Pengurusan kredit (AKPK) is also an avenue for individual borrowers and potential borrowers to seek advice and assistance in managing their finances and debts. Clients of the banking industry may also contact Bank Negara Malaysia hotlines and its LINK and TeleLINK for assistance for info. LINK refers to Laman Informasi Nasihat dan Khidmat. Association of Banks in Malaysia (ABM) has also introduced toll free lines for the benefit of its stakeholders. These combined efforts seek to lower borrowing costs and ease cash flows while at the same time promote financial discipline. | 0 |
In addition, strategically important markets, such as telecommunications and broadcasting media have been opened up to competition. It is especially important that Sweden had a broad base of users of various technical systems at an early stage. A broad base is essential for users and producers to gain a real exchange from working in the networks comprised by the new technology. Ericsson’s successful broadening of its operations from fixed to mobile telephony and Sweden’s rapid licensing of first NMT and then GSM gave Sweden one of the world’s broadest bases of mobile phone users. The subsidised provision of personal computers to employees also broadened the user base and gave Sweden the highest PC density in Europe. This of course facilitated the use of the internet and thus the general e-mail revolution in Swedish companies and homes. The combination of internet usage and the high density of mobile phones means that mobile internet, despite its slow start, has already come further here than in the USA. Slide 4 shows a summary of Sweden’s position in various technological, network-based systems. As the internet is still in a phase of development, these figures can primarily serve as indicators of future growth. 4. | Uncertainty over the total effects of technological developments means that we must show greater sensitivity when formulating monetary policy. Let me call it being more “reactive” than would otherwise have been the case. By reactive, I mean that we must constantly reconsider our earlier assessments in the light of developments in the economy and the way the various parts actually react. I maintain that this has in many ways been a characteristic of our Inflation Reports over the past year. These reflect clearly how the view of potential growth and the connection between inflation and growth have changed as a result of the Riksbank’s analyses and models taking account of structural changes in their assessments. The repo rate could not have remained at its current level if price levels had not been affected by deregulation on several markets and the fact that we can see a positive development in productivity. Then there are of course a number of other important factors that must be taken into account, labour supply, wage formation, international price developments and, in particular, confidence in the monetary policy. However, developments in productivity will continue to play a central role in the assessments. The Riksbank monitors the various signs of the “new economy” and takes them very seriously. BIS Review 89/2000 8 | 1 |
Today we are defining the Strategic Plan 20232027, a process that reflects the Bank's viewpoint and the perceptions that the regions have about the Central Bank's work. I cannot be exhaustive in this time frame. However, I would like to stress that we are aware that our main role and obligation lies in inflation convergence and market stability. Our efforts are focused on this, aware of the importance they have on the welfare of so many households. These efforts are possible because this institution has teams of excellence committed to the country and a Board that seeks to contribute to this goal by setting its own example. I will now walk you through the pages of our recently published Monetary Policy Report. Macroeconomic scenario and projections Data for the last few months show that the Chilean economy continues its process of adjustment after the major imbalances it accumulated during 2021. As expected, annual inflation peaked in the third quarter. However, the high levels it has reached are a sign that the problem is far from over. This morning we learned that the CPI again posted a high month-over-month change of 1.0%, bringing inflation to 13.3% annually. Core inflation —excluding volatile items— also saw a significant increase of 0.9%, which placed it at 11%. Thus, by any standard, the level of inflation remains very high (figure 1). With regard to the factors that determine inflation behavior, it is worth noting that those linked to demand have begun to recede, in line with the macroeconomic and consumption adjustment. | 012314545 6789 ! $ $ -4/ -4/ @ABBCD $ . $ / 0%/ / 8 % $ 9+ 5 . 8 %' . $ . 5 $ 8 ®¡®¯ $ . 845 9+ 5 . $ $ $ $ 21 012314545 6789 #1)6'7 -*. &% %//% #'0' *") *"*+' * ! "+") "% B*"% " "(% ! % (+") "#7 (' +%(+1'** ,%40' *0"**") +") ) 5' "' ,%40' (' ) ) (' ! '/*+% *"! '/%+") +*7 ) ) !%+") )5%+") 7V %#' %#'0' *"! '/%+") '5' 5"/) 0' + /'1%+") '1* *0"**") "!' *'1 2"* /% +"# 41 012314545 6789 12 31 012314545 6789 # &(#"3&!-# + "1 JKLMNOPQKL (&!3!/ @1 (). (6"7 (&!3!/ / # ' &!-# &!-# )*31 (' A A $ 3!+!&, 1 /4(31 (317 &!-# #4 !# &!-# #4 #6"7 # &!-# + "2 1 012314545 6789 $ 1 | 0 |
Hume and Sentance (2009) also provide an analysis of how global economic trends fostered the global credit boom of the mid-2000s. BIS central bankers’ speeches 9 Chart 9 – UK output and inflation since 1997 Annual percentage change in real GDP and consumer prices 6 4 2 0 -2 GDP growth -4 CPI inflation -6 -8 1997 1999 2001 2003 2005 2007 2009 2011 Source: ONS One reaction to my analysis could be that we have to accept a lot more volatility in growth and inflation, and simply grin and bear it. To some extent this will be true if the global shocks are big enough and very sudden, as we discovered in late 2008 and early 2009 when we felt the full force of the global financial crisis. But even in these circumstances, monetary policy played an important role in stabilising the economy and heading off a downward spiral in demand and the associated deflationary threat. In the decade before the recent global turbulence, there were also significant fluctuations in the international climate, including the impact of the Asian Crisis, the “dotcom” boom and bust in the US, and global geo-political turbulence in the early 2000s. In response to these fluctuations, the MPC did respond by adjusting monetary policy and succeeded in keeping UK growth steady and inflation low and stable, as Chart 9 shows, albeit in a more benign global environment than we have seen recently. | The good news however is that despite this and other serious challenges, the country was able to maintain macroeconomic stability at a reasonable level. The balance of payments recorded a surplus; the exchange rate, which in the years 2001 to 2004 had depreciated by approximately 5.9 per cent per annum, depreciated by only 5.2 per cent during 2006; a comfortable level of reserves was maintained; Government revenue and fiscal deficit targets were achieved as planned; the outstanding Government debt to GDP ratio declined; investor confidence remained high; a remarkable increase was seen in foreign direct investments (FDI) and for the first time, the yearly FDI exceeded US dollars 500 million; foreign portfolio inflows into the Stock Market increased substantially; the share indices recorded its highest ever levels; the government was able to mobilise around US dollars 1.2 billion in loans and grants from bilateral and multilateral donors and commercial sources. But we have to admit that not everything was rosy. There were a few down-sides and draw-backs too. Inflation began to rise since April due to higher than expected monetary expansion, some revisions to administered prices and escalating vegetable prices. In response, a tight monetary policy stance was adopted to curtail high growth in monetary and credit aggregates and it is likely that such measures would lead to the moderation of the rising inflationary pressures, and reflect a downward trend from April 2007 onwards. | 0 |
In accordance with the goal of stability and its role as guardian of the currency, the CB has as a permanent objective the maintenance of a sound financial system. The quest for excellence in supervisory standards, in line with the best international practices, is a permanent challenge for the CB. In this respect, it is important that the modernization process be sped up in the supervision and regulation areas, with the aim of solidifying the Country’s position in risk management and the prevention of banking crises. There are many examples of severe financial system crises in emerging countries which led to significant losses of income and production, with disastrous impacts on society. Brazil may face challenges but will work to avoid crises. Banking supervision and the set of prudential rules play a major role in this process. In the short run, important challenges include the improvement of methods to evaluate the quality of financial system information, and the implementation of the new Credit Risk Center, which aims at enhancing the effectiveness of off-site supervision. In the long run, we will seek to enhance supervisory transparency and the implementation of the new Basel capital accord, without forgetting the issues related to supervisory autonomy and legal protection for supervisors. I am committed to maintaining rigorous supervision procedures, because this is the only way to assure the stability of the system. But it is also important for inspections to have a beginning, a development and an end. | Moreover, there must be additional efforts to induce the entities in charge of clearing and settlement services to become more effective, as well as to popularize the use of electronic payment instruments, which will gradually reduce the use of paper instruments. The area of financial system regulation and organization will increasingly be focused on the following aspects: • improvement of prudential rules and practices, aiming at maintaining the soundness of the financial system as a whole; • improvement of the analysis of several authorization processes related to financial institutions and alike; • creation and improvement of financial instruments and activities, including those intended to broaden and cheapen credit; • adoption of international standards and practices. Additionally, it is a priority to improve the regulation of mechanisms that broaden the population's access to the financial system, as in the case of “banking correspondents,” credit cooperatives, and credit concessions to small and micro firms. I would also like to acknowledge the employees of the Central Bank for their competence, “esprit de corps” and qualification. I have a human resources goal of qualifying and offering even more opportunities for this outstanding group of public servants. I thank President Luis Inácio Lula da Silva and Minister Palocci for their confidence in myself. | 1 |
Banking is a knowledge-intensive, skills-based and relationship-rich industry. In an increasingly complex and a more liberalised environment, the competitiveness of banking institutions will depend critically on the quality of human intellectual capital and the extent to which the industry is able to leverage on these talents. To compete effectively, banking institutions need professionals with the requisite skills and expertise not only at the strategic and management level, but also at the technical and operational level. Successful institutions will be the ones which accord high priority to effective placements, rewards, retention and most importantly, lifelong learning and the continuous enhancement of human capital. Lifelong learning is becoming increasingly important in this knowledge-based economy where knowledge and skills need to be continuously updated and upgraded. At the macro-level, the breadth and depth of skills of the entire financial services workforce will increasingly be the defining factor in determining the success in building a more efficient, effective and dynamic financial sector. The availability of appropriately trained and competent human resources is a critical factor key to support the performance of the industry. In essence, continuous strengthening of intellectual resources and capabilities must be made to create a larger pool of talents and high calibre professionals in the banking and finance industry. Competence and skills development have always been an area of focus, but it will be even more important as we prepare our workforce for a more challenging environment, one that is more competitive and more complex. | On average, the inflation rate amounted to just under 2 per cent a year during the period 1993-2002, and the budget balance was turned around from a deficit of 12 per cent of GDP in 1993 to a surplus of 4 per cent in 2001. Real wages increased on average by 2 per cent a year, which can be compared with the stagnant or even declining real wages in the 1970s and 1980s. At the same time, unemployment was halved from 8 per cent in 1993 to the current figure of 4 per cent. Thus, the Swedish economy is currently in a much better condition than it was 10 years ago. However, there are many indications that it may become more difficult to combine a good growth rate with a low inflation rate in future. At present there is no unutilised capacity in the economy as there was directly following the crisis at the beginning of the 1990s. It also appears as though the labour supply will grow at a slow rate in the near future as a result both of demographic reasons and of a high rate of absence due to sickness. This impairs the opportunities for growth in the Swedish economy. It could also mean that, when the economy shows an upswing, the Riksbank will be forced to conduct a tighter monetary policy to prevent tension arising between supply and demand on the labour market. | 0 |
In the pre-crisis period the growth of securitization was accompanied by a growing reliance on short-term funds raised in wholesale markets to finance securities and activities essential 1 I note that the set of issues relating to wholesale funding are closely related to the challenge of ending “too big to fail” I discussed in a November 15, 2012, speech (see www.newyorkfed.org/newsevents/speeches/ 2012/dud121115.html). The more stable the sources of funding, the more resilient each firm would be, and the less the failure of any one firm would disrupt the provision of credit to the economy. 2 Banking groups retained a prominent role in credit supply via nonbank affiliates outside the commercial bank. BIS central bankers’ speeches 1 to securitization. This ranged from the use of repo3 funding to finance inventories of securities held for market-making4 purposes to the issuance of asset-backed commercial paper by conduits5 created to acquire and hold securities. The increased use of short-term wholesale finance was driven both by demand and supply factors. On the demand side, it was more profitable to use shorter-term funds to finance longer-term assets. On the supply side, such funding was plentiful because it was viewed as safe and because of the growing institutionalization of savings with corporations and institutional investors in need of deposit-like products in which to place their cash balances. After all, the funds were only exposed for a short period of time, and in the case of repo, secured by collateral. | 15 For a more detailed discussion, see “The Minimum Balance at Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market”. www.newyorkfed.org/research/staff_reports/sr564.pdf BIS central bankers’ speeches 7 rather than rely on their ability to get out ahead of small retail investors when trouble materializes. The larger question Reforming the tri-party repo system and the money market mutual fund industry is essential and would make the financial system significantly more stable. But even after such reforms, we would still have a system in which a very significant share of financial intermediation activity vital to the economy takes place in markets and through institutions that have no direct access to an effective lender of last resort backstop.16 The financial crisis clearly demonstrated that we can no longer assume that in periods of stress banks will be willing to access lender of last resort loans and on-lend to the nonbank financial sector at sufficient scale to stabilize the system of market-based financial intermediation, as happened in earlier periods such as the commercial paper crisis in the mid-1970s. The financing needs outside the commercial banks may be too large relative to the capacity of the banking system, banks may be reluctant to lend to competitors, be concerned about their own liquidity and funding needs, or simply be deterred by elevated counterparty risk. We need to consider whether our current architecture is satisfactory. | 1 |
Likewise, in the medium and long term, additional resources could be given to specialist courts to expedite the resolution of these processes. As regards firms with inviable business models, the path should be smoothed for their orderly exit from the market. The swift resolution of these processes will prove conducive to the structural adjustment of the economy and the reallocation of resources to more productive firms. Fourth, our aim should be to prevent the current crisis from causing severe damage to our financial system. In the context of the uneven and uncertain recovery I have described, we cannot rule out the possibility that the risks identified may materialise or that their impact and persistence may be greater than expected. In this respect, the response by banks to the possible materialisation of these risks must be pan-European, given the commitment to the banking union. In this response, the completion of the banking union and the launch of a fully pooled European deposit guarantee scheme would contribute decisively to ensuring euro area financial stability. Moreover, it is essential to analyse to what extent European bank resolution and liquidation regulations are appropriate for a hypothetical systemic crisis, or the possible role of asset management companies in the event of serious impairment of European financial institutions’ balance sheets. Lastly, from a more medium-term perspective, other structural policies may smooth change in the composition of firms’ debt so as to give greater preponderance to capital. | These would include reforming the treatment of debt under corporate income tax, and advances in the capital markets union project that would help provide for the integration and development of capital markets in the EU. The growth of equity markets can afford various benefits to the business sector and the economy in general. The resort to equity funding strengthens the soundness of firms’ balance sheets, given that a greater proportion of these capital instruments reduces firms’ vulnerability to adverse shocks such as an increase in interest rates or a decline in revenues.8 8 See, for example, A. Kraus and R. H. Litzenberger, (1973): “A State-Preference Model of Optimal Financial Leverage”, Journal of Finance. 28: 911–922. 8 Conclusions I should like to conclude by pointing out that the COVID-19 pandemic has prompted an unprecedented economic contraction in Spain and in other economies. Non-financial corporations have been seriously affected, although the forceful measures adopted by the national and supranational economic authorities have prevented the materialisation of a wave of defaults stemming from short-term liquidity problems. However, some firms have seen their solvency impaired as a result of a decline in their revenues and an increase in their debt. The current phase of the crisis, marked by an incomplete and uneven economic recovery, warrants continuing public support to firms. Nonetheless, these policies should be adjusted so as to focus more on firms in sectors that continue to be severely affected by the crisis, and through means other than the accumulation of greater debt. | 1 |
Monetary policy: achievements and challenges Már Guðmundsson, Governor of the Central Bank of Iceland. Monetary policy meeting of the Iceland Chamber of Commerce, held at Gamla Bíó in Reykjavík on 16 November 2017 Madame Chairman, honoured guests, Once again, we gather here at the Iceland Chamber of Commerce’s monetary policy meeting, which for years has been held after the Central Bank has published its autumn forecast and, in latter years, the Monetary Policy Committee’s interest rate decision. I would like to thank the Chamber of Commerce for continuing this tradition and for giving me the opportunity to talk to you about monetary policy. In my speech at this same meeting last year, I noted that the Icelandic economy had seldom been stronger, as we were experiencing the combined effects of robust GDP growth, full employment, large rises in real wages, below-target inflation, a current account surplus, a strong international investment position, and lower private sector debt than had been seen in years. At that time, we had also achieved a historical milestone in bringing inflation expectations back to target by most measures. The outlook was positive as well, with the prospect of continued strong GDP growth, a current account surplus, and target-level inflation throughout the forecast horizon. But there were concerns, too: the potential for overheating, the possible overvaluation of the króna, and the uncertainty about what would happen after the general liberalisation of the capital controls. | We should also reassess the scope of 13 See National Audit Office (NAO), Annual Audit Report by the Auditor General: Public Accounts 2008, December 2009. Examples of inefficiencies and improper practices range from 28,810 cases of social security contributions worth EUR 4.5 million being in arrears, to the number of hospital meals charged in one hospital consistently exceeding the number of in-house patients, to cases of payments to government suppliers not supported by VAT receipts. 14 The welfare gap, i.e. the difference between all items of expenditure and contributions made in terms of the Social Security Act, 1987 has more than doubled in the last five years to EUR381.2million in 2010. The cost of pensions and related benefits is estimated at EUR 564 million and that of free hospitalisation and community care EUR 306.5 million. See, Ministry of Finance, the Economy and Investment Financial Estimates 2010, p. 294. 6 BIS Review 156/2010 social benefits, to distinguish between those that truly help to combat poverty and social ills and others that are not so effective in achieving the desired outcomes. Finally, I believe the time has also come to consider how to strengthen the budget process, drawing on models tested successfully abroad. These typically involve fiscal rules providing for limits on supplementary budgets, multi-annual expenditure ceilings and more transparency in fiscal policy making, as well as an independent monitoring agency. The pursuit of fiscal sustainability along such lines requires a broad political consensus. | 0 |
Low interest rates curb the decline in investment and make it easier for households to repay debt. The change in behaviour can nevertheless take time and we cannot expect consumers in the US and Europe to drive a new upturn. The public sector will eventually have to rein in expenditure and increase tax revenues to prevent debt from increasing. If growth in the global economy is to be sustained, public and private investment and consumption in China and other Asian countries will probably have to absorb a greater share of output in these countries. In many industrial countries, export prices have risen relative to import prices. Lower oil and commodity prices are easing the burden. But Norway’s terms of trade are deteriorating. Some of the gains of the past few years have now dissipated, and Norway’s disposable income might fall by close to 10 per cent in 2009. Norway will move down on the list of the world’s richest countries. (And perhaps this is not altogether a bad thing.) Norwegian firms are affected when households the world over buy fewer cars and furniture and fewer ships are built. Lower oil prices will probably also result in a fall in investment on the continental shelf in the years ahead. But let us not forget that petroleum prices are still higher than the industry dared hope just a few years ago. 10 BIS Review 16/2009 The competitiveness of the Norwegian business sector declined during the upturn. | Conventional policy options at the zero lower bound Conventional macroeconomic theory states that, when interest rates are at the zero lower bound, monetary policy becomes ineffective and economic policy action should concentrate on fiscal measures. In slide 1, the depiction of the economy using the standard IS/LM model summarises this point of view. As you can see, the economic situation is represented in terms of two key variables, the interest rate and output (or GDP). Economic equilibrium is represented by the intersection of the IS and LM curves. The first corresponds to the interest rate and GDP levels that balance savings and investment and the second represents the combinations of these two variables, which equilibrate the demand and supply of money. Expansionary monetary policy corresponds to pulling the LM curve to the right. When interest rates are at the lower bound, however, the LM curve is horizontal. At this point, pulling a horizontal to the right has absolutely no impact on the intersection of the IS and LM curves, and therefore on the equilibrium level of output. Conventional monetary policy hence becomes ineffective. Intuitively, if interest rates are at the zero lower bound they cannot be lowered further, yet it is precisely by lowering interest rates that monetary policy can stabilise the real economy. By contrast, it is at the zero lower bound that the potential benefits of fiscal policy are most significant. As the same diagram suggests, it is precisely when the LM curve is flat that it becomes most appealing to use fiscal policy. | 0 |
As I noted earlier this week, the biggest component of the journey to net-zero is the delivery of clear sector-level climate policy pathways by governments. Central banks cannot and should not try to fill any gaps in that space through their micro and macro-prudential actions - for example, we are not here to deliver carbon pricing. However, we should use these tools to fulfil our role over important areas such as those I am raising today. The final area I want to explore is the importance of central banks practicing what we preach by seeking to achieve best practice through our own operations. We hold ourselves to the same high standards that we expect of the firms we regulate. Consequently, we need to ensure that, wherever possible, our own financial operations, such as financial asset portfolios we hold, and our own physical operations, such as emissions from our buildings and printing banknotes, conform to best practice in the measurement, management and mitigation of climate risks. In line with this, I can confirm today that the Bank is committing to reduce emissions from our physical operations so they will be consistent with net-zero by 2050 at the latest. In the spirit of transparency, last year we published a TCFD aligned climate-related financial disclosure.8 The most challenging aspect of this report was the inclusion of analysis of the emissions associated with a monetary policy portfolio, a first for a central bank. | 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). | 0 |
By pointing out the risks that the Riksbank sees and publishing our assessments, it is probable that conduct that could otherwise lead to systemic risks can be prevented. Openness can thereby be said to constitute a means in our monitoring of the payment system. This also applies to monetary policy, where openness and clarity do not only have the function of creating understanding for the inflation target but also probably affect and stabilise inflation expectations in the economy. Stable prices reduce the risk of financial crises? An issue that is highly relevant for the Riksbank is the extent to which monetary policy focused on price stability reduces the risk for the incidence of financial crises. An economic policy focused on price stability is considered to create the basis for macroeconomic balance. The financial crises we have seen to date have often been preceded by periods of strong credit expansion and building-up of macroeconomic imbalances. Increasing asset prices have also commonly preceded a crisis. Borrowers as well as banks seem often to have based their decisions on loans and lending on expectations of continued high asset prices and that the growth in wealth that rising share and property prices give rise to would be permanent. When these expectations subsequently prove to have been exaggerated, this initiates a process that in some cases has led to financial crises in the bank system. The development in the U.S. economy has brought up the risk that financial imbalances can develop despite stable prices and balanced government finances. | Purely hypothetically it is conceivable that the Riksbank would increase interest rates even if we regard it as most probable that the inflation target would not be BIS Review 44/2000 4 threatened. In this case, the motivation would be that we make the assessment that the credit expansion in the bank system risks threatening the stability of the system, for instance in the event of a large fall in asset prices. An interest rate decision of this kind could probably also be motivated by the risk of strongly falling inflation if the risk scenario is realised. In practice, it is probably only in retrospect that it can be noted that financial assets and liabilities that have been built up have been an expression for serious financial imbalances. It is therefore normal that the interest rate weapon is only used if the inflation target is threatened. The pressure for change creates challenges for banks and authorities It is evident from everything that I have said that there are no sharp boundaries between the various areas of responsibility of the Riksbank. The Riksbank’s analysis of the development of the banks also serves as a basis for our assessments of stable prices and financial stability. For instance, structural changes in the financial markets probably affect the impact of interest rates on the economy, at the same time as they change the risks banking activities are associated with. | 1 |
This would make it possible to dismantle a systemically relevant institution in such a way that only those parts of the institution that are vital to the economy need to be saved. Only a limited bailout is then necessary, and this can then be rendered compatible with the functioning of a free market economy, if the capital necessary for maintaining the vital functions does not come from the taxpayer. Cocos: better incentives for bondholders A possible way to keep vital parts of banks functioning during crisis situations without involving the taxpayer is to have recourse to contingent convertible bonds or Cocos. These are bonds that are converted into equity if certain thresholds are reached. One such threshold may be a capital level corresponding to a de facto bankruptcy. With these “low-trigger” Cocos, the necessary capital for supporting the vital functions of the bank is forthcoming precisely when it is most needed, in other words, when the institution would not otherwise be viable as a going concern. The conceptual attractiveness of Cocos is that, in addition to recapitalising banks when the standard form of recapitalisation is unavailable, 11 Banks’ liquidity issues are not dealt with explicitly here. Clearly, weak bank liquidity profiles were at the core of the recent crisis. Liquidity measures represent a critical part of the Basel III regulatory framework. They are also part of the TBTF proposal. Another relevant issue relates to the maturity mismatch between a bank’s assets and liabilities. This is discussed in Hellwig (2008), among others. | In order to illustrate this point, I will look at the incentives with regard to risk-taking by the various stakeholders of a bank and try to gauge the likelihood that these incentives lead to decisions that would be optimal from society’s viewpoint. In my second section I will focus on the “too big to fail” (TBTF) problem. My goal here will be to discuss the variety of solutions that can be envisaged in order to restore proper incentives and in particular assure that the capital necessary for maintaining the vital functions of financial institutions will in the future come from sources other than taxpayers. I will argue that higher capital requirements, in part in the form of contingent convertible bonds (Cocos), together with appropriate organisational measures, can fulfil the objective of a “partial” bankruptcy and lead to improved incentives for key bank stakeholders. In this speech I will adopt a relatively academic point of view, appropriate for today’s circumstances, which will lead me to the conclusion that sound theoretical principles underlie the TBTF package currently submitted to the Swiss Parliament.1 Finally, I would like to address the question of the likely impact of current regulatory efforts on the cost of capital for banks and their expected return on equity. 1 The importance of this issue for the Swiss National Bank (SNB) is reflected in the number of times it has been addressed by members of the SNB Governing Board. | 1 |
And for much of the period since rates fell to the floor, policy has been actively changed – asset purchases have built up to now stand at around £ billion. Chart 1 Bank rate from 1694 % 18 16 14 12 10 8 6 4 2 0 1700 1800 1900 2000 So it is the level to which interest rates have fallen that is unprecedented. I believe it has been right to loosen aggressively the stance of monetary policy because of the scale of the deflationary and recessionary forces unleashed by the remarkably rapid downturn that followed the crisis in the banking sector. This crisis intensified dramatically in the autumn of 2008 when the banking system came close to total collapse. That would have been an outcome comparable in its impact to the failure of the system for electricity supply. Many now argue that monetary policy should be set in a different way so as to reduce the chances of this sort of banking crisis. That is one of the issues I want to discuss today. The argument that the aims of monetary policy need to be broadened beyond a focus on inflation is one BIS Review 100/2010 1 that deserves to be taken seriously because the damage done by extreme financial instability is great. If there were no tools better suited to help preserve financial stability than varying interest rates then the case for broadening the goals of monetary policy would be strong. | David Miles: Monetary policy and financial stability Speech by Mr David Miles, Member of the Monetary Policy Committee of the Bank of England, at the Bristol Business Forum, Bristol, 14 July 2010. * * * I would like to thank Conall MacCoille and Gilberto Marcheggiano for research assistance and I am also grateful for helpful comments from other colleagues. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Monetary Policy Committee. Monetary Policy in the UK has never been as expansionary as it is today. Just over 15 months ago the level of Bank Rate was reduced to what is – to all intents and purposes – its floor. As Chart 1 rather starkly shows, this is the lowest level to which Bank Rate has fallen since the Bank of England was established at the end of the seventeenth century. Bank Rate has not been changed for 16 consecutive meetings of the MPC. That is not so unusual. In fact, as the Chart reveals, between 1720 and 1820 Bank Rate did not move from 5%. Had a Monetary Policy Committee then met each month, as it does now, it would have decided at 1200 consecutive meetings not to change the level of interest rates. So it is far from unusual for the interest rate set by the Bank to remain constant for over a year. | 1 |
All of this in an environment of lower growth, zero rates and stimulus plans. When you were in government you joked that you slept like a baby, in that you woke up crying every two hours. How are you sleeping now? Well. Very well! I wouldn’t wish what happened in 2012 on my worst enemy. The situation now is totally different; back then we were on the brink of collapse. The Spanish economy, the Italian economy, doubts about the integrity of the euro… the situation of the Spanish banking industry was terrifying and contagion was spreading to the Treasury. It was a dramatic situation. I don’t think there is going to be a recession in Europe, that’s very unlikely. But yes, I am worried that we 2/5 BIS central bankers' speeches will have two or three years of subdued growth, of below-potential growth. That is what is worrying me at the moment. And that this subdued growth may mean that the price stability objective is not met. Monetary policy is not the philosopher’s stone, it cannot be used to fix everything. Other policies are needed. So do you echo the calls of Presidents Draghi and Lagarde for countries with fiscal space, above all Germany, to boost spending and investment? This is important, yes, but my proposal goes further than that. Our current system of national fiscal policies and national budgets, with a set of rules like the Stability and Growth Pact, is not sufficient. | 3/5 BIS central bankers' speeches The public message is quite clear. Are there more discreet messages in private? No, none. I say the same thing in public that I do in private. Have the ECB’s non-standard measures run their course? No. We can still increase bond purchases or lower interest rates further, which means that we still have the same tools available. What is happening is that the secondary effects are becoming more tangible . And each measure has less of a return. I look at the effects, and these can vary greatly. I am worried by risk taking in the asset management sector against the background of low interest rates. It is a matter of concern for me. Banks are now better capitalised, they have more liquidity, and they are much safer than they were. But they face low profitability, which is a problem. Supervision is centralised and is more suitable than when it was the remit of national authorities. But in the area of asset management and investment funds, what we see is that, in a low interest rate environment, their investment strategy always moves towards increased risk, in the sense of assets with potentially greater returns and greater risks but that are less liquid. And there is also more leveraging, not to the extent seen in the United States, but still more than before. And the supervision in this sector is not comparable with that in the banking sector. There is a risk. | 1 |
The international experience has shown that the employment of innovative means in the banking and financial system contribute to reducing social costs in the economy from 1% to 2% of GDP. In the case of Albania, this figure may be higher, as cash use in economy is considered to be high. Allow me to highlight some of the considerable developments of banking system. Nowadays, businesses and individuals are increasingly using banking services, mainly in the payments market, where the adaptation of information technology to the development of banking services and products is more substantial. In recent years, the use of banking cards has been rising, not only for basic services, but also as a means of payment. This is followed by the development of the necessary infrastructure, such as PoS and ATM devices. As reported by banks, the number of PoS and ATM devices currently stands at 6.427 and 811, respectively. The number of physical Points of Sale grew 19% in 2014, compared to 2010. Recently, we have also seen an increase in virtual services through the development of infrastructure for the realisation of e-commerce. The expansion of infrastructure for the use of cards is accompanied by the considerable increase in the number of debit and credit cards in circulation. In 2014, 777.195 debit cards and 84.824 credit cards were issued, or, in relative terms, increasing 103% and 20%, respectively from 2010. Notwithstanding the innovations, cards in the world remain very convenient, preferred and secured instruments. | I would like to underscore that large spaces still exist for improvement and narrowing the gap between the Albanian market and the advanced markets, and to some extent between the regional markets, .They should, therefore, constitute our common challenge for the future. In the framework of encouraging market towards these innovative services, the Bank of Albania as the regulator and catalyser has undertaken recently a set of measures. In more concrete terms, the establishment of legal and regulatory basis for the e-money institutions, followed by the licensing of the first institution of this type in March 2015, constitutes a 2 BIS central bankers’ speeches premise to introduce the innovative services in the Albanian market of payments. The regulation of the activity of these institutions is based on the European practices not only in the framework of Albania’s adherence to the Single European Market, but also as one of the most optimum solutions in terms of security and efficiency at national level. The liberalisation of the payment systems market through the Law on Payment Systems will boost the development of the market. This legal framework provides the necessary space for private enterprises, and lays down the standards in terms of security and efficiency, and will support the development of a contemporary financial structure. | 1 |
Unfortunately I do not think that it makes much sense to try to show specific statistics for such outflows, since in this field data are notoriously unreliable - the more so in instances where controls exist which encourage outflows through what are euphemistically called informal channels. But in general terms the existence of such outflows is strongly implied, if not actually identified, in the overall balance of payments figures. Regarding capital outflows, allow me, for purposes of exposition, to make the following exaggerated distinction. In respect of advanced economies, outflows of direct investment tend to reflect the global workings of comparative advantage, as businesses seek to exploit particular strengths or niches; and portfolio outflows tend to reflect the search by each investor for a balanced international portfolio, within the total of which, however, domestic investments will typically tend to predominate. By contrast, in the less advanced economies there will be less wealth to provide the springboard for a large amount of direct overseas investment, and a large part of the leakage of funds from the country will be through what I have referred to as informal channels - which others may describe as capital flight. The position of any particular country in the spectrum between these two extreme characterisations will depend on, among other things, the stage of economic development that the country has reached, and on the degree of confidence that the population has in the government’s policies and in the financial institutions. | They include the quest for efficiency and greater effectiveness; the lessons learned from crises; political pressure - and its converse political opportunity; and what has from time to time been referred to as “fashion” but which I think can be more generously described as best practice. We have heard many times these last few days the familiar disclaimer that there is no “one model that fits all”. Many of you have stressed the uniqueness of your governance arrangements only to be reminded subsequently that these are arrangements familiar to one, two or even several other central banks. The modesty and diffidence with which experiences have been described is, of course, to be expected among central bankers. But there is, I think, a very pleasing mismatch between this and the enthusiasm with which all of us have been drinking up information about each other. This demonstrates that the BIS network is far more than an academic exercise. It also reflects an important truth: that, although our economic and political environments may differ widely, although we may pursue different policies and follow different legal structures, we all face a number of constants. Finance, money and banking behave in very similar ways no matter where we find ourselves, the more so with globalisation and liberalisation of markets. Politicians and the media the world over have the same qualities and the same vices. And so for that matter do central bankers. The human factor, which is at the root of all of our discussion on governance, is universal. | 0 |
However, on receiving your much appreciated invitation, I thought I’d take advantage of the sense of calm reflection which university fora instil to pause and ponder on what may happen to the Spanish economy after the crisis, when the global economy recovers. It is worth reflecting on the aftermath because the global nature of the crisis is "homogenising" the different economies. And by blurring the differences from one economy to another, it is hard to discern the different tasks awaiting them. As the crisis left nobody unscathed, not even those countries which acted prudently, i.e. those that did not incur excessive debt or whose competitiveness did not worsen, are faring better than those which were not so virtuous. But when the crisis ends, differences will re-emerge. When a plane taking off from New York almost crashed last month, the health and well-being of all the passengers hinged on how the crisis was resolved, without this depending on their youth, cholesterol levels, excess weight or the state of their lungs. The drama was the same for everybody. Luckily, they all emerged safe and sound from the landing on the Hudson. But after that, with the crisis behind, their health and well-being depends once again on the state of their organs, diet and exercise, and on taking the right medicine. Countries worldwide have entered into a similar negative spiral (a deep slowdown in – and in some cases the collapse of – consumption, employment, output, credit, investment...). | Chart 1 plots 4 the turnover share of the largest 100 UK businesses since 1998 (i.e. concentration ratio). This ticks up in the lead-up to the financial crisis, although this pick-up is more modest than in the US, from 20% to around 5 28%. Concentration has flattened-off in the period since the crisis, however, in line with other European countries. Turning to measures of concentration within the financial services industry, the international pattern is somewhat more uniform. Chart 2 plots the largest five banks’ share of total banking assets in the US, euro area and the UK. Levels of banking concentration started fairly high, averaging around 30%. They drifted further upwards in the run-up to the crisis, although this drift was again fairly modest. Since the crisis, however, measures of banking concentration have flat-lined and, in the UK, have fallen slightly. Concentration indices have their limitations, though, and need not always be associated with market power. Some firms may be able to exercise market power in setting prices even without having a large share of a market if, for example, there is brand loyalty. And in a world of differentiated products, concentration measures such as HHIs or concentration ratios no longer correlate closely with market power (Bresnahan (1989)). With non-homogenous goods and non-Cournot competition, a better measure of market power is often provided by firms’ mark-ups – the ratio of their price to their marginal cost (De Loecker and Eeckhout (2018)). | 0 |
Ardian Fullani: Overview of Albania’s latest economic and financial developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, on the Monetary Policy Decision-Making of the Bank of Albania’s Supervisory Council, Tirana, 30 April 2013. * * * Today, on 30 April 2013, the Supervisory Council of the Bank of Albania reviewed and approved the quarterly Monetary Policy Report. Based on the most recent monetary and economic developments in Albania, and following the discussions on their outlook, the Supervisory Council of the Bank of Albania decided to keep the key interest rate unchanged, at 3.75%. The Supervisory Council deems that the current monetary conditions are adequate to meet Bank of Albania's inflation target in the medium term. The present interest rates and liquidity situation in the economy provide simultaneously the necessary monetary stimulus to boost domestic demand. Let me now proceed with an overview of the economic developments and key issues discussed at today’s meeting. *** According to INSTAT data, economic activity in Albania increased 1.6% in 2012. The Albanian economy showed signs of weakness during the past year, reflecting an overall uncertainty in the internal and external environment. Nonetheless, against the backdrop of unfavourable developments, the main indicators of domestic and external balances remained within healthy parameters. During this period, inflation ranged within the Bank of Albania target band and indicators of banking system soundness improved. Maintaining these balances provides the right macroeconomic premises for sustainable and long-term growth. | Private consumption and investment remain weak in the presence of uncertainties for the future, decelerating disposable income, tighter lending terms and spare production capacities. BIS central bankers’ speeches 1 The performance of budget indicators in the first quarter of the year shows increased fiscal stimulus. Budget deficit increased 41.5% during this quarter, reflecting the 3.6% decline of fiscal revenues and 1.4% increase in public expenditure. The Bank of Albania once again draws the attention on maintaining the fiscal equilibriums and keeping the budget deficit and public debt at affordable and harmless levels for the Albanian economy. In our opinion, the medium-term priority for the fiscal policy should be maintaining budget discipline. In the long term, the Albanian public debt should be reduced and anchored in a reliable, effective and transparent fiscal rule. Developments in the external sector of the economy reveal continued positive contribution of net exports to aggregate demand growth. Data on foreign trade for January and February show that trade deficit narrowed 27.1% annually, reflecting at the same time the further surge in exports and the weak performance of imports. During this period, imports shrank 9.5% in annual terms, while exports maintained their high annual growth rates, at 18.6%. Monetary developments were in line with the performance of the real economy during the first quarter. In January and February, credit to the economy was weak across all its segments. As at end-February, the loan portfolio of the banking sector stood only 1.7% higher than a year earlier. | 1 |
The more severe and tangible impact of climate change has raised awareness of people around the world, resulting in calls for new standards and regulations aimed at containing environmental externalities from businesses. Two good examples are the ban of fuel with high sulfur content for the shipping industry, and social calls for businesses to reduce the usage of single-use plastics. Naturally, adopting these higher standards comes with higher costs and it would serve businesses well to take this into account when designing new business models. For businesses taking these regulations passively, this will only mean higher costs and lower profits. However, the sustainable movement presents an incredible opportunity for businesses that can meet this demand. Consumers are now demanding more environmentally friendly products and services. According to a survey done by Nielsen, 66 percent of global consumers are willing to pay premium for environmentally friendly products. The number is even higher for younger generations. The concept of first-mover advantage also applies here, since those who could first systematically identify new environmentally friendly practice will set standard for the entire industry. 3. Changes in value chain The third trend I will highlight is the change in the global value chain. In discussing value chains, it is almost impossible to avoid thinking about the ongoing trade tensions that are suppressing the global economic sentiment. While the trade tensions might prove to be short-lived, they have distorted value chains and engraved a long-lasting impact on global production through trade diversion and production relocation. | As the operator of NBO, Norges Bank is also working on measures that will strengthen the settlement system centrally. 5 Committee on Payments and Market Infrastructures (CPMI) – previously the Committee on Payment and Settlement Systems (CPSS) – and International Organization of Securities Commissions (IOSCO). 6 The financial infrastructure comprises the payment system and securities settlement system, including central counterparty systems. 7 The following systems were evaluated: Clearing and settlement systems for payments, the securities settlement system, the VPS registry function and the central counterparty Oslo Clearing, the latter two in collaboration with Finanstilsynet. The evaluation was presented in the Norges Bank Financial Infrastructure Report 2014. 4 BIS central bankers’ speeches Outsourcing Today’s financial infrastructure is based on advanced technical solutions. This places considerable demands on system developers and operators. This expertise is costly and may be difficult to retain. Owners have largely outsourced technical operations. This provides greater flexibility. At the same time, outsourcing can make it more challenging to manage operational risk. The fixed costs associated with operation and development can be high. This allows operators to exploit economies of scale. A possible result of outsourcing is that several systems use the same service provider. This may reduce costs. On the other hand, such a concentration may weaken competition, while risk is concentrated in a single provider. Any failure in the service provider may then impact large parts of the financial infrastructure. The systems are vulnerable to technical failure and to external attacks. | 0 |
However, China’s reopening may temper inflation through its impact on supply bottlenecks. Indeed, the end of the zero-COVID policy will avert production distortions caused by restrictions. In the recent past, the COVID-induced production stoppages in China were key factors behind the bottlenecks and inflationary pressures and, therefore, the reopening could be seen as net deflationary. All in all, it is difficult to disentangle the net effects of all these factors on inflation and close monitoring will be needed. The resilience of euro area growth and its composition In the second half of 2022 the euro area economy proved more resilient than expected and the slowdown in the fourth quarter of last year was less severe than anticipated . This has occurred in a context on which a significant reversal of previous supply shocks (bottlenecks and energy prices) was observed, households and firms had plenty of buffers (in particular the household savings built up during the pandemic), the post-COVID rebound in demand continued to generate positive effects and monetary policy had not yet been fully transmitted. However, there is much uncertainty about the continuity of these factors. In particular, the sharp decline in European gas prices reflects unusually mild weather, energy-saving measures and strong inventory levels, which mitigate supply risks for next winter. However, 12 Ko lerus, Diaye and Sabo ro wski (2016) “China’s Footprint in Global Co mmodity Markets”. International Mo netary Fund. | In particular, according to the flash estimate,2 inflation was slightly lower than expected and stood at 8.5% in January, down from 10.1% in November. Furthermore, the strong fall in gas prices, the easing of global supply chain disruptions, the appreciation of the euro and tighter financing conditions (the latter reflecting, inter alia, our policy tightening) also pointed to inflation falling more strongly in the coming months than envisaged in December. At the same time, the fact that core inflation (5.2% in January, according to the flash estimate) has held at record high levels was a powerful reminder that price pressures remain strong, as past energy price rises continue to spread throughout the economy. All in all, this information led us to assess the risks to the inflation outlook as being more balanced, especially in the near term. As regards financial market-based indicators, in the run-up to our February meeting the riskfree forward curve continued to point to expectations of further interest rate increases in our subsequent meetings, including 50 bp hikes in both February and March, with a terminal market rate of around 3.47% (0.6 pp higher than before our December meeting). This was corroborated by analysts’ expectations, as reflected in surveys conducted shortly before the meeting. | 1 |
This argues for the authorities in all jurisdictions to review whether the liquidity standards that they currently impose are still appropriate, given the nature of firms and their activities. But globalization also means that there is a case to look again at consistency of liquidity standards across jurisdictions. As central banks or regulators we are each seeking to achieve a high level of soundness in our respective financial systems. But the soundness of any of the global firms that are a major part of those systems is a function of the standards imposed on the group and its major subsidiaries in many jurisdictions. None of this necessarily argues for full harmonization of liquidity standards in the way that capital standards have been harmonized. But each jurisdiction inevitably relies to a degree on liquidity standards imposed elsewhere to ensure the soundness of potentially systemically significant firms. Central banks and regulators need at least, therefore, to come to a common understanding of what they are individually seeking to achieve with liquidity regulation. Are we, for example, seeking with such regulation to limit the likelihood of crisis, or the impact of a crisis should one arise, or both? What sort of liquidity problems are envisaged in the regulation? Most importantly, we should seek a common understanding of the dividing line between ex ante insurance, and ex post resolution. 5. Conclusion This is my last Financial Stability speech as Deputy Governor and I would like to leave you with several thoughts. | Moreover, the space for fiscal stimulus has narrowed, as a result of the orientation of the fiscal policy towards maintaining fiscal parameters stability. Under these circumstances, Albania’s economic growth will be determined mainly by the performance of consumption and private investment. The latter is expected to be driven by eased domestic lending terms during 2012, but will suffer, at the same time, from the uncertainty and hesitation of consumers and private businesses. The Bank of Albania deems that the second half of 2011 marked a turning point towards a more normal consumer behaviour, which should be encouraged and supported in 2012. *** Taking into consideration the information set out above, the Supervisory Council holds that pressures on consumer prices at home remain low over the monetary policy relevant horizon and they have shifted on the down side over the past months. On the demand side, below-potential economic growth will continue to generate low inflationary pressures as shocks from the supply side are expected to be moderate. At the conclusion of discussions, the Supervisory Council decided to cut the key interest rate by 0.25 percentage points bringing it down to 4.25%. This decision aims to provide the appropriate monetary conditions to meet the medium-term inflation target. In addition, the easing of monetary policy provides higher support for the development of the private sector’s demand in our economy. 2 BIS central bankers’ speeches | 0 |
In this time perspective, it is structural factors, such as demographics and long-term growth rates, that affect developments. One striking feature over recent decades is the downward trend in real interest rates around the world. Various explanations have been put forward for this, including demographic trends. 3 One theory that has attracted major attention is that the decline is a sign of secular stagnation, where different factors have driven up saving but dampened the propensity to invest. This has led to a chronic A more detailed description of the decline in global real interest rates and feasible explanations can be found in my speech at the Swedish Economics Association in 2017. 3 4 [13] condition of “excessively low” demand in the economy, which has contributed to a lasting decline in real interest rates. Others think that it is not necessarily a question of secular stagnation, but that the situation can, for example, be better described as a deep recession following excessively high debt accumulation in many countries. An environment with a lower average repo rate The major question is what we can expect going forward. For a small, open economy like Sweden's, the interest rate on a global level is important as it affects domestic rates. With free movement of capital, it is difficult to have real interest rates that deviate a great deal from the global level in the long run, even if differences in demographic trends or long-term productivity growth can naturally play a part. | If the level of debt is high in the initial position and confidence in the economy is weak, it may be difficult for monetary policy to affect demand and inflation in this situation, which has been the case in Japan in recent years. Some analysts consider that both prices and production would develop in a more stable way over time if monetary policy counteracted exaggerated price increases in shares and other financial assets. It is said that it is not much more difficult to determine when share prices indicate unrealistic future increases in profit than it is to determine how quickly production in an economy can grow in the long term. And such assessments are of key importance to all monetary policy decision-makers. Others think that besides it being difficult to determine when asset prices are exaggerated, it is doubtful how large an effect an increase in interest prices would have. This is particularly the case with regard to share prices in small countries since the stock markets are so internationalised. Clarity and flexibility What I have discussed here shows that monetary policy decisions cannot be made on the basis of mechanical rules of action. The transmission mechanism is complicated and probably not stable over time either. Regardless of the monetary policy strategy adopted, monetary policy decisions must rest on uncertain assessments. This may relate to assessments of the output gap and the correlation between growth and production, the rate of circulation of the quantity of money and the effects of large increases in asset prices. | 0 |
In Latin America, the hoarding of reserves has been used several times. In the first half of the 1990s it was used to deal with strong capital inflows; in the 2000s it has been used much more frequently (figure 8). Intervening the foreign exchange market via reserve accumulation also serves the purpose of improving the international liquidity position, which is a form of self-insurance against external financial turmoil. Today other forms of insurance are available, that are more costeffective. For example, this is the case of contingent credit lines of the IMF or hedging instruments to hedge against fluctuations in the terms of trade (Borensztein et al., 2009; Caballero, 2009). But the estimated benefits of these forms of insurance vis-à-vis selfinsurance through reserve accumulation do not consider the fact that this latter option has also a stabilizing effect on the exchange rate, because the accumulation is done at a time when the exchange rate is overly appreciated with respect to its fundamentals. Furthermore, one can think that the presence of efficient insurance mechanisms may exacerbate capital 4 BIS Review 72/2010 inflows during boom periods in emerging economies. Therefore, these are instruments that can prove beneficial in critical times, but may create some inconveniences in normal or favorable periods. Some economies have adopted regimes where limited interventions are applied with some frequency. Nonetheless, larger interventions, which are precisely the ones that may have a substantial effect on foreign exchange markets, entail quasi-fiscal costs that must be taken into account. | Against this background, the predominant view has emerged that the best and most lasting contribution that monetary policy can make to long-term economic welfare is that of safeguarding price stability. Therefore, central banks throughout the world have been moving towards adopting long-term price stability as their primary goal. In order to achieve this goal most successfully, independence from political interference and a clear legal mandate for price stability are of the utmost importance. A lack of independence and an ambiguous mandate can easily force central banks to focus on the short term, and thus to fail to adopt the forward-looking, medium-term orientation that is crucial for a successful monetary strategy. These aspects were taken into consideration by policymakers when drafting the Maastricht Treaty. The mandate to maintain price stability cannot be seen in isolation. The Treaty assigns other tasks to the Eurosystem. Article 105 requires that the Eurosystem “without prejudice to the objective of price stability … shall support the general economic policies in the Community, with a view to contributing to the achievement of the objectives of the Community.” These Community objectives include “sustainable and non-inflationary growth” and “a high level of employment”. But, given the qualification “without prejudice”, the Treaty also clearly states how the Eurosystem shall set its priorities. A contribution to the achievement of the other objectives of the European Community can only be made if the Eurosystem’s primary objective is not compromised. However, there is ultimately no incompatibility between maintaining price stability and pursuing these other objectives at Community level. | 0 |
This common view will be established in a set of rules and standards which will be laid down and developed by the EBA and the ECB itself. With the Single Rulebook as a basis, other instruments will also ensure that the same approach is used in the supervision of all banks. This will include the Supervisory Manual and ECB regulations, guidelines and general instructions. BIS central bankers’ speeches 1 Resolution of credit institutions Single resolution, the second pillar of the banking union, is a necessary complement of single supervision. It is essential that if a bank enters into difficulties, it may be efficiently resolved with no or minimal costs for European taxpayers and with little impact on the European financial system and on the real economy. The draft Regulation on Single Resolution, submitted by the European Commission to the Council and the Parliament last July, builds on the concept, envisaged by the European Council more than a year ago, that is, a resolution system comprising a single resolution authority and a single resolution fund. In such a system, resolution will be based, first and foremost, on common EU “bail in” rules, whereby banks’ shareholders and creditors should first bear the cost of a bank resolution. Only if this were not enough, would the single resolution fund – meaning, the Industry – step in, making the fiscal backstop the very last resort. | Such a step would be a natural development of the Single Market and would benefit all EU Member States. We believe that one area that deserves particular attention is the development of a wellfunctioning market for simple, transparent and real asset-backed securities (ABS). This would allow banks to still originate loans – notably to small and medium-sized enterprises (SMEs) – while preserving their balance sheet capacity. In order to achieve a well-functioning ABS market, it is important that the regulatory treatment of securitisation is proportional to the risk of ABS. In this respect, the ECB welcomes efforts to have a differentiated regulatory treatment of simple, transparent ABS built on real assets. Moreover, the provision of public guarantees should be considered to support lending to SMEs, as other countries do, such as the US. A further integration of corporate bond and equities markets is also essential to overcome the present fragmentation in the euro area and to ensure more robust cross-border lending and investment flows. To achieve this, we will have to streamline differences between countries, for instance, in the legal protection of borrowers’ and lenders’ rights as well as in national taxation and insolvency procedures. To sum up, structural policies are more multifaceted than they are often perceived to be in the political debate and can have a very significant impact on investment in a variety of ways. Growth-friendly fiscal policy Yet this is not the only area where governments can make a difference. | 0 |
That is consistent with the need – now widely accepted – to eliminate the large structural fiscal deficit and to raise the national saving rate. It is part of a need for a wider rebalancing of domestic demand in the world economy away from those countries that borrowed and ran current account deficits towards those that lent and ran surpluses. Second, both the structure and regulation of banking in the UK need reform. Banks increased both the size and leverage of their balance sheets to levels that threatened stability of the system as a whole. They remain extraordinarily dependent on the public sector for support. That was necessary in the immediate crisis, but is not sustainable in the medium term. These two challenges are interrelated. In creating the crisis, imbalances in the world economy led to unusually low real interest rates and large net capital flows from the emerging market economies to the developed world. That provided the fuel which an inadequately designed regulatory system ignited to produce the financial firestorm that engulfed us all. If our response to the crisis focuses only on the symptoms rather than the underlying causes of the crisis, then we shall bequeath to future generations a serious risk of another crisis even worse than the one we have experienced. Tonight I want to focus on the second of those challenges – reform of the structure and regulation of the banking system. | Why were banks willing to take risks that proved so damaging both to themselves and the rest of the economy? One of the key reasons – mentioned by market participants in conversations before the crisis hit – is that the incentives to manage risk and to increase leverage were distorted by the implicit support or guarantee provided by government to creditors of banks that were seen as “too important to fail”. Such banks could raise funding more cheaply and expand faster than other institutions. They had less incentive than others to guard against tail risk. Banks and their creditors knew that if they were sufficiently important to the economy or the rest of the financial system, and things went wrong, the government would always stand behind them. And they were right. BIS Review 129/2009 1 The sheer scale of support to the banking sector is breathtaking. In the UK, in the form of direct or guaranteed loans and equity investment, it is not far short of a trillion (that is, one thousand billion) pounds, close to two-thirds of the annual output of the entire economy. To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform. It is hard to see how the existence of institutions that are “too important to fail” is consistent with their being in the private sector. | 1 |
On the other hand, we can take risk onto our balance sheet should we regard this as absolutely necessary in order to fulfil our mandate. In this respect, the lesson learned from the crisis is that, in good times, we need to ensure that our balance sheet is as robust as possible, so that we can burden it in bad times. Finally, in terms of staff, our independence is expressed by the fact that the members of the SNB executive bodies – the Governing Board members and their deputies – are appointed by the Federal Council for a fixed and comparatively long term of six years.5 Ladies and Gentlemen, our independence is not unlimited, however. First, it is not absolute but related only to our mandate. It is not we ourselves but the Swiss legislators who charge us with maintaining price stability. Incidentally, that also applies to mandates other than the monetary policy core mandate, which I will not be talking about today. The SNB has specified its monetary policy mandate and rendered it measurable. A situation of price stability prevails when the consumer price index (which is calculated by the Swiss Federal Office of Statistics, and not by us) shows an average annual rate of below 2%. Deflation is also regarded as a failure to attain the objective of price stability. Where we are independent is in our choice of the means by which we fulfil this mandate. Under article 9 of the National Bank Act, we may use a great many instruments, as needed. | This was due to exchange rate losses on the foreign currency holdings. These had increased substantially in the course of our foreign exchange market interventions, which we carried out in order to counter the deflationary threat identified by us. The loss and the increased risk in our central bank balance sheet is a matter which we take very seriously. The annual loss has provoked critical remarks, in particular as regards our independence and our ostensibly far-reaching powers. It is understandable that people will question the extensive measures we had to take to manage the financial crisis. That is all part of life in a democratic society. I am therefore grateful for this opportunity to present to you, in the next few minutes, my thoughts on the essence, the boundaries and the pitfalls of our independence. I hope I will be able to clarify one or two misunderstandings in the process. The reason why the SNB is independent is not because it happens to suit the members of the Governing Board, which is the body responsible for monetary policy. I can assure you that it would sometimes be easier if we could just accept instructions from a higher body. What actually happens is that we have to bear responsibility ourselves for the monetary policy decisions we take, and we take them – typically – under a veil of uncertainty. The reason why we are independent is so that we can better fulfil our mandate. In other words, our independence is purely a means to a higher end. | 1 |
Perhaps this is because the structure of the European model - the only successful example - requires convergence as a pre-requisite. As I mentioned earlier, in many respects, Asia is much more heterogeneous than Europe, so that convergence realistically will take time, even if there is agreement to converge. But my view is that since it takes so long - 50 years in the case of Europe - we’d better start at least the thinking process early, hadn’t we? And we can also afford to be imaginative if it is something that aged people like us won’t see in our lifetime. The flexibility of Asia is well recognised. We only have to look at how individual economies bounced back after the Asian financial crisis. Perhaps they are flexible enough for convergence to be forced onto them by just plunging in. And to ease the way, how about an interim arrangement that provides intra-regional exchange rate stability through hard pegs to a synthetic, floating Asian currency unit? Perhaps the International Centre for Banking and Monetary Studies has wise observations to offer. I myself have found it difficult and a little frustrating to go beyond articulating the problems and the unsustainable nature of Asian finance, raising interests and asking questions. China Let me now turn to China. I notice that there is considerable interest in the international financial community in the banking and monetary developments there. | For example, we hear often that the Hong Kong financial markets provide a perfect hedge, or more modestly, a proxy hedge, for risks in the Mainland of China or the region. There is an element of truth in this. After all, this is one of the roles of an international financial centre. But it does mean that, in Asia, the dynamics of financial contagion can be quite complex. For example, financial crises do not necessarily erupt and manifest themselves at source - somebody sneezes and others get pneumonia. So, it is only prudent that Asian monetary co-operation should be on the agenda of discussions on Asian finance, and I have been urging for greater co-operation for some time. I am therefore glad that there has been increasing attention given to the subject in recent years. But, in terms of actual co-operative initiatives, progress has been slow and the scope rather narrow. To be fair, there is consensus on the need for diversification of financial intermediation channels, for enhancing efficiency and financial stability, and this consensus has been manifested in co-operative efforts to develop the bond markets in Asia. There are three clusters of initiatives: 2 "What is driving Asian exports? ", HKMA, August 2003. | 1 |
Oil supply is traditionally slow to respond to changing prices – lead times for developing new fields are often around 3-7 years; and there are constraints on refinery capacity which may influence petrol prices. This is bound to have implications for the UK and for our European markets. Over the past decade, we have benefited from the downward pressure on imported goods prices exerted directly and indirectly by low cost production in Asia. Even if these trends continue, as in principle they could for some time, it is becoming increasingly clear that consumers may also need to contend with upward price pressures as world energy markets adapt to meet the needs of emerging Asia. The second key area of risk is global imbalances. These pose risks to foreign exchange markets and to world activity. Higher oil prices have intensified the scale of the problem. Yet we seem no closer to a denouement – indeed, as the US current deficit topped 6% of GDP, the dollar has tended to strengthen. What does this mean for the UK? I find it extremely hard to predict how sterling’s effective rate would be affected, were there to be a major re rating of the dollar. But a resolution of global imbalances which was accompanied by global recession would represent a major challenge for us – one to which, I suspect, we are now less well placed to respond than we were in 2001. | Pridiyathorn Devakula: Thailand - recent economic performance and the road ahead Speech by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the British Chamber of Commerce-Thailand special luncheon, Bangkok, 1 October 2003. * * * Honorable guests, ladies and gentlemen, First of all, I would like to thank the British Chamber of Commerce for the invitation to speak today at this special luncheon. It is certainly a pleasure to have the opportunity to share with you my views on the economy, and on the prospects for the period ahead. These days, Thailand’s strong economic recovery, especially the growth outlook for the next year, has frequently hit the news headlines. One hears or reads about favorable economic outcome during the first half of this year even though the global environment was much troubled by uncertainties. Real GDP grew by 6.7 percent in the first quarter and was dampened only slightly by the repercussions of the Iraqi War and the outbreak of SARS to 5.8 percent in the second quarter. Such resilience to adverse external shocks is a testimony of the economy’s greater flexibility as well as its underlying strengths. With this, the National Economic and Social Development Board has revised upward the growth projection for 2003 by about half a percentage point to 5.8-6.2 percent. From the Bank of Thailand’s point of view, it is most important that the current recovery has been accompanied by a continued strengthening of economic stability both on the external and domestic fronts. | 0 |
This preamble is not to give my biography, but just to mention some of the things I have done in my professional life, and to add that one of my most difficult and rewarding jobs so far was to organize the LACEA conference in 1999. As a university professor we have access to limited funds, so fundraising becomes a tedious, but necessary task. Then, organizing the program and all the details is tough, and above all it is a task that has a strict deadline and everything has to happen in just a few days. I had the privilege to meet and work with the cochairman, Dominique Hachette, an extraordinary economist and friend. Our weekly meetings in his house were really a pleasure, and we miss him a lot. So, let me start by expressing my sincere congratulations and gratitude to the organizers. However, I will not talk about organizing conferences, but about central banking. In particular, I will refer to the new challenges facing central banks after the crisis and their role in securing price and financial stability. Central banks and price stability Many years ago we reached consensus that central banks should focus mainly on ensuring low inflation. Moreover, there were some scholars and practitioners that argued that price stability should be the only objective of central banks, so the goal would be more credible and monetary policy more effective in achieving stability. However, we didn’t know how exactly or operationally to achieve this target. | The time horizon typically extends to two years, or a more ambiguous definition as “medium term.” As long as medium-term inflation expectations remain anchored, the monetary policy helps to reduce the volatility of other variables. In addition, a FIT regime also requires a flexible exchange rate, so monetary policy can be conducted independently. However, a proper FIT should help to stabilize the currency as long as monetary policy should move leaning against the wind. For example, a persistent depreciation of the currency, other things equal, should increase the inflation forecast, although much more moderately than in rigid exchange rate systems. This effect should call for a tightening of monetary conditions, reducing pressures against the currency. Many times it has been argued, especially in non-professional discussions, that inflation targets ignore output fluctuations. As I just argued, this is a mistake. Flexible inflation targets take into account activity and employment, and this is implicit in the choice of the time horizon. Moreover, a credible inflation target is efficient in terms of minimizing the tradeoff between output and inflation fluctuations, and also helps to reduce real exchange rate volatility. Indeed, a flexible inflation targeting regime can maximize welfare and perform much better than an exchange rate or monetary target. What variables should a central bank consider when setting the interest rate? In the regime I just described, the answer to this question is pretty simple: anything affecting inflation over a two-year horizon. | 1 |
The gap between richest and poorest region is around 150%. For wealth per household, the North-South divide is also large, with a gap between richest and poorest of 130%. These are striking differences. But are they unusual compared either with the past or other countries? 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 Chart 2: Cartogram of UK income per head Sources: Eurostat and Bank calculations. Notes: Purchasing power standard (PPS) per inhabitant for NUTS 1 regions. 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 Chart 3: Cartogram of Great Britain wealth per household Sources: ONS Wealth and Assets Survey and Bank calculations. Notes: Data refer to 2014-16 for NUTS 1 regions, re-sized and coloured by median household wealth. No equivalent data available for Northern Ireland. 8 All speeches are available online at www.bankofengland.co.uk/speeches 8 On the first of those, Chart 4 plots the distribution of income per head across UK regions on three dates: 1997, 2007 and 2016. All of the distributions are centred on mean levels of income in 2016. This suggests a modest increase in the degree of regional income dispersion over time. The 2016 distribution has somewhat fatter tails, lower and upper, than in earlier periods.12 Chart 4: Distribution of UK income per head over time (mean-aligned) Sources: ONS and Bank calculations. Notes: Chart shows regional gross disposable income for different time periods at current basic prices, centred around the 2016 mean. | The guidelines are based on the above-specified supervisory bodies’ considered opinion that there is no legal or substantive rationale for the maintenance of the previous interest rates (which were determined with reference to foreign interbank rates) after the portion of loan principal bearing such interest has been uncoupled from the exchange rate of the currency concerned by means of the recent Supreme Court decision. The supervisory bodies are of the opinion that such an interpretation of the Supreme Court judgement, were it implemented to the fullest extent possible, would represent such a heavy blow to financial undertakings’ equity that the Treasury would be forced to contribute substantial new capital to them. That expense would ultimately be borne by other members of society. The method recommended by the Central Bank and the Financial Supervisory Authority will preserve the stability of the financial system even in the event that a majority of loan agreements with exchange rate linkage clauses are deemed unlawful, although it could take quite a long time to determine this conclusively. Financial undertakings’ equity will sustain a considerable blow in any case, if judgements by the Supreme Court ultimately extend to a large portion of their loan portfolios. Offsetting this is the fact that uncertainty will have been eliminated, which could provide an opportunity to re-evaluate economic capital at a later time. The financial system should therefore remain sound. Many borrowers with foreign-denominated loans are in an extremely difficult position. Their anger and disappointment are understandable. | 0 |
The new technology made state-regulated monopolies less expedient and led to greater difficulty in upholding the regulations on the financial markets. At the same time, the deregulation processes were an important condition for the rapid success of the new technology. It is also worth reminding ourselves that the IT sector stands outside of the traditional Swedish labour market regulations. The effects may take some time The effects we have seen so far are probably the result of better economic policy and technology introduced earlier, such as computers, networks and mobile communications. However, the large productivity gains experienced in times of major technological transformation usually due not come until the transformation has reached a stage of maturity, whereby a general spread has been achieved through the new technology being used by at least half of all households and companies. With regard to the Internet, available figures indicate that Sweden has only recently passed this stage. Achieving 3 BIS Review 93/2000 the maturity stage with its large gains in productivity also requires that companies find organisational forms that utilise the opportunities provided by the technology. Tougher international competition may bring about this type of adaptation relatively quickly, but for me it is still not evident that Sweden is at a stage where the new technology has major macroeconomic effects. Further changes The majority of the effects of information technology may thus lie ahead of us. | Your Excellency, the Zambian Government recognises the importance of expanding financial services to our rural areas, as part of its overall strategy to reduce poverty. The importance of the agricultural sector to the economy, in general, and small-scale farmers in particular, has made provision of financial services to rural areas a priority on the Government’s agenda. The need to improve financial services in economically disadvantaged areas also comes in light of the reduction in the presence of a number of banks in these areas over the last ten years. These areas need banking services from both commercial banks and non-bank financial institutions. Distinguished Ladies and Gentlemen, although this has been the case, the Microfinance Institutions (MFIs) have risen to the occasion to fill-up the gap in the provision of financial services such as small loans and savings facilities in the periurban and rural areas. In addition, the National Savings and Credit Bank (NSCB), formerly known as Postal Bank, which has a rural network has been providing financial services to the remote parts of the country. Your Excellency, coming to economic developments, I wish to state that the Zambian economy has performed relatively well in recent years. Inflation and interest rates have been coming down while the exchange rate of the Kwacha against major currencies has relatively stabilised, following a steep appreciation in 2005. Distinguished Ladies and Gentlemen, in 2005, the economy registered growth of 5.0% in real terms, marking the seventh consecutive year of positive real growth in output. | 0 |
In a crisis, sovereign countries care about the international distribution of losses. Standard setters should look into this. They should do so in the light of the principles and policies that have been agreed on how to improve the resolvability of banks – at both the consolidated and solo level. Because, quite simply, it is legal entities that fail. 5 For the most recent version see BIS (2012), ‘Core principles for effective banking supervision’, available online at: http://www.bis.org/publ/bcbs230.htm. 6 Paragraph 33 of the foreword to the Core Principles states that “countries undergoing assessments by the IMF and/or the World Bank can elect to be graded against the essential and additional criteria. It is anticipated that this will provide incentives to jurisdictions, particularly those that are important financial centres, to lead the way in the adoption of the highest supervisory standards. As with the essential criteria, any assessment against additional criteria should recognise the concept of proportionality.” 7 See BCBS (2013), ‘Basel III: A global regulatory framework for more resilient banks and banking systems’, available online at: http://www.bis.org/publ/bcbs189.pdf. 8 To understand the difference of applying capital requirements on a solo basis relative to a sub-consolidated basis, imagine Bank A owns Bank B which in turn owns Bank C. Under both approaches, capital requirements apply to the group on a consolidated basis. | The most recent of these measures is the activation, in February this year, of the countercyclical capital buffer (CCB). These measures were necessary and useful. For example, this year a 2 BIS central bankers’ speeches few large domestically focused banks – citing, among other reasons, the activation of the CCB – have taken steps to strengthen their capital and thereby their resilience. So far, however, the package of measures has not been enough to prevent a further build-up of imbalances on the mortgage and real estate markets. In an environment of persistently low interest rates, coupled with banks’ undiminished appetite for risk, the danger of a further build-up of imbalances remains considerable. For this reason, the SNB continues to monitor the situation very closely, and regularly assesses whether the CCB should be adjusted. Supply of secure banknotes ensured at all times Now I would like to say a few words on the subject of banknotes. At the beginning of October, we informed the public that, since autumn 2012, a small number of Swiss 1000-franc banknotes have been in circulation which were not issued by the SNB. As you know, these notes were abstracted during the production process at Orell Füssli, before they had been through all stages of production. Out of consideration for the investigation by the Office of the Attorney General, this information was only made public after some of these notes appeared in Switzerland. | 0 |
Our priority throughout this transition has been to ensure that it has been and continues to be managed in a way that promotes the robustness and resilience of the payment systems, and of wider financial stability. And a considerable amount of work was undertaken to achieve this - by the retail scheme operators, their participants and the NPSO. What we now expect to see: Tangible progress has been made, and this should rightly be recognised. But, as with any journey, we cannot lose sight of the work that lies ahead to deliver these benefits from consolidation. The NPSO’s primary focus should be on completing integration of the payment systems and embedding robustness and resilience within all of its activities, including the New Payments Architecture (NPA) programme. There is still much to do to complete the integration of these systems, from an organisational perspective, but also at the system level; completion of which will allow the NPSO to begin realising the ultimate goal of strategic leadership and higher standards of management and control. For this to succeed, the NPSO’s strategy will need to be realistic and consistent with its objectives and capabilities. It will also need to include an appropriate focus on reviewing and enhancing the activities the NPSO has inherited, to manage its own risk profile, its outsourced infrastructure partner, and risks to the wider system emanating from participants. | The consolidated entity is expected to deliver a range of benefits, including: Strategic leadership that is forward looking and proactive, with an enhanced ability to identify the challenges and risks of tomorrow and prepare for them today; Higher standards of governance and risk management, with an improved ability to leverage best practices across the schemes. As an example, a variety of access models have evolved in schemes over the years, and the NPSO is now in a great position to look across the schemes and consider which models deliver the best outcomes and risk management; and The development and delivery of a best in class New Payments Architecture. The NPSO is also set up to be a leader in the field of retail payments. And the Bank is now their counterpart in the UK wholesale payments space, following the move to direct delivery of CHAPS, the UK’s high value 3 payment system (HVPS) in November of last year. Collectively, these developments should lead to a considerable step change in risk management expertise, standards, and capabilities across the entirety of UK payments. As an example of the two organisations working together to bring such change to the payments industry across wholesale and retail, the NPSO and the Bank recently launched a joint consultation on ISO 20022. 4 This move towards harmonised messaging standards will enable the transportation of richer payments data, improved compatibility and therefore redirection across payment schemes, and new opportunities for collaboration and product development. | 1 |
BIS Review 20/2008 3 Figure 4: Commodity Prices 620 Commodity Prices Metal Prices Energy Prices (right axis) Agriculture prices (right axis) 420 380 580 540 340 500 300 460 5 420 260 380 220 340 300 180 17-01-200611-05-200605-09-200628-12-200625-04-200717-08-200711.12.2007 Source: Goldman Sachs. Figure 5: International Developments in Inflation: Inflation in the USA, Euro Zone, and Emerging Economies Implementing Inflation Targeting b. Inflation Gap Between Turkey and Other Emerging Economies under Inflation Targeting * a. Inflation Rates* 9 USA Euro Zone 6 8 Infl. Targeting 7 5 6 4 5 3 4 3 2 1207 1007 0807 0607 0407 0207 1206 1006 0806 0606 0406 0206 1207 1007 0807 0607 0407 0207 1206 1006 0806 0606 0406 0206 1205 1205 2 1 *The sample of emerging economies under inflation targeting covers Brazil, Czech Republic, Colombia, Philippines, South Africa, Israel, Hungary, Mexico, Peru, Poland, Romania, Chile, Slovakia and Thailand. Source: Web sites of related countries’ central banks. 2. Monetary policy reaction and outcomes Distinguished Press Members, The monetary tightening exercised since June 2006 has had a manifest impact on private sector demand for the last one and a half year (Figures 6&7). | One is hard pressed to find examples in history, where sovereign nation states voluntarily chose to cede or share sovereignty in the monetary field. It is therefore clear that European Economic and Monetary Union has been and will continue to be part of the wider economic and political project that the process of European integration process has represented from the very start. Monetary union is certainly not only about money. It is an important element in the very successful quest for lasting peace, stability and prosperity in Europe. This quest involves the building of trust and the sharing of sovereignty among European partners and the building of common institutions, in cases where this is desirable for the benefit of all. Europe is more than a collection of nation states, but it also stops far short of becoming a single federal entity. I do not believe that a stable monetary regime necessarily must have its root at the level of the nation state. Going back in history the international gold standard coincided with an era of stability. It was a system that was fundamentally based on rules and which transcended the nation state. Nevertheless, as a currency that is new and not linked in the traditional way to the nation state the euro does face particular challenges in winning the trust and the hearts of the people. Money is clearly regarded as more than simply a medium of exchange or a unit of account. | 0 |
Regarding inflation, the main development of the past few months have been sharp rises in the prices of non-perishable foods (i.e. grains, powdered milk and others) and of fuels, which combined with the also sudden increase in the prices of perishable foods, have resulted in a major rise of measured CPI inflation, way above projections in May’s Monetary Policy Report. As a result, CPI and CPIX variation stands at 3.2% per annum, while CPIX1 inflation stands at 3.5%. The rebound of CPIX1 inflation has reflected the sharp increase in the prices of some non-perishable foods, the CPIX has been influenced by the above plus the rise in electric rates, and the CPI by all the above plus the rise in prices of fuels and perishable foods. The different measures of trend inflation have risen in recent months, in line with the reduction in output gaps and the upturn of the prices of foods. In contrast, labor cost pressures are limited despite the strong increase in the wage index. Short-term inflation expectations have also changed, and there is widespread belief that inflation will be, in the short term, higher than foreseen in May’s Monetary Policy Report. Short-term inflation expectations one year ahead are close to 4%. Over a longer horizon, expectations remain well anchored to 3%, reflecting the credibility of the Central Bank’s commitment with target inflation. Long-term interest rates have increased recently, partly because of the rise in international rates for the same maturities and because of stronger growth rates. | On the demand side, private consumption remains strong, growing more than 7% per annum in the first quarter of this year. Consumption is backed by the sustained growth in salaried employment and good financial conditions. But the main change has been the recovery of fixed capital investment which went from an average increase of 2.4% during the last three quarters of 2006, to a solid 7.9% in the first quarter of this year. Behind this strong investment are good corporate profits and favorable credit conditions, the progressive exhaustion of output gaps and good prospects for growth. In addition, exports of goods and services have strengthened, going from average growth of 3.8% in the last three quarters of 2006, to an average around 10% in the first quarter of 2007. Recent fuel price hikes begun in January have acted as a brake to the expansion of private consumption, through their effect on households’ disposable income. The renewed strength of output has also contributed to a remarkable improvement in the labor market, with significant job creation and reduction in the seasonally-adjusted rate of unemployment. From a longer perspective, in the past 13 quarters GDP has grown at an average annualized quarterly rate of 6%, considerably above trend GDP growth. Over the same period, the seasonally-adjusted rate of unemployment went down from 9.5% in 2003 to only 6.8% in the quarter ending last May. | 1 |
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. | Thirdly, the significant and long-lasting growth since 2003 in the prices of oil and other energy resources considerably contributed to the international imbalances, and more particularly to Bulgaria’s current account deficit. This process accounted for the considerable growth of the expenditures for imports of energy resources incurred by the importer countries, and for the enormous cash flows channeled to the exporting countries. For Bulgaria, these developments in energy resource prices resulted in an increase in the costs of import of such products from EUR 1.7 billion in 2002 (the year after which the process of sustainable oil price increase started) to almost EUR 3.0 billion in 2005. This trend was very strongly manifested in the past year, when the country’s expenditures for energy resource imports grew by 52% against 2004. These three global trends, in combination with the approaching full-fledged EU membership of our country, produce a unique environment that the Bulgarian economy has never before faced. This makes the analysis of the processes and economic policy decisionmaking very complex and difficult. As I have already noted, in the recent several years, enormous volumes of capital were channeled into the country, the banking system acting as the natural intermediary for the effective distribution of these resources. This is not surprising at all, given the successfully implemented privatization of the banking sector in Bulgaria. At present, over 80% of the Bulgarian banking sector is owned by foreign investors, the majority of which are from euro area countries. | 1 |
How can research help address these issues and, more generally, improve the overall supervisory stress testing regime? I want to suggest two general areas of research – one tactical and the other much bigger picture and strategic. The tactical area is research that helps improve supervisory models. First, developing additional ways of projecting revenues and non-credit expenses in stressed environments is a particularly ripe area for additional work, in my view. As I noted, an important innovation in the SCAP was the recognition that a comprehensive stress test focused on net income needed to incorporate projections of interest and non-interest income and non-interest expense. While a number of models already existed for making such projections – for instance, those used by banks in their budgeting and planning processes – these were nearly all calibrated to produce projections assuming business as usual conditions, rather than the stressed environment assumed in the SCAP. The SCAP PPNR projections were thus based on stylized supervisory models that used available historical data on bank performance during recessions. Since then, the supervisory PPNR models have become considerably more sophisticated, but at their heart, they continue to rely on historical outcomes for revenues and expenses, rather than fully incorporating the fundamental drivers of those outcomes at the business line level. Additional research and data 5/8 BIS central bankers' speeches collection on these fundamental drivers and their performance under stress could make the PPNR projections more robust to changing business strategies and focus. A second tactical research area concerns measuring model risk. | BIS central bankers’ speeches 17 Appendix Chart 1: GDP per capita since 1750 log GDP per head, 1990 International $ 9 8 IT revolution Industrial revolution Mass industrialisation 10 7 6 1750 1800 1850 1900 1950 2000 5 Source: DeLong (1998). Chart 2: GDP per capita since 1000 BC GDP per head, 1990 International $ 7000 6000 5000 4000 3000 2000 1000 -1000 -750 -500 -250 0 250 500 750 1000 1250 1500 1750 2000 0 Source: DeLong (1998). 18 BIS central bankers’ speeches Chart 3: Male heights from skeletons in Europe, 1–2000 AD Male height, centimetres 180 Skeletal remains, Europe Sweden 178 USA, native born 176 174 172 170 168 166 164 162 0 500 1000 1500 160 2000 Source: Clark (2009). Chart 4: Social development index Social development points, log linear scale 1000 100 10 -1000 -800 -600 -400 -200 1 200 400 600 800 1000 1200 1400 1600 1800 2000 Year Source: Morris (2010, 2011). Notes: This chart shows the average of “Western” and “Eastern” social development scores reported in Morris (2010, 2011). These scores include energy capture, organisation, war-making capacity and information technology. | 0 |
Peter’s review of “What’s the Use of Economics”, the book of proceedings from a conference organised and edited by Diana Coyle, another former student who gave the second of these lectures, held at the Bank of England nearly a decade ago, is Peter at his kaleidoscopic best and as relevant now as when he wrote it. 2 For me as an undergraduate student in the early 1980s it was incredibly stimulating to be learning from Peter about Keynes’, Hicks’ and Leijonhufvud’s contributions to disequilibrium economics, all framed by Peter’s own quantity rationing exposition of multiple equilibria. It was even more exciting to be taught by someone who was writing about the real-world economic problems of unemployment and how policy could help to achieve a better equilibrium – Peter penned a comprehensive overview article with Derek Morris in the second edition of OxRep in 19853 which is still a very good read today.4 It should therefore come as no surprise that one of the many other topics that Peter turned his prodigious mind to was QE and monetary policy. | I wrote mine on the European Monetary system, then in its first phase; it was my first exposure to analysing an active policy tool. I recall that it turned out to be rather heavy on institutional detail about the EMS and rather light on the economics and efficacy of exchange rate regimes. At the end of my presentation Peter, first, went out of his way, as he always did in response to any presentation, to compliment me on all the efforts I had put in. Only after that, did he then, in his characteristically gentle but incisive way, set out several avenues I might follow in developing my analysis of nominal versus real adjustment. In doing so Peter drew on a whole host of references and models that he could call on from memory, some of which I’m sure found their way into Modern International Economics, the textbook Peter wrote with Shelagh Heffernan, his first wife, who died in 2010. 1 The IEO’s report is available on the Bank of England website, as is the Bank’s response. 2 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 2 Peter seemed to be focused on the most important and relevant policy issues of the time – he always wanted to learn more about the world and to suggest ways that economics and economists could improve it. And he conveyed that enthusiasm and ambition to each student intake and to his colleagues. | 1 |
This points to the many benefits from leaning against the build-up of financial imbalances, while pursuing the price stability objective. To some extent, successful macro-prudential policy could alleviate the need for monetary policy to “lean against the wind” as regards unsustainable financial trends. The two policy areas should however operate with a clearly distinct set of tools. Effective governance arrangements need to be in place, so as to maximise credibility and preserve institutional independence. 6 BIS Review 87/2010 IV. Conclusions Ladies and gentlemen, I started my talk with a reference to architecture and, as we progressed, I reviewed the many building sites – at various stages of development – of the reforming financial system. It will be very challenging to keep momentum in the reform agenda and to keep the activities of the many building sites on track as “battle fatigue” inevitably settles in. But the crisis has also painfully demonstrated that sound foundations are indispensable to withstand the occasional blows that hit the financial system. Therefore, it is all the more important to continue vigorously pursuing the ambitious financial reform agenda. I thank you for your attention. BIS Review 87/2010 7 | You have probably seen pictures of bank runs – when queues form outside banks in crisis as people want to withdraw their money in the form of (safe) cash. This is why central bank money is still the linchpin of the system, even if it is rarely used in normal circumstances. The fact that it is available as an alternative acts as a kind of guarantee for the private bank money. 4 It is also the case that some key systems for payments are increasingly concentrated to a few agents. See, for instance, the card payment market where two American companies are entirely dominant in Sweden. Unlike our neighbouring countries, we do not have any domestic card payment network. This means that we are dependent on foreign infrastructures to make the majority of households’ payments. Without cash, therefore, an important part of the Swedish infrastructure would be completely in private ownership and dependent on foreign infrastructures and foreign companies. So if the use of cash continues to decline, it is not enough to say that this works fine at present, because the future will look rather different, regardless of whether we produce an e-krona. Other functions that cash has performed include functioning as a back-up when there have been disruptions to other forms of payment. It has also helped ensure 3 See, for instance, Fung et.al. (2018) and Söderberg (2018). 4 See, for instance, Tobin (1985). | 0 |
In crafting regulations in response to Dodd–Frank, we need to restore market discipline in banking and let the market mete out its own brand of justice for excessive risk-taking rather than prolong the injustice of too big to fail. It is not difficult to see where this dynamic, if uncorrected, will lead – to more pronounced financial cycles and recurring crises. I would argue that the failure to reform the banking system in Japan was one of the principal reasons for that country’s “Lost Decade(s).” We must not let that pathology take hold here. Making matters worse If we do not keep this ultimate goal of reform firmly in mind, our rule making not only might fail to promote the original objectives of reform, but could actually work against them. Ironically, with Dodd–Frank, such a perverse outcome is a distinct possibility. The Dodd–Frank law entails the writing of more than 200 proposals and rules covering a host of issues – risk-based capital requirements, ability-to-pay requirements for home mortgages, protections for consumers sending remittances to foreign countries and so on. The Congress decided the need for these rules to be written, drawing on the input of many, including some very thoughtful economists. Here, I think it wise to draw upon the insight of the classical liberal Frédéric Bastiat in his take on unintended consequences. | The fact is that the largest commercial banks played a major role in many of the more problematic phenomena of the recent credit boom and ensuing crisis, including the spread of what I have previously referred to as financial STDs, or securitization transmitted diseases. In the aftermath of the Panic, these viruses linger. Last week, the New York Times printed an interesting article by Joe Nocera, who drew upon the observations of a highly regarded regional banker from Buffalo, Robert Wilmers of M&T Bank.10 Wilmers claimed that of the 7 See the Dodd–Frank Wall Street Reform and Consumer Protection Act, http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4173enr.txt.pdf. 8 See “Restoring American Financial Stability,” a summary of the bill, http://banking.senate.gov/public/_files/FinancialReformSummaryAsFiled.pdf. 9 See “Paradise Lost: Addressing ‘Too Big to Fail,’” speech by Richard W. Fisher at the Cato Institute’s 27th Annual Monetary Conference, Nov. 19, 2009, and “Minsky Moments and Financial Regulatory Reform,” speech by Richard W. Fisher before the 19th Hyman P. Minsky Conference, April 14, 2010. Also see note 5 and “The Blob That Ate Monetary Policy,” by Richard W. Fisher and Harvey Rosenblum, Wall Street Journal, Sept. 28, 2009. 10 See “The Good Banker,” by Joe Nocera, The New York Times, May 30, 2011. BIS central bankers’ speeches 3 $ billion made by the six largest bank-holding companies last year, $ billion derived from trading revenues. | 1 |
The idea is to mobilise all employees, in order to bring out the innovations that are most suited to our missions and then have them implemented by “intrapreneurs", who are bestowed with great autonomy, comparable to that of start uppers, for the development of their project. Our first intrapreneurship programme will enable us, I hope, to benefit within 9 months to a year from artificial intelligence tools to conduct our supervisory missions. All of these initiatives are as vital as they are exciting. They are the DNA of our institutions, and I am convinced, the reflection of that of the French and European ecosystem. Thank you for your attention. 4/4 BIS central bankers' speeches | Gent Sejko: New normal - challenges and opportunities Keynote speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Conference on “New normal: Challenges & Opportunities”, European University of Tirana, Tirana, 30 April 2021. * * * Honourable Professor Gjuraj, Honourable Professor Xhepa, Dear students and participants, It is a great pleasure for me to greet the proceedings of this Conference on the “New normal”. This topic is both an emergent and unresolved issue of the current economic debate. We altogether: policy makers; academics; and operators in the private sector, are aware that a new reality lies ahead in the post-pandemic world. “What would be the contours of this new reality?”; “What challenges and opportunities lie ahead of the private sector?” and “Which will be the objectives and instruments of the monetary policy”. These questions still lack a thoroughly answer. For this reason, I would like to thank the European University of Tirana, for selecting this topic of an utmost importance. The European University of Tirana is a hearth of knowledge which has succeeded in positioning at the centre of: education; academic discussion; and innovation enhancement. Today, it manifests a consolidated profile in the academic debate. While trying to summarise the Bank of Albania’s opinion on the selected topic, following, I will address in my speech three specific issues: First, I will show briefly the impact of the pandemic on the Albanian economy and the measures taken by the Bank of Albania to minimise its effects. | 0 |
Jon Nicolaisen: Challenges for the payment system Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at Finance Norway's payments conference, Oslo, 1 November 2018. * * * Please note that the text below may differ slightly from the actual presentation. Changing payment landscape The way we make payments is changing. New services and operators are constantly appearing. The underlying infrastructure, our payment system, must be adapted to the changes. But where is this all heading? How will we make payments in the future? And what will the future form of money be? The forces driving payment market developments are new technology, changes in consumer behaviour, globalisation, and new regulations, such as the new Payment Services Directive (PSD2). PSD2 requires banks to grant third-party providers (TPPs) access to their systems to enable TPPs to offer payment and account information services. PSD2 is both a response to developments in the payments market and a catalyst for future developments. At the same time, a number of large international technology companies are moving into the payments market. Apple offers mobile payment services to Norwegian customers. Google has just launched its own mobile payment solution in Norway. Other operators will follow suit. The role companies such as Facebook, Amazon and Alibaba may take remains to be seen. Vipps is now the only Norwegian mobile payment solution. A planned merger of the Vipps, BankAxept and BankID systems was announced towards the end of 2017. The merger was approved by the authorities in summer 2018. | I understand the strong desire of the authorities to minimise the costs associated with the banking sector rescue, including costs incurred to date, and those still to come. Let me make some comments in this area. When the programme for Ireland was designed, the costs of the banking sector measures already in place, including the promissory notes, were fully factored in. The annual cash repayments of promissory notes is thus financed by programme resources. That programme is on track. Any deviation from that programme should be considered very carefully indeed. The perceptions that have built-up around Ireland’s successes in the programme should not be jeopardised. It has been hard-won and it is worth fighting for. Therefore, the ECB remains of the opinion that Ireland should honour its commitments stemming from the promissory notes, as foreseen. This in our view is the best way to regain sustainable market access. I frequently hear in the Irish debate the sense that the debt resulting from the bank rescue is not Ireland’s debt. I can understand this sentiment and how many people feel about this situation. But what must be understood, is that in the run-up to the crisis, insufficient domestic policies (banking supervision and economic policies) played a major role in excessive credit growth and risk management failures in the Irish banking sector, the bubble in the housing market and the loss of competitiveness. The ECB has no supervisory responsibilities, despite claims to contrary. | 0 |
The knowledge gained from this certainly benefitted the series of organisational transformation we undertook at Bank Negara Malaysia to enhance our organisational effectiveness. As this BIS meeting is taking place in Asia, allow me to take the opportunity to say something about our region. While Asia has not been immune to the turbulence and the upheavals taking place in the different parts of the world, the region has been able to rise to the challenge and each time has demonstrated the ability to experience a swift rebound. Factors that have contributed to this resilience is not so much what we have done in response to the developments but it is what we have done previously that prepared us to weather these developments. These factors in varying degrees have included undertaking rebalancing and structural adjustments of our economies, economic and financial reforms, the development of our financial systems, pursuing greater fiscal discipline, building a more extensive policy tool kits, building buffers during the good times and advancing regional integration and cooperation. BIS central bankers’ speeches 1 For most of the region, following these efforts, our more diversified economies have become less vulnerable to economic shocks, our more diversified and developed financial systems have been better able to absorb and intermediate the financial turmoil and turbulence, while the financial reforms have also increased our flexibility and produced better price and exchange rate adjustments. Those with sound macroeconomic fundamentals including more sustainable fiscal positions also had the policy space to manage the implications of these challenging developments. | These loans are used to finance human capital investment projects with returns that are highly uncertain. It’s true that virtually every study finds that the returns on college degrees are high, on average, relative to their cost. But some people who take out student loans don’t end up with these high average returns. The net returns for some may, in fact, be negative. For example, many who have pursued vocational training may be less remunerated in the market. Similarly, some students attend certain for-profit universities with track records that indicate that their graduates have lower lifetime earnings than other types of educational institutions. While others drop out before receiving a degree – just 59 percent of the 2006 cohort had received their four-year degree by 2012. Of course, uncertain returns are a feature of most investments, but for other loan types this uncertainty is generally managed more effectively through credit underwriting, collateralization and risk-based interest rates. We are fairly confident in the aggregate statistics – over a trillion dollars in loan balances outstanding, 43 million borrowers and the highest delinquency rates of any form of household debt. But we know a lot less about the precise causes and consequences of the heterogeneity in the net returns to educational investments that I just described. What we know so far, based on very imperfect data, suggests that this heterogeneity is likely to be very important. | 0 |
Secondly, there are specific (tax or employment, for example) regulations in place intended to assist small and medium-sized enterprises, but which may actually discourage their growth. Indeed, there is evidence of an artificially high concentration of firms at sizes immediately prior to certain regulatory thresholds. That would denote the need to adapt existing regulations, so as to avoid these deterrents to business growth.9 Finally, while the foregoing types of regulation discourage company growth, there are other types of rules that may occasionally prevent such growth. This is because such rules artificially distort firms’ costs, benefiting those already in place, and which are generally bigger, to the detriment of new firms, which are usually smaller. The specific nature of these distortions is very varied. For instance, the legislation on public procurement requires accreditation by tendering firms of a degree of solvency that is usually related to their turnover or their net worth and to public works executed in recent years. Start-ups have greater difficulty winning any tenders, irrespective of their productivity. But it is worth mentioning that the new public procurement legislation approved in 2018 made it possible for SMEs to tender by eliminating the accreditation of previous public works and reducing the number of years needed to demonstrate technical solvency. 9 See Almunia, M. and D. López-Rodríguez (2018): “Under the radar: The effects of monitoring firms on tax compliance”, American Economic Journal: Economic Policy, 10 (1), pp. 1-38. | The themes are broad. That reflects the diversity of our agenda. They focus on the interactions and intersections between policy areas. They emphasise new challenges and new directions, while recognising that familiar questions facing central banks remain no less important. Today’s conference is organised around them. The first theme covers “policy frameworks and interactions” The re-emergence of macroprudential instruments as part of the policy armoury raises fundamental questions about the interaction of monetary policy, macroprudential policy, and microprudential policy. It is essential to improve our understanding of the relationship between credit cycles and systemic risks. Since credit market developments both affect and reflect potential growth in the broader economy, they – and macroprudential measures to influence them – require careful study by financial and monetary policymakers alike. The advent of a new, enhanced policy toolkit raises vital questions about the effectiveness of individual policy tools; their joint operation; and how they interact domestically and across borders. The second theme covers “evaluating regulation, resolution, and market structures” The financial crisis precipitated a radical overhaul of the approach towards regulation, supervision and resolution. Regulatory policies have shifted from a near-exclusive focus on microprudential resilience to a more balanced emphasis on minimising systemic risk. In the whirlwind of essential change, there has been, however, relatively little assessment of the overall effect of reform on the financial system as a whole. Moreover, our understanding of the “system” must extend well beyond the banking sector to encompass the whole of market-based finance. | 0 |
First, macroeconomic policies need to be adjusted pragmatically and where appropriate, swiftly. We do not simply mean that policy must be loosened but rather authorities ought to consider carefully their full range of options, giving due regard to the circumstances they find themselves in. For instance, in an environment where credit markets have ceased to function, monetary policy alone cannot do the heavy lifting needed to stabilize economic conditions. Second, swift action to clean up the balance sheets of financial institutions is very important to allow the financial system to resume its key intermediation role. Third, reforms, be they structural, legal, regulatory or accounting, should be an important part of the medium-term agenda, as they would serve affected countries well going forward. Not only should regulators be alert and vigilant in systemically important markets, they also need to keep up with the rapid pace of innovation. Finally, there needs to be a multilateral effort to improve transparency, standards and the quality of regulation. We welcome the work being undertaken by all parties in the Financial Stability Forum, of which the Fund is a key member, and expect the results will prove illuminating. 7. In drawing these conclusions, we must remember that we cannot entirely exempt ourselves from the booms and busts in credit markets, but instead recognize that sound regulations and prudent capital market practices can play a role in alleviating these cycles. | Obviously, it would also mean significant transitional costs for the countries that 7 For a comprehensive comparison of EU deposit insurance schemes, see European Commission (2007), Scenario analysis: estimating the effects of changing the funding mechanisms of EU deposit guarantee schemes, Joint Research Centre, February. BIS Review 17/2008 5 presently operate schemes funded ex post. Pre-funded schemes would also permit to mobilise very rapidly the guarantee which might be a decisive advantage to avoid bank runs. Such European convergence of deposit insurance practices would, however, not solve the problem that at least as important differences exist between European and non-European countries. Deposit insurance is naturally not only relevant for financial integration but also, very much, for the handling of financial crises. Clearly the cross-country differences I mentioned above (and several others more) are at least as much an issue for crisis prevention, management and resolution as they are for financial integration. Convergence in deposit insurance arrangements across European countries should not advance in a way that neglects either the financial stability or the financial integration aspect of it. Both need to be well aligned. Overall, we agree with the Commission’s “bifurcated” approach, according to which further progress at a shorter time horizon should first be achieved using the available non-legislative mechanisms and more fundamental reforms requiring legislation should be based on a deeper analysis, particularly considering the results of the debates on the financial stability set-up and burden sharing that are presently under way in Europe. | 0 |
The reason for this, as I said, is that in Sweden and abroad, it is at this maturity that a sufficient number of transactions are carried out. For the rate to be credible and representative, there needs to be a steady flow of enough transactions on which to base the calculation. The interbank rates can be developed at longer maturities even with a very limited transaction base, precisely because there is scope for the banks' own judgements – but this is also what makes them lacking in objectivity and easier to manipulate. Alternatives to longer-term interbank rates being developed In order to address this problem, central banks in several countries are now working to ensure that the new reference rates can also replace interbank rates in contracts with longer maturities. In principle, it is possible to create forward-looking rates based on traded derivative instruments with the new rates as a base. However, in most countries the derivative markets based on the new reference rates are not yet large enough to form the foundation for reliable forward-looking reference rates. A simpler way forward is to calculate backward-looking average rates based on the history of the transaction-based reference rate. The average rates then show the average return over a given period, including a compound interest effect, based on daily SWESTR values during the period. The central banks of the United Kingdom, Norway and the United States and the ECB have already begun to publish backward-looking average rates or indices that can be used in a similar manner. | It is therefore positive that various sector forums have begun to discuss issues related to SWESTR. The Riksbank will continue to support the transition. We will have an ongoing dialogue with the market and will also shortly be sending out a survey to gather the views of different participants on issues related to the transition. However, it is important to emphasise that the role of the Riksbank is limited to, through SWESTR, providing the conditions for a new form of reference rate and contributing to analysis. It is the market participants who are responsible for the transition taking place. They will therefore have to drive forward the issue of a transition in order to ensure that a reference rate with a high degree of confidence also dominates in the Swedish financial market. 7 [8] Of course, the Riksbank expects financial market intermediaries to take a great deal of responsibility in this process, but you too – who are to a large extent the end-customers of such participants – have a very important role to play. If you show your interest, it will facilitate a transition to a more transparent reference rate. Ask your bank contacts how they plan to introduce SWESTR into their operations. Request loans and other products that use SWESTR as an interest rate. Once the products are in place, start using them and thus help to create liquidity in the market. | 1 |
Between them, board members must have a good range of skills and experience, including, but not limited to, being well-versed in risk management. They must have a clear picture and a good understanding of the risks banks face and be ready and able to mitigate those risks. In addition, banks’ boards must be diverse – not just in terms of gender, but also in terms of broader diversity, as set out in EU law. [4] We have engaged with those banks which do not yet have diversity policies or internal targets for gender diversity at board level. As at the end of 2021, a third of the banks under our direct supervision did not meet their internal targets for gender representation at board level. Of course, the economic environment and the skills required to navigate the banking business keep evolving. Nowadays, a bank’s board should be well-versed in climate and environmental risks, as well as IT infrastructure and digitalisation strategies. We therefore encourage banks to nominate board members with adequate expertise in these areas. Digital banks are increasingly complex structures and cybersecurity has never been more important. However, at the end of 2021, only around a fifth of the euro area’s largest banks had sufficient IT expertise at board level. Increasing this ratio will be key for banks to navigate the digital era successfully. Behaviour and culture The elements I have mentioned thus far make up the design and structure of a bank’s internal organisation. | London’s position has developed gradually and the statistics rarely separate the group of wholesale financial markets and supporting legal, accounting and other services that make London special from a broader group including retail banking and insurance and business services. But there is some evidence that all three factors are at work. The story seems clearest with the specific factors of production. The cost of commercial property in London, for example, has grown rapidly. According to Jones Lang Lasalle Research, in the City average capital values are over $ per sq.m, above both Paris and New York. And the costs in the West End, the main home of the new hedge fund industry, are almost twice as high. There is no doubt that the success of London’s financial centre is helping to fuel demand for office space from Canary Wharf to Mayfair. And of course it is not just commercial property in London that has been booming. House price inflation in London has outstripped the rest of the UK (Chart 1), and in Kensington and Chelsea average house prices have risen by almost 40% since the start of 2005, compared with 20% for Greater London as a whole. ECA International published a survey comparing average monthly rents for a 70-square metre unfurnished flat in the largest cities and showed London over € 2,100, compared with New York around € 1,750 and Paris below € 1,500. | 0 |
2 The expression above builds on a variant of the Ramsey model, which is a standard theory of economic growth. For a further discussion of this model, see Blanchard and Fisher (1989) ‘Lectures on Macroeconomics’, MIT Press and Romer (2001) ‘Advanced Macroeconomics’, McGraw Hill. BIS Review 10/2007 5 Potential growth and particularly the time preference rate are difficult to estimate. From 1979 to the present, average annual growth in GDP in mainland Norway has been about 2.5 per cent. If we confine ourselves to the past 10-12 years of low and stable inflation, average growth has been somewhat higher at around 3 per cent. There have been wide variations in the short-term real interest rate in Norway. In the 1980s and the beginning of the 1990s, the real interest rate was high and varied around 6-7 per cent. Since the mid-1990s, the real interest rate has been considerably lower and varied around 3 per cent. The 6 BIS Review 10/2007 period of low and stable inflation is probably more representative of the future than the 1980s when inflation was high and volatile. Against the background of historical developments in growth and real interest rates over the past 10-12 years, it may seem reasonable that the normal real interest rate level in Norway is in the range of 2½-3½ per cent. If we add the inflation target to this, a range of around 5-6 per cent may be a reasonably normal level for the nominal interest rate. | From the formal standpoint, the draft bill will consolidate in a kind of “Bank Code” all the regulatory provisions on the creation, activity and control of credit institutions, thus putting an end to the dispersion of legislation which has characterised the credit sector for various decades. Furthermore, the aforementioned consolidation aims to write into Spanish law the changes introduced in June 2013 by the so-called CRD-IV package, i.e. the Directive and the Regulation which incorporate the Basel III Accord into European legislation. As you know, that transposition has been partly handled by the promulgation of Royal Decree-Law 14/2013, which includes those matters considered essential for incorporation before 1 January 2014. Under the draft bill, and without prejudice to the framework resulting from the entry into force of the Single Supervisory Mechanism, the Banco de España will retain its current power to authorise the exercise of banking activities. Moreover, it will receive additional powers, such as that to revoke banking licences. Regarding the regime governing the purchase of qualifying holdings in credit institutions, the Banco de España will continue to be the authority responsible for assessing the proposals of potential purchasers, although now there are plans to give it powers of supervisory intervention, senior officer replacement, suspension of voting rights or, in extreme situations, licence revocation. As bank supervisor, the Banco de España will continue overseeing compliance with organisational and disciplinary regulations. | 0 |
Housing starts and sales are now on a clear upward trend, and a widely followed national home price index is up around 12 percent over the twelve months ending in April.1 Indeed, anecdotal reports suggest that this higher-than-expected increase in home prices is due to a lack of homes for sale. Unfortunately, the improvements in consumer spending on durable goods and housing are not yet showing through in the overall GDP growth rate due to the significant headwinds that we continue to face. First, federal fiscal policy has recently become quite contractionary. Estimates from the Congressional Budget Office (CBO) indicate that this fiscal restraint is on the order of 1.75 percentage points of potential GDP this year. In the period since 1960, there have been only two previous episodes of fiscal contraction of this order of magnitude 2 BIS central bankers’ speeches – 1969 and 1987 – both of which occurred when the economy was on a more solid footing than it is today. Second, the euro area is experiencing a protracted recession and growth in many of the largest emerging economies has slowed. This has resulted in a very sharp slowing of U.S. exports, with an associated slowing in production and employment growth in the U.S. manufacturing sector. Thus, I continue to see the economy as being in a tug-of-war between fiscal drag and underlying fundamental improvement, with a great deal of uncertainty over which force will prevail in the near-term. This tug-of-war is clearly seen in the monthly employment data. | Philipp M Hildebrand: Economic outlook and monetary policy Speech by Mr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, Apéritif Marché monétaire, Geneva, 17 November 2005. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * The Swiss economy has benefited from a favourable international environment. Activity has remained strong in the US, whereas it has improved in Japan and, more recently, in Europe. In Switzerland also, the latest indicators point towards stronger growth. Exports remain the engine of the recovery but private consumption has also picked up. However, consumer confidence remains fragile in the context of only modestly improving labour market conditions. The SNB expects the economic recovery to continue. A sudden adjustment of the US current account imbalance or a further increase of energy prices are predominant risks. From a monetary point of view, the current situation is characterised by different counteracting forces. On the one hand, the economic outlook is positive. On the other hand, some risks put this favourable picture into perspective. Furthermore, the increase of energy prices might endanger medium term price stability at a time when monetary conditions remain expansive. Last but not least, globalisation continues to hold down the prices of many goods. In this complex environment, it is important that central banks succeed in preserving their most important monetary asset, namely well anchored inflation expectations. | 0 |
As an illustration, recent research showed that exposure to degraded land could Page 3 sur 13 impact the value of listed companies in the food supply chain in Brazil: the market value of farmers operating on degrading land declined by 13 per cent following extreme weather, while those on healthy soils increased by 6 per cent.vii 3. Climate change, biodiversity loss and other nature-related risks are intricately linked First, biodiversity-related risks and climate-related risks are deeply intertwined, and subject to feedback phenomena – what we call the “climate-biodiversity nexus”. Climate change is indeed already the third driver of biodiversity loss behind land use change and overexploitation of living organisms; in turn, the loss of biodiversity undermines the capacity to adapt to and mitigate climate change. The canonical example of Amazonian deforestation is prime evidence of the synergies between these drivers: the Amazon rainforest is both a carbon reserve and a unique ecosystem hosting many endangered species. In fact, nature-based solutions represent several of the most valuable options to progress toward net zero according to the IPCC.viii Page 4 sur 13 These interdependences also extend to several other aspects of nature-related risks: for example, both climate and land-use change drive imbalances in freshwater availability, notably caused by droughts – which we have been acutely aware of lately. Let’s acknowledge that so far, the contours of naturerelated risks are more vague, as they relate to risks posed by any phenomena relating to nature. We still have here a definition challenge. | Financing debt through the common budget would naturally lead to the creation of active mutualised insurance, helping to reduce the financing costs currently faced by individual Member States and to break the sovereign-bank doom loop in each country. This in turn would enhance monetary policy effectiveness, by making it easier to execute the Eurosystem's asset purchase programmes. 31 Further, if we are to increase the euro area's responsiveness to future shocks, the banking union must be completed through the creation of a common deposit insurance scheme. The lack of progress in this area and the incomplete harmonisation of national regulation go a long way to explaining the limited cross-border activity of European credit institutions and the low number of mergers between institutions of different member countries. Lastly, insufficient headway has been made in capital market integration in terms of harmonising market regulation and oversight, and insolvency proceedings. The degree of risk-sharing in these euro area markets is far less than that in other monetary unions, such as the United States. A single capital market would enable firms in the euro area to diversify and expand their sources of financing. In this respect, the progress in the capital markets union project in recent years can only be described as insufficient. That should spur the European political authorities to take more ambitious steps in this area without undue delay. | 0 |
Dimitar Bogov: Modern payment systems’ impact on monetary policy and financial stability Welcome speech by Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia, at the 16th International Conference of Clearing Institutions in Central and Eastern Europe (ICCI), Skopje, 12 October 2011. * * * Mr. Chairman, Dear Participants and Guests, It is an honour and pleasure to give a welcome speech to such a distinguished audience. I thank Klirinski Interbankarski Sistemi Skopje (KIBS) for this opportunity. My topic will be the link of payment systems with the two main central-bank tasks of monetary policy and financial stability. While money needs to circulate freely through the economy, without imposing excessive burdens, other economic agents also need to be confident that commercial banks will honour their sight liabilities by converting them into banknotes, i.e. central-bank money, at their demand. The central bank allows commercial banks to transfer among them funds held in accounts with the central bank. The development of a payment system is thus part of the development of a central bank and out of this operational capacity grew the cooperation with the commercial banking system when setting-up the facilities it operates and overseeing the facilities other participants operate. This pivotal role of the central bank, unmatched by any other participant, does make us humbly aware of the strong link between payment systems and monetary policy on one hand, and payment systems and financial stability on the other. | If the risk of significant damage to growth from these financial market pressures is attenuated and if global growth remains strong and drives a continuing rise in energy and commodity prices, then inflation may not moderate as much as we anticipate. If the medium term outlook for inflation deteriorates significantly, the FOMC will move with appropriate speed and force to address this risk. This requires a fine balance. The principal challenge for policy is to provide an adequate degree of insurance against the downside risks that still confront the economy as a whole, without adding to concerns about inflation over the medium term. We cannot know with confidence today what level of the short-term real funds rate will be consistent with our objectives of sustainable growth and low inflation, but if turbulent financial conditions and the associated downside risks to growth persist, monetary policy may have to remain accommodative for some time. Liquidity provision Although concerns about credit quality are at the root of the current problems in financial markets, a substantial impairment in market liquidity conditions can exacerbate and prolong the adjustment in credit conditions. To mitigate this risk, we have taken a series of actions to help reduce the risk that market liquidity conditions exacerbate the adjustment process in credit markets. | 0 |
Third, financial stability may be in danger when strong action by central banks during a crisis leads market participants to rely excessively on central banks as a backstop in case of negative shocks. This is the moral hazard problem.9 Taken together, these channels underline the risks the current “low-for-long”-situation presents for financial stability. These risks have to be acknowledged and acted upon. The fact that it is possible for these risks to exist while monetary policy is responding appropriately to the macroeconomic situation perfectly illustrates the Tinbergen principle – the number of instruments must equal the number of policy goals.10 In the current environment, the interest rate cannot be the instrument of choice for addressing financial stability risks. The answer is to give more weight to what are known as macroprudential instruments implemented as a complement to, and along-side a monetary policy that remains firmly focused on price stability. These instruments directly target the risk-taking behaviour underlying financial stability risks. This is exactly the approach chosen in Switzerland with the activation of the countercyclical capital buffer. By forcing banks to build up additional capital in the current phase of strong credit growth, the regulators aim at improving the capacity of the banking system to bear losses in the event that the identified risks materialise, while also limiting the further build-up of these risks. Outlook We are now in a position to derive the implications of our analysis for the interest rate outlook. | In Sweden, our conclusions are published in a semi-annual Stability Report, where we analyse the development of risks in the banking system and where we state our overall view on systemic stability. The reports have increased the general knowledge about the stability situation of the Swedish financial sector and they constitute the basis for discussions with the financial institutions and with other authorities. Whether they will help us avoid the next financial crisis is still to be seen. International standards Financial systems and markets are increasingly interlinked across the country borders. In order to avoid international financial disturbances all countries that wishes to participate in cross-border transactions must adhere to a set of minimum rules for regulation. Also supervision must reach adequate levels in all countries, including cooperation and exchange of information between supervisors in different countries. In 1997, the Basel Committee took the initiative of writing the Core Principles for Effective Banking Supervision. Complying with the Principles constitutes a minimum platform for any country that strives to have basically sound regulation and supervision of banks. If I may say so, there is nothing radically new with the Core Principles - all the underlying standards that countries are asked to fulfil are well established and internationally recognised. The main use of the principles is rather as a yardstick, whereby a country can evaluate itself in order to identify weaknesses in its present regulations and supervision and to take remedial measures to improve. | 0 |
Christine Lagarde: The path out of uncertainty Remarks (via videoconference) by Ms Christine Lagarde, President of the European Central Bank, at the inaugural session of the Italian National Consultation, 13 June 2020. * * * There is no doubt that the economic situation we face today is characterised by profound uncertainty. Looking into the future has rarely been harder. But, as Abraham Lincoln said, “the best way to predict your future is to create it”. And this is the theme that I want to emphasise in my remarks today. Obviously there are some major unknowns that we cannot do much about, such as possible second waves of the virus or when exactly vaccines will arrive. But there are steps we can take to help navigate out of the fog of uncertainty. Most importantly, we need to elaborate and propose a reliable compass – that is, a positive vision of what our economy will look like after. Our economies are entering an inevitable phase of transformation, but if policymakers can demonstrate that we will emerge together from the crisis stronger – with more agile, more modern and more equal economies than before – we can ensure a more resilient recovery today and more sustainable growth in the future. Uncertainty in euro area economy The crisis is weighing heavily on the euro area economy. Business investment looks to have collapsed in the first quarter, even more strongly than GDP. | As a macroeconomist whose work is grounded in thorough analysis, and a profound knowledge of models and data, he also takes into account the policy implications of the findings of his research. This is an important factor as he is a pioneer who has done groundbreaking work, and his research frequently encourages others. In this respect his work on the global decline in labour’s share of income has prompted a number of papers from academia and different institutions so as to understand this change over time and its implications for income distribution and productivity. Similarly, his work on capital allocation and productivity in Southern Europe has been widely influential. Mr. Karabarbounis, congratulations on my behalf and on that of the Banco de España. 2 | 0 |
Or, put somewhat differently, on an ex post (i.e., realized) basis, saving must equal investment. Investment in this case means current spending on new physical, human and intangible capital. This insight is the conceptual basis for national income accounting and the gross domestic product (GDP) statistics that we follow so carefully. Even so, economists have been debating the implications of Say’s Law since it was first expounded. Classical economists argued that this ex post balance would occur in a way that kept the economy quite stable at full employment. If there were shocks to saving or investment spending that pushed the economy away from full employment, prices and wages BIS Review 41/2010 1 would adjust quickly, providing the market signals needed to bring about the reallocation of resources required to restore full employment. The global depression of the 1930s raised serious questions about this classical theory. Although saving must equal investment on an ex post basis, the two can diverge ex ante, potentially sharply. For example, when ex ante (i.e., desired) saving exceeds ex ante (desired) investment spending, inventories rise above desired levels. If prices of the products in question do not fall sufficiently rapidly so that this unwanted build-up of inventories is sold quickly, then production and employment must fall. Perhaps most famously, Keynes, in The General Theory of Employment, Interest and Money, argued that there are institutional rigidities that inhibit price and wage flexibility. | The road ahead Fortunately, the U.S. economy is very flexible and resilient. Although it does not adjust as fast as classical economists envisioned, in the United States prices and wages respond relatively quickly. Moreover, policymakers have been aggressive in supporting the economy by easing monetary policy and by implementing a large fiscal-stimulus program. As a result, although the unemployment rate remains unacceptably high, output has begun to expand again, and we appear to be on the verge of seeing sustained growth in employment. We’ll know more about this tomorrow when the March employment figures are released. Equity prices have recovered sharply and home prices and commercial real estate prices appear to be stabilizing. Household indebtedness is declining, due to a combination of debt BIS Review 41/2010 5 repayment and credit that has been written off by lenders. After falling off a cliff during the first half of 2009, global trade has rebounded. Both U.S. exports and U.S. manufacturing output have expanded rapidly over the past six months (Chart 17). Although these are encouraging developments, I believe that the recovery is likely to be quite muted compared with past recoveries. This comes back to the framework discussed earlier. For faster growth, we need ex ante investment to rise relative to saving and ex ante spending to rise relative to the current trend of income. But it is difficult to see where this impulse will come from in the near term. | 1 |
Simon M Potter: Discussion of “Evaluating Monetary Policy Operational Frameworks” by Ulrich Bindseil Remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, at the Federal Reserve Bank of Kansas City Economic Symposium “Designing resilient monetary policy frameworks for the future”, Jackson Hole, Wyoming, 26 August 2016. * * * Accompanying charts can be found at the end of the speech or on the Federal Reserve Bank of New York’s website. My thoughts on implementation issues have been enriched by numerous conversations with colleagues, particularly around the current longer-run efforts in the Federal Reserve to examine implementation. Recent dialogue with Antoine Martin was particularly helpful in producing this discussion. Introduction: what do we still need to know to evaluate operational frameworks? Thank you for giving me the opportunity to discuss Ulrich Bindseil’s excellent paper, which builds on his considerable body of work in this field and provides an insightful discussion of monetary policy implementation. What makes Ulrich’s contributions notable is the unique combination of academic rigor and practical insights he brings to the topic. By distilling the key elements of his previous research into an accessible form, this article is a useful read for anyone who wants to gain a deeper understanding of the economics of monetary policy implementation, including practitioners of central bank market operations, central bank researchers, and academics. | As supervisors we do not think in terms of countries, but of banks’ business and risk profiles. Each bank operates differently and therefore has to face different problems; it would be unwise not to see them individually. BIS central bankers’ speeches 3 | 0 |
I am confident that the G20 Roadmap is the right approach to this coordination problem. We will, under the French leadership of the 2011 G20, pay due attention to the smooth implementation of this process. 4 BIS Review 93/2010 | Exogenous changes 0.5 in firms’ pricing power are one example – so-called cost-push shocks. Shocks to the exchange rate, the 0 Source: Bank calculations. economy’s supply capacity, or commodity prices also 10 See Blanchard, O., and J. Galí (2007). "Real Wage Rigidities and the New Keynesian Model". Journal of Money, Credit, and Banking, 39(1), pp. 35-65. 11 See Broadbent, B (2013), “Conditional guidance as a response to supply uncertainty”, speech at the London Business School. 6 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches 6 Chart 2: … whereas after the financial crisis, the economy experienced a challenging monetary policy trade-off have this flavour. 12 Because monetary policy’s influence on inflation is predominantly an indirect one, via demand, in such circumstances inflation can only Financial crisis and after 6 Inflation (%) be controlled by delivering an opposing movement in aggregate spending. If something pushes up on 5 inflation directly, monetary policy can only bring inflation back down by causing a reduction in 4 spending via higher interest rates. The speed with 3 which this adjustment is delivered is determined by the monetary policy maker guided by their remit. | 0 |
Very recently we informally polled ten leading financial institutions in London. Their forecasts for the dollar/euro exchange rate by the end of this year ranged from $ down to 90c. This is a considerably wider spread than the trading range already experienced and suggests a huge measure of uncertainty, to a horizon of only ten months. Of course, one might argue that this represents uncertainty over the dollar as much as the euro. Yes indeed, and I apologise for analysing things very much from a dollar base. Over time, all currencies have experienced considerable volatility - the dollar, the yen, the euro and its ancestors, sterling and so on. Yet in all of these, investors have been able to enjoy significant positive real rates of return over the long term. That may not be good enough for everyone: some seek short-term gains; others may be worried by mark-to-market volatility in the short term even if they are there for the long haul. But long-term investors will give considerable weight to the overall economic and monetary management of the economy. As I mentioned earlier, there are a number of aspects of the management of the Euroland economy about which perceptions from Asia may be somewhat sceptical. As for monetary policy, I would suggest that it is perhaps natural for outsiders to be rather hesitant in their assessments, in view of the new infrastructure for monetary policy, but as the ECB beds down one would expect confidence to grow. | But we do have the consolation of knowing that there is a good chance that those who have perpetrated or adopted those misperceptions may have lost a lot of money as a result - if they were brave enough to put their money where their mouth was. Perceptions of the euro I shall turn now to the euro. I would be deceiving you if I said that the euro, as seen from Hong Kong, enjoyed a particularly positive image at present. Arguably one could expect no better for a currency which has lost around 18% of its external value in little over a year, regardless of whether this was judged to be the result of the strength of the US dollar rather than any intrinsic weakness of the euro itself. It is worth noting, however, that the euro was launched at a time when the Euroland currencies were particularly firm against the dollar - having climbed, in the case of the Deutsche mark, by almost 50% since its low point in 1985. Against this background, and the widening of interest differentials in favour of the dollar in recent months, the direction of the euro’s movement is, with hindsight, hardly surprising. BIS Review 23/2000 2 The depreciation of the euro is of course a fact, and it is perhaps the only concrete basis for the scepticism that one hears being expressed about the euro. | 1 |
I think it would be good if we introduced a structure for macroprudential policy that does not differ too much from those being introduced in other EU countries, as the financial markets are strongly integrated and a similar structure for macroprudential policy within the EU would 13 Here I am giving my personal views on the Financial Crisis Committee’s proposal. The Riksbank will present a consultation response later in the spring containing more detailed views and comments. BIS central bankers’ speeches 7 facilitate international cooperation. The need for international cooperation is based on the fact that measures introduced, or not introduced, on one country can often have consequences for the financial stability of other countries. As I mentioned earlier, it is extremely important to create a clear mandate and efficient tools for macroprudential policy in Sweden. I would like to have seen the Financial Crisis Committee present a proposal that provided a more active structure, and which was closer to the ESRB’s recommendation.14 For instance, it will probably often be unclear who should react to a risk that has arisen, and it will therefore also be difficult to hold an authority accountable for what it has done or failed to do. However, I am glad that the Financial Crisis Committee has now presented its proposal, as it provides an important contribution to the discussion on how macroprudential policy should be developed and organised in Sweden. | 5 For a more detailed description of macroprudential policy, see for instance C. Nordh-Berntsson and J. Molin (2012), “A Swedish framework for macroprudential policy”, Economic Review, no. 1, Sveriges Riksbank, and my colleague Karolina Ekholm’s speech “Macroprudential policy and clear communication contribute to financial stability,” published on 30 March 2012. BIS central bankers’ speeches 3 focus for macroprudential policy is the risks in the financial system as a whole (see Figure 9). The supervision of individual institutions is, of course, also important to the stability of the financial system, not least as financial institutions are regarded as “systemically important”. But to capture the build-up of risks that could threaten the stability of the financial system – what are known as systemic risks – it is not enough to keep an eye on individual institutions. One needs to supplement this with a systemic, or macro, perspective. Macroprudential policy also requires appropriate tools. Let me discuss some of the macroprudential tools that could be useful to specifically manage the risks linked to house prices and household debt.6 Countercyclical capital buffers are one of the most discussed tools, and are a part of the Basel III international regulatory framework.7 The idea is to vary the capital requirements made of the banks; when there is strong credit growth, the requirements will be increased, while they will be reduced during financial stress, when there is otherwise a risk of a credit crunch. | 1 |
The financial unrest will probably also contribute to Swedish households maintain a certain level of precautionary saving. The fact that it costs more for banks to finance themselves may also contribute to households and companies sooner or later facing dearer loans. But there is considerable uncertainty over how extensive the effects of the financial unrest and the US housing market will finally be. We therefore analyse an alternative scenario with weaker international growth in our Monetary Policy Report. Prospects for inflation and interest rates We are expecting inflation to rise fairly sharply next year (slide 12). This is partly connected to energy prices rising more rapidly. But inflation is rising even adjusted for energy prices. And the reasons are primarily that utilisation of the economy’s resources and cost pressures have increased. Moreover, there are signs that food prices will increase rapidly over the coming year. Inflation measured in terms of CPI will amount to around 3 per cent in 2008, according to our forecast. The measures of underlying inflation, CPIX, which I recently mentioned, will in our opinion rise from the current level to around the target next year. The differences between the measures are largely due to households’ mortgage expenditure increasing and to higher indirect costs. When the economic cycle enters a calmer phase, the CPIX will fall back to levels around 2 per cent, while the CPI will remain slightly higher. This is our assessment, given that we raise the repo rate in the way I described earlier. | The fact that an apparently national problem has global effects to the extent that we have seen is due in this case very much to the fact that the loans have been "repackaged" into fairly technically complicated securities and sold on to investors around the world. And the unrest that has arisen has largely been concerned with the fact that it is difficult to see who is bearing the credit risks, and to what extent. These events have had several effects. There has been a more general reassessment of risk in the financial markets. The general uncertainty has led to an increase in demand for liquid and safe assets such as government securities. The interest rate on government securities has fallen, while the unwillingness to take on risk has contributed to rising interest rates on 6 BIS Review 132/2007 loans and investments between banks; interbank rates (slide 11). But all in all, it nevertheless appears as though the financial turbulence has so far not had as large repercussions on the financial markets as, for instance, the Asia crisis in 1997 and the IT crash in 2000. What effects can we expect on the Swedish economy? Perhaps the most important effect will arise in that growth in the United States will slow down when housing investments there fall and households consume less. The lower demand in the United States to some extent slows down international economic activity and there will be a slightly slower increase in Swedish exports. | 1 |
Of course, whether further consolidation actually takes place, and if so when, is for the players and the market to decide. But further opening up of the banking sector is inevitable. We have been negotiating FTAs with Australia and the US, and are very close to reaching agreement with both. Our FTA partners expect to be given greater access to our financial sector. The local banks must brace themselves for further liberalisation, by upgrading themselves and keeping pace with international best practices. Capital markets In the capital markets, the Stock Exchange of Singapore and SIMEX have demutualised and merged to form the Singapore Exchange (SGX). SGX is now listed and has expanded its product offerings to include single stock and bond futures, and exchange-traded funds. In the stockbroking industry, with the liberalisation of fees and opening up of access, commissions have shrunk. The brokerages have been consolidating, upgrading their capabilities and widening their service and product offerings. Now, your broker will not only buy and sell shares for you, but may also help you to invest in unit trusts or cash management accounts, or give you financial advice. But the restructuring is taking place in a very difficult bear market, and the process is not yet complete. From the point of view of growing the industry, the results of the liberalisation have been disappointing. There has been no post-liberalisation “Big Bang” in the local capital markets. This is partly the result of poor market conditions globally, and partly the way equities markets have developed. | Singapore has been included in the JP Morgan and Lehman Brothers global bond indices. Our challenge now is to sustain the growth in the local debt market. We need to work with market participants to broaden the debt markets’ investor base and improve swap market liquidity. But our most difficult problem is that our starting premise has yet to materialise. We had envisaged that as the region recovered, corporates and governments would again need funding, and this time their debt funding would be in the form of tradable paper rather than bank loans. This has not happened … yet. Wealth management Wealth management has been our most successful growth area. Since 1998, Singapore’s total assets under management have doubled, no mean feat in this climate. Singapore has overtaken Hong Kong in terms of discretionary assets under management. More players, ranging from large institutional fund managers to boutiques, have set up shop in Singapore. The local fund management community is now more diverse and covers a wider universe of investment styles, geographic foci and asset classes. Singapore as a financial centre In aggregate, we have made promising headway in a few fields, but Singapore still has not set itself apart decisively from other Asian financial centres like Hong Kong and Sydney. Southeast Asia’s predicament has a lot to do with this. In the long term, we have to rely on the region recovering its stability and vitality. But meanwhile we must do our best to differentiate ourselves. | 1 |
On the one hand, it is tautological to say that crises are unpredictable, or else 2 It is out of the scope of this presentation to discuss the role of monetary policy in causing the crisis. As I have argued elsewhere (De Gregorio, 2010), the cause of the crisis was mainly financial fragility, while lax monetary policy played only a secondary role. Many countries, such as Chile or Canada, for example, had very expansionary policy before the crisis, and did not suffer a financial collapse. BIS Review 84/2010 3 they would never occur. History is plagued with crises. Moreover, crises have become more frequent in recent decades as compared with the Bretton-Woods period, although their severity and duration have not changed significantly (Bordo et al., 2001). Crises must be avoided, but the only way to make sure they do not happen is to eliminate financial innovation and development altogether, which we know is not a good prescription. Therefore, crises will still occur, and the role of policies is not to be the cause of them, but to increase resilience of financial systems and minimize their cost. 3 Of course, all these elements were absent in the global financial crisis and for this reason we need to devote more thinking to reforms. Although crises will continue to happen, we must not conclude that since crises are unavoidable, there is nothing we can do about them. | It is when an institution knows without doubt that its people will stay the course in these situations that it can truly claim to have achieved the ideal culture. 3/4 BIS - Central bankers' speeches Before I end, I would like to congratulate AIBIM on the launch of Integrity Year 2023 and it is my sincere hope that all participants, whether in this room today or from your respective institutions, will benefit from a deeply beneficial and fulfilling programme planned for the rest of the year. Thank you and Assalamu'alaikum. 4/4 BIS - Central bankers' speeches | 0 |
[3] Albertazzi, U., F. Barbiero, D. Marques-Ibanez, A. Popov, C. Rodriguez D’Acri and T. Vlassopoulos, “Monetary policy and bank stability: The analytical toolbox reviewed”, Working Paper Series, ECB, forthcoming. [4] Lang, J. H. and Forletta, M. (2019), “Bank capital-at-risk: measuring the impact of cyclical systemic risk on future bank losses”, Macroprudential Bulletin, No 9, ECB. [5] Budnik, K. et al. (2019) “Macroprudential stress test of the euro area banking system”, Occasional Paper Series, No 226, ECB, July. [6] Kok, C., Müller, C. and Pancaro, C. (2019), “The disciplining effect of supervisory scrutiny on banks’ risk-taking: evidence from the EU‑wide stress test”, Macroprudential Bulletin No. 9, ECB. [7] Behn, M., Daminato, C. and Salleo, C. (2019), “A dynamic model of bank behaviour under multiple regulatory constraints”, Working Paper Series, No 2233, ECB, January. [8] For a recent application of the 3D model see, for instance, Hoerova et al. (2018), “Benefits and costs of liquidity regulation”, Working Paper Series, No 2169, ECB, July. See also Mendicino, C., Nikolov, K., Suarez, J. and Supera, D. (2018), " Optimal Dynamic Capital Requirements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(6), p.p. 1271-1297 and Clerc L., Derviz, A., Mendicino, C., Moyen, S., Nikolov, K., Stracca, L., Suarez, J. and Vardoulakis, A.P. (2015), "Capital Regulation in a Macroeconomic Model with Three Layers of Default," International Journal of Central Banking, vol. 11(3), pp 9-63. | Caleb M Fundanga: Financing for gender equality Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the Financial Institutions exhibition in commemoration of International Women’s Day, Lusaka, 5 March 2008. * • • • • • • • • * * The Honourable Minister for Gender and Women in Development The Country Coordinator of the United Nations System The Permanent Secretary, Gender in Development Division The Director, Environmental Council of Zambia Chief Executives of Financial Service Providers Heads of Non Governmental Organisations Invited Guests Ladies and Gentlemen I am honoured this morning to address you at the launch of this important Financial Sector Exhibition by financial service providers, in commemoration of the International Women’s Day for 2008, under the theme “Financing for Gender Equality”. The purpose of this exhibition is for financial service providers to showcase how they are contributing to financing for gender equality. It also provides an opportunity for the various institutions to market financial products that can be accessed by women. A further objective is the sensitization of the financial service providers and indeed the public at large to the need for gender mainstreaming in access to finance. International Women’s Day began with the declaration of International Year for Women in 1975. Since then, many countries world-wide celebrate International Women’s Day to recognize the achievements of women without regard to national, ethnic, cultural, economic or political divisions. | 0 |
During its short life-time the MPC has made changes in its procedures and remains open to the possibility of further improvements. But unnecessary tinkering would be a distraction from its main purpose. One does not have to go as far as Lord Falkland, who said in 1641 that “If it is not necessary to change something, then it is necessary not to change it”, to believe that, at least for the time being, major changes to the MPC are unnecessary. And if imitation is the sincerest form of flattery, then the Government can draw comfort from Michael Howard’s speech in March of this year when he argued that “Nor, given the importance of stability and continuity, do I think it right to propose any major changes in either the remit or the composition of the Monetary Policy Committee”. The fact that there is a broad, cross-party consensus on the objectives and broad framework of monetary policy is one reason to think that the stability we have experienced in the first five years of the MPC will continue in the future. 5. Conclusions The idea behind the MPC was to take day-to-day politics out of monetary policy. It is now widely accepted that this was desirable. Macroeconomic policy in Britain had been much too exciting for comfort for most of the post-war period. In the 1970s, inflation averaged over 13% a year, and reached a peak of 27% in August 1975. | The rapid progress of information technology in recent years has brought new risk measurement models to aid in the measurement of market risk. The most widely accepted of these is the ”Value-at-Risk” model, called ”VaR” for short. VaR is the maximum loss that can occur in the value of a portfolio having a certain investment horizon under a certain probability. Since it is a simple and clear-cut concept, the VaR model is widely used for measuring market risk. It permits comparison of the market risk of different investment instruments, so that portfolio performance can be evaluated in terms of the risk undertaken. Especially for measuring market risk to determine capital adequacy, this model has become a necessity in many countries and financial institutions. Another method widely used for measuring market risk is ”Scenario Analysis”. Scenario Analysis is a technique used to see how the value of a portfolio would be affected by various probable changes in market conditions. A last widely used method for measuring risk is the ”Stress Test” method. The Stress Test is used to estimate how the value of a portfolio would be affected by large, unexpected fluctuations in the markets, such as have been observed during the global crisis which is still with us. Though similar to Scenario Analysis, the Stress Test mainly aims to predict the maximum value that would be lost by a portfolio under certain extraordinary market conditions. The success of this method depends on successfully predicting market conditions. | 0 |
The Eurosystem is well suited to take into account the existing synergies. The Treaty itself establishes price stability as a primary objective while at the same time calling on the European System of Central Banks to contribute to the smooth conduct of prudential policies and the proper operation of payment systems. Nonetheless, central bank policies must deal with a heterogeneous economic scenario where national economies retain distinctive features both in terms of exposure to specific shocks and as a BIS Review 53/2006 3 consequence of the different functioning of domestic policies and allocation mechanisms. Moreover, while markets are increasingly integrated there are still frictions impeding sufficiently flexible flows of products, capital and labour. Even in the financial services area, and although progress in developing the single market is already evident, some transactions involving agents in several euro zone countries are still penalised in comparison with purely domestic operations. Against this background, the Eurosystem has had to face the challenges posed by economic heterogeneity and imperfect integration in two ways. Firstly, by complementing the monitoring of eurowide aggregate variables with the analysis of relevant national developments in order to identify the policy that best helps ensure price stability in the euro area as a whole. Secondly, by promoting a better integration of markets, particularly financial markets, in the euro area. Regarding this latter issue, the role of payment systems is crucial. | Put more plainly, we need to think about an environment where those in the position of most influence have the incentive to “poke holes” in myths via robust stress tests, and not the incentives to override their risk managers when the stress-test implications are not to their liking, or risk a near-term loss of clients or market share. Concluding observations New financial myths are regularly created. In closing, I will just speculate on where some may exist that interested parties should be exploring, now. Potential Myth 1 – Sovereign debt problems will not be disruptive to the world economy. Not long ago, the sovereign debt problems were viewed as manageable and confined to one country. However, as interest rate spreads have widened – as shown in Figure 12 – investors are highlighting that problems in many countries BIS central bankers’ speeches 5 have yet to be resolved. While I believe the most likely outcome is that there are no serious disruptions, interested parties should diligently consider scenarios that could be disruptive, involving various countries. Potential Myth 2 – State and local financing problems will not be disruptive to the national economy. While much attention has been given to problems in state and local finances, it is generally assumed that the capacity exists to resolve these problems. While I expect these issues will be resolved without widespread or cascading problems, we should consider what scenarios could emerge if political impasses result in more disruptive outcomes. | 0 |
The rapid pace of innovation in financial markets also promises better and wider distribution of risk which is good not just for the financial sector’s stability but should support more risk taking in the real economy. Greater investment could deliver stronger medium and long term growth. But there remain a number of sources of vulnerability in the world economy and in financial markets which firms need to bear in mind. Volatility is low, and as time passes longer memories are needed to remember when it was high. While there have certainly been improvements in macro performance in recent years, I do not know a central banker who is not surprised at the faith that markets appear to have in us to keep the great stability going. And the risks in the wider environment are as great as ever. 8 BIS Review 124/2006 It is not clear to me that these risks are fully priced into the market. Market forces may not have been able to correct any excess optimism given the incentives and constraints of participants operating in a world with a good deal of opaqueness about risk taking. In closing, I would stress that I am not saying market participants should avoid risk. But I do think it is important that market participants recognise that risk has not gone away, and that there are limits in the ability of financial engineering to insulate the financial system in aggregate against risk. | There were long periods when the Icelandic króna was pegged against or managed with respect to the currency of some trading partner countries or a basket of currencies, with varying degree of adjustability and commitment. During the 1980´s the exchange rate regime had been relatively flexible. But in the first half of the 1990´s it became much more stable, BIS Review 21/2003 1 after the króna was fixed in December 1989. Exchange rate stability during this period was one of the cornerstones of the successful disinflation policy that took inflation in Iceland down from double digits in the late 1980s to below 2 per cent around the middle of the 1990s. Once the liberalisation of financial markets was more or less completed in the mid 1990´s, exchange rate flexibility was gradually increased. The margins around the exchange rate target were widened from 2¼ per cent in either direction to 6 per cent in September 1995 in order to allow for the possibility of greater fluctuations in the exchange rate with more volatile capital movements. In February 2000 the target band was widened further to 9 per cent in either direction in order to create greater scope for monetary policy which was increasingly focusing on the maintenance of price stability. Recent experience around the world has demonstrated that it is difficult to maintain soft exchange rate pegs with free capital movements, and the same has been the case in Iceland. | 0 |
For instance, it is estimated that about two‐thirds of the outstanding stock of 10‐year treasuries is in private hands.6 It would not be surprising that those private bondholders would become wary of the possible price impact of a reduced demand for these assets by the Fed, and decide to anticipate this move. Dealing with such a situation would be challenging for any authority. In sum, the baseline scenario is one of a gradual reversal with some temporary financial turbulence taking place as markets take notice of the new policy stance. However, a tail event of heightened and persistent financial volatility cannot be written off. Although there is some research estimating the impact of the implementation of QE on key interest rates in the US, it is likely that the impact of the removal of QE will not be the flipside image of its implementation. Let me turn now to the last determinant of the impact of a reversal: what countries do in the meantime. Recent events have shown us that even a gradual normalization of global monetary conditions may not be welcome news for all countries. For various reasons, these conditions have bred more vulnerability in some countries than in others. Those countries that have been running large current‐account deficits, where these deficits have been financed mainly with debt, where fiscal positions are weak, and where capital inflows have bred large expansions in credit, may have already become too dependent on abundant and cheap international funding. | The growing internationalisation and cross-border activities in Islamic finance in recent years further accentuates the importance to enhance the ability of the Islamic financial system to withstand shocks from externalities. Moreover, access to a robust liquidity management infrastructure will reduce the cost of intermediation which is an important enabler for a more efficient and competitive Islamic financial system. Recognising that liquidity management in the Islamic financial system is still under-developed, a Liquidity Task Force was established by the IFSB in 2009 with the aim to formulate an institutional arrangement to address this need. Significant progress has already been made in this endeavor with several key proposals now at the final stage for operationalisation. When operationalised, this liquidity mechanism will be another landmark development for Islamic finance. Conclusion The recent global financial crisis has spurred the resolve of the world community to chart a new course towards greater and lasting social and economic stability with fairness and accountability. Whilst this presents a unique opportunity for Islamic finance to transition into the next development stage of greater international integration, there needs to be a higher level of resilience to withstand the new challenges it will bring. This, in essence, requires the strengthening of the financial infrastructure to preserve the soundness and stability of the Islamic financial system. Indeed, our collective will to mobilise a higher level of global cooperation in promoting this outcome will enhance the prospects of Islamic finance to contribute towards securing global financial stability and a greater shared prosperity. 6 BIS Review 64/2010 | 0 |
The global challenge of climate change; the shift in demographics as society ages; the growth of emerging market economies and opening up of their capital accounts - will all continue to drive 1 Post-trade generally refers to the processes applied to a trade subsequent to its execution. See World Bank and International Telecommunication Union, Individuals using the internet (% of population), World Telecommunication/ICT Development Report and Database. Available at: https://data.worldbank.org/indicator/IT.NET.USER.ZS 3 See World Bank and International Telecommunication Union, Mobile cellular subscriptions (per 100 people_, World Telecommunication/ICT Development Report and Database. Available at: https://data.worldbank.org/indicator/IT.CEL.SETS.P2 2 2 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 2 changes in the global financial system. Large, interconnected and complex markets adapting to these changes require robust infrastructure underpinning them. So, finance is changing, and technology is both driving and enabling that change. The rise of fintech is one obvious manifestation, with the transformational role it is beginning to play in finance. The Bank recognises this, having a strategic goal of embracing fintech. The Governor spoke at last week’s Innovate Finance conference4, previewing the approach the Bank is taking to its work on the future of the UK financial system5 in response to key economic trends, and how we can provide a platform for a more resilient, effective and efficient financial system. I spoke too, highlighting the role of our Fintech Hub6 in delivering our goal. The pressure of technological change is pertinent to the post-trade system where, industry-wide our capabilities are likely lagging our potential. | The post-trade system is a collection of systems, infrastructures, and workflows that differ across firms, with low levels of interoperability. Many firms operate on legacy post-trade systems and technologies that require a lot of maintenance and upkeep, but are critical for the firm in its daily operations. The current system contains inefficiencies and complexities, with many firms running on systems which were developed in-house by firms during the 80s and the 90s. Many firms have run on the same systems over this time, patching and upgrading, whilst the environment we are operating in has developed, becoming bigger and more complex. There are obvious cost benefits in simplifying. But if you look at the kinds of innovation the sector has seen since it built the systems on which it runs, it is clear that there are also opportunities to take advantage of the benefits of new technologies and functions. As you would imagine, the Bank is not immune from the needs of change and development, and we have been investing in our own plumbing. | 1 |
The matters of economic policy that are up for EU discussions are also more specific than before. How is economic policy to be formulated? How can the labour market be made to function better? At the European Central Bank we have missed the train on which the participating central banks designed their monetary policy strategy and decided how the functions of the system of central banks are to be performed. If we join the monetary union in the future, influencing the procedures of the ECB and the formation of monetary policy will be more difficult. In the economic domain the European Union is also increasingly tending to establish joint European positions, for example on such matters as the crises in Russia and Brazil, the role of the IMF, etc. Here, too, I consider we are in a formative phase. Guidelines are now being drawn up for how Europe is to be represented on international bodies and in the work of developing a new international financial structure. The questions include the future status of the G7, G10, G33 and other informal groups. In these contexts we are now becoming rather isolated. Conclusion Now for a brief summary and some conclusions. EMU is a part of the effort that has been in progress for more than five decades to bring the countries of Europe closer together. Today the monetary union is perhaps the most important EU project and as a member of the Community we cannot disregard it. | Furthermore, volatile ISK assets held by non-residents currently total perhaps a fifth of GDP and could rise to almost half of GDP if the failed banks’ ISK assets are recovered in full and paid out to creditors. Iceland has no excess foreign exchange revenues with which to unwind these ISK positions, however. The solution lies in spreading out repayments of foreign loans, solving the ISK problem related to the settlement of the failed banks’ estates in a manner that does not exacerbate the balance of payments problem, and opening up market access to resident entities. A number of possible scenarios that could achieve this are under scrutiny at this time, but there is no need to discuss them in detail here. But if such measures generate the results we are aiming at, it is important to ensure that the impact on foreign debt service, whether in domestic or foreign currency, is manageable; to safeguard Iceland’s public debt position, sovereign credit ratings, and access to capital markets; and ultimately, to provide domestic entities with access to foreign credit on acceptable terms. Some of these goals may conflict with one another, and this should be considered when a course of action is chosen. | 0 |
The main goal of the Strategy was to achieve universal access to and usage of a broad range of quality and affordable financial services that meet the needs of individuals and enterprises and targets overall financial inclusion of 80% of the adult population by 2022; In 2017, under the National Strategy on Financial Education (phase I) financial education was integrated into both primary and secondary school curriculum; In 2019, phase II of the National Strategy on Financial Education was launched, to address the gaps identified under phase I; and Through the financial literacy campaigns, the number of financial services accounts designed for children increased to more than 20 compared to only 3 at the beginning of 2013. We strongly believe that the formulation and implementation of these national Strategies have provided a robust framework that facilitates effective stakeholder engagement between the Government, financial sector regulators, financial service providers and the general public. This collaboration has resulted in increased public awareness of the availability of financial products and services across the country, therefore contributing to the increase in overall financial inclusion in Zambia from 37.3% in 2009 to 69.4% in 2020. As financial sector regulators and services providers, we are obliged to disseminate information about the different types of services and products that are available to the public as well as some of the risks that maybe associated with them. | 4/4 BIS - Central bankers' speeches | 1 |
11-4, Federal Reserve Bank of Boston, www.bos.frb.org. Giavazzi, Franscesco and Frederic S. Mishkin (2006), An evaluation of Swedish monetary policy 1995–2005, 200/607:RFR 1. Goodhart, Charles and Jean-Charles Rochet (2011), Assessment of the Riksbank’s monetary policy and work with financial stability 2005–2010, 2010/11:RFR 5. Nessén, Marianne and David Vestin (2005), “Average inflation targeting”, Journal of Money, Credit, and Banking 37(5), 837–63. Qvigstad, Jan F. (2005), “When does an interest rate path ‘look good’? Criteria for an appropriate future interest rate path – A practician’s approach”, Staff Memo No. 2005/6, Norges Bank. SFS 1988:1385, Sveriges Riksbank Act in its wording as of 1 July 2011, Stockholm: Riksdagen. Svensson, Lars E.O. (2004), “Commentary” [on Laurence H. Meyer, “Practical Problems and Obstacles to Inflation Targeting”], Federal Reserve Bank of St. Louis Review 84(4) (July/August 2004), 161–164. Svensson, Lars E.O. (2011), “Practical Monetary Policy, Examples from Sweden and the United States”, Brookings Papers on Economic Activity, Fall 2011, 289–332. Svensson, Lars E.O. (2012), “The possible unemployment cost of average inflation below a credible target”, Working Paper, www.larseosvensson.net. Swedish government (1997), Riksbankens ställning (the position of the Riksbank), government bill 1997/98:40. Swedish government (2012), 2012 Spring Fiscal Policy Bill, government bill 2011/12:100. Sveriges Riksbank (2004), “Changes in Calculation Methods for the Inflation Rate,” Inflation Report 2004/2, 45–48. BIS central bankers’ speeches 15 Sveriges Riksbank (2010), “Minutes of the monetary policy meeting, no. 3”, 30 June 2010. Sveriges Riksbank (2012a), Financial Stability Report 2012:1, 1 June 2012. Sveriges Riksbank (2012b), “Minutes of the monetary policy meeting, no. 2”, 17 April 2012. | Given these factors, I entered a reservation against the decision, preferring a much lower repo-rate path than the one proposed by the majority. At the next monetary policy meeting in July, there will be a new assessment, with new four-panel figures. 5 So-called mean squared gaps are also shown, although they are not needed in this case to judge which of the alternative repo-rate paths leads to the best target attainment. 4 BIS central bankers’ speeches Objections to monetary policy focusing on inflation and unemployment The Sveriges Riksbank Act, the government bill proposing it and economic analysis thus all provide strong support, in my opinion, for monetary policy aiming to stabilise inflation around the target and unemployment around a long-run sustainable rate. At the same time, it is clear that the majority of Executive Board members have conducted a monetary policy that aims to do something other than this. As I discuss in detail in Svensson (2011), the majority of the Executive Board began to raise the repo rate in July 2010, despite the forecast for CPIF inflation being below the target and the forecast for unemployment being above any reasonable long-run sustainable rate. In recent years, according to the forecasts made at the time of each monetary policy meeting, a lower repo-rate path than the one chosen by the majority would have led to better target fulfilment for both inflation and unemployment. | 1 |
In the EU, many dealers are “investment firms” and so are already subject to the same Directives as banks on capital adequacy. That is not true of finance companies in many jurisdictions. Perhaps there should be a size threshold for applying bank-style capital and liquidity regulation to such non-bank banks. BIS central bankers’ speeches 3 Securities dealers and the “rehypothecation” of client assets That last set of points was about firms acting as principals. Major issues arise from the use of client assets – money and securities – to finance the principal risk-taking of some financial firms. This has become apparent from the Lehman and MFG bankruptcies. Quietly in the background, something extraordinary has happened over the past decade or so. Let me explain. You place £ of your securities portfolio with your broker/dealer in safekeeping (as a subcustodian in a way). You borrow a much smaller amount of money from your broker and, reasonably enough, they take some of your securities as collateral; in effect, they have financed your holding of that part of your securities portfolio. An observer might think the rest of your portfolio would sit in a segregated client account. Not a bit of it. Unless you have been very careful, the broker/dealer has repoed out your securities for cash, and used the proceeds to finance its own businesses. To make this simpler, imagine you have placed surplus cash with your broker-dealer. As likely as not, it is being used to finance the dealer’s business. | If, against our hopes and expectations, that proves not to be the case, authorities in Europe and elsewhere will need to think through what if any measures we could sensibly take to make our part of the global financial system more resilient to the faultline that the money fund industry currently represents. One possibility would be for bank supervisors to limit the extent to which banks could fund themselves short-term from US money funds and from other fragile/flighty sources, including CNAV money funds domiciled elsewhere. I should stress that such a policy need not be targeted at US funds per se. It is also a question of the prudence of the banks that borrow. So it could be cast in terms of the liability structure and sources of funding of the banking system. The Basel 3 Net Stable Funding Ratio may help a bit with this. And I should add that on some fronts – notably transparency – Europe should aim to catch up with the progress the US has already made. Securities dealers, finance companies Some shadow banks are “businesses”, not funds or vehicles. These non-bank financial intermediaries finance themselves externally in the markets. Some such financing is short-term and so effectively runnable, as events showed. In those cases: If they are financed materially by short-term debt, they should be subject to bank-type regulation and supervision of the resilience of their balance sheets. That would apply to some kinds of finance company. It might apply to securities dealers too. | 1 |
On our part, with constant observation of the factors that may jeopardize our financial stability and the normal functioning of our payment system, in order to adapt our regulations for better regulation and supervision. Also, with our commitment to maintain our flexible exchange rate policy, which we believe is the best way to deal opportunely with any sudden changes in external conditions and rely on monetary policy to alleviate its effects on the Chilean economy. Finally, through a credible monetary policy aimed at controlling inflation. Inflation is a source of social stress, that hits with special force the most needy: those unable to negotiate wage adjustments to sharp changes in the price level. As we have insisted time and again in recent months, monetary policy has to juggle with two opposing forces. Pulling in one direction, there is a weak external scenario that will not add momentum to our economy. In the other, there is strong domestic output and demand, with tight output gaps and labor market. It is the task of the Central Bank to conduct monetary policy avoiding the incubation of pressures pushing inflation away from the target. Facing this environment of high risks and volatility, the Board has kept a prudent attitude. Acting hastily would only reduce its capacity for action. As unreasonable as supposing that we will be spared the problems of the world, is thinking that we are being severely affected by them. | A number of regional and global business processing centres and other regional facilities have been set up including the OHQs, regional offices, international procurement centres and regional distribution centres. Ladies and Gentlemen, As part of the Government policy commitment to improve the delivery system and reduce the cost of doing business, the Central Bank has undertaken a progressive liberalisation of domestic rules and regulations to reduce the cost of doing business. An area of focus has been the rules governing the foreign exchange transactions. Reducing cost of managing risks associated with such transactions include the recent liberalisation of rules on foreign currency accounts, interest rates swaps and hedging. To broaden and deepen our capital markets, the multilateral agencies and multinational corporations are now allowed to issue bonds in Malaysia. Going forward, Malaysia will continue to undertake further liberalisation while balancing the need to accord flexibility and choices to businesses with the macroeconomic objectives of ensuring stability in financial markets. Ensuring such long-term stability that facilitates planning and investment decisions has been an important part of maintaining our competitive position. In the development of our financial sector, the banking sector continues to be the pillar of the financial system and is now at its strongest position with high level of capitalisation, improving asset quality and stronger profitability. Policy initiatives to strengthen the banking system, including in the areas of regulatory and supervisory frameworks, risk management, corporate governance and best practices in transparency and disclosure have contributed to strengthen the system further. | 0 |
The Athenian boule was not democratic embroidery, like a modern-day focus group. It had real power. It decided which proposals were taken to the public assembly and which were lawful. Brett Hennig calls it the “nerve centre of power” in ancient Athens. 40 The boule had wide public acceptance and attendance. Participation in public life, through the boule or public assembly, was an accepted part of Athenians’ civic responsibilities. Those not taking part were termed idiotes, from which the modern word idiot derives. The infrastructure was far from perfect; the boule excluded women, slaves and non-citizens. But it was notable in seeking to strike a balance between the two features subsequent research has shown to be crucial for effective, representative decision-making in complex environments: diversity and deliberation. 41 Indeed, for that reason some have called the Athenian model of decision-making a deliberative democracy. Diversity of decision-making was achieved by calling on a rotating, randomly-selected pool of non-expert citizens, augmented by experts in a limited number of positions. Deliberation in decision-making was achieved by restricting the number of representatives, having them convene and discuss regularly and agree on a set of proposals. The Council of Five Hundred sits slap bang in the middle of the optimal range of people suggested by Wagner and Vinaimont. The Greek Empire of course did not last. Nor did its model of deliberative democracy for decision-making. In the period since, two alternative models of representative decision-making have risen to prominence. | A long-term, credible commitment to meet the inflation target also reduces uncertainty when assessing future income, which ultimately determines the (fundamental) value of various types of asset, such as shares. The larger the risk that one will not receive one’s invested funds plus the desired return on the investment, the greater the compensation one requires for investing/lending one’s money. Compare, for instance, with the situation in Sweden during parts of the 1980s (after deregulation) when the system of tax relief on interest, combined with inflation shocks, meant that in principle one could earn money by borrowing while it cost money to save! The conditions for making wise economic decisions will thus become better when the price stability target has been met. The same reasoning can be applied to wage-setting. During the 1970s and 1980s wage-earners were repeatedly forced to make large demands for nominal wage increases as inflation was “eating up” their purchasing power. Real wage increases were almost non-existent, while nominal wage increases pushed up prices, resulting in recurring cost crises. A low, stable inflation rate provides entirely different conditions for more stable and better developments in real wages. Monetary policy and the stock market As I have the privilege of speaking to a group of shareholders, I would like to take the opportunity to make a small digression into the connection between monetary policy and the stock market. I have already mentioned that a low, stable inflation rate creates good conditions for favourable economic growth and long-term developments in the stock market. | 0 |
There could be economic policy mistakes; for instance, if the Central Bank’s real rate declines more than is justified by fundamentals, or if fiscal policy provides a similar stimulus. Were this to happen, the output gap would remain open longer and inflation would be higher. The correction, when it came, would be steeper, and the adverse impact on GDP growth would be more pronounced. The markets could undershoot or overshoot, derailing the economy at least temporarily. External shocks could strike as a result of trade disputes or further increases in oil prices, and indeed, the alternative scenario in the most recent Monetary Bulletin includes just such factors. Wage negotiations could result in broad-based pay rises far larger than the already sizeable ones provided for in the Bank’s forecast. The inflation outlook would then deteriorate, which would call for interest rate hikes. GDP growth would weaken as a result, perhaps even ending in a contraction. 2 But there is always some uncertainty in both directions, and naturally, we could end up on the receiving end of positive shocks that improve the situation. But under these conditions, it is likely that the risk to GDP growth is tilted to the downside. In this connection, it is important to remember that we have seldom, if ever, been as well prepared for adverse shocks as we are now. Our external assets exceed our external liabilities. Our international reserves are close to an all-time high and are almost entirely financed domestically. | But then, some may fear that instead of finding a black cat we shall find a fat tiger taking up much of the room, playing havoc, tearing up things, creating chaos and not wanting anybody to know about it. I firmly believe that the disclosure of relevant information by market participants will make markets work better. This could be done directly or indirectly through regulators and special purpose agencies such as credit registrars or custodians. The information should include data that will enable the financial position of significant market participants to be assessed objectively, such as their degree of leverage and their exposure to specific markets. This would help counterparties, such as the banks extending credit to them and the investors using their services and entrusting their savings to them, to take decisions based more on rational analyses rather than on herding behaviour. The information should also include data that will enable overall market positions and their concentration to be established. This would help the regulator in effectively ensuring systemic stability, taking regulatory action where necessary to manage or limit the systemic risks or simply to disclose publicly the relevant aggregate information for the benefit of all market participants. This is of course easier said than done. When you are dealing with international markets operating over the counter, with participants possibly registered in cyberspace, how and on what authority do you obtain that information, or impose regulatory measures, desirable as they may be? | 0 |
Therefore, we do not foresee a significant shift in our current approach to regulation following the proposed global financial reforms. In fact, this reinforces our thinking that the approach we are taking is appropriate for our system. Bank Negara Malaysia has been engaging the banking industry to better understand the impact that the proposed reforms have on Malaysia’s economy and financial system. This will allow us to develop implementation strategies for Malaysia after taking into account specific characteristics of the domestic financial system, including compensating tools and arrangements within the financial system that mitigate risks to financial stability. An important point to consider is that, the implementation process does not result in any unintended consequences. This is where engagement with the banking industry is of utmost importance. We used inputs from the industry and share the inputs at regional and international-level regulatory fora, thus providing an emerging market perspective to the recommended proposals. Malaysian financial reform, regulatory framework and conduct of supervisors Some key regulatory initiatives by Bank Negara Malaysia to further enhance its prudential regulatory framework and conduct of supervision moving forward. First, to strengthen financial sector legislation through the modernisation and consolidation of existing regulatory/oversight laws under Bank Negara Malaysia’s purview. The enhanced legislation ensures that Bank Negara Malaysia is entrusted with the necessary mandate and power to maintain financial stability and to conduct effective supervision of financial institutions. | On the fiscal front, investment in effective water management systems is urgently needed on top of reconstruction and assistance for flood victims and affected firms. This will not only restore foreign investors’ confidence, but will also enhance the economy’s productivity and its potential growth by avoiding future disruptions and making more efficient use of the country’s abundant water resources. BIS central bankers’ speeches 3 Nevertheless, the expected massive spending for such purposes will unavoidably stretch the government’s fiscal resources. At the same time, the government will have to spare some fiscal policy “bullets” in the event that the situations in the U.S. and the Eurozone worsen more than expected and lead to another global recession. Against this backdrop, mediumterm fiscal discipline is needed to ensure long-term sustainability of the country’s public finance. This means the government will have to rethink or reprioritize certain policies that may not contribute to productivity enhancement. Meanwhile, the Monetary Policy Committee (MPC) had been raising the policy interest rate over the past year, until the last meeting in October where the MPC hold the policy rate unchanged. Personally, I view the current level of our policy rate to be accommodative enough to support domestic recovery, with some room available for further easing if needed. While upside risks to inflation are not very serious at the moment, we still need to keep our eyes on inflation pressures that are likely to build up with the pick-up in public and private spending after the flood is over. | 0 |
Constantinos Herodotou: Speech - visit Ms Lagarde Speech by Mr Constantinos Herodotou, Governor of the Central Bank of Cyprus, during Ms Lagarde visit to Cyprus, Nicosia, 30 March 2022. *** It is such an honour for me to welcome to Cyprus a prominent European citizen. A reputable lawyer, a successful policy maker both during her term as a finance minister, as well as while being head of the IMF and the ECB. A great leader who during a turbulent time of serious and consecutive crises is steering us towards a better European Union, a more prosperous Eurozone and a more stable Eurosystem. We welcome today the President of the European Central Bank, Christine Lagarde. I would like to express to you, dear President my sincere gratitude for accepting my invitation to visit Cyprus. You visit our island as the head of the European Central Bank, is something that bears a twofold significance. Firstly, it emphasizes that in the effort to overcome the common challenges we face, all European countries stand together and united. We are working in a coordinated manner, in close collaboration and aware of the difficulties we encounter, both large and small countries, as one European family. Secondly, it is a recognition of the active role of Cyprus - and allow me to say the Central Bank of Cyprus in particular – in contributing to the shaping of the common European monetary strategy. And this is an acknowledgment that fills us with great satisfaction. | We, here in Cyprus, know what a challenge is and how to overcome it. A country at the edge of the Mediterranean sea, has managed to place itself to the political and economic core of the European continent. A small island with a part of it under occupation, thrives thanks to its extroversion and its people, who despite having been put to the test so many times in the past, have never stopped creating, evolving and moving forward. I have no doubt that together with our European partners we will take all the necessary actions to overcome this challenge as well, guided by our common core values and principles. As the great French novelist Victor Hugo said, "Changez vos opinions, gardez vos principes; changez vos feuilles, gardez intactes vos raciness" "Change your opinions, keep to your principles; change your leaves, keep intact your roots". Here in Cyprus we often say that "a captain is proven capable when she is in a storm". And hence, I consider ourselves lucky since our ECB captain steering us through both the Covid and geopolitical storms is Christine Lagarde, a leader of undoubted capacity and experience, whom I thank again for being with us today and would like to invite her to the podium to share her thoughts with us. 3/3 BIS - Central bankers' speeches | 1 |
And in this context, there is clearly a need to improve financial education and promote the development of digital skills among the public at large. The main challenge bank customers face is entering into financial contracts. If they are aware of the importance of the commitment they assume in signing each contract – and by “signing” we also mean ticking the box that reads “I accept the terms and conditions of the contract” in digitally executed transactions – they will appreciate the importance of being fully aware of this commitment before signing, and of knowing what demands they can make during the life of the operation and which unavoidable obligations they may have during that time. Banks benefit from having properly prepared customers, avoiding the unwanted consequences of poorly conceived consent that ultimately gives rise to legal risks and which may seriously compromise their reputation. For this reason banks, while improving the information they give to their customers, should promote customer awareness, integrating financial education not only into their corporate social accountability programmes but also into their product design and governance strategies. However, this responsibility for financial education does not fall exclusively or chiefly on banks. It must extend to other sectors of society, including, inter alia, third persons whose mission is to ensure the proper understanding and scope of contractual terms. And, above all and primarily, financial education must be an essential part of individual learning from a very early age. | As I noted at the start of my address, I believe it is important that they should be mindful that, although technological developments open up a greater range of options for them in terms of conducting their transactions and financial operations, they also demand of them greater responsibility and involvement. It is necessary that customers fully understand the potential consequences of their choices and, in turn, take all due precautions so as not to be the victim of illicit actions, using in this connection the control tools offered to them by their banks. Customers must, for instance, strive to understand the true scope of the authorisation being granted to a TPP and accept, should they consider it appropriate, the possible commercial use of their information beyond the provision of a specific payment service. Evidently, this 5/8 will only be the case if the TPP wishes to seize the opportunity to obtain broader authorisation than is provided for under PSD2, but this is not a remote scenario given the growing value of data in a digitalised society. The fact that, owing to a lack of knowledge or of due attention, any user may ultimately authorise access to a volume of personal information which they would really have preferred to keep private is one of the concerns arising from the development of the new technologies, and it highlights the importance of assigning resources to familiarising customers with the existence of these new risks. Another concern is the area relating to cybernetic threats and fraud. | 1 |
William C Dudley: Lessons at the zero bound – the Japanese and US experience Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and Chairman of the Committee on the Global Financial System (CGFS), at the Japan Society, New York City, 21 May 2013. * * * It is a pleasure to have the opportunity to speak today at the Japan Society.1 Our countries have very close relations and this is particularly true at the central banker level. I just got back from the BIS last week where I had a chance to spend some time with Governor Kuroda. Today, I will discuss the challenge that we both have been working to solve – how best to conduct monetary policy when short-term interest rates are already pinned close to zero, but the economy is still operating well below its potential. This has required considerable learning. After all, until Japan’s experience began in the 1990s, no major country had actually faced this problem since the Great Depression of the 1930s. As the first nation to experience the zero bound in modern times, Japan was an early pioneer in developing unconventional tools and strategies. Its experiences, both good and bad, along with lessons from other periods such as the Great Depression, have helped to inform the policies adopted by the United States (U.S.) and other nations in recent years. | Zeti Akhtar Aziz: Enhancing financial linkages towards economic prosperity Joint opening remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Joint High Level Conference on Islamic Finance: “Enhancing Financial Linkages Towards Economic Prosperity”, Jakarta, 18 July 2011. * * * Bank Negara Malaysia sangat berbangga kerana dapat bekerjasama dengan Bank Indonesia dalam menganjurkan Persidangan Bersama Peringkat Tinggi Kewangan Islam bertema “Enhancing Financial Linkages Towards Economic Prosperity”. Fokus khusus persidangan ini ke atas kewangan Islam dan perkembangannya di peringkat antarabangsa, telah memperlihatkan perkembangan pesatnya sejak beberapa tahun kebelakangan ini, yang turut menyumbang kepada hubungan ekonomi dan pertumbuhan kewangan antarabangsa. Persidangan hari ini mempertemu peserta industri, penggubal dasar dan pengawal selia, serta ahli akademia dan pakar Shariah dari Malaysia dan Indonesia untuk membincangkan peluang-peluang kerjasama. Pengukuhan jalinan kedua-dua sektor kewangan Islam kita bukan sahaja akan menyumbang dalam membangunkan serta mengukuhkan lagi industri ini, malah ia akan turut memanfaatkan secara optima sumber kewangan serantau dan juga meningkatkan keupayaaan untuk mengurus cabaran semasa dalam persekitaran antarabangsa yang sentiasa berubah. Izinkan saya mengambil kesempatan ini untuk menyampaikan penghargaan kepada Yang Terhormat Bapak Prof. Dr. Boediono, Wakil Presiden Republik Indonesia kerana sudi menyampaikan ucaptama di persidangan pada hari ini, dan merakamkan penghargaan kami kepada Duli Yang Teramat Mulia Raja Nazrin Shah, Raja Muda Perak, Malaysia yang telah mencemar duli untuk menyampaikan titah di persidangan ini. Izinkan saya untuk meneruskan ucapan ini dalam Bahasa Inggeris. | 0 |
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