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Today, seeing that some of those trends have deepened and widened, we need to return to this topic. As we have noted and is now part of public debate, during the last few quarters real estate prices have been steadily increasing in some districts and for some types of construction (table 3). Aggregate prices of office space also continued to grow, but less than did residential prices. In the residential sector, the sales of houses and apartments have risen substantially, especially in blueprint or catalog stage, indicating some shortage in the short-term supply (figure 6). In the commercial sector, although the available vacancy indicators are still low, private real estate firms continue to forecast significant growth in the supply of office space for this purpose. Although such price increase can find justification in its macro and microeconomic fundamentals, it must be monitored closely. These price increases have occurred in a context of high growth in housing demand and a significant expansion in output in the sector, accompanied with higher leverage among real estate firms. Meanwhile, and because of the stage of the supply-demand cycle the residential real estate sector is in now, an acceleration of mortgage credit in the medium term cannot be ruled out. It must also be kept in mind that the lending standards for these credits have eased somewhat, which reflects in an increase in the fraction of the property price that is lent (figure 7). | This concept covers a significant number of possibilities, some of which are the direct decision of the central banks while others rely on other authorities. For example, the potential risks that could be generated in the real estate sector have driven some regulators and supervisors elsewhere to use a series of prudential instruments to safeguard the financial system and reduce the sector’s volatility. Worth mentioning are the limits to the loan to value ratio, the limits to the ratio between debt and income, changes in the credit risk weighting, and capital requirements. The particulars of these measures vary from country to country, but normally more than one of them applies and entails coordination of several authorities. Because of its short history, a full evaluation of the results is yet to be done. The Financial Stability Board, created one year ago in Chile, is a proper instance of coordination to analyze these issues. In any case, the Board follows closely the evolution of the external and domestic macroeconomic scenarios and their implications on inflation, and reiterates its commitment to conduct monetary policy in such a way that projected inflation stands at 3% over the policy horizon, as well as to continue to closely monitor any risk factors that could affect the financial stability of the country. Let me finish with some reflections. Final reflections The Chilean economy is in a good standing. | 1 |
In recent quarters, however, this relief has come about more through the channel of lower imports than that of more buoyant exports, which is attributable to the parallel weakness of some of our main European customers. BIS central bankers’ speeches 3 In these conditions, the outlook for 2012 is not favourable and remains subject to a high degree of uncertainty. Broadly, the Banco de España’s view does not differ greatly from that of the Government implicit in the macroeconomic table accompanying the Budget. The process of adjustment of national demand will continue. Private consumption will be affected by the decline in employment and by the lower support that general government will be giving to household income. However, the impact of these two factors will be partly offset by more moderate price increases and, probably, by a continuation of the decline in the saving rate, although the margin available for this to smooth the pattern of private consumption is increasingly limited. Business investment will undoubtedly be affected by the slackness of domestic spending and because many firms will continue aiming to reduce their level of indebtedness. Nor are significant changes in the ongoing adjustment of residential investment foreseeable. On the demand side, no improvement can be expected in affordability conditions given the outlook for private sector income and wealth and, on the supply side, the overhang of unsold housing will continue to hold back the launching of new construction projects. | Admittedly, as I have noted on previous occasions in this House, the evidence on the effectiveness of previous fiscal consolidation processes implemented in other developed economies shows that it increases when they are concentrated on public expenditure, in unproductive expenditure. However, the scale of the adjustment required in our country is so great that we need to make use of all the instruments available, including taxes. The 2012 Budget envisages an increase in revenue from tax measures falling basically on household and corporate income. Also, a special charge is imposed for the regularisation of hidden assets. The revenue-raising potential of these measures is expected to offset the fall in revenue due to the unfavourable trend in tax bases deduced from the macroeconomic scenario accompanying the Budget. Last year’s experience, when the bulk of the budget deviation stemmed from the adverse performance of government revenue, showed that it is essential to budget prudently for this variable. In this respect, the projected course of overall budget revenue is subject to downside risks. The reasons for this are various. First, because both the expected corporate income tax receipts and any other tax revenue will depend on the ultimate effectiveness of the numerous legislative changes, which is particularly uncertain in the case of the special charge on undeclared income. | 1 |
The opportunities which enlargement would provide for investors should not be underestimated given that Europe is the region having the greatest concentration of regional trade agreements with third countries, and that it is also the region with the highest proportion of imports that is outsourced from partners covered by such agreements. The resultant increase in employment opportunities should compensate for any jobs lost through restructuring. The prospect of access to a large market will not, of course, alone guarantee larger inflows of FDI. Investment decisions are not based solely on considerations of market size. Unfortunately, Malta is at a disadvantage in terms of other relevant criteria such as resource endowments and transport costs. Such deficiencies, therefore, have to be made up for through other factors, including a sound 19 It could also be argued that the additional tax revenue from the application of the CET to imports from non-EU countries would make up at least partly for any losses arising from the removal of duties on intra-EU trade and trade with EU partners covered by reciprocal agreements. 20 The Cotonou Agreement additionally foresees that the number of developing countries that will continue to receive nonreciprocal access to EU markets under other agreements of this type is expected to decline, although there could remain a certain degree of asymmetry in timing to take into account the specific needs of developing countries. | It should, therefore, be clear that if it is to prosper, Malta will have to seek an accommodation with the EU. The prevailing view among countries on the periphery of the existing EU-15 is that the prospective longterm benefits of membership outweigh the costs. That is why they are anxious to become members. 25 European Commission, Directorate General for Economic and Financial Affairs. (2001) “The Economic Impact of Enlargement.” Enlargement Papers No 4. June. http://europa.eu.int/economy_finance. The report notes that between 2005 and 2009 the average growth rate in 8 of the accession countries (the first wave of exceeding countries excluding Malta and Cyprus) will be 2.9%, 4.6% and 6.1%, respectively under the baseline scenario, a central scenario and an optimistic scenario. In a similar vein, a recent report by the National Bank of Hungary concludes that the adoption of the euro could boost economic growth in Hungary by between 0.6 to 0.9 percentage points annually for 20 years. Most of the growth will come from increased international trade. See National Bank of Hungary, Occasional Paper 24, “Adopting the Euro in Hungary: expected costs, benefits and timing”, by Attila Csajbok and Agnes Csermely. 8 BIS Review 69/2002 Until such time as an equally well-documented argument is made which seriously questions this view, the case for membership remains a compelling one. BIS Review 69/2002 9 | 1 |
Incomes have also developed positively – at least for those who still have jobs. Another important explanation of why house prices have not fallen more is that the real interest rates faced by the households are at historically low levels. The construction of new housing has also been at a low level since the crisis of the 1990s. This is despite the fact that in most of the large urban areas it pays to build new house in comparison to what it costs to buy an existing house. 9 At the moment, when the crisis appears to have bottomed out and optimism has begun to grow, housing prices are beginning to increase again, especially in the major cities. The Riksbank will closely monitor developments in the period ahead with regard to both the housing market and the market for commercial properties. The Swedish banks can cope with large losses in the Baltic states In the deep recession that we are now experiencing, it is not possible to dismiss the fact that the Swedish banks are facing significant loan losses. During the first six months of this year, these losses amounted to SEK 30 billion, which translated into annual figures is equivalent to 0.84 per cent of total lending. A large part of these losses, 44 per cent, stem from the Swedish banks' operations in the Baltic states. | 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. | 0 |
It is just as important to avoid a rate of inflation that is too low as it is to avoid a rate that is too high. Changes in labour costs influence the rise in prices for domestically produced goods and services. Labour market tightness is heavily influenced by demand for goods and services. High levels of private and public consumption, investment and exports will sustain the demand for labour. When the supply of labour is limited, competition for labour pushes up wages. Low imported price inflation pushes down consumer price inflation. Price inflation by origin. Per cent 5 5 Goods and services produced in Norway 3 3 CPI-ATE 1 1 -1 -1 Imported consumer goods -3 -3 1999 2000 2001 2002 Sources: Statistics Norway and Norges Bank SG Kommunalbanken, 30.august 2002 In many countries, low and stable inflation is the goal of monetary policy. It can therefore be assumed that imported inflation will remain subdued. But, the rise in prices will still vary as a result of global economic developments. The krone exchange rate also plays an important role in determining import prices. A strong krone will curb prices for imported goods. When there is a rise in interest rates in Norway and a widening differential between domestic and foreign interest rates, investments in NOK increase, and the krone exchange rate appreciates. | Warnock, F. and V. Warnock (2009), “International capital flows and U.S. interest rates”, Journal of International Money and Finance, 28, pp. 903–919; and Caballero, R. and A. Krishnamurthy (2009), “Global Imbalances and Financial Fragility”, American Economic Review: Papers & Proceedings, 99:2, pp. 584–588. 3 See Cœuré, B. (2017), “The international dimension of the ECB’s asset purchase programme”, speech at the Foreign Exchange Contact Group meeting, 11 July; and Cœuré, B. (2017), “Monetary policy, exchange rates and capital flows”, speech at the 18th Jacques Polak Annual Research Conference hosted by the International Monetary Fund, Washington D.C., 3 November. 4 See e.g. Eggertsson, G. B. and M. Woodford (2003), “The Zero Bound on Interest Rates and OptimalMonetary Policy”, Brookings Papers on Economic Activity No 1, pp. 139–211. 5 See e.g. Culbertson, J. (1957), “The Term Structure of Interest Rates”, Quarterly Journal of Economics, 71, pp. 485–517; and Vayanos, D. and J.-L. Vila (2009), “A Preferred-Habitat Model of the Term Structure of Interest Rates”, NBER Working Paper, No 15487. 6 See e.g. Cœuré, B. (2015), “Embarking on public sector asset purchases”, speech at the Second International Conference on Sovereign Bond Markets, Frankfurt, 10 March; and Altavilla, C., G. Carboni and R. Motto (2015), “Asset purchase programmes and financial markets: lessons from the euro area”, ECB Working Paper No 1864; and Blattner, T. and M. Joyce (2017), “Net debt supply shocks in the euro area and the implications for QE”, ECB Working Paper No 1957. | 0 |
And I see that as an illustration of a broader conviction: only through our unity and our solidarity will we overcome this trying ordeal for our country. | This is to do with the fact that it is general price levels that can be influenced by monetary policy, and not the prices of items such as meat or nails. This is also to do with the fact that the positive effects of stable monetary value manifest themselves precisely because the players in the economy can rely on purchasing power which is not undermined. At the same time the Riksbank has, in various contexts, maintained that there can be reasons for ignoring effects on inflation which are thought to be temporary. The reason for this is that it is not often possible to influence inflation quickly enough to counteract transitional price impulses without this leading to larger real disruptions. We have said, however, that we shall give as clear an account as possible of what the temporary effects are and how we deal with them. When examining the formulation of monetary policy in situations involving considerable pricemoderating effects, it can also be a good idea to give some reflection to the time perspective of monetary policy. One possibility is that the visible effects ebb away quickly, even though they occur beyond the normal policy horizon. In that case, presumably, one should be careful not to stimulate the economy too much. The opposite would apply if inflation were forced up strongly by some effect which could be expected to dissipate beyond the 2-year horizon. This is obviously a difficult question of judgement. Should a forecast change in prices be considered to be temporary or not? | 0 |
In judging how far inflation is likely to fall back next year, we have to gauge the extent to which high inflation in the short term will enter the expectations of those setting prices and pay. If it does so, then without some margin of spare capacity, inflation will have some tendency to persist above the target. Our inflation target is symmetric. We are not aiming for inflation below 2%, but at 2%. So even though some slowdown in the growth rate of economic activity is likely to be necessary to ensure that inflation returns to the target, we cannot allow the economy to slow too sharply, lest a margin of spare capacity is produced that pulls inflation down below the target next year. We face a difficult balancing act. Why should we not focus on growth for a while and forget about inflation? The answer is that once higher inflation becomes entrenched, it may be costly to dislodge. Past UK recessions were associated not with slowdowns in the world economy, but with attempts to squeeze inflation out of the UK economy. The best thing that we can do to promote economic stability is to avoid inflation, and inflation expectations, from becoming dislodged from the target in the first place. The most important function of an independent central bank is its role in monetary policy. Price stability is a necessary foundation of economic stability more generally. | Hamad Al-Sayari: A brief overview of the Saudi Arabian banking sector Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, at the opening of a branch of the National Bank of Kuwait, Jeddah, 6 May 2006. * * * Dear Audience, It gives me great pleasure to be here tonight to inaugurate the branch of the National Bank of Kuwait (NBK) in Jeddah, a city which has long been known for embracing the business sector due to its closeness to the sacred places and its unique location on the Red Sea. The commencement of NBK of its banking operations in the Kingdom of Saudi Arabia marks further consolidation of cordial relations between the two brotherly countries (Saudi Arabia and Kuwait). This is one of the fruits of mutual Gulf work which the leaderships of the two countries are keen to enhance. Dear Brothers, The inauguration of NBK branch comes at a time when the Kingdom is witnessing robust economic performance. In 2005, the Saudi economy grew in real terms by 6.5 percent; the private sector registered a real growth of 6.6 percent. What is reassuring is that the private sector has become the main impetus of the Saudi economy. Its average growth rate for the past years stood at 5.3 percent. | 0 |
It is also possible that under this scenario we will be able to ease our policy even earlier. As the capital outflow during this period will mainly result from external debt payments, in this scenario we estimate the total capital outflow to be at the same level as in the baseline scenario. Under this scenario we are ready to allocate about $ billion for FX transactions in order to stabilise the balance of payments that is also acceptable from the foreign exchange reserve adequacy point of view. It should be noted that the reserve level will be restored following the economy adjustment to the new conditions as we intend to conduct mainly reverse transactions. The Bank of Russia will undertake operations in the foreign exchange market based on the balance of payments forecast and the estimation of balances of banks and companies taking into account the structure, terms and nature of corporate debt. I would like to emphasise that we carry out these transactions in order to prevent situations when excessive exchange rate volatility and its considerable deviation from fundamental levels create financial stability risks and result in higher depreciation and inflation expectations. In particular, now that risks arising from the ruble exchange rate dynamics have aggravated, the Bank of Russia came up with interventions in the foreign exchange market. Of course, we will also consider the impact of operations in the foreign exchange market on the ruble liquidity and ease the negative effect of growing structural deficit on the credit institutions’ balance sheets. | The “Guidelines for the Single State Monetary Policy in 2015 and for 2016 and 2017” stipulate that the removal of sanctions and trade restrictions results in certain inflation decrease and moderate acceleration of economic growth. We take this possibility into account but base our policy decisions on the forecasts providing for long-term sanctions. The baseline forecast the Bank of Russia currently applies in the decision-making approximates scenario IIIb published in the aforementioned document. We expect average oil prices to be $ per barrel during the next three years. This average price results from consensus forecast of the leading analysts. 2 BIS central bankers’ speeches In the scenario under consideration the current account surplus remains on the acceptable level of $ billion in 2015. In 2016 and 2017, no significant changes in the current account balance are expected either. The development of import substitution will boost domestic production. The service sector will see similar trend. Conditions for diversification of the economy will be established. Contribution of net exports to GDP will be positive. According to the Bank of Russia estimates, in these conditions economic growth rates will remain close to zero in 2015–2016, however in 2017, when import substitution and increase in non-commodity exports become more apparent, we expect GDP to grow up to 1–1.2%. Higher growth rates in the next three years require structural reforms, primarily measures aimed at real improvement of business climate and higher labour productivity. | 1 |
Reducing the temporary employment ratio One of the differential aspects of our labour market is its high temporary employment ratio. On average over the past decade it has stood at 25.2%, compared with 13.9% for the euro area. It is indeed employees on temporary contracts who have disproportionately borne the brunt of job destruction flows in the Spanish economy. That gives rise to very adverse effects on inequality, careers and productivity. And this without forgetting that excessive temporariness influences such important decisions as those on youths leaving the family home and starting a family. For all these reasons, reducing duality is unavoidable. In this connection, the employment protection mechanisms should be reviewed under the prism of squaring the necessary protection of employees with flexibility for firms. Accordingly, I believe we should explore modalities such as contracts with growing severance costs. There are also mixed models which combine the possibility of accumulating in advance in a fund a portion of these severance costs with a severance payment in the event of dismissal whose amount increases with years of service. Improving active labour market policies Another characteristic of our labour market is the high persistence of unemployment. For example, at end-2019, almost 43% of the unemployed had been seeking a job for more than one year. The situation will now worsen, given that the workers most affected by this crisis are, on average, lesser-skilled. Active labour market policies should therefore be strengthened. | That includes ensuring that our monetary policy feeds through to all sectors of the economy and to all countries, and heading off any financial fragmentation problems like those experienced in the past. In short, we stand ready to adjust all our instruments as necessary. On the supervisory front, the banking sector must clearly tackle this crisis from a healthier position than in the previous crisis. In any event, we should continue to be doubly watchful. First, over banks and financial markets, so they continue to smooth the flow of financing. And second, over the risks to financial stability. Regarding the first objective, beyond the role of monetary policy, we supervisors have enabled banks to make use of the capital buffers available and the Government approved a public guarantees programme for loans to firms that has softened financial intermediaries’ reluctance to incur higher risks in circumstances such as the present. All these measures have been effective. The latest data for April show a year-on-year rebound of almost 90% in the flow of new lending granted by banks to firms. In any case, the information analysed by the Banco de España shows that small firms and those most affected by the crisis might have difficulty gaining access to financing, especially in the absence of public support instruments. In turn, incentives must be gradually restored so that financial resources may be reallocated to those firms and sectors that can most contribute to the recovery in activity and employment. | 1 |
It is assumed that the central bank wants - if it had been possible - output and price stability. The welfare loss will thus be smaller the further into the chart we are. The lines in the chart (indifference curves) thus show different combinations of inflation variability and output variability that result in the same welfare loss. BIS Review 49/2002 3 Lars Svensson, who is a prominent contributor to theoretical research in the area of monetary policy, has recommended that the central bank should explicitly define a loss function. He proposes an expression where the squared deviation between inflation and the inflation target and the squared deviation between actual and potential output be weighted together to provide a measure of the loss in each period. The total loss is then found by discounting future losses. Up to now, no central bank has gone as far as Svensson recommends. However, the horizon that is chosen for monetary policy will implicitly provide some indication of the central bank’s loss function. If the horizon is very short, inflation will be quickly brought back to the target, with greater fluctuations in output as a result. This indicates that the central bank puts considerable weight on avoiding variations in inflation and little weight on stabilising the real economy. Similarly, if the horizon is long, it will indicate that the central bank also puts greater weight on avoiding variations in output and employment. 4 BIS Review 49/2002 The chart illustrates the optimal combinations of inflation and output variability. | The operational objective of monetary policy is low and stable inflation. The inflation target is set at 2½ per cent. A monetary stance resulting in high and varying inflation would have led to wider swings in output and employment. It would also have been a recipe for turbulence in the foreign exchange markets. There is therefore a close link between the third paragraph of the regulation - the inflation target - and the first paragraph concerning stabilising economic developments and exchange rate expectations. Monetary policy affects the economy with considerable and variable lags. The current level of inflation does not provide an adequate basis for determining the level at which interest rates should be set today. Our analyses indicate that a substantial share of the effects of an interest rate change will occur within two years. Two years is thus a reasonable time horizon for attaining the inflation target, and also makes it possible to avoid unnecessary output and employment variability. See also the formulation of the regulation about contributing to stable developments in output and employment. If we should attempt to attain the inflation target in the very short term, by lowering the key rate and thereby contributing to a depreciation of the krone and higher price inflation, we would very probably be compelled to raise the interest rate even more a year from now in order to attain the inflation target than we did the last time we raised interest rates. Such a short-term policy would have contributed to greater demand and output instability. | 1 |
But, in the event exchange rates moved in the wrong direction, illustrating the unpredictable – even perverse – relationship between relative interest rate and exchange rate movements at least in the short term. That ought to be a salutary lesson to those who imply that monetary policy can be directed to controlling both inflation and the exchange rate at the same time! So there is not much that we can do directly, through monetary policy, to affect the various external influences weighing upon our economy. But we can attempt to offset their effects, by encouraging the growth of private sector domestic demand to try to keep overall demand in the economy growing in line with potential supply. And that in effect is what we have done through our recent interest rate cuts. This approach is not, however, without risks. It involves accepting – at least while the dampening external influences persist – a growing imbalance between the internationally-exposed and the domestically-oriented sectors. If we did not accept that, then overall demand and output would be lower, and inflation would tend to fall further below target. But the imbalance cannot continue to grow indefinitely. At some point the elastic is likely to break – quite possibly through a sharp exchange rate 2 BIS Review 56/2001 adjustment. And at that point, having deliberately stimulated domestic demand growth, we would need to rein it back. But we could then find its momentum hard to stop. I am not suggesting that we are necessarily approaching that point. | But in our own case this effect has been offset by the weakness of the euro – or by sterling's bilateral strength against the euro, if you prefer – which has dampened both external demand and our domestic price level. The result of these external developments – the global economic slowdown and the pattern of exchange rates taken together – for us has been that, notwithstanding only a rather modest slowdown of our overall economy, we have continued to see a growing imbalance between the internationally-exposed (particularly the euro-exposed) sectors, which have been having a rather torrid time, and the more heavily domestically-oriented sectors, which have been doing rather better. The weakness of manufacturing alongside continuing growth in the services sectors is a crude reflection of this imbalance. With inflation running somewhat below the Chancellor's symmetrical 2½% target, and with developing uncertainties about the continuing strength of domestic demand, the MPC was in a position to respond to these developments by reducing interest rates earlier this year. In fact we cut rates by ¾%, while the Federal Reserve cut much more aggressively, by 2½% over much the same period, and the European Central Bank by just ¼% – reflecting the different overall monetary conditions as they saw them in their respective currency areas. You might suppose that these relative interest rate movements would have encouraged the dollar to weaken against sterling and by more against the euro – and given the pattern of international imbalances it would have been helpful if they had. | 1 |
Under this rule, capital adequacy for the four main banks in Sweden is a function of the banks’ long-run capital adequacy ratio, the credit gap and the output gap. Figure 5: Countercyclical capital buffer using capital adequacy rule Source: Riksbank Again, this exercise is purely illustrative, but the results are encouraging, as the rule would have raised the banks’ capital in the run-up to the recent crisis and lowered it after the crisis hit. And the results broadly match those from a similar exercise conducted by Claudio Borio, in which a measure of the credit-to-GDP was used to guide the size of countercyclical capital buffers in Sweden since 1980 (Figure 6). 13 13 Claudio Borio, “Credit in monetary and (macro-)prudential policy”, Sveriges Riksbank workshop on housing markets, monetary policy and financial stability, November 2010. BIS central bankers’ speeches 11 Figure 6: Countercyclical buffers in Sweden using credit-to-GDP gap-rule Vertical shaded areas indicate the starting years of system-wide banking crises. The countercyclical buffer is 0 when the value of the credit/GDP gap is below 2, and 2.5 when it is above 10%; for gaps between 2 and 10% the buffer is calculated as 2.5/8 times the value of the credit/GDP gap exceeding 2%. Source: BIS calculations. However, much more work is required, for example to allow the approach to include other regulations, to determine how best to calculate the sustainable level of credit in the long-run, and to overcome the econometric problems when estimating the rule. | Memorandums of Understandings or information-sharing protocols would then be used to ensure the free sharing of information between agencies. The analytical skills and tools required for macroprudential policy are likely to draw on those used for macroeconomic analysis and, to a lesser degree, microprudential analysis. But the 7 This argument is developed by Martin Cihák in a speech “Price stability, financial stability and central bank independence”, 38th Economics Conference of the Oesterreichische Nationalbank, 2010. A number of case studies illustrating how inadequate independence arrangements for financial sector regulators and supervisors have contributed to the emergence and scale of financial crises are presented by Marc Quinton and Michael W. Taylor in “Regulatory and supervisory independence and financial stability” IMF Working Paper, WP/0246, 2002. 6 BIS central bankers’ speeches macroprudential agency will need to build new analytical techniques. Before the crisis, many central banks had already begun to develop the type of system analysis that will be required for macroprudential supervision (for example, in the assessment of interdependencies and systemic risks included in financial stability reports) – but the analytical techniques remain in their infancy. Control over a sufficient set of tools As well as the information and knowledge necessary for effective analysis, the macroprudential agency must have access to suitable instruments in order to achieve its mandate. Otherwise there will be unreasonable expectations of what the macroprudential agency can achieve, as it may be unable to address the system-wide risks that it identifies. | 1 |
Board members must also be able to participate actively in strategic discussions, to facilitate the flow and cross-fertilisation of ideas, and exercise effective oversight over the management. Thus in the US, the Federal Reserve Board inspects banks’ board minutes to determine if all board members are active and contribute to discussions on important matters. BIS Review 130/1999 1 Singapore banks are prudently managed and financially sound. According to the latest Moody’s ratings, they were collectively rated the ninth best in the world and best in Asia. But benchmarked against international best practices of corporate governance and disclosure, they still have some way to go. One major step we have taken is to require all local banks to appoint nominating committees within their boards, following common practice in the developed economies. The task of the nominating committees is to ensure that only the most competent and qualified individuals, who can contribute actively to the bank and discharge their responsibilities in the interests of all shareholders, are appointed to the board and to key management positions. Such appointments are not a one-off exercise, but a continuing requirement. In Singapore politics we have made self-renewal of leaders a norm. As a result the political leadership belongs to the same generation as the population, and stays vigorous, up to date, and in tune with the electorate. But self-renewal is necessary in every field, including banking. The boards of Singapore banks have done commendable jobs discharging their responsibilities. | In fact for the past seven years - starting well before the MPC came into existence - the UK economy as a whole has enjoyed the longest period of sustained low inflation that we’ve known in over a generation. Retail price inflation on the Government’s target measure has averaged 2.7% over that time (or only 2.1% on Europe’s HICP measure). Alongside low inflation we’ve also had the lowest nominal interest rates that most of us can remember. Short-term rates have averaged some 6¼% (fluctuating between 5 and 7½% over the period), compared with some 11¼% (fluctuating between 7 and 15%) over the previous decade. And ten-year government bond yields have fallen from nearly 9% on average in 1992 to around 5½% at the present time. But more than all that, we have also over the past seven years or so enjoyed the longest period of uninterrupted, quarter-by-quarter, economic growth in the UK as a whole since quarterly records began in 1955. Annual growth since 1992 has in fact averaged 2.8%, which is between ¼ and ½% above most estimates of our long-term underlying trend rate. Equally important, we have also enjoyed an almost continuous month-by-month fall in the rate of unemployment, on a claimant count basis, from a peak of some 10½% at the end of 1992 to the present rate of just over 4%. That is the lowest rate of unemployment on this measure since early 1980. | 0 |
To achieve this, progress without delay is needed towards greater financial integration with, namely: the development of a capital markets union; the completion of the Banking Union with the creation of a common deposit insurance scheme; 15/16 the introduction of fiscal instruments that improve the whole of the euro area’s economic stabilisation capacity; and the creation of a common safe asset. We must also achieve healthy fiscal positions at the national level. These can enable budgetary policy to fully develop its stabilising role, resolutely tackle population ageing and address the structural shortcomings hampering productivity and the generation and harnessing of investment opportunities in the euro area. Lastly, macroprudential policies should be adopted when risks to financial stability are perceived and so buffers may be built up that can be used ahead of more adverse macroeconomic situations. Thank you. 16/16 | Regional cooperation in different fields like food and energy security – focal points of today’s conference – might be initiated at a high political level, but its implementation requires an active, broader and more informed participation of private sector and civil society, as the main vehicles of cross-border cooperation. The expansion of each one’s participation has a double effect; it allows for more informed regional policies and faster project implementation, on one hand, and it cultivates an understanding that regional cooperation has a direct impact on everyday life and individual citizens’ welfare on the other hand. The Romans used to say “mens sana in corpore sano”. The way I see it, it greatly matters what you fuel your body with. Greater food production for an increasing population goes hand in hand with ensuring access to affordable, safe and nutritious food. The way food nourishes our bodies, energy fuels the economy. So, energy needs to be secure, affordable and sustainable. I could go further and stress once again that for a healthy economy there is a substantial need for a healthy financial and banking systems. However, today’s conference will not generate either solutions or concrete answers to the multiple of issues the food and energy security rises, but it will most certainly cast a new light on possible ways to handle the challenges ahead of us. | 0 |
3 Aiyar, S., Bergthaler, W., Garrido, J. M., Ilyina, A., Jobst, A., Kang, K., Kovtun, D., Liu, Y., Monaghan, D. and Moretti, M., “A Strategy for Resolving Europe’s Problem Loans”, IMF Staff Discussion Note, September 2015. 4 Carcea, M. C., Ciriaci. D, Cuerpo, C., Lorenzani, D. and Pontuch. P., “The Economic Impact of Rescue and Recovery Frameworks in the EU”, European Economy Discussion Paper No 004, September 2015. 2 BIS central bankers’ speeches To highlight the differences in insolvency frameworks across euro area member countries, let me mention a few country figures: in Slovakia it takes on average 4 years to resolve an insolvency case, while in Portugal it takes 2 years and in Ireland it takes less than 5 months. When looking at international practices, one can find three types of procedures through which firms can deal with debt restructuring: 1. out-of-court procedures; 2. hybrid preventive restructuring procedures; and 3. formal insolvency or restructuring procedures. In the euro area countries formal insolvency procedures are very common, while out-of-court procedures have been much less used so far. However, voluntary out-of-court restructuring can provide a speedy, cost-effective and market-friendly alternative to court insolvency proceedings. This tool is particularly useful in cases where there is a lack of confidence in the institutional capacity to support the operation of the insolvency system. | We gladly assess that the topics presented fulfil the standards of a true scientific research, correctly addressing the hypothesis, and their validation is based on the application of contemporary research methodologies, while employing the statistical data in a correct and structured manner. As a result, reaching conclusions and the implications to decision-makers are analysed based on a diligent investigation work on various economic and financial events. After analysing the topics presented, the Assessment Commission has reached a unanimous decision on the winners of the first three prizes of "Governor's Award for the Best Diploma Thesis, 2022". Before awarding the prizes, I would like to congratulate and commend all the participants in competition for their interest, ideas, methods and conclusions, which were based on correct methodologies. The submitted materials are of a high level and the Assessment Commission was hard-pressed when selecting the winners. However, the three topics that will be presented stand out from the rest because of their importance and coherence, as well as for having fully employed the methodology, and diligently having applied and described the assessment methods, and the interesting findings. I encourage the winners and all the contestants in the competition to preserve and nurture the same passion and commitment further in their professional careers as shown in the submitted research works. Let's go ahead and present this turn winners. | 0 |
One can argue that exchange rate certainty is not an essential complement to the European single market - any more than exchange rate fixity is essential to achieving benefits from free trade more generally. But there is no doubt that intra-European exchange rate certainty would - through the increased competition resulting from greater transparency of prices and lower transactions costs, through broader and deeper capital markets, and through the associated improvement in economic resource allocation - enhance the benefits derived from the single market. Whether or not it is essential, therefore, most people would, I think, agree that, other things equal, exchange rate certainty would be very desirable in this context. The potential disadvantage of monetary union can equally be simply stated, though it is perhaps more difficult to assess. Essentially there is a risk that the single monetary policy - the single, one-size-fits-all, short-term interest rate - within the euro area, which is a necessary corollary of the single currency, will not in the event prove to be appropriate to the domestic needs of each of the euro-member countries. There is no doubt that such risk exists. It may result from cyclical divergence where for example would we be in the UK now, confronted as we are with relatively strong domestic demand growth, if we were obliged to have German- level interest rates? Or where would Germany and France be as they struggle to sustain domestic demand if they were constrained to have interest rates at the UK level? | Clearly regulation of financial market participants is not the only means of ensuring such stability: a stable macroeconomic environment, which is what our monetary policy objective is about, is a major factor in avoiding financial system dislocations, while the robustness of the market infrastructure, such as payment and settlement systems, is also crucial. The design of the regulatory framework also has implications for the third objective, the effectiveness of UK financial services. There is a widespread view that greater stability can only be bought at the cost of reduced competition, meaning that these two objectives have to be weighed up against each other and trade-offs made. I would suggest an alternative point of view, which is that these two objectives are often fundamentally aligned. An effective financial system is one in which funds flow to 1 BIS Review 132/1999 the most productive projects, productivity being measured on the basis of long-term rewards and after an appropriate discount for risk. But this is also a stable financial system. Put another way, short-term stability of a sort can be bought through over-regulation or protectionism. But in the longer term, the likely result is an unprofitable industry focused on regulatory arbitrage rather than its prime business, with little instinct or incentive for assessing risks and rewards. It is noteworthy that there are numerous examples of financial systems in emerging markets which have exhibited both fragility and inefficiency. | 0 |
It was conducted by FinMark Trust of South Africa. BIS Review 99/2008 3 been undertaken, namely, Botswana, Namibia and South Africa at 5%, 1% and 8%, respectively. An important point to note for policymakers is the fact that the majority of those who had no access to financial services are the rural poor, with women more disadvantaged than men. Importantly, these are the very areas and categories of people for whom support has been prioritized in the Fifth National Development Plan (FNDP) and under the Citizens Empowerment Act (2006). The Government, working with the private sector and other key stakeholders, thus already has platform from which to address these challenges. During the first half of 2007, the Supply Side Study was undertaken as a follow up to the FinScope™2005 demand side survey. The Study revealed opportunities as well as challenges in addressing access to financial services and financial sector development in general. First, macroeconomic policy and financial sector regulation were no longer viewed as a problem, following the downward trend in inflation to single digits in 2006, the consolidation of the Government’s fiscal position, strong economic growth. Second, the enabling environment to facilitate the expansion in access to credit, i.e. developments in the payment system and the greater sharing of information in the financial markets through credit bureaux is also not yet a binding constraint. | With increased funding, particularly through foreign direct investment, institutions which are involved in medium- to long-term financing, are expected to access relatively cheaper credit and increased access to finance. With an increase in access particularly to rural areas, the number of excluded people is likely to decline from the levels of 66% recorded in 2005. 6.0 Conclusion Recent developments in the financial sector offer some encouragement that working together, the Government, the BoZ, and the financial service providers can extend the range and reach of financial services that are available to both corporate and individual clients. Still a lot remains to be done to extend financial services to the majority of our people and foster ongoing sustainability of our financial institutions. In this regard, there are a number of challenges that lie ahead including the following: i. Developments in the external sector are a constant threat to macroeconomic stability in general and implementation of effective monetary policy, in particular. In this regard, maintaining single digit inflation, given the rising fuel and food prices will be quite challenging and therefore requires concerted efforts of all key stakeholders. ii. Strengthening and staying the course with regard to the recently achieved fiscal prudence as well as forging relatively stronger coordination between fiscal and monetary policies is an equally challenging task in the period ahead. iii. | 1 |
Stefan Ingves, Governor of Sveriges Riksbank, in his capacity as Chairman of the ESRB Advisory Technical Committee First ESRB Annual Conference 22-23 September 2016 Keynote Address “It takes all sorts…” - macroprudential oversight in the EU “It takes all sorts to make a world” is a common expression when confronted with something odd, but at the same time recognizing that diversity is essential. I think it also “takes all sorts”, or at least plenty of different sorts, to make a functional macroprudential body. Especially one at an international level like our host – the European Systemic Risk Board, the ESRB. The ESRB’s macroprudential mandate is mirrored by its broad composition, bringing together central bankers and financial supervisors; national and EU-wide perspectives; sectoral experts and academics. Certainly we may look at various issues differently. We may indeed find each other’s perspectives odd at times. But that is also the point. With the right set-up, differences in perspectives and expertise enrich our assessments and become a strength. And the ESRB uses that strength to handle its rather daunting task of overseeing the EU financial system as a whole. So let me elaborate a little on what the ESRB has achieved so far and why I think the EU needs a strong ESRB with a broad membership as we move forward. Designed for oversight of a diverse, interconnected financial system It is quite an impressive journey that the ESRB has undertaken since its launch in 2011. | Mojmír Hampl: Central banks, digital currencies and monetary policy in times of elastic money Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, at the Official Monetary and Financial Institutions Forum (OMFIF) Roundtable, London, 11 July 2017. * * * Ladies and gentlemen, Good afternoon. Before I start in earnest, let me thank the OMFIF for the kind invitation to this event, which allows me to speak in front of such a distinguished audience. It is an utmost pleasure for me to be here. The topics of today’s session are threefold: cryptocurrencies, central bank digital currencies and monetary policy with elastic money. I’ll try to touch upon all of these topics and bind them together, yet I realise the task is challenging. Let me begin with a story from Prague. In our capital city we have a strong community of supporters and users of cryptocurrencies. Among libertarians, some of them my ex-colleagues or friends from the University of Economics in Prague, bitcoin is seen as a real, fully fledged alternative to the current monetary order. Indeed, I could show you a place in Prague where one can only pay in bitcoin. By the way, I appreciate the name chosen for the most popular cryptocurrency, bitcoin. In the era when the foundations of the monetary system were based on precious metals, people sometimes “bit the coins” to check whether or not they were counterfeit. | 0 |
The GPFG is nearing the peak The decline in oil revenues ahead gives rise to new challenges for the Norwegian economy. But we must not forget that we have a good starting point. During a period of high oil prices, we have transformed oil in the ground into financial wealth. We have avoided making public sector budgets dependent on volatile income. The GPFG and the fiscal rule have been the main elements of the policy pursued. Let me recall the background for the fiscal rule. The fiscal rule emerged from the economic discussion around the turn of the millennium. During the time before the rule was established in 2001, inflows into the GPFG increased sharply thanks to high oil prices and there were expectations of considerable future BIS central bankers’ speeches 7 revenues. It was demanding to restrain spending, while it was clear that future pension obligations would be substantial. The fiscal rule provided us with a long-term strategy for spending petroleum revenues. Even though most of the income was to be saved, the rule provided for increased spending of petroleum wealth. The phasing-in of petroleum revenues was to be adapted to the economic cycle and be in line with the expected real return over time. The capital was to be preserved so that it would also benefit future generations. Fiscal policy was not set on autopilot. The rule was simple, but flexible. This has been one of its strong points. | Increased public spending may push up the cost of labour and stem the flow of labour to other exposed industries. When the economy turns down, with a pronounced rise in unemployment, fiscal policy can help support economic activity. But the Norwegian economy is still far from being in a crisis situation. Unemployment remains low. The international economic picture is mixed Six years have now passed since the global economy was severely hit by the financial crisis. The Norwegian economy quickly rebounded, supported by robust public finances and strong growth in the petroleum sector. Other advanced economies have experienced a more difficult time (see Chart 9). Excessive debt, in both the private and public sector, has led to weak activity and high unemployment in many of those countries. Global growth can be expected to pick up gradually over the coming years. The fall in oil prices is a positive factor for the world economy. But the picture is mixed. In the US, the recovery is on a firm footing. An expansionary monetary policy appears to be having the intended effect and both consumption and investment have turned up again. Unemployment has come down. The federal budget deficit has been substantially reduced partly thanks to higher economic activity. Developments in the UK and Sweden, two of Norway’s major export markets, have also been positive, although inflation remains a challenge. The situation in the euro area appears to be more problematic. A large portion of the workforce is idle alongside production equipment. Inflation is worryingly low. | 1 |
Ravi Menon: Budget carefully, borrow responsibly, invest wisely Remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Launch of the Tamil Financial Literacy Guide, Singapore, 16 November 2014. * * * Mr Kumaran Barathan, CEO of SINDA Ladies and gentlemen, good morning. Value of patience and prudence In the 1960s and 1970s, a psychology professor at Stanford University in the US conducted a study on children’s behaviour. He offered each child a choice: get a marshmallow immediately or, if they waited a little longer, get two marshmallows. Some children did not want to wait, or perhaps they had doubts about the professor keeping his word. So, they chose to have their sweet there and then. Others were more patient and received two marshmallows, as promised. Fast forward 20 years. Follow-up studies were done on the same group of children. Those children who had chosen to delay getting their marshmallow generally performed better in their lives. They achieved better test results in school, for example. And yes, they kept themselves in better shape too! The results have intrigued psychologists, social scientists, and educators ever since. Many more studies are being conducted and more elaborate theories are being proposed to explain them. But maybe our forefathers knew the answer all along: the value of patience and prudence; in other words, delay rewards today so that we can reap greater rewards tomorrow. | This builds on the foundations of a new responsible global financial system that are being put in place. The combination of robust international standards and greater trust as a consequence of transparent implementation and intensive supervisory cooperation can create a system of enhanced equivalence and mutual deference. Such an approach would allow capital to move more freely, efficiently and sustainably between jurisdictions. With robust standards consistently applied, wholesale financial services could be brought more fully into trade agreements, keeping the global financial system open and resilient, and supporting greater trade, investment and innovation. This high road leads to more jobs, higher sustainable growth, and better risk management across the G20. Working Together to Take Full Advantage The high road can be followed if my third priority – taking full advantage of the progress made – is pursued. In this regard, it is important not just to recognise progress made but how it has been made. The FSB has succeeded by emphasising collaboration, consensus and openness. Its strength lies in its members who bring authority, expertise and shared objectives. The FSB is not a treaty-based organisation, so its standards do not have direct force in any member jurisdiction. Decisions are ultimately matters for national authorities who – acting out of enlightened selfinterest and in recognition of the benefits of a resilient and open global financial system – guide and discipline the reform process. | 0 |
A secure, fast, and reliable payment and settlement system is a key element in a modern economy. Through its Payment System Development Committee, the Federal Reserve seeks to address emerging payments-related issues. The basic aim of this committee is to work with the private sector to advance the use of electronic payments throughout the US economy. In taking the step to T+1, the US securities industry will be assuming an important leadership role in the evolution of securities settlement systems around the world. I should also note that implementation of a shorter settlement cycle is consistent with the position taken by the International Securities Services Association (ISSA), the securities industry’s own review body. In a set of recommendations this association released earlier this year and discussed at a session of the Sibos conference last month, ISSA explicitly calls for adoption of a T+1 settlement cycle in its member countries. I would like to make clear that the Federal Reserve supports the SIA’s effort to adopt the T+1 settlement cycle. Faster, more reliable, and more cost-efficient processing of securities transactions is desirable for several reasons. First, high or excessive transaction fees may serve to distort or hinder financial activity. Inefficient trading and settlement arrangements used by the secondary market for securities could discourage the use of securities relative to other financial instruments. The choice of instrument should be based on the needs of borrowers and investors. Second, inefficient settlement arrangements may interfere with active risk management. | Jamie B Stewart, Jr: Developments in the US payment and settlement system and the Federal Reserve’s interest in the securities settlement system Remarks by Jamie B. Stewart, Jr, First Vice-President and Chief Operating Officer of the Federal Reserve Bank of New York, before the Securities Industry Association T+1 Foundation Conference held in New York on 24 October 2000. * * * Good afternoon, ladies and gentlemen. I am pleased to join you at the SIA’s T+1 Foundation Conference. This conference provides an excellent opportunity to review plans that have been announced for converting to a T+1 settlement cycle for securities transactions. Implementation of T+1 would represent a significant change in the payment and settlement environment. Before commenting on this arrangement, however, I would like to stand back for a few moments and focus on some of the plans under way to improve the functioning of the payment and settlement system in the United States. In addition, I would also like to discuss briefly the Federal Reserve’s interest in the securities settlement system. There can be no doubt that a sound and effective payment and settlement system is critical to ongoing confidence in the US financial markets and to the continued health and competitiveness of the US financial sector. In an environment of rapid technological change and rising trading volumes such as we face today, it is essential to make certain that the integrity of the payment and settlement system remains intact. | 1 |
Openness and integration – the new finance and new economy in a global context Speech given by Dave Ramsden, Deputy Governor for Markets & Banking Bund Summit, Shanghai 27 October 2019 With thanks to Cormac Sullivan for his assistance in preparing these remarks and to Ashley Collins, Tom Mutton, Niamh Reynolds and Tom Smith for their helpful comments and suggestions. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches Intro It is my great privilege to address you today. I would like to extend my sincere thanks to the China Finance 40 Forum, Huangpu District Government and the Shanghai Finance Institute for the opportunity to address this esteemed summit. I am here speaking on behalf of the Bank of England, the UK’s central bank, where I am the Deputy Governor with responsibility for our financial markets and banking policy and operations, a key element of which is fintech. China and the UK are both leading global centres of financial innovation. We share economies where commerce is rapidly becoming digital and financial systems are evolving in response. We share populations that are increasingly open to new finance providers and new financial products. We also share a common goal of ensuring regulators manage and regulate appropriately, to ensure the financial system remains sound, both domestically and globally. The UK financial sector is a national asset and a global public good. Our strong partnership with our Chinese colleagues is at the heart of that. | I am delighted to be here with colleagues from leading British investment banks and the London Stock Exchange: examples of UK financial institutions supporting the needs of global clients and delivering the type of open financial flows the global economy needs. Internationally the UK books more international banking business than anywhere else and over 40% of global foreign exchange and interest rate derivative business. We are also home to the second largest global asset management and fourth largest insurance centre. At the Bank of England, we want to support the financial sector to realise the full promise of new technology, so it is deployed safely and for the benefit of our people. We see our role as providing robust but dynamic regulation that is appropriate for emerging innovations. In June, we published a series of commitments setting out how the Bank could support the economy and the financial system of the future.1 We know that all of these action areas will benefit from collaboration with international partners and learning from international best practice. Today, I want to use this opportunity to explain what steps the Bank of England has taken in its approach to Fintech, and share a few lessons that we have learnt along the way. These lessons touch on the themes of openness and integration we have been discussing. | 1 |
These calculations indicate that the bond purchases and other unconventional monetary policy in recent years have reduced the government’s borrowing costs quite considerably, compared to a monetary policy that had not kept interest rates down and avoided excessively low inflation in the same way. But the calculations should be taken with a large pinch of salt as they take a very narrow perspective on government finances. They ignore, for example, the fact that the government has other assets and liabilities, as well as other commitments, that are also affected by the development of nominal and real interest rates. The calculations also ignore the fact that bond purchases also stimulate GDP growth and employment in the short term and that by strengthening confidence in the inflation target, also contribute to healthy, long -term growth. This benefits Swedish households and strengthens public finances by boosting tax revenues and reducing expenditure. The Riksbank’s finances are strong but sensitive to interest rate changes, and dividends will be lower Concern has sometimes been expressed over the fact that bond purchases are expensive and lead to losses for the Riksbank. 19 This concern is hardly unwarranted, even though it is not certain that the purchases actually do lead to losses. The Riksbank’s balance sheet, profit and equity are now being affected more by interest rate adjustments than before purchases began. Dividends will therefore fluctuate considerably more year on year in the future than they have done in recent decades. | SPEECH DATE: 9 November 2016 SPEAKER: Martin Flodén VENUE: West Sweden Chamber of Commerce, Göteborg SVER IG ES R IK SB AN K SE-103 37 Stockholm (Brunkebergst org 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn @ riks ban k.se www.riksb ank.s e The Riksbank’s bond purchases affect government finances Prior to the financial crisis of 2008, the Riksbank could make profits without taking any actual risks. The assets on our balance sheet mainly consisted of foreign debt securities while the main liability items were outstanding banknotes and coins and our equity. The assets generated a reliable return, although their value fluctuated with foreign exchange rates, while the liabilities were interest-free. The Riksbank could therefore easily fund the bank’s operations as well as distribute a surplus to the government. But the current picture of the Riksbank’s financial position and risks is entirely different, something that, in part, can be illustrated by how the balance sheet has grown and changed in nature (see Chart 1). One important change is that the decline in the use of cash and the low interest rates have impaired our earning capacity, something which my colleague Kerstin af Jochnick has previously highlighted. 1 Another important change is that the Riksbank has purchased large volumes of Swedish government bonds since the beginning of 2015. These purchases have increased the risks on our balance sheet and made our profits and dividends more sensitive to interest rate changes. | 1 |
Durant ces dix dernières années, les communiqués du G7 qui délivraient un message commun relatif aux taux de change ont toujours fait l’objet de la plus grande attention de la part des investisseurs et des marchés, et se sont révélés efficaces. Il s’agit là d’un atout inestimable que nous devons préserver avec le plus grand soin. * * * En conclusion permettez-moi de souligner trois points : 9 BIS Review 22/1999 D’abord, en ce qui concerne la Banque centrale européenne et le Système européen de banques centrales, j’aimerais proposer une métaphore qui pourrait éclairer mon propos. Il y a une équipe monétaire européenne composée de douze joueurs, la BCE et les 11 banques centrales nationales. C’est toute l’équipe monétaire des douze qui joue sur le terrain, avec un seul “ esprit d’équipe ”, qui constitue un des atouts inestimables de l’Europe. Deuxièmement, le GVII de samedi à Bonn nous a permis de faire de nouveaux progrès dans le renforcement de ce que l’on est convenu d’appeler l’architecture financière internationale. On a parfois un peu trop tendance, à mon avis, à insister sur les différences de sensibilité qui se manifestent ici et là. Ce qui est beaucoup plus important, c’est que la communauté internationale est en accord profond sur de très nombreux points. | En complément de ces données fondamentales saines, qui sont d’une importance décisive, nous devons préserver le processus de la coopération internationale et nous devons renforcer cette coopération . Elle s’est avérée utile au cours de ces quinze dernières années. En se fondant sur l’expérience et les enseignements de ces dernières années, on peut probablement encore améliorer cette coopération internationale, et le fait que trois devises de pays du G7 se soient actuellement fondues dans l’euro pourrait et devrait rendre plus facile et de plus en plus efficace cette coopération. Dans cette perspective, j’aimerais attirer votre attention sur quatre principes, qui sont essentiels pour l’efficacité de la coopération internationale. - Le premier principe dont nous ne devons pas nous écarter est le respect du fait que ce sont les données fondamentales qui commandent l’évolution des taux de change dans le moyen et le long termes ; - le deuxième principe est la nécessité de rechercher un consensus approprié entre les représentants du pouvoir exécutif et les autorités monétaires d’une part, entre les différents pays concernés d’autre part ; - le troisième principe est le respect de ce que j’appellerais la discipline verbale. Les marchés peuvent être troublés par des déclarations hétérogènes et contradictoires. Au contraire, ils sont impressionnés par la cohésion et par la cohérence de déclarations s’en tenant au plus près des “ termes de référence ” agréés d’un commun accord ; - le quatrième principe est la nécessaire préservation de la crédibilité des autorités dans toutes les circonstances. | 1 |
In a situation where the Riksbank's monetary policy scope is not unlimited, it is important that the question of how an economic downturn shall be counteracted is on the economic policy agenda. There are currently large reserves in fiscal policy, but using them is not unproblematic. If low real interest rates persist, it may in the longer run become necessary to modify the monetary policy framework with the 2 per cent inflation target that 35 It is fairly common, especially among emerging market economies, to lower the inflation target as confidence in the inflation-targeting regime increases. However, there are few examples of countries that have raised their inflation target (see, for instance, Apel, Armelius and Claussen, 2017). 17 [24] most central banks currently apply. Of the various proposals circulating in international debate, I am currently leaning towards a raised inflation target being the best option. At the same time as this would alleviate the problem that the repo rate cannot always be cut as much as needed, it is also relatively undramatic and straightforward. But this does not mean that it is something I feel we should do soon. A fairly major problem is that it is difficult to make this kind of change independently of other countries. But it is always good to be well-prepared in advance and it is therefore worth starting to think about possible modifications already today. | Consumers themselves would be more risk averse and prefer to stick with simple transactions and products. As mentioned already, regulatory framework would be strengthened, especially the use of macroprudential oversight that focuses on system-wide stability. As such, closer supervision of systemically important financial institutions, including non-banks, would be required. Finally, the microprudential oversight would also be strengthened to rectify previously identified shortcomings, particularly the Basel II framework, corporate governance, and incentive misalignment. Though it looks as if we could be in the process of creating a “new world order”, given what we have done so far in strengthening our financial sector resilience, I believe that this transition would be a smooth one and add further strength to our financial system. Needless to say, a strong financial system is the backbone of sustainable economic growth in the longterm. Thank you for your attention. 4 BIS Review 131/2009 | 0 |
While this argument for a wider pre-emptive role for monetary policy would bring self-evident benefits, we should bear in mind that it also entails some costs and can be difficult to communicate to the 4 BIS Review 34//2005 public. These costs can be understood as an insurance premium that must be paid for using monetary policy in a decidedly preventive fashion. These considerations help to highlight some dimensions of the current monetary policy context that may benefit from a sound banking capital regulatory framework. In this regard, I tend to think that certain important elements in Basel II will contribute, firstly, to restricting the build-up of financial imbalances, thus diminishing the probability of extreme adverse shocks; and secondly, to mitigating their negative consequences for the overall system. As the disorderly granting of credit is often a defining characteristic of an extreme and unstable phase of financial euphoria, a regulatory framework that provides banks with strong incentives for sound risk assessment must clearly be conducive to a more watchful and efficient allocation of credit. In this sense, one would naturally expect a more risk-sensitive capital framework to make banks more likely to account for the true risks of lending policies aimed at achieving short-run-focused targets, such as market share or portfolio size, at the expense of putting their medium-term financial health more at risk. | This observation is of special relevance precisely in times of crisis, when some bank managers may be more tempted to pursue “gambling for resurrection” strategies. Likewise, as market participants understand that banks will have stronger motivation to employ better technologies for risk management, one would naturally expect the industry to move to a safer plateau, with its capital, therefore, enjoying a lower risk premium, all other things being equal. To summarise, while I think that a reasonable degree of procyclicality of the supply of loans is a logical feature of the credit market, I sympathise with the idea that all kinds of regulations affecting banks, from accounting to prudential ones, should try to minimise or compensate for the risk of excessive sensitivity of bank lending policy to cyclical conditions. Indeed, the latter would normally appear when banks are poorly capitalised and lending decisions are based on inadequate risk assessments and driven only by current market conditions, a natural terrain for unplanned drastic swings in credit policies. I believe that all investment in technology and human capital, enhanced transparency, and better and pre-emptive risk management based on improved control structures and corporate governance will entail significant improvements not only to the stability and soundness of the financial system, but also to its efficiency in the allocation of resources. This, in my view, should benefit the cyclical behaviour of the banking system and also, it is very likely that it will be around a superior trend. 5. | 1 |
Perhaps, from everyone’s point of view, the going was too good to obstruct; the expansion was too exciting to discourage; the resulting luxuries and wealth were too wonderful to hold back. No wonder therefore, that the financial world continued to happily tootle along this unrealistic path, at break-neck speed. Logically, the accident had to happen, and happen it did, and what an accident that was! A crash landing that was sudden and unbelievably disastrous, not only to the developed world, but to all economies of the globe! Mr. Chairman, the events of the recent past clearly suggest to us that the world’s financial and economic communities have, albeit unintentionally, placed the entire civilized world’s systems and structures at intense risk, and perhaps even endangered the gains of civilization built over several centuries. However, to the eternal credit of the world’s political and economic leaders, we could be relieved that we have been able to face that shock and BIS Review 106/2009 1 emerge out of it, bruised and battered no doubt, but fortunately, with our systems still reasonably intact. Nevertheless, the major down-turn suffered by the world economy as a result of these shocks is yet to be fully overcome. The tight liquidity crunch that is suffocating our credit markets; the stubborn toxic assets that won’t go away; the suspicions with which banking and financial institutions view each other, are yet continuing, although there are signs of some abatement. | The embarrassing summersaults that various governments had to perform by unceremoniously ditching some of their most sacred and fundamental policies, have also been better understood, by many communities. Now, what is needed is to move forward decisively within this new paradigm. To do so effectively, we have to essentially place some barriers to deal with unsustainable risk taking. The freedom of the wild ass that supported unfettered and reckless economic actions to create things out of nothing has to be dealt with. At the same time, we need to revisit some of the fallacies that developed over the last decade or so, including those that indirectly said: “Don’t worry too much about a few bubbles”; “markets are always right”, “innovation should not be discouraged”; “state intervention is dangerous”, etc. In a way, some of these positions perhaps prompted a kind of an unconscious regulatory anarchy! The resulting subdued regulatory reactions were of course exploited by the greedy market and the rest is history! This time round therefore, the wisdom of such concepts and absolute reliance on them, would need to be critically reviewed. What then should we do? Maybe, we could start by making a “Wish-list”, and then moving towards making a “To-do list” to realize such wishes. What could we wish for? First, perhaps we should wish for effective “immunization” mechanisms to safeguard national financial systems from the contagion effects of globalized viruses and cross border toxic elements. | 1 |
Whereas the need for better risk management has been the main driving force behind the recent wave in innovation in more advanced financial markets, this is not the case in less developed markets. The drive towards financial innovation in some instances can largely be attributed to the need to improve or maintain profitability. When talking about financial innovation, an important aspect that one needs to consider is whether or not the process is resulting in a reduction in the cost of doing business and providing banking services, on one hand, and whether it is translating into better pricing, on the other hand. We should therefore, not be surprised that innovation does not always yield the expected benefit of reduced prices. Innovation is clearly an important phenomenon of any sector of a modern economy. Successful financial innovation must reduce costs and result in the provision of improved services and affordable financial resources to users, particularly to the productive sector. A low level of innovation and development in the financial sector produces a weak impact of financial intermediation on economic growth. The right kind of innovation obviously would help the financial sector fulfill its core functions; and if the financial sector fulfilled its functions better and at lower cost, it would almost surely contribute to growth and societal well-being. | This was because Government Securities offered highly attractive yield rates (with zero credit risk) compared to other asset classes. Recently Government has maintained prudent fiscal BIS central bankers’ speeches 1 policies and has reduced its borrowing to 1.8% of GDP leading to a significant fall in Government Securities yield rates. The reduction in yields rates on government securities has made it increasingly difficult for banks to sustain their profitability. Therefore, in order to remain profitable, banks have had to become innovative and resorted to riskier banking activities. This resulted in a shift in the asset structures of most banks from government securities holdings to an expanding loan portfolio, which offers higher returns. 3.0 The role of financial innovation in promoting the private sector Innovation can generally be defined as a continuous process where enterprises and individuals seek new and improved products, processes, and organisation structures in order to reduce costs of production, better satisfy customer demands, and yield greater profits for themselves. When specifically referred to banks and other financial institutions, innovation, commonly is known as financial innovation, refers to any change in the scale, scope and delivery of financial services. Financial innovations can therefore be grouped as new products (e.g. adjustable rate mortgages; personal loans); new services (e.g., internet banking); and new production processes (e.g., electronic record-keeping for securities; credit scoring); or new organisational forms (e.g., Internet-only banks). | 1 |
This is also the case in Switzerland. To legitimise its independence, the lawmakers have deliberately given the SNB a narrow and clearly defined mandate. They also place upon the SNB the duty of accountability of the fulfilment of its mandate. Pursuing objectives that go beyond the core task of monetary policy would undermine the legitimacy of the SNB’s independence and thus endanger it over time. Focus on price stability The institutional framework of the SNB is in line with both of the principles of regulatory policy I have described, namely independence from politics and a focus on monetary policy. In recent years, time and again these principles have been consciously or unconsciously questioned by some in politics and among the public. This has seen calls from politicians for the SNB to directly finance government tasks. For example, a popular initiative launched this spring seeks to amend the Constitution to give the SNB a direct role in financing the national pension scheme. Before I delve into why the direct financing of government tasks by the SNB is not in keeping with the principles of regulatory policy, it is helpful to first contextualise the SNB’s profit development. For it is likely that the increase in these desires is tied above all to the growth of our balance sheet and our high profits in the past few years. These high profits have led to an increase in our so-called distribution reserve. At the end of 2021, it amounted to CHF 103 billion. | Narrow mandate and independence as foundation In general, regulatory policy comprises all measures which a government puts in place to create appropriate framework conditions for the longer-term development of the economy. If, in doing so, the government follows sensible principles, it creates conditions in which the economy can optimally develop its potential and the prosperity of the population increases over time. An essential component of good framework conditions, and of good regulatory policy, is price stability. In the absence of price stability, the smooth functioning of an economy is inconceivable. Inflation as well as deflation hinder the steering role of prices in ensuring that labour and capital are used as productively as possible. Inflation also reduces household purchasing power and especially impacts the more vulnerable sections of society. In order to ensure price stability in the long term, two principles of regulatory policy are key: - First, price stability must be the fundamental guiding principle of monetary policy - and second, a central bank must be independent from politics. Both of these principles are today reflected in the legislation of many countries. In Switzerland, the independence of the central bank is enshrined in the Federal Constitution. This means that the SNB may neither accept nor seek instruction from politics or other quarters. The Constitution also states that the SNB shall pursue a monetary policy serving the interests of the country as a whole. | 1 |
Elvira Nabiullina: Bank of Russia’s 2020 Annual Report Speech by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the State Duma’s plenary session on Bank of Russia’s 2020 Annual Report, Moscow, 15 June 2021. * * * Good afternoon, Mr Volodin. Good afternoon, esteemed deputies. Today, I present the Bank of Russia’s Annual Report for 2020. First of all, I would like to thank the deputies for the detailed review of our report at the meetings of the working groups, parliamentary parties, and State Duma committees. You really performed a significant amount of work despite your schedule of the spring session being very tight. Taking this into account, I will therefore do my best to shorten this speech. Nonetheless, I would like to focus on key topics. Last year was abnormal, and we will remember it for a long time. The pandemic entailed huge losses, and many families lost their loved ones. As we needed to protect people’s lives, we had to impose serious restrictions, and they inevitably affected the economy. Our main task last year was to mitigate the aftermath of the pandemic for households and businesses. I would like to emphasise that the financial system, the financial sector, helped us overcome the consequences of the pandemic. There are two main reasons why the financial system was able to help all other sectors of the economy, rather than itself needing financial aid, as before. First, we started 2020 with relatively low inflation, specifically 3% as of the beginning of the year. | [2] Second, there has been a significant fall in the number of immigrant or foreign-born workers in the advanced economies, particularly among lower-wage occupations. [3] Third, preferences for work relative to non-work activities may have shifted during the pandemic. Recent US data show a persistent decline in desired hours worked especially among better-educated workers. [4] It remains to be seen whether these labour supply shifts are irreversible. Ultimately, so long as labour shortages continue, prices will edge higher compounding the pressure on central banks to hike further later this year. The second uncertainty is posed by China’s re-opening: a stronger-than-expected infrastructure-led rebound in China could pose an upward risk to global inflation. While we can anticipate an uptick in demand from China’s reopening, the extent to which this imparts a renewed impulse to global inflation is unclear. For now, China’s near-term developments appear unlikely to decisively reverse the global disinflation trend in 2023. The recovery of China’s consumer demand is expected to be led by domestically oriented consumer services rather than tradable goods. Unlike in advanced economies, China has a substantial supply of deployable labour suggesting that significant labour market tightening is unlikely. Producer prices in China are continuing to decline. The easing of pandemic-related supply chain disruptions will help moderate producer price pressures, imparting a mildly disinflationary impact on the global economy. However, a sharp rebound in economic activity in China on the back of robust infrastructure spending and an accelerated recovery of the property market could lead to higher global commodity prices. | 0 |
Real estate market indicators show an ongoing recovery in the sector which, albeit uneven in terms of market segments and geographical areas, is also contributing to the buoyancy of household spending and employment. Although investment has decelerated in recent quarters, it remains firm given the favourable situation of financial conditions and final demand. The Banco de España's projections anticipate that the current growth phase of the Spanish economy, dating back to the second half of 2013, will persist over the next few years and that it will continue to be supported by gains in competitiveness, the ongoing favourable financial conditions, and the expected positive performance of international markets. The foundations of the recovery in the Spanish economy are, in fact, the correction of certain macroeconomic and financial imbalances, which had built up previously, most notably the improvement in international competitiveness, the progress made in the financial position of households, firms and financial institutions, without forgetting the improvement in employment, with a significant decline in the unemployment rate in the last four years, although it still remains at very high levels. However, it should be noted that GDP growth in recent years has also received a significant boost from factors of a more temporary nature such as lower oil prices, the fiscal impulse which gave rise to an expansionary budgetary policy stance in 2015 and 2016, and the ECB's expansionary monetary policy. Lower growth of activity can be expected as the effect of some of these factors fades. | International policy coordination, harmonisation and the consistent application of implemented instruments are vital to ensure effectiveness and limit the possibility and impact of adverse cross-border spillover effects 25. The potential spillover of nationally implemented macroprudential policies largely depend on the degree of financial cycle synchronisation, especially within the highly integrated (economically and financially) states, as in the case of the European Union, or even more so within the currency union members with a single monetary policy. Several aspects of the potential spillover should be considered when formulating the policy stance in a highly integrated environment that challenges us in pursuing financial stability. Outward cross-border spillovers of systemic risk create a need for countervailing macroprudential measures, clearly emphasising the need for policy coordination and measure reciprocation. In contrast, inward spillover effect is a direct consequence of the regulatory arbitrage that motivates internationally operating financial institutions to seek organisational restructuring that minimizes regulatory costs. The issue of converting subsidiaries into branches has recently attracted a lot of attention, as some member states are actively trying to reduce this risk, 26 alongside international efforts directed towards formulating a framework for voluntary cross-border reciprocity 27. | 0 |
The origins of the crisis lay in problems on the US housing market, but after the bankruptcy of Lehman Brothers in September 2008 the situation developed into a global financial crisis. GDP in the world as a whole fell for the first time since the 1940s (see Figure 2). There was also a dramatic fall in global trade (see Figure 3). This was then followed by a couple of years in which the global economy began to recover, and global trade increased (see Figure 3). However, it did not take long for clouds to gather on the horizon again. Problems with major budget deficits and sovereign debts became apparent in several countries in the euro area, BIS central bankers’ speeches 1 primarily in Greece, but also in Ireland, Italy, Spain and Portugal (see Figure 4). In Europe, the financial crisis was followed by a debt crisis. However, the reasons why the various countries were hit by problems were not always the same. In Greece, for example, public finances were far too weak at the outset to cope with such a severe downturn as that brought about by the financial crisis. But countries like Ireland and Spain also suffered serious problems, despite their relatively strong public finances at the outset. How could this happen? The problems on the US housing market originally triggered the global financial crisis. But problems also arose on the housing markets in several other countries, such as Spain and Ireland (see Figure 5). | These challenges have been compounded by deeper forces that have radically altered the balance of saving and investment in the global economy.4 In the process, these have moved equilibrium interest rates into regions that monetary policy finds difficult to reach. Whether called “secular stagnation” or a “global liquidity trap”, the drag on jobs, wages and growth is real. Chart 1 Geopolitical risk doubled, on average, after 9/11 Source: Bank calculations and Caldara and Iacoviello (2016), ibid. Less visible, but more fundamental drivers of economic uncertainty are the powerful forces arising from technology and globalisation. The integration of 40% of humanity into the global economy has re-orientated production, eliminated jobs and may have depressed wages. These dynamics have been accompanied by the implications of technology for the 2 These are distinct from other types of uncertainty familiar to economists, including model uncertainty (uncertainty about the empirical properties of models as descriptions of the world), or to policymakers, such as the long and variable lags involved in the effects of monetary policy. 3 Economists have recently attempted its measurement by examining the frequency of newspaper articles containing terms like “geopolitical tensions”, “terrorist threats”, and “war risks” in a sample of global newspapers. See Caldara, D and Iacoviello, M (2016), “Measuring geopolitical risk”, Federal Reserve Board, mimeo. Political scientists have also constructed similar measures though, it seems, at lower frequency. For an application see for example Berkman, H., B. Jacobsen, and J. | 0 |
24.11.2020 Closing address. 1st Mapfre Sustainable Finances Observatory Forum Margarita Delgado Deputy Governor *English translation of the original speech in Spanish Good morning. I much appreciate this invitation to close this first Mapfre Sustainable Finances Observatory Forum. Allow me to congratulate Mapfre on this initiative and, naturally, Iberdrola and the Valladolid San Juan de Dios centre too for this well-deserved award. As many of you will know, I have now been Deputy Governor of the Banco de España for a little more than two years. A glance at my public agenda over this period will show that a significant number of my public interventions address what has come to be known as “green or sustainable finances”. Yet among the public addresses by my predecessors in the post, you will find none on this subject. Nor do I think you will find many speeches on sustainability on other central bank websites that are more than two years old. Along with my personal interest in the goals of combating climate change, I believe this shows two things: first, how novel this topic is for supervisors and central banks; and second, the great interest it arouses in public opinion. Looking through the newspapers we see every day countless initiatives for action and communication in the most diverse sectors relating to sustainability. Undoubtedly, the first edition of this forum and of these awards are one such initiative. They are a magnificent opportunity to acknowledge efforts made in the area of responsible investment. | In corporate and labour market circles it is becoming commonplace to consider what the value or social impact of a specific activity is, and to attempt to evaluate the economic and labour consequences of regulatory changes. One good example of regulatory impact is the Ecological Transition Bill that is currently pending parliamentary approval. The aim, as you know, is to switch our economy towards an environmentally more sustainable model. This aim is very broadly shared in our society, but its achievement will have large-scale implications for our productive model that may also entail undesirable social consequences. The Banco de España is working with the Ministry of Ecological Transition to assess the economic and employment implications of the law. I can assure you that measuring these consequences is not proving easy, but also that their measurement is crucial. Why is this? Measuring the consequences is essential in order for there to be genuine transparency. There has to be information; without measurements there is only noise. 2 In the absence of information, we cannot make comparisons between alternative investments, or between consumption, economic activity or funding options. Without data, we are in the hands of image campaigns and good intentions. Responsible investment has an ambitious goal: no less than to transform the economic, environmental and social reality, or at least to contribute to this transformation. So how can this ambitious goal be achieved? The answer is simple: through the behaviour of economic agents, be they households, firms or investors. | 1 |
Internet compared with railways Simplifying somewhat, the advent of the Internet can be compared with the era of railroad construction in Sweden in the second half of the nineteenth century. In the initial phase there was a boom for those who constructed the railways and manufactured rolling stock. In the closing decade of the century Swedish firms began to produce locomotives; previously BIS Review 118/1999 2 that had been the preserve of British manufacturers. The Swedish firms took over the domestic market and were even able to export their products. Much the same happened with the manufacture of passenger carriages and goods wagons. Today we can see similar developments in the IT industry. Besides the giant, Ericsson, Sweden has many different IT enterprises. But growth is still being driven not so much by users of the new communication facilities as by the production of new possibilities. To continue with the comparison, in the next phase people started to travel by rail. A journey from Stockholm to Gothenburg admittedly took 11 hours and 45 minutes in 1865, but that was nothing compared with a horse-drawn carriage. Travelling became quicker and more efficient; people gained new impressions and learned new things. Sweden became smaller. Today we travel on the Internet by gathering information simply and efficiently from all over the world, largely for the price of a local telephone call. Millions of people in all parts of the world are indeed using this facility and in that sense the world has now become smaller. | In particular, BELab has been created with the aim of providing the research community with greater access to high-quality microdata, in a controlled environment that ensures data confidentiality, through on-site or remote means depending on the sensitivity of the data. The microdata available at BELab include the Survey of Household Finances, the Survey of 1 Financial Competences, the balance sheet data of non-financial corporations and microdata on loans to legal persons. I would strongly encourage all of you to have a look at these data, because I honestly believe that allowing independent researchers to access high-quality data is a necessary step to enhance our knowledge of the Spanish economy. And this annual conference specifically should be seen as another step in furthering our commitment to research as an indispensable tool for improving economic policymaking, in this case with the focus on understanding and monitoring developments in the Spanish economy as a basis for promoting well founded economic policy decisions. We wish to strengthen our interaction with the research community in this field as a way of better discharging our legal responsibility to provide advice to the Spanish governments on economic policy matters. And related to this responsibility, the annual report of the Bank, that it´s regularly presented to Parliament, offers an analysis of recent developments in the Spanish economy within the global setting, as well as how it is likely to perform in the future and the challenges it faces. | 0 |
Incidentally, the immediate tests we face are normalising fiscal policies once the recent improvement in the economic outlook proves to be sufficiently sustainable and adjusting the extraordinary monetary policy measures we introduced once the ECB’s medium-term inflation target is considered to be sustainably achieved. Going forward, the challenge is how to enshrine this success story in a stable and predictable framework, while also taking into account a number of additional challenges that lay ahead. As I said earlier, to ensure a proper operation of the policy mix in the euro area a number of reforms are needed in several areas. First, a meaningful revision of the European fiscal framework entailing a paradigm shift that incorporates supranational elements of fiscal burden-sharing, while at the same time guaranteeing full national responsibility. Second, a European, medium-term, economic growth-enhancing agenda promoting the development of a flexible, thriving economy, while pursuing deep reforms in all 10 corners of the euro area, and the EU in general. Third, the completion of the banking and capital markets unions, to cement a framework that genuinely cushions macro-financial shocks and provide an optimal environment to channel private investment for the climate and digital transitions. 11 | Eventually, they raised the credit rating of the Kingdom to advanced grades. This environment promoted the interest of foreign investors to participate in and benefit from the various investment opportunities available in the Saudi economy. The Saudi banking system has played a vital role in the enhancement of the national economy. Thanks to its use of the latest technologies and various banking products, the banking system has witnessed good development under a supervisory system which is very keen to meet domestic requirements and legislation and to comply with international standards, including Basel Capital Adequacy Standard. The banks operating in the Kingdom are very serious in the application of this standard. As a result, the Kingdom's banking system has become one of the advanced systems, not only at the regional level but also at the international one. Dear Audience, Basel II Standards are the most important supervisory initiatives of this decade, and they will have a considerable impact on changing the conduct of risk management at all banks regardless of their size and location. The Standards aim at achieving a number of objectives, including ensuring the capital adequacy of the banking sector to encounter any latent risks and the assessment of banks' risk management systems so that the supervisory authorities could ensure that they are appropriate, in line with the risks that banks might encounter, and up to the best banking practices in the area of effective banking supervision. | 0 |
Immediately after each meeting, the Bank issues a press release and holds a press conference. The key interest rate is set on the basis of an overall assessment of the inflation outlook two years ahead. Our inflation projections and our views on the balance of risks associated with these projections provide a summary of these assessments. Norges Bank’s inflation projection is our assessment of the most probable outcome of the rise in CPI two years ahead. In setting interest rates we also place emphasis on the probability distribution – or the balance of risks – surrounding the projection. Therefore, we also publish our judgement of the risk associated with our own projections. The phasing in of petroleum revenues has to be counteracted by a tighter monetary policy than would otherwise be the case. This may be accomplished through an adjustment of the interest rate, an appreciation of the krone or both. Small countries have experienced fairly wide exchange rate fluctuations. The Swedish krona has depreciated by more than 10 per cent since summer 2000. The Australian dollar has weakened by BIS Review 18/2002 1 over 30 per cent since spring 1997. The UK, Canada and New Zealand have also experienced wide exchange rate fluctuations. The Norwegian krone, on the other hand, has been relatively stable. A monetary policy that is oriented towards low and stable inflation will contribute to stabilising aggregate demand and output. As a result, the central government budget will not normally have to be used actively to stabilise the economy. | Although the short-term interbank interest rates have come down to low levels very quickly, the interest rates for the 1-month maturity and beyond had stayed above 10% for a longer while. However, since mid-November the term interest rates have also eased steadily, with one month rate falling to 7.5% early this week. While some may regard the present levels of interest rates as too high and the correction in the stock market and property market too painful, they have missed a vital point when they put all the blame on the linked exchange rate system. This is because they have assumed, quite wrongly, that under a floating rate system, Hong Kong interest rates can stay constant or low compared with what they are under the linked exchange rate system. Moreover, they assume that the asset markets would have avoided the kind of sharp falls that we have experienced. This is an unrealistic assumption because the financial turmoil in our neighboring economies is a regional or even global problem from which Hong Kong cannot be immune. 4. It may be easier to explain my point by comparing Hong Kong with our neighboring economies. You are of course aware that the regional stock markets, including Hong Kong, have seen major corrections recently. | 0 |
However, the announcement in the past week by a few jurisdictions in our region of blanket government guarantees on all bank deposits could potentially have a more direct impact on Singapore. Last Thursday the Singapore Government announced a guarantee on deposits of individuals and non-bank customers with banks, finance companies and merchant banks in Singapore until 31 December 2010. We have decided that such a guarantee is necessary for the following reasons. First, the guarantee ensures a level international playing field for banks in Singapore. The recent announcements in the region of blanket government guarantees on deposits set off a dynamic that puts pressure on other jurisdictions to respond or else risk disadvantaging and potentially weakening their own financial institutions and financial sectors. If Singapore had not introduced a similar guarantee, there was a real risk that depositors would have shifted some of their deposits out of Singapore banks, to banks in other jurisdictions which guarantee deposits. This would have weakened financial institutions here. The Government has therefore taken a precautionary step to pre-empt and avert any such possibility. Second, the guarantee bolsters the confidence that the public has in Singapore’s financial system. It provides certainty to Singaporeans during such challenging and uncertain times in the international environment, notwithstanding that in Singapore our institutions are fundamentally sound. Third, financial services are an important pillar of Singapore’s economy, accounting for 12% of GDP and 5% of Singapore's employment. | To give another example, under the transposition of the second European Payment Services Directive (PSD2) in 2018, third-party payment service providers – which do not hold client funds – are subject to reduced annual reporting requirements. However, this proportionality does not mean being less demanding, especially with regard to the fight against money laundering. The general principle of “same activity, same rule” must apply. Indeed, it is in the Fintechs’ own interest that we should help them to apply the regulatory framework. We also want to help them when new rules are put in place. Under the PSD2 framework, the ACPR was the first European authority to grant authorisations for payment initiation and aggregation services. In total, it has authorised more than 20 actors to offer these new services since 2018. It has also worked to promote the development of open banking, by making sure that all actors can work together on the deployment of APIs. The eight workshops this afternoon, led by experts from nearly all of the ACPR’s directorates, are testament to the focus we place on teaching and informing. But if we can do even better, even more, tell us today. I shall finish by focusing on the ACPR-AMF Fintech Forum which is what brings us here today. Created in 2016, it is a forum for exchange which we try to make as efficient as possible by setting up, where needed, targeted working groups to make concrete progress on key topics. | 0 |
This of course did not mean that we ceased to concern ourselves with the problems associated with debt and housing prices. Throughout this entire period, we have highlighted this development in our communication as a significant risk in the Swedish economy that needs to be dealt with but that we do not have the scope to address under the prevailing circumstances. I would say that it is largely differences in confidence in the inflation target that explain why Norway, for example, has been able to conduct a different monetary policy to the one pursued in Sweden after the financial crisis. Confidence in the target does not seem to have been threatened in the same way in Norway as in Sweden. But when it is threatened, I think it is very difficult to refrain from redirecting the policy and prioritising the inflation target. Naturally to prioritise the inflation target when confidence in it is threatened As far as I am aware, this confidence effect has so far not been considered very much in the research, if at all. The costs of “leaning against the wind” are typically assumed to arise in the short term, in the form of lower inflation and growth. But the sense that we did not take rates down as quickly as we could have done considering the outlook for inflation alone.” 5 [21] it might also be the case that confidence in the inflation target risks being lost in special circumstances. | The tendency to leak will of course be higher the greater the tension is between the policy rate and the shadow interest rate that ensues from the regulations and the longer the interest rate differential lasts. 3 [21] economy and how great the cost is of the crisis that is possibly avoided or mitigated. To investigate this, theoretical models and simulations in quantified models have been used. 8 It is perhaps not particularly surprising that whether it is considered a good or a bad idea to use monetary policy to counteract financial imbalances largely depends on the assumptions made and how the model is designed. My interpretation of the literature is that it is not leaning clearly in either direction. 9 Taking a step away from the research literature, what does it look like in practice? As academic research has not come to any clear conclusion, it is perhaps not so surprising that central banks have slightly different opinions. Many central banks, for example the US Federal Reserve, seem sceptical to using the policy rate to counteract financial imbalances, other than possibly as an absolutely last resort, if nothing else proves effective. 10 But there are also central banks that have made a “leaning against the wind” policy into an integrated part of the monetary policy set-up. Perhaps the clearest current example is Norges Bank. Norges Bank’s remit refers, on the one hand, to regulations and the supervision of financial institutions being the most important means of preventing shocks in the financial system. | 1 |
The officers responsible for supervision will naturally be more conservative than those promoting the financial sector. Managed well, this tension is constructive. Officers must continue to speak up and express their views, even though they may sometimes be overruled. With this approach to regulation, it is imperative for MAS to foster closer cooperation with the industry. We have made a serious effort to build a constructive exchange and dialogue with the private sector. We must continue to strengthen this culture of openness. Central bankers must treat some matters with the utmost discretion, to be discussed only in hushed tones among a select priesthood. But we cannot do all our business this way. In our day-to-day dealings with the financial institutions, we have to be constantly willing to explain the rationale for decisions and policies. At the same time, we must listen to proposals and ideas from the industry and feedback. As we continue to liberalise, we will need inputs from industry participants on many issues. We have to understand the industry’s point of view, and yet not be captured by the industry we are regulating. This mindset must permeate the whole of MAS, to every staff member. 5. Industry specific issues Banks The first priority for banks is to upgrade their capabilities and strengthen their management teams. This is the only way for them to hold their own in the new environment, either by themselves or linked up with others in a strategic alliance or merger. | In Asia, this will pose a strong challenge to Singapore, because it will strengthen the tendency for a single major hub to emerge, rather than several smaller ones. Tokyo will perforce be the biggest financial centre in our time zone, because of the sheer size of Japan’s investment funds and its economy. But Tokyo has significant limitations - a high cost structure, domestically oriented financial markets, consensus-based decision making, and not least, a lack of English speakers. This creates room for at least one other major financial hub in Asia. Singapore enjoys good economic cooperation with our Asian partners. We are well-placed to service the region, whether it is PSA, Changi Airport, or financial services. As the region recovers and grows, we hope to prosper together with Malaysia, Indonesia and Thailand. But our relationship with them is qualitatively different from Hong Kong’s vis-à-vis China. Besides, Southeast Asia is a smaller hinterland than China. Therefore for Singapore to grow as a hub, we must extend our catchment area beyond Southeast Asia. Our orientation must be international, and not just regional. We have done this before. This is how we became the fourth largest forex centre globally and the leading centre for global derivatives trading in the Asian time zone. The challenge is to repeat this feat in new areas of competence. Developed markets and global players are already our customers. Singapore can be a portal, an intermediary or a market for them. Finding the right partners in strategic alliances will be critical. | 1 |
A summary of the information gathered from these talks has been published in a quarterly report for some time now. We have redesigned this report to coincide with today’s monetary policy assessment. The aim of the new design is to allow readers to interpret the results of the talks at a glance. In addition, the text is supplemented by charts to enable comparisons over time. A structured approach, both with regard to conducting the surveys and to selecting the companies, forms the basis for the compilation of such time series. In redesigning the report, we also changed the title from ‘Business cycle trends’ to ‘Business cycle signals’. I am pleased to be able to present you with the delegates’ new ‘Business cycle signals’ report today. It will continue to be published as part of the SNB’s Quarterly Bulletin. Ladies and gentlemen, thank you for your attention. It is now my pleasure to give the floor to Fritz Zurbrügg, who will present this year’s Financial Stability Report. Page 4/4 | This conference will provide an opportunity to reassess our traditional views on many of the issues before us. On this note, I wish you a very engaging and substantive conference. 2 BIS Review 20/2009 | 0 |
Both the force and speed of action has increased substantially. But all of this concerns how one can avoid crises, not how they should be managed once they occur. Nor did the Larosière group discuss, other than marginally, crisis management or winding up insolvent banks. However, the European Commission’s newly-published proposal does deal with this, and so do new UK and US legislation that have arisen since the crisis. This is, of course, an important step in the right direction. Greater clarity with regard to how banks should be wound up will to a great extent affect both how the supervision is designed and how the banks act. As I said, it is wise to begin at the other end.11 …but difficult with cross-border agreements However, the focus in the legislation, naturally enough in the UK and US legislation, but also the European proposal, is on how to manage national banks in distress. The cross-border problems are avoided to a great extent, even in the Commission’s report. The fact that an integrated financial system in Europe also requires methods to resolve cross-border crises remains to be discussed. And of course this is connected to what I mentioned earlier, namely that it is much too sensitive an issue to discuss how the costs should be divided. 10 The supervisory heads do not have the right to vote in the ESRB. A 2/3 majority is required for recommendations and decisions on publishing warnings and recommendations. | Of course, the financial crisis was due to many factors acting together. But one of the most important lessons was that one should beware of allowing debts to grow too much. This applies equally to households, companies and governments. This is neither a particularly surprising nor especially new lesson; over several hundred years, financial crises have often been preceded by periods when the attitude to credit granting and lending has been too carefree. But it seems as though this is a lesson that we must experience again and again – at least once a generation, and perhaps even more often. BIS central bankers’ speeches 1 A rapid and substantial credit expansion can cause many different problems. If the expansion is characterised by an exaggerated optimism and an underestimation and underpricing of risk, large loan losses may arise in the banks when the sentiment changes. This can lead to banks failing and ultimately to a financial crisis. We experienced this in the 1990s, and Spain and Ireland are experiencing it now. Once the economy has entered a recession after a period of rapidly-increasing indebtedness and rising asset prices, the recovery from this level may be very slow. The reason is that the economy then often enters what is known as a balance sheet recession.1 Put briefly, what this means is that the economic agents need time to adjust their balance sheets if, for example, property prices have fallen. Their incomes will for some time to come be used for amortisation rather than consumption and investment. | 1 |
Given the importance of the US dollar in trade, debt issuance by the non-financial corporate sector in EMEs, and funding for their domestic banks, most of these reserves are dollar-denominated. As well as coming at a domestic high cost to EMEs,22 this vast accumulation of safe assets has pushed down the global equilibrium interest rate – the rate that central banks must deliver in order to balance demand with supply and so achieve stable inflation.23 More fundamentally, by making the world a riskier place, the flaws inherent in the IMFS are reinforcing the downward pressure on global r*. The IMFS is not only making it harder to achieve price and financial stability but it is also encouraging protectionist and populist policies which are exacerbating the situation. This combination reduces the rate of global potential growth, increases its downside skew, and bolsters the likelihood of an extreme downside event (a fatter left tail). As my colleague on the MPC Jan Vlieghe has illustrated, such a change in the distribution of economic outcomes reduces the global equilibrium rate of interest.24 Past instances of very low rates have tended to coincide with high risk events such as wars, financial crises, and breaks in the monetary regime. Whether the last happens is still within our control, but for now the lower global equilibrium interest rate is reducing monetary policy makers’ scope to cut policy rates in response to adverse shocks to demand, and increasing the risk of a global liquidity trap. | Øystein Olsen: The conduct of monetary policy Introductory statement by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 4 May 2015. * * * Please note that the text below may differ from the actual presentation. Accompanying charts can be found at the end of the speech or on the Norges Bank’s website. I would like to thank the Chair of the Committee for this opportunity to report on the conduct of monetary policy. My introduction here today is based on Norges Bank’s Annual Report for 2014 and our monetary policy assessments up to the monetary policy meeting in March. Chart: Inflation and projected capacity utilisation Monetary policy in Norway is oriented towards keeping inflation low and stable. The operational target is consumer price inflation of close to 2.5 percent over time. The inflation target provides the economy with a nominal anchor. Inflation has edged up in recent years and hovered around 2.5 percent through 2014. When inflation expectations are firmly anchored, monetary policy can serve as the first line of defence when the economy turns down. Monetary policy seeks to be robust and takes into account the risk of particularly adverse economic outcomes. The goal is to avoid an abrupt economic downturn and higher unemployment. In the event of major shocks, for instance a sharp drop in oil prices, this may imply a more active monetary policy than normal. | 0 |
The first pillar: maintaining stability Distinguished guests, With an increasingly globalized economy and financial markets, the world is irreversibly and ever more interconnected. As a small member in the global community, we have no choice but to take this trend as given, and focus on fortifying the economy’s resilience against currents of uncertainties. The financial environment today continues to be shaped by the legacy of the global financial crisis. As the Federal Reserve continues to scale down its unconventional monetary policy and normalization of their policy rate looms, many emerging economies may experience sporadic fluctuations of capital flows and asset prices – be they in the bond, equity, or foreign exchange markets. So-called QE taper tantrum last year did BIS central bankers’ speeches 1 prove disruptive for some members of the emerging markets club. That experience highlights the importance of maintaining sound macroeconomic fundamentals in order to foster the economy’s resilience against shocks of external kind. Despite higher global interconnectedness, investors do differentiate at the margin. Those countries with stronger macroeconomic stability both experienced less volatile capital outflows, and are less disrupted by them. This is not to say that financial market rationality can always be counted upon. Global fund flows may also be subject to fads, speculation, and short-termism. Left on its own, the resulting financial market volatility could prove damaging for overall macroeconomic stability. The policymakers have an important task of pre-empting such excessive and unjustified volatility. Thailand has had its fair share of volatile capital flow episodes in recent years. | In addition, a number of investment projects are extremely foreign exchange-intensive because of imports. The króna could depreciate as a result, with heavy outflows of foreign currency, even if there were ample opportunities for investment. This is the problem the liberalisation strategy is attempting to solve. Emphasis is placed on protecting the foreign exchange reserves by converting short-term claims against domestic entities to long-term investments to the extent possible. The Central Bank acts as an intermediary, and the auction format ensures that only a small portion of the foreign exchange reserves are in play at any given time. The auction format also ensures that transfers of banking system liquidity will not be large enough to jeopardise the system’s stability. The foreign exchange reserves are protected as well by the requirement that investors bring foreign currency into the country and exchange it for krónur in the domestic market. This will offset the foreign exchange outflows that often accompany new investment. Another important aim of the strategy is to ensure short-term Treasury financing. Even though significant progress has been made in controlling the fiscal deficit after the crash and halting the accumulation of unsustainable debt, it is important not to underestimate the current dependency of Treasury financing on the capital controls. More than half – and, in some instances, as much as ¾ – of the stock of short-term Treasury bonds is held by nonresidents. | 0 |
Or were high interest rates on the contrary needed to prevent the flight of necessary capital, a weakening of the exchange rate and the failure of companies with foreign-currency debt? Or was it perhaps the case that the high interest rates led investors to expect additional business failures and social unrest, so that they withdrew their capital for precisely this reason? As we do not know what a different direction of policy would have led to, even today we cannot tell what would have been most appropriate. But we do know that the tight nature of many of the programmes was eased as time went by, partly as the crisis became less acute and the shortage of foreign currency less troublesome. Another question concerns the structural changes and reforms that were required in connection with some programmes. Such conditions may be justified as regards the banking sector or bankruptcy proceedings, for example, as these are often clearly a part of the problems. They are more questionable, however, when they concern components of the economy that are not self-evidently connected with the current stabilisation problems. There were elements of this in, for example, the programme for Korea, which stipulated measures for the liberalisation of imports. Such matters are BIS Review 2/2002 5 liable to discredit the IMF, besides leading to the IMF’s proposals encountering more opposition than otherwise in the borrower countries. | Country crisis programmes and IMF stipulations A third topic in the ongoing globalisation debate is the role of the international financial institutions, not least in the management of financial crises in recent years. The International Monetary Fund (IMF) has 4 BIS Review 2/2002 been criticised in particular from both the left and the right of the political spectrum. On the one hand the IMF has been accused of pumping in too much money in the form of massive support for countries with a medium income level and thereby disrupting the market’s normal credit assessments by protecting private creditors from losses. On the other hand, the measures required of individual countries have been said to be inappropriate and unduly harsh, leading to negative economic, social and political effects. During the past decade the IMF has provided support for countries with payment difficulties. This has amounted in practice to guaranteeing short loans in particular so that the country in question did not have to engage in onerous renegotiations with creditors and perhaps ultimately suspend payments, with serious potential consequences for its economy and standards of living. It is debatable whether this approach is sustainable in the longer run, although in each case acceptable alternatives have been hard to find at the time of the crisis. One consequence, of course, is that for such countries borrowing has been ‘cheaper’ than would otherwise have been the case. | 1 |
Benoît Cœuré: Monetary policy and climate change Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at a conference on "Scaling up Green Finance: The Role of Central Banks", organised by the Network for Greening the Financial System, the Deutsche Bundesbank and the Council on Economic Policies, Berlin, 8 November 2018. * * * 2018 has seen one of the hottest summers in Europe since weather records began.1 I would like to thank Torsti Silvonen, Fabio Tamburrini and Sam Langfield for their contributions to this speech. I remain solely responsible for the opinions contained herein. Increasing weather extremes, rising sea levels and Arctic melting are now clearly visible consequences of human-induced warming.2 Climate change is not a theory. It is a fact. While only one dimension of the human cost, the consequences in macroeconomic terms look set to be large. Without further mitigation, cumulative emissions pose significant risks of economic disruption.3 While there is a wide recognition that environmental externalities should be primarily corrected by first-best policies, such as taxes4 , all authorities, including the ECB, need to reflect on, and consider, the appropriate response to climate change. In recent years, central bankers, led by Bank of England Governor Mark Carney, have started discussing the financial stability implications of climate change.5 The first tangible results are trickling in. The Financial Stability Board’s Task Force on Climate-related Financial Disclosures published its first status report just a few weeks ago. | Sixth, the labour market will undergo a major adjustment. Jobs will be lost in traditional carbon-intensive sectors but new jobs will be created in carbon-neutral industries. It is estimated that about 200 million jobs would be created and 185 million lost globally by 2050 from a net-zero transition. There will be a period of net job losses during the transition: foundry workers will not instantaneously be transformed into building-insulation experts. Worker reskilling and redeployment will thus be crucial. Identifying skills adjacencies will be a key part of worker retraining programmes. In Singapore, a comprehensive strategy to green the economy is taking shape, with a focus on boosting energy and resource efficiency and creating good jobs. 6/9 BIS central bankers' speeches In the petrochemical industry, all the major players have committed to reach net zero by 2050 and government agencies, industry players, and research institutes are developing capabilities in carbon capture and storage technologies. In the maritime industry, investments are being made to help our port terminals become net zero by 2050 and support the provision of low and zero carbon marine fuels such as ammonia, hydrogen, and biofuels. In road transport, Singapore aims to do away with the internal combustion engine and switch to electric vehicles by 2040. Singapore enjoys a trust premium; many emerging green services, like the trading of carbon credits and monitoring, reporting, and verifying carbon emissions, are built on trust. TRANSITION FINANCE The fourth enabler for the path to net zero is transition finance. | 0 |
The stock of private productive capital (relative to employment) has increased by 40%, and much the same can be said of the stock of residential capital (relative to the population). The stock of public capital, essentially comprising transport, health, educational and other infrastructure, has almost tripled in real per capita terms over this period. Government spending on education and health has risen twofold. The percentage of the adult population with intermediate and higher studies has increased by 28 pp and 20 pp, respectively. Moreover, since 1978, the Spanish population has grown by over 10 million, and the number of people in work has risen by more than 8 million, including over 6 million women. This has raised the female participation rate from a mere 28% to 54%. Overall, economic success in the democratic era can probably be put down to a combination of our economic integration into Europe, the consolidation of stability-oriented economic policies, the development of our welfare state and the modernisation of our tax system. Against this backdrop, I would like to focus my address on the outstanding structural challenges and the economic policies best equipped to address them, as further explored in the Banco de España's latest Annual Report, published in May. These challenges can be illustrated, first of all, by acknowledging the Spanish economy's failure in recent decades to converge consistently towards the per capita income levels of the euro area. | In this regard, the main challenges facing us all (including the financial sector) when it comes to managing these risks are plain to see. Among others, I would single out a lack of harmonised definitions, ESG data gaps and the ability to measure impacts. With this in mind, I will now address certain key aspects that concern all sectors, and not just the financial sector. Main regulatory initiatives We authorities, regulators and supervisors have been shaping the regulatory framework for appropriate management of this risk. This is still an ongoing task, but important progress has been made. At the European level, I would highlight the following: first, the EU Taxonomy Regulation,13 which establishes the bases for determining when an investment or economic activity may be considered environmentally sustainable, and lays the groundwork for other European sustainable finance regulations; and second, Directive (EU) 2022/2464 (CSRD)14 on corporate sustainability reporting, published on 14 December 2022, which updates and reinforces the rules on environmental and social reporting by the companies concerned, which are large undertakings (defined as those that meet at least two of the following requisites: balance sheet total over € million, net turnover over € million or average number of employees over 250), along with listed small and mediumsized undertakings.15 13 Regulation (EU) 2020/852 14 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464 15 Article 19 bis of Directive 2013/34/EU amended by the CSRD. | 0 |
Now I do wonder if some of you expected me to give a speech about what we can’t do. You might have expected a lecture about how sustainable growth is impossible without financial stability. You might have expected warnings that undermining our primary objectives will increase the probability and severity of crises, whilst decreasing the ability of finance to support economic recoveries. These things are indeed true, and colleagues of mine have argued these points in public. [3] So I will not repeat my colleagues’ arguments today. Not because I don’t agree with them (I do). Page 4 But because I want to talk about the other side of things. About what we can, and about what we will, do differently because of the new objective. And this is because industry thrives better when trusted public institutions provide foundations upon which the private sector can build, innovate, and succeed. The PRA must do what it can to strengthen these foundations. [4] In particular, PRA rule making can deliver three things: harness the UK’s strengths as a global financial centre, maintain trust in the UK as a place to do business, and tailor regulations to UK circumstances. The PRA will make rules that harness the UK’s strengths as a global financial centre I believe that the PRA can help harness the UK’s strengths as a global financial centre by providing a high level of responsible openness. Responsible openness is essential to the UK’s success because it is one of the world’s most connected financial centres. | My conclusions are that the financial sector can support the international competitiveness of the UK economy and contribute to growth in the medium to long-term when: UK firms successfully compete to win business around the world; The UK is a top tier global financial hub where firms from around the world choose to do business; and The financial sector supports growth by meeting the needs of the wider national economy. That last point needs emphasising. Finance matters because it does useful things. Financial firms help people and businesses to make payments. They channel savings to businesses with promising projects that create growth. They help people and businesses manage risks. And they give families ways to smooth over shocks to their finances. The more efficiently the financial sector does these things, and the fewer gaps there are in the services it provides, the greater the benefit to the wider economy. Good regulation is a good foundation for success Sadly, the PRA cannot claim credit for success when all these conditions are met. This is because success is primarily driven by the work of the financial services industry themselves. The success of the financial industry is also a consequence of many other factors beyond the PRA’s control, such as a trusted legal system, a competitive tax structure, reliable infrastructure, the selfreinforcing benefits that arise when a skilled workforce and large number of firms converge in one jurisdiction, and even a convenient time zone. Clearly the PRA cannot deliver all of that. | 1 |
The only effect is liable to be increased uncertainty about the future. The criticism, which presupposed that economic agents are rational, also concerned the labour market. In that the Phillips curve disregards a central explanatory variable – inflation expectations – it is not stable over time. A demand stimulus that pushes inflation up erodes real wage levels. Employees will therefore demand compensation for the price increases and the attendant loss of purchasing power. That means that the additional employment which the stimulus was designed to generate will never materialise. Moreover, Keynesian economic policy had already been criticised in the 1930s on the grounds that stimulating demand in a downturn is considerably easier than tightening policy in an upswing. Economic developments in Sweden from the 1970s onwards provided plenty of support for Keynesianism’s critics. Inflation rose at the same time as keeping total unemployment down proved increasingly difficult. Public spending expanded continuously and particularly in downward phases. Government debt grew even though tax pressure rose. A fundamental loss of competitiveness was countered with repeated devaluations. Back to price stability In a number of industrialised countries, economic policy was realigned in the years around 1980. The aim was to provide a good foundation for stable growth by keeping inflation low. In Sweden the corresponding realignment did not occur until the turn of the 1980s. After almost two decades of high inflation, the costs were considerable. The financial excesses that had characterised the late 1980s in particular were ruthlessly exposed when the inflation bubble burst. | The theory is that, in a liberalised global financial system, international capital flows reward countries with sound economic policies and punish those which pursue unbalanced and inconsistent policies. International capital flows also prevent distortions from getting as far out of line as they would if the economy in BIS Review 53/1999 2 question was closed to outside investors. Thus, according to this view, capital flows act as an early warning system that forces quick corrections of policy errors. Undoubtedly, there have been circumstances in the past that have lent substance to this view. In the Latin debt crisis of the late 1970s and early 1980s, for example, many borrowers were clearly pursuing unsustainable and destabilising macroeconomic policies. The resulting outflow of funds and the short-term economic crisis that ensued served to bring policies to task and to trigger lasting economic reforms in some countries, notably Chile. More recent experience, however, raises serious questions about this view of the role of international capital as a robust, reliable and objective referee of the soundness of economic policies. Events during the Asian crisis naturally come to mind. The flight of international capital bore practically no relation to a forward-looking assessment of changes in the policies and macroeconomic fundamentals of the region. It is true that some countries were pursuing quasi-fixed exchange rate regimes that may have allowed pressures to build up for too long. | 0 |
The questions about trend productivity and other matters that may have altered the relationship between growth and inflation are one of several elements of uncertainty in the Riksbank’s forecasting 3 BIS Review 28/2000 work. When constructing assessments and material for decisions it is therefore important to check what is happening and be alert to any signs of changes that should be taken into account. The current assessment The Inflation Report we are publishing today presents a picture of the Swedish economy that remains bright, with good growth and moderate, though rising inflation. External economic prospects have gone on improving. It is above all GDP growth in the US economy that continues to be remarkably positive but it also looks as though growth in the euro area and the United Kingdom could be higher than assumed earlier. International consumer prices, however, are not expected to move up to the same extent. Less relaxed monetary policies among a number of central banks and growing pressure from international competition are judged to hold external prices back. But partly because the krona is not expected to appreciate quite as rapidly as we counted on earlier, import prices to producers are now assumed to be somewhat higher. On account of strong competition, however, we do not foresee a full pass-through to consumer prices. Domestic demand is also expected to be stronger than we foresaw in the December Report, notwithstanding the subsequent repo rate increase of 0.5 percentage points. | Part 1: The digitalisation of financial services and their potential impact on Europe’s market infrastructure • Technical innovations in financial services will be among the key focal points for the Eurosystem over the next few years; • In my article, I address four key topics where innovation in financial services will have to be tackled in the coming years: A) pan-European instant payments; B) person-to-person mobile payments; C) the emergence of new (non-bank) service providers; D) distributed ledger technology (DLT). A) Pan-European instant payments • In 2015, the Euro Retail Payments Board invited the European Payments Council to develop an instant payment scheme for euro payments based on the SEPA credit transfer; • the implementation of this scheme is foreseen by November 2017; • By that time, end-user solutions for instant payments in euro should be made available at the pan-European level by the payment service providers; • This means that by November 2017 the European financial market infrastructure has to be ready to clear and settle instant payments on a pan-European scale; • As an operator of market infrastructure, the Eurosystem is exploring how to support the settlement of pan-European instant payments. | 0 |
Tools which act on liquidity risk – minimum liquid asset requirements, restrictions or gates on liability redemptions – may be more suitable. Second, procyclicality. Asset management has at least the potential to amplify pro-cyclical swings in the financial system and wider economy. If so, it may contribute to the mis-pricing of risk with risk premia undergoing cycles of feast and famine. That still leaves some big questions begging. How large are these mis-pricing cycles? How do they affect risk-taking in the financial system and activity in the wider economy? And, if so, how best can public policy modulate those cycles? At present, we do not have good empirical answers to any of those questions. Jeremy Stein at the Federal Reserve Board has recently offered some answers (Stein (2014)), drawing on work by Feroli et al (2014). He notes that portfolio adjustments by asset managers can cause abrupt and asymmetric adjustments in risk premia which may have a significant impact on economic activity and systemic risk. On that basis, he makes a case for monetary policy leaning against financial market vulnerabilities, even when they are not sourced in leverage. The evidence here is fully consistent with Stein’s and Feroli et al’s: the behaviour of unlevered asset managers may have the potential to induce pro-cyclical swings in portfolio allocation and in risk premia, with damaging consequences for systemic risk and economic activity. But whereas Stein discusses the role of monetary policy, a natural first line of defence against such swings is so-called macro-prudential policy. | 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 |
The same applies to net foreign debt, where Iceland will be even more of a middle-of-theroad country when the dust has settled and the failed banks have been wound up, as can be seen from Graph 7. BIS Review 139/2010 7 When the economy has stabilised and sovereign debt concerns have subsided, what are the key economic challenges facing Iceland? At the most fundamental level, they could be captured in one sentence: create the conditions for robust growth and reintegrate Iceland into international capital markets. But there are many elements that must fall into place if this is to happen. The Central Bank has been predicting that recovery will take hold in the second half of this year, which means that recovery should have started by now. There are actually signs, but not hard data, to support this. But it is not a strong or a robust recovery. If it is to turn into a robust recovery, we need much more progress on internal private sector debt restructuring and we must increase business investment from its present historically low level. This, in turn, requires a lower level of uncertainty about future demand and businesses’ operating conditions, and more foreign direct investment would be very helpful as well. If successfully carried out, the removal of the comprehensive controls on capital outflows and the reintegration into international capital markets should also support growth going forward. The Central Bank has stated that there are three prerequisites for taking the next steps in lifting capital controls. | Graph 1 shows the progress that has been made so far with fiscal consolidation and the plans embedded in the fiscal budget for 2011. Provided the plans are carried out, the consolidation involved will be impressive in both historical and international comparison, with a roughly 9 percentage point improvement in the non-cyclically adjusted fiscal balance from 2009 to 2012, even though there will be a significant slack in the economy for most of the period. Although it has been delayed and has faced obstacles on the way, the reconstruction of the domestic financial sector is far advanced. The three major commercial banks have been recapitalised, with foreign creditors taking a majority stake in two of them and the State BIS Review 139/2010 3 holding a majority in the third. At the end of June, all three had capital ratios above 16%, most of it common equity. As a result, Iceland’s banks meet Basel III requirements more than two times over. The recapitalisation of the savings banks is in its final stages. In June of this year, however, question marks were raised about the capital position of the banking system when the Supreme Court of Iceland ruled that linking ISK loans to exchange rates was illegal. The banking system had a large number of such contracts on its books. The precise scope of the problem was uncertain, but more importantly, it was not clear what interest rates these loans should carry when they were no longer exchange rate-linked. | 1 |
This has been associated with the expansion of asset management: as at the end of 2015, the total assets under management of the top 100 asset managers exceeded $ At the same time, there has been a shift of capital flows away from advanced economies to emerging markets. Whereas these economies received less than 10% of cross border flows before the crisis, they have received 25% of those flows since 2009. The growth of market-based finance and asset management is creating new sources of funding, adding welcome diversity to the financial system, particularly for emerging markets. And in some ways these flows are less risky – for example the average maturity of international securities issued by emerging markets is 10 years, reducing rollover risk and exposure to a sudden flight of capital. But market-based flows have risks nonetheless. As Chart 6 shows, portfolio flows to emerging markets have been just as volatile as bank flows once their relative sizes have been taken into account. 14 And Hoggarth et al (forthcoming) find that portfolio debt flows to emerging markets in particular are pro-cyclical, in that they rise when global volatility is low and reverse when global volatility increases, especially when denominated in foreign currencies. So as these gain in importance relative to bank flows emerging markets could have greater volatility inflicted on them by global factors. As well as the type of instrument, risk also depends on who is purchasing those instruments. | There is research underway at the Bank of England which studies the effect of credit growth abroad on 4 financial stability at home, in particular, on the probability of experiencing a banking crisis . It finds that even when domestic credit growth is moderate, elevated credit growth abroad could result in financial instability at home for example by boosting cross-border lending, through spillovers into domestic asset prices or by creating the potential for contagion in the event of a banking crisis abroad. 5 In terms of magnitudes, a one standard deviation in foreign credit growth over five years increases the 6 probability of a domestic banking crisis by around 2 percentage points - a relatively large number given the 3 IMF (2016). Cesa-Bianchi et al. (forthcoming). 5 In this research, domestic credit growth is defined as credit extended by domestic banks to the private non-financial sector in a given country. Foreign credit growth is defined as the average of the growth in credit extended by domestic banks to the domestic private nonfinancial sector in all other countries. 6 On the basis of modelling and assumptions set out in Technical Appendix 1: Foreign credit growth and domestic financial stability. 4 3 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 3 7 overall frequency of these crises is about 3% . | 1 |
11 Carhart M. (2003), “Global Tactical Asset Allocation” in Litterman R. (ed) “Modern Investment Management”, Goldman Sachs Asset Management, John Wiley and Sons, New Jersey, 2003. 12 Solnik B. (1974), “Why Not Diversify Internationally Rather Than Domestically?” Financial Analysts Journal. 30, 4 (July/August 1974). Reprinted in Financial Analysts Journal. 51, 1 (January/February 1995). 13 Stewart F., Pension Fund Investment in Hedge Funds, OECD Working Papers on Insurance and Private Pensions, No. 13. OECD September 2007. 14 Survey on investment regulations of pension funds, OECD, July 2007. 4 BIS Review 134/2007 4. payment systems, which process the cash settlement of a transaction, Beyond doubt, this model is simplified a bit and serves only as a starting point for further analysis. I would like to confine it to two elements: securities settlement systems and payment systems. Securities settlement systems and payment systems currently comprise a couple of large systems of international, pan-European or even global character (e.g. CLS) operated either by private institutions (Euroclear, Clearstream, EURO1 and STEP2) or by central banks (TARGET) as well as by many domestic and local systems, including central depositories of securities and depositories maintained by central banks, clearing houses and other systems, e.g. card systems. On account of the adopted diverse legal and market solutions, the present system of capital market infrastructure cannot be deemed optimal. | Christian Noyer: Spheres of influence in the international monetary system Speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Round-table 1 “Fragmentation Risk in Financial Services: A Retreat From Globalization?”, 21st Conference of Montreal, Montreal, 8 June 2015. * * * For many casual observers, there is a close link between money and geopolitics. Historically, money is an attribute of the Sovereign. It can easily be seen as an instrument to project power and influence. There are numerous instances over the last two millennia where monetary power has been used to finance military expansion or, more simply, to assert and exercise government authority. I would not go as far as Michael Bordo and Angela Redish who state, in a recent paper, that “the chronology of monetary history is driven by warfare”; but there is some historical truth in their assertion. Today, however, we live in a regime of fiat money with independent Central Banks in most advanced and emerging economies. Money is not supposed to serve any other purpose than help the economy to function and stabilize through its three main – technical – attributes: as a medium of exchange, a unit of account and a store of value. Yet, the language of geopolitics still permeates the discussion on the international monetary system. Eminent authorities, for instance, casually talk about “currency wars”. | 0 |
Moving forward, the ASEAN Strategic Action Plan for SME Development 2016–2025 will also focus on promoting productivity, technology and innovation, access to financing, enhancing market access and internationalisation, while also enhancing the policy and regulatory environment, and promoting entrepreneurship and human capital development. 2 BIS central bankers’ speeches Fifth and finally, SMEs in the region will also benefit from ASEAN’s strategic economic linkages with the greater Asia and with other parts of the world, including the advanced economies and other emerging regions. Several countries have entered into bilateral agreements, including trade agreements with ASEAN to enhance economic cooperation. These multilateral and bilateral engagements have the potential to create many new business opportunities for ASEAN SMEs. Greater financial integration as a catalyst of growth for SMEs Let me now turn to the prospects for greater regional financial integration and its potential to support growth for the ASEAN SMEs. Given the region’s high savings rate of approximately 30% of GDP, there is immense scope for greater financial integration in the region. An intensification of financial integration in ASEAN will serve to enhance the more effective intermediation of funds and thus the efficient allocation of resources in the region, thereby acting as a catalyst to achieve a growth that is mutually reinforcing for the economies in the region. This will allow for excess savings in one country to be channelled into productive investments in another country within the region. | This is critical to ensure the benefits of regional integration are experienced by all in the region. Conclusion While the future for ASEAN looks promising, ASEAN businesses, including SMEs, need to consider and explore an ASEAN strategy and to view ASEAN as an increasingly integrated market. Having such regional or international perspectives may prove to be a game changer for SMEs, paving a path towards sustained growth, increased job creation, and higher innovation capacity. A crucial element in the ASEAN economic agenda is the development of the SME sector which will contribute to stronger and more equitable growth in the region. The next frontier for SMEs is to emerge as regional players that are not constrained by the domestic consumer base. SMEs possess the potential to participate in global production networks by riding on ASEAN’s intrinsic strengths and prospects, multiple SME-focused policy initiatives as well as the continued wave of regional financial integration. This will allow for the transition for SMEs to benefit immensely from the ongoing regional economic and financial integration and thus contribute towards a balanced and sustainable growth of our region. 4 BIS central bankers’ speeches | 1 |
On the upside, there were price rises associated with the early supply- side disruptions and frictional costs of adjusting supply chains, that fortunately proved mostly transitory and “second order” in terms of contributions to overall inflation. But these cost-push factors could well rise again and thus bear close monitoring. 8. In the labour market, it is noteworthy that wages did not fall in several major economies. Wage growth was 4.8% in the US last year, 2.7% in the Eurozone, 4.3% in China, and 1.4% in Singapore. Part of this reflected some degree of nominal wage rigidity, induced by the roll-out of substantive wage subsidies meant to reduce the incidence of job separation in the initial stages of the crisis. Another statistical issue may have led to mismeasurement here. As a disproportionate number of lower wage workers became unemployed during the crisis, more so than during earlier downturns, compositional changes in employment would have led to overestimates of wage growth. The usual aggregate average wage series are typically not based on a fixed set of jobs or workers in continuous full-time employment. [1] 9. Second, at this stage, the risk of disinflation has receded as prices are off their local minima and underlying cost and consumer price pressures are picking up, though only gradually alongside the growth rebound. The IMF generally expects contained inflation pressures in most countries [2] . Higher commodity prices will mechanically raise consumer price indices in the short term. | BIS Review 27/2004 1 | 0 |
In Sweden there is a central counterparty – NASDAQ OMX Derivatives Markets – for derivative instruments that are traded on OMX. There was until recently no central counterparty for spot transactions in Swedish shares and interest-bearing securities. With the creation of new trading facilities in Europe, however, clearance of Swedish shares through a central counterparty is now possible. 3 In October it was announced that a central counterparty service will also be provided in future for spot share transactions on OMX Nordic Exchange Stockholm. The tendencies I have just mentioned indicate an explosive development. What will be its consequences for the Swedish financial infrastructure? The Swedish systems will indeed be wholly or partly replaced by or linked up with systems elsewhere. This means that to a growing extent, securities trading, clearance and settlement will be arranged outside Sweden. As integration increases, national securities markets and financial infrastructures will become more and more intertwined. For the Riksbank it is important that the systems in the Swedish infrastructure work safely and efficiently – even if they are in foreign ownership and located abroad. Coping with the increased integration entails new and stronger demands for joint solutions and cross-border cooperation. There is much to be done in all these respects. In order to oversee the foreign systems that affect the Swedish infrastructure, the Riksbank will be cooperating with other central banks. Counterparty risks and insufficient market transparency In the light of what I have just described, it is clear that trading, clearance and settlement are changing rapidly. | If the fixed-income market is to perform its important function, more is needed than participants who set prices for the various assets. There must also be participants who trade actively at those prices. Neither must the counterparty risks be perceived as unduly high because that may deter participants from trading. Moreover, the market must be capable of handling large volumes without this by itself having an appreciable effect on prices. In other words, the market should be adequately liquid. Why is liquidity important for monetary policy? The answer is that in a liquid market, relevant news shows up quickly in interest rates. An adjustment of the Riksbank’s repo rate, for example, has a rapid pass-through to the short market rates, as well as to somewhat longer rates. This applies, of course, in so far as the repo rate adjustment takes the market by surprise. If market participants instead understand how the Riksbank interprets new information in the form of macroeconomic outcomes, they can draw conclusions about the Riksbank’s future actions. News is then reflected in the formation of interest rates at the time when the macroeconomic outcomes are known. The relevant interest rates also react quickly to various forms of information from the Riksbank. Somewhat longer interest rates may be affected, for instance, when we publish a repo rate forecast, a so-called interest-rate path that presents the Riksbank’s assessment of the future development of the policy rate. The conditions for good market liquidity include low transaction costs, management of counterparty risks and market transparency. | 1 |
This lowers the aggregate pool of capital that might be needed by the banking system. If this pool of capital is large enough to accommodate future crisis needs, private sector capital insurance may offer a better cost/risk trade-off than self-insurance. As history shows, however, this is a not inconsiderable “if”. Further work would be needed to establish what size insurance scheme would genuinely augment the capital pool. 5. Conclusion Over the course of the past 800 years, the terms of trade between the state and the banks have first swung decisively one way and then the other. For the majority of this period, the state was reliant on the deep pockets of the banks to finance periodic fiscal crises. But for at least the past century the pendulum has swung back, with the state often needing to dig deep to keep crisis-prone banks afloat. Events of the past two years have tested even the deep pockets of many states. In so doing, they have added momentum to the century-long pendulum swing. Reversing direction will not be easy. It is likely to require a financial sector reform effort every bit as radical as followed the Great Depression. It is an open question whether reform efforts to date, while slowing the swing, can bring about that change of direction. References Bagehot, W (1873), Lombard Street, a Description of the Money Market, Henry S. King and Co. Publishers. | Stripping out the effects of the two World Wars, this ratio has declined fairly steadily, from around 15% in 1830 to around 5% at the start of this century. Financial panics over this period did little to interrupt the downward trend. Events of the past two years have dramatically altered that picture. In relation to GDP, base money in the UK has risen by a factor of four – easily the highest financial crisis multiplier ever. 8 It has reached a peak last witnessed almost two centuries ago. Past liquidity crises are foothills by comparison with recent Himalayan heights. Measures of central bank balance sheet expansion under-estimate the scale of liquidity support provided during this crisis. As in Harman’s time, there has been a widening of the collateral taken by most central banks in their operations. 9 The taking of imaginative forms of collateral has a history which predates central banking: in the 12th century, King Baldwin II of Jerusalem secured a loan using his beard as collateral. Nonetheless, recent efforts are probably unprecedented in scope. Collateral swaps, typically not involving beards but often requiring haircuts, have also played a significant role during this crisis. They too do not expand base money, but do liquefy banks’ balance sheets. And guarantees of wholesale liabilities have similarly served as an important liquidity insurance device for a number of countries. Together, these two instruments have totalled between 10% and 40% of GDP across the UK, US and euro-area. | 1 |
Here we seek to make the financial system more resilient. This is the world of risk management, prudential standards, liquidity standards, resilience of payment 6 BIS Review 36/2005 systems etc. It can involve the promotion of codes and standards over a wide field ranging from accounting to improving legal certainty, and management of countries’ external balance sheets. Decision making about priorities is particularly challenging because we cannot be clear ex-ante how well the mitigation techniques will work, and we often need to rely on others to implement them. In addition we need to ask whether we are the right party to act. We also need to think about the relevance of our activities to our mandate – or “must dos”. In some areas, for example payment systems – one of our “must dos” – it is clear that we have a responsibility to reduce risks. In this case the questions we need to answer relate to the degree, methods and resource implications. But in other areas whether we should act is less clear cut. What particular contributions can we make and are there any areas where we can sensibly act alone? We need to ascertain areas where we can achieve results both domestically with HMT and FSA, and internationally with organisations such as the Basel Committee, the Committee on Payment and Settlement Systems and the Financial Stability Forum. Perhaps I can mention one area to which the challenge process suggests we should devote considerable resources – global institutional liquidity. | This one is perhaps more straightforward: a lack of suitable talent will be a major obstacle to Regtech adoption. As a start, no doubt a combination of upskilling and sourcing new hires is the key to developing talents with the right combination of local regulatory knowledge, technical skills and business acumen. To take that one step further, if Hong Kong can evolve into a hub for global Regtech talent, we will be uniquely positioned to build and export Regtech solutions to the rest of the world. 46. The White Paper suggests developing a Regtech skills framework. This framework will cover suitable modules and competency standards. And we would seek to identify the skills required for different roles and which would help speed up Regtech adoption, and then we would help train and develop both new entrants and existing practitioners. 47. Finally, on “Momentum Matters”. All our hard work will not bear fruits if the momentum for changes cannot be sustained. It is therefore crucial to keep the industry engaged in the years ahead. One suggestion is that we introduce a benchmark for our progress in increasing Regtech adoption. This benchmark will provide us with a holistic framework that will enable us to visualise the success of our Regtech initiatives. 48. That is a quick snapshot of the key recommendations in the White Paper. In fact, we are already putting some of those recommendations into action. 49. For example, a flagship event is already planned for the first half of 2021. | 0 |
Started in the previous year, the realisation of this project was finalised in 2016. Now, the Bank of Albania has an Operational Risk Management Policy, which sets out the core principles for the identification, assessment, control, management and follow-up of the operational risk as an integrated process at bank level. We 6/8 BIS central bankers' speeches have also established a dedicated unit for evaluating and making recommendations for addressing vulnerabilities. The internal audit function acts also as a consultant service for the Supervisory Council. The audit engagements focused on: (i) issuing opinions on the sufficiency of internal audits established by the Management for audited functions/processes, including supportive applications for the activities; (ii) issuing opinions on the accuracy and completeness of financial data in periodic reports; and (iii) other audit and non-audit engagements, ad hoc, upon special request by the Administrators or other institutions outside the Bank. With added prudence on designing work processes by Bank units, at the beginning of 2017, a project started on the implementation of the Programme on the Business Continuity Management at the Bank of Albania. The realisation of this project ranks the Bank of Albania among the banks applying best practices on institutional good governance. 5. Medium-term strategy and strengthening of independence, accountability and transparency The medium-term development strategy of the Bank of Albania for 2016–18 was launched in 2016 to activate the entire potential of the Bank of Albania. | For example, the Central Banks and Supervisors Network for Greening the Financial System, commonly known as the NGFS, in which over 40 central banks and supervisors have already reached a consensus: and I quote, “climate-related risks are a source of financial risk and therefore fall squarely within the mandates of central banks and supervisors to ensure that the financial system is resilient to these risks.” The HKMA is a member of NGFS, and we are fully on board with this 7. The Bank for International Settlements is also committed to supporting green finance and investment practices, and supports the NGFS research on climate-related risks and their implications for financial stability. 8. The HKMA has many roles – as a bank regulator, one of the largest asset owners globally, and a key promoter of market development. Hence, the HKMA is in a very advantageous position to promote green and sustainable finance in Hong Kong. In May this year, we unveiled three sets of measures on green finance: 9. The first measure is a three-phased approach to promote Green and Sustainable Banking in Hong Kong. Initially, to develop a common framework to assess the existing baseline of individual banks to establish how “green” they are, by talking to the industry to identify the parameters to be included in the assessment; secondly, to engage and consult the industry on whether supervisory requirements are needed; and if needed, how the HKMA should develop our supervisory expectation or requirements; and thirdly to focus on implementation, monitoring and evaluation. 10. | 0 |
First, I will summarize the recent inflation developments, and then continue with the domestic and foreign demand outlook upon which we based our projections. In the second quarter of 2015, annual consumer inflation declined by about 0.4 points from end-first quarter to 7.20 percent, nearing the forecasts of the April Inflation Report (Charts 12 and 13). This improvement in inflation was mainly attributed to declining food inflation, while core inflation increased mostly due to exchange rate developments. In this period, the contribution of the food category to annual inflation was down to about 2.3 points amid a correction in food prices. Yet, the depreciation of the Turkish lira limited the decline in inflation. The ongoing cautious monetary policy along with prudent fiscal and macroprudential policies are having a favorable impact on inflation, especially inflation excluding energy and food (core inflation indicators). However, the lagged effects of the recent exchange rate developments delay the improvement in the inflation outlook. In fact, compared to the first quarter there was a notable deterioration in the underlying core inflation trend in the second quarter (Chart 14). This outlook was largely due to exchange rate-driven cost pressures that became stronger than that of the previous period. The cautious monetary stance and the moderate course of domestic demand continued to limit the spillover from cost pressures into prices. As we projected in the April Inflation Report, food prices exhibited a remarkable correction amid the climatic conditions that accommodated supply in the second quarter. | José Manuel González-Páramo: Rethinking risk management – from lessons learned to taking action Speech by Mr José Manuel González-Páramo, Member of the Executive Board of the European Central Bank, at the Risk and Return South Africa conference, Cape Town, 4 March 2011. * 1. * * Introduction Good afternoon, I was very pleased to accept the organisers’ kind invitation to participate in this conference and to speak about a topic that at the European Central Bank (ECB) we consider of utmost relevance: How to adjust our financial risk management frameworks in the light of the lessons learned from the crisis. Indeed, the ECB has always placed a great importance on the design, development and implementation of sound risk management practices. The financial and economic crisis that started in 2007 and that continues affecting the global economy has prompted us to rethink and further strengthen the risk management function at the ECB and within the Eurosystem (consisting of the ECB and of the national central banks of the seventeen countries that have adopted the euro). Therefore, it is a pleasure to have the opportunity to share our recent experience with distinguished professionals from the financial industry, such as those present in this room. My intention is to comment upon a number of issues that may have probably been already touched upon in the previous sessions. More specifically, I will first summarise some of the general lessons for risk managers that we have learned from the financial crisis. | 0 |
Voting power in the IMF is a balance of creditors’ interests, borrowers’ needs and that all members should be able to exercise influence. Membership of the IMF is open for all countries that meet certain criteria. Today, 182 countries are members, which means that very few countries do not take part in the IMF. This broad membership is one of the organisation’s strengths. The IMF’s head office is in Washington DC in the USA. Around 3,000 people work there. The major part are economists specialising in macroeconomics and international finance. The IMF board which decides on the day-to-day policy in the organisation is also located in Washington DC. The board meets at least three times per week. It has 24 seats, where all countries are represented, most of them in geographical groupings. The IMF’s purpose is to work for financial stability. In simple terms, this means ensuring that the various macroeconomic variables in a country – the exchange rate, inflation, the budget deficit, for instance - are dealt with in such a way that the economy can run smoothly and efficiently. A stable economy allows people to think in a long-term way when they invest and consume. Without stability, it is not possible to create sustainable growth. In Sweden, we have recent experiences of the opposite. The financial crisis here at the beginning of the 1990s increased unemployment and reduced production at the same time as government finances were dramatically weakened and Sweden entered the deepest recession since the 1930s. | This means that we, together with the Ministry of Finance in the Government Offices, coordinate and conduct Swedish policy in this forum. This evening, I am intending to talk about globalisation - as an opportunity and a challenge. I am going to discuss what the International Monetary Fund is and the role that it has in an increasingly globalised world. To conclude, I will take up Sweden’s participation in the IMF, and what we can expect from the meetings in Prague next week. Globalisation and its benefits Before commenting on critical remarks often presented on globalisation, let me first begin by noting that prosperity in the world has improved dramatically during the past decades. Never before in history has the situation of so many people improved so much so quickly. Since the beginning of the 1980s, purchasing power per capita in the world has more than doubled. In the poor developing countries, this has meant that purchasing power correlated GDP per capita has increased by almost 350%. In the rich industrialised countries, the corresponding growth was 220%. In certain cases, developments have been particularly spectacular, not least in Asia. In 1975, six out of ten Asians lived in absolute poverty - under a dollar a day. Today, the figure is two out of ten. In China alone, the number of poor has fallen from 60 to just under 30% in less than twenty years. There are many factors that explain this development. | 1 |
12 See for exampleWilliam C. Dudley, Enhancing Financial Stability by Improving Culture in the Financial Services Industry, Remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry, October 20, 2014. William C. Dudley, op. cit. October 20, 2016. William C. Dudley, Remarks at the Culture Imperative – An Interbank Symposium, January 11, 2017. William C. Dudley, Reforming Culture for the Long Term, Remarks at the Banking Standards Board, March 21, 2017. Michael Held, Reforming Culture and Conduct in the Financial Services Industry: How Can Lawyers Help? March 8, 2017. Kevin J. Stiroh, op cit. December 7, 2017. 13 See Stiroh, op. cit. December 7, 2017 and Chaly et al op. cit. 14 Boston Consulting Group, “Staying the Course in Banking,” March 2, 2017. 15 See e.g., William C. Dudley, op cit. October 20, 2014 and William C. Dudley, op. cit. March 21, 2017. 16 For related discussion, see Mehran and Tracy, Deferred Cash Compensation: Enhancing Stability in the Financial Services Industry, August 2016, and Mehran and Tracy, Performance Bonds for Bankers: Taking Aim at Misconduct, November 9, 2016. 8/8 BIS central bankers' speeches | The national plan for the reduction of non-performing loans established a regulatory criterion, as an important task for/to the Bank of Albania. Starting from 2018, lending activity should take into account only tax declarations. This is one of the key elements for addressing informality, also for the significant share of the banking activity in the domestic economy. The Bank of Albania has previously dealt with this phenomenon from a regulatory point of view, but only with large 1/2 BIS central bankers' speeches borrowers. The coordination of efforts with government bodies and appropriate actions taken in this regard have created the necessary space for taking this regulatory measure further to include a broader base of borrowers. The Bank of Albania is confident that this measure will bring long-term benefits for all parties involved in the process. - For the banking industry: crediting based on tax declarations facilitates significantly the lending process by putting banks on a common denominator in reading financial data. This eases the lending activity, providing banks with more clarity in the process of financial analysis and selection of borrowers, as well as exchanging information for common borrowers. - For Albanian enterprises and households: this process promotes transparency, which will be translated into reduction of credit risk and, most importantly, lowering of financing cost. Also, by providing a level playing field, this process fosters competition and efficiency, which, ultimately, contributes to the overall economic development of the country. | 0 |
Measures will also be taken to increase awareness and educate the public on important information such as comprehensive lists of financial institutions authorised to accept deposits by the public and particulars about those that are being regulated by the Central Bank. Share ownership of banks will be broad-based to promote better corporate governance and to reduce the concentration of ownership and to address conflicts of interest that may arise due to large shareholdings. New policies on share ownership will be issued shortly, where a single entities’ material share ownership would be generally limited to 15 per cent of a bank’s share capital. A revised format for publication of banks’ financial statements in their annual reports will be introduced so as to improve disclosure requirements and provide more information to market participants. The Central Bank will also facilitate the adoption of the internationally accepted accounting and reporting standards such as IAS 32, IAS 39 and IFRS 7 by banks. A continuous dialogue will be maintained with the external auditors and other relevant institutions with respect to the operations of banks, the publication of accounts and adoption of international accounting standards. The Central Bank’s currency management policies are also being formulated to ensure that Sri Lankan Rupee notes and coins are available to the public in required denominations upon demand. In achieving this, the Bank will forecast the currency demand and maintain a buffer stock of currency to meet the seasonal and any contingent demand. | In the recent past the velocity has been declining, while multiplier has hovered between 5.0-5.2. In 2007, this trend is expected to continue. 8 BIS Review 8/2007 Table 1 Quarterly targets for reserve money Rs. billion Dec. 2006 Reserve Money Point to Point Change % 2007 Targets Target Actual Mar Jun Sep Dec 227.6 239.8 254.6 250.4 257.8 267.6 15.0 21.2 17.3 17.9 16.1 11.6 Table 2 Indicative targets for broad money (M2b) Rs. billion Dec. 2006 Broad Money (M2b) Point to Point Change % 2007 Targets Target Estimates Mar Jun Sep Dec 1,175.6 1,221.6 1,274.9 1,291.4 1,315.9 1,383.2 15.0 19.5 19.2 19.0 17.9 13.2 The programme also allows for a Broad money growth of 17.6 per cent from the targeted level of Broad money at end 2006. This will reflect an increase in Net Foreign Assets of the banking system of US dollars 200 million, and increase in private sector credit by Rs 147.3 billion (15.5 per cent) and net credit to Government by Rs 16.7 billion. To maintain the overall increase in net credit to the Government at Rs 16.7 billion, net credit to the Government from commercial banks would need to be maintained at Rs 5.2 billion. | 1 |
This is, so to speak, one specificity of our approach in this country. We believe in strong and efficient supervision. We don’t think that bigger cushions are a substitute for competent supervisors. We are strong supporters, in our jargon, of the “Pillar 2” approach, whereby the supervisor is in charge, at any single moment, to check the adequacy of capital buffers with the effective level of risk in the system. Needless to say, we also strongly support the development of macro prudential tools allowing authorities to detect and prevent systemic risks. Given that all economic cycles are not simultaneous, to be fully efficient, those tools should be set and implemented at each jurisdiction’s level and not a regional one, in order to take into account national cycles and the level of risks of individual economies. Overall, I can assure you we are very keen to monitor in real time the economic impact of financial regulation. For the first time, economic and systemic assessments have been made of the new projected Basel 3 framework. We will continue to update them permanently. A good example of our constant vigilance relates to projected liquidity ratios, where the systemic impact and implications for monetary policies are being thoroughly reviewed at this time. *** To conclude, let me emphasize that policy makers are fully aware of possible macro consequences of regulatory reforms and will be eager to limit the economic costs. | Indeed, with a strong impulse from the G20 and the French Presidency, we have embarked into an ambitious financial reform agenda whose explicit objective is to prevent any recurrence of such intense episodes of financial turbulence and instability. On the other hand, growth cannot occur without efficient and developed financial systems to allocate savings, redistribute risks, and provide liquidity to the economy. There is ample evidence that financially repressed economies are penalized in terms of investment and economic growth. The challenge, therefore, is to find the right balance, as suggested by the title of our session. Looking at our achievements to date, my sense is that we are definitely moving in the right direction. But, of course, this is still work in progress: regulators and policymakers are constantly looking for additional evidence and insights on how to best reconcile stability and efficiency in the developments of our financial systems. The thrust of our efforts has been to increase the robustness of financial institutions and infrastructures. It is not in our power to eliminate financial shocks and volatility. It is our duty to make sure that they can be absorbed without undue consequences for the institutions themselves and the whole economy. Building up appropriate cushions was therefore a priority and a necessity to protect tax payers from the consequences of future turbulences. First and foremost, a robust system needs strongly capitalized banks. Basel 3 will make essential contributions in this regard, by increasing both the quantity and quality of banks’ capital. | 1 |
We are particularly interested in creating the right incentives through a set of robust criteria that will enable banks, subject to supervisory approval, to employ increasingly sophisticated approaches for setting capital requirements for other risks. Second and third pillars Let me also briefly touch upon the two other pillars of the revised capital adequacy framework supervisory review and market discipline. These topics are certainly familiar and important ones to all of you. Supervisory review of capital is a critical complement to minimum capital requirements. The Consultative Paper proposes that supervisors should ensure that each bank has sound internal processes in place to assess the adequacy of its capital, based on a thorough evaluation of its risks. I want to stress that this proposed approach in no way intends to replace the judgement and expertise of bank management, or to shift responsibility for capital adequacy to supervisors. On the contrary, it is well understood that bank managers have the most complete understanding of the risks their institutions face, and it is they and the bank’s board of directors who have primary responsibility for managing those risks. The task for supervisors in this framework is to evaluate how well banks are assessing their capital needs relative to their risks, including whether banks are appropriately addressing the relationship between different types of risks. Most importantly, in proposing this second pillar the Committee intends to foster a more active dialogue between banks and their supervisors, such that when deficiencies develop, prompt and decisive action can be taken to restore capital. | Many in the industry noted that a capital regime based on banks’ internal ratings, which reflect a wide range of information about borrowers, can prove to be quite sensitive to the level of risk in a bank’s portfolio. Our analysis indicates that a wider range of institutions could be eligible to use the internal ratings approach, than the narrower set of large and sophisticated institutions, as implied in the Consultative Paper issued in June. We now envision extending the applicability of the internal ratings method approach to banks of varying sizes, including small and medium-sized institutions provided such ratings systems are accompanied by strong internal controls, supervisory oversight and ample disclosure. With this in mind, the Committee is working on how to link banks’ internal ratings to a regulatory capital scheme. We are seeking to develop flexible approaches, since all banks wishing to use internal ratings may not yet be able to generate the full amount of information necessary to tie their ratings to capital requirements. Thus, for at least some banks, we are considering the possibility that some information would be supplied by the supervisor, although the core elements would be generated by a bank’s internal ratings scheme. There would be a parallel track for the more sophisticated institutions, which would rely fully on internal information. In practice, the two approaches are part of a single evolutionary framework, in which banks can rely increasingly on internal processes for regulatory capital allocation as their risk measurement and management practices improve. | 1 |
In the face of the global pandemic governments have taken significant fiscal actions to maintain incomes and preserve economic capacity. At the same time, central banks have aggressively eased monetary policy. Because these things have occurred alongside each other some commentators have suggested that central banks are engaged in “monetary finance” of government deficits. However, one of the points I want to make today is that the coincidence in time of easier monetary policy and a higher government deficit doesn’t really tell you anything about this question. That’s because both are naturally cyclical, especially when the central bank is targeting inflation. Economic slowdowns push up the government’s deficit. Because they’d otherwise depress inflation they also tend to result in easier monetary policy. Depending on how persistent the downturn is expected to be – and, because capital markets are global, on how widespread it is – you might even expect to see lower longer-term bond yields as well, even as the government is obliged to sell more debt and even without any extension of QE. There is nothing intrinsic in the nature of these transactions, or in the co-movement of these various economic series, that constitutes “monetary finance”. What really lies behind that term is instead an institutional question: who is doing what and why? Is monetary policy controlled by an independent authority, using its tools solely in pursuit of a fixed nominal objective? | Many consider the lack of cross-border mergers as proof that much remains to be done in terms of market integration and diversification. In any event, scant cross-border consolidation, particularly in a setting of clear overcapacity of the European banking sector, is symptomatic. On this matter, the ECB, in its latest stability report7, published a study on the degree of overcapacity of the sector in Europe and the potential implications for bank business. In keeping with the conclusions of the study, excess capacity may lead to operating below margin in the face of heightened competition. That would preclude making the necessary investments for the future of banks and their adaptation to new technologies and new operators (e.g. in systems), creating “zombie”-like banks that weigh down even further on the sector’s profitability. The study details those banks with a return on equity (RoE) that is lower than the median of 6% over three years, but the most worrying group would be that of banks with an RoE of less than 3%, no less than around 25% of the total. The study concludes with the need to address restructuring and mergers, showing a clear preference for cross-border as opposed to national mergers. On the ever-controversial matter of mergers, I have stated on several occasions that our role as supervisors is not to decide which mergers are desirable and which not. | 0 |
As this happens, some sectors of the economy may face declining demand, big shifts in asset values or higher costs of doing business. For instance, governments’ actions to enforce the Paris 2/5 BIS central bankers' speeches Agreement could see the vast majority of the world’s proven fossil fuel reserves left in the ground. This has implications on the value of investments in energy companies, particularly those dealing with oil, gas and coal. For many emerging market economies, the transition towards sustainability also invites policy conflicts. For example, national goals for reducing fossil fuel use may entail significant trade-offs with growth and poverty reduction objectives, at least in the short- to medium-term. These challenges are further intensified by broader environmental, social and governance (ESG) considerations. Achieving sustainable growth and development amidst capacity and funding constraints can present significant challenges for political leadership, economic priorities and social outcomes. Under these circumstances, the higher cost of transition is likely to mean that a longer time is needed for the transition towards more sustainable growth policies, while keeping in mind that this may be at the expense of heightened physical risks as a result of delayed action. This remains a difficult balance that requires careful and well-informed assessments, policy coordination, planning and communication. A very real example, close to home, is palm oil. As we all know, many in the global community have expressed concerns about the environmental impact of the palm oil industry, which accounts for 7% of Malaysia’s gross exports. | Several financial institutions are also allocating more capital towards innovation that promotes sustainability – such as in renewable energy sources, and sustainable agro-production and manufacturing. Others are providing incentives to encourage “greener” consumption that is less damaging to the environment. This includes preferential rates for hybrid vehicles and financing projects with a Green Building Index certification which serve to encourage manufacturers and developers to build more sustainable solutions. Climate change will have irreversible consequences for us all. The effects to the planet, and global efforts to transition towards greater sustainability, will certainly have implications for the economy and for financial stability which cannot be ignored. Our window of opportunity to act is narrowing very quickly. In the period ahead, it is crucial that the financial industry faces these changes in a deliberate, informed manner. We must respond strategically, and pre-emptively; and we must act now. We can no longer afford to just react once the worst has already happened. The stakes are simply too high. On our part, the Bank is committed to ensuring that the financial system remains resilient in the face of these risks. To this end, I have set out a broad outline for achieving climate resilience. The task ahead will call for strong leadership in working with authorities, businesses and households to address what may be one of the greatest threats to our generation. Discussions at this conference aim to help us meet this challenge with greater confidence and conviction on what must be done – individually and collectively. | 1 |
Risk can be measured. Cases where the course and results of the events neither cannot be measured nor predicted are not referred to as risk but uncertainty. In other words, the intangible aspect of events is defined as uncertainty. Due to the intangible nature of uncertainty, its results and the extent of its effects cannot be predicted. Probability cannot be attributed to uncertainty. Uncertainty is inevitable and its results are unmanageable. There exists no market that can avoid uncertainty. 1 Knight, F.H. (1985), “Risk, Uncertainty and Profit”, Chicago, University of Chicago Press, Chapters 2 and 7. BIS Review 17/2005 1 On the other hand, risk refers to the part of the future effects of events which can be measured. Risk can be calculated; results of risks can be explained by certain probabilities. In this context, risk is predictable and we can manage its results. There exist markets for risk management. In Turkey, high and volatile inflation has been the main source of uncertainty for the last 30 years. Concepts of uncertainty and risk have become indistinguishable. Hence, it has been impossible to implement risk management or to establish risk management agents on this slippery slope. At this point, I would like to emphasize on a technical matter. As it is known, volatility is priced in derivatives markets. When uncertainty is high, volatility increases significantly. This makes pricing difficult and in these circumstances prices reach very high levels. Hence, risk management becomes almost impossible. | At the outset of this process, many people severely objected to the establishment of derivatives markets claiming that they would encourage volatility and increase speculations and manipulations on the markets. This very much reminds me of the “it is not possible in Turkey” or “it is not the right time,” comments I hear whenever we try to implement something new. The Nobel prize winning economist Milton Friedman’s speech at the opening of the foreign exchange options market at the Chicago Mercantile Exchange in Autumn 1971 contains some very important information for us2. As Friedman pointed out, financial instruments relating to foreign trade are all complementary and the British case shows that financial services may well become a very profitable export item. Within this framework, he argued that the development of a derivatives market, which is normally expected to exist in the natural evolution of markets, not in another country but in the USA is important not because it increases trade and investment here but it enables export of these services as well. Thus, he claimed that the development of derivatives markets would support the development 2 Friedman, M. (1971), “The Need for Futures Markets in Currencies”, in The Futures Market in Foreign Currencies, Prepared for the International Monetary Market of the Chicago Mercantile Exchange, Inc. pp. 6-12. BIS Review 17/2005 3 of other financial activities in the country, would bring additional income through exports in services sector and enhance the effectiveness of monetary policy. | 1 |
More recently, the current issue of speculation surrounding the renminbi - and one which is far more grounded in reality - is the question of whether its exchange rate will be given greater flexibility in the near future. This revives the old question of how far the Hong Kong dollar will be affected by movements in the renminbi, which has some connection with China’s prospective WTO accession, and it is therefore worth examining the rationale behind it, and the implications. First, however, since there is some confusion on this point, it is helpful to clarify the difference between flexibility and convertibility. Convertibility means the ability of a currency to be freely exchanged into foreign currencies, either for trade (current account convertibility) or for investment (capital account convertibility). The renminbi enjoys current account convertibility but is not freely convertible for capital account transactions. Flexibility means the degree to which the exchange rate is allowed to fluctuate before there is intervention by the central bank. At present, there is flexibility in the exchange rate of the renminbi, in that the exchange rate is determined by “market” supply and demand, although the central bank remains the ultimate banker in the market. The renminbi has indeed been trading within a very narrow band in the past few years. The narrowness I think reflects China having acted responsibly, against the background of financial turmoil in Asia, in not allowing greater flexibility in the renminbi exchange rate to add destabilising volatility to Asian currencies. | Philipp Hildebrand: The Swiss National Bank’s monetary policy strategy in the financial crisis Summary of a speech by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, at the University of St. Gallen, St. Gallen, 23 March 2010. The complete text in German can be found on the Swiss National Bank’s website (www.snb.ch). * * * To contain the financial crisis, central banks all over the world have chosen to take advantage of the room for manoeuvre afforded by their monetary policy strategy. The major central banks were only able to act in a flexible way – at least in part – due to their high degree of credibility with regard to their goal of pursuing price stability. The monetary policy strategy of the Swiss National Bank (SNB), too, has made it possible for the Governing Board to take conventional and unconventional measures to counter the crisis. The SNB’s approach has proven viable in the crisis. But this does not mean that we can sit back now. We must first find ways to withdraw smoothly from the measures taken to contain the crisis. In addition, we need to be sure that the Swiss economy is back on a sustainable growth path. After all, the crisis has shown that imbalances in the global financial system can occur even in an environment of price stability and macroeconomic stability. The main way to counter imbalances in the financial system is through better regulation. | 0 |
When interest rates are increased, demand falls and inflation is kept at bay. If demand is low and unemployment rises, there will be prospects of lower inflation. The interest rate will then be lowered. In the long run, output is determined by the supply of labour and capital and by the ability to adapt, but in the short and medium term monetary policy can also have an impact on the real economy. The economy grows over time. Output moves in waves. Output will in some periods lie below long-term trend growth and in others above trend. The difference between trend output and actual output is called the output gap. Stabilising output growth means seeking to maintain actual output near trend. We have had pronounced economic cycles in the Norwegian economy. The downturn at the beginning of the 1990s was followed by an upturn from 1993. This upturn peaked in 1998. The economy then shifted from an upturn with high growth rates to an expansion with lower growth but low unemployment, labour shortages in many sectors and strong growth in labour costs. Since 1998, output growth has been low. Growth stalled in winter 2002 and was well below capacity in the first half of 2003. Growth in the Norwegian economy has since picked up. BIS Review 23/2004 1 Norges Bank has not defined an exchange rate target. Nevertheless, developments in the krone are of considerable importance to interest-rate setting because exchange rate developments have an impact on inflation and output. The krone fluctuates. | Such low real interest rates would normally lead to GDP and inflation abroad being unreasonably high. If reality and models differ, it is in my opinion reality that applies. In the current abnormal times, models and historical patterns do not work so well and should to a great extent be replaced by judgement. In my opinion, the forecasts for inflation and GDP abroad under the current abnormal circumstances are compatible with the low interest rates abroad. Monetary policy alternatives in October I would thus claim that the assumption in the main scenario that policy rates abroad will be high is unrealistic, and that it is more reasonable to assume a forecast for policy rates abroad that is compatible with market expectations of interest rates abroad. This also means assuming the prevailing actual long interest rates abroad with regard to the effect on the exchange rate. Figure 9 shows monetary policy alternatives, all under the assumption of a forecast for policy rates abroad in line with market expectations, that is, a forecast for policy rates abroad that follows the grey curve in Figure 7. Figure 9a shows different interest rate paths. The red broken curve, called “Main scenario repo rate path”, is the main scenario’s repo rate path. The blue broken curve, called “Riksbank’s reaction function”, shows the repo rate path arising from the Riksbank’s historical reaction function when policy rates abroad are compatible with the prevailing market expectations. The yellow broken curve, called “Market repo rate path”, shows the prevailing market expectations for the repo rate. | 0 |
9 At the same time, it may be worth pointing out that our forecasts for the repo rate will not normally deviate very much from market expectations. This is essentially the background to why we are now choosing to go over to using our own interest rate forecast when forecasting inflation and other macro variables. Although I am convinced that this means increased openness and clarity in monetary policy, it has not been an entirely self-evident step to take. This is because we have been forced to manage a number of practical problems. These are primarily related to the fact that we are six persons on the Executive Board who together must agree on what could be considered to be a reasonable repo rate development in the future, while safeguarding our responsibility as individuals for how we vote. 10 To make a forecast for the development in the repo rate, we Executive Board members must together make an assessment of what would be a desirable path for the repo rate during the forecast period, even though our interest rate decision only refers to the level of the repo rate applying until the next monetary policy meeting. The different members of the Executive Board may have differing opinions on, for instance, the current situation in the economy and at what pace inflation should be brought back on target, giving consideration to the real economy and various risks. It goes without saying that 5 See, for instance, Alsterlind, J. and H. Dillén, (2005). | We left most of these problems behind us when we began making forecasts based on market expectations, as reflected in the so-called implied forward rates. This was because market expectations in most cases provide a much more realistic forecast for the future development of the repo rate. The changeover from a constant repo rate to the markets’ expected interest rate path was also a natural step on the route to publishing our own forecast for the repo rate. We then began talking more systematically about future interest rate developments by commenting on the plausibility of the interest rate path given by market expectations. In my opinion this was when we took the major step towards increased clarity with regard to our view of future interest rate developments. The method of basing forecasts on market expectations is not without its problems, either. One problem concerns how expectations are measured. Other problems are related to communication regarding the interest rate path. Let me explain what I mean here. Changes in the policy rate have a direct effect on the shortest interest rates in the economy. Monetary policy can therefore also affect financial market expectations of future short-term interest rates. It is these expectations that the implied forward rates are meant to capture. The implied forward rates can be interpreted as the financial markets’ ”average” forecast for the future repo rate. | 1 |
In the UK the share of mortgage lending in Scotland has been essentially flat through the crisis period (chart 9), suggesting that there has been little if any divergence in credit conditions between the UK and Scotland. 21 This downward spiral of confidence can be most acute in countries with large banking sectors relative to their economies – Iceland, Ireland and Cyprus all had banking sectors exceeding 600% of GDP in 2007 (table 4). In the extreme, doubts about the sustainability of a nation’s membership of the currency union can only be relieved by massive external support. 22 In theory these could be pre-funded. For small countries with large, concentrated banking systems, pre-funded schemes are unlikely to be realistic in the short-term. Protected Scottish retail bank deposits are over 100% of GDP, compared to around 50% for the rest of the UK. New European rules mandate deposit guarantee funds to be built up only slowly over a decade and even then only to less than one per cent of insured deposits. 6 BIS central bankers’ speeches Fiscal arrangements While banking union requires common fiscal backing, there are two broader justifications for shared fiscal arrangements within a currency area. | The Committee expects to cease or commence phasing out reinvestments after it begins increasing the target range for the fed funds rate; the timing will depend on how economic and financial conditions and the economic outlook evolve. The Committee currently does not anticipate selling agency mortgage-backed securities as part of the normalization process, although limited sales might be warranted in the longer run to reduce or eliminate residual holdings. In the longer run, the Committee intends to hold no more securities than it will need to implement monetary policy efficiently and effectively, and that the SOMA will consist primarily of Treasury securities. Given the $ trillion in large-scale asset purchases (LSAPs) conducted since September 2012, the level of reserve balances in the system will be significantly higher during normalization than was envisioned when the 2011 principles were adopted. In light of this, as I just outlined, the FOMC has judged it appropriate to operate with a framework for interest rate control that is based primarily on administered rates rather than reserve draining tools. Given the unprecedented nature of this framework, the Committee has made clear that it is prepared to adjust the details of its approach in light of economic and financial developments. The FOMC has consistently adapted its policies as needed in recent years and will no doubt continue to do so as necessary throughout the normalization process in order to foster conditions consistent with its dual mandate. | 0 |
And, when we rebound from the shock of the pandemic, the Mittelstand will have to be one of the drivers once again. The coronavirus is a double economic shock. Its effects have hit activity extremely hard, with GDP falling by 6.8% in the euro area last year and 5% in Germany. But it has also accelerated structural changes that will transform our lifestyles and our economies. According to some estimates, the pandemic has brought forward the digital transition in Europe by seven years. [4] And it is estimated that 20% of work hours will move permanently from office to home. [5] This will lead to new patterns of demand and new ways of living. So, our challenge will not only be to recover from the crisis, but also to adapt to the changes it has set in motion. And the Mittelstand – thanks to its agility, its focus on innovation and its commitment to competing by adding value – will have to be at the heart of this process. For now, however, the pandemic is still weighing heavily on our economies, and especially on firms in the services sector. While manufacturing has recovered quite well since the first lockdown last year, buoyed by solid global demand, activity in the services sector has remained subdued owing to the social distancing measures that are still in place today. | [11] The upshot is that more firms have been protected and more jobs have been saved. Without the ECB’s policies, we estimate that over one million more people would have lost their jobs. [12] But we are not out of the woods yet. With the tremendous progress made on vaccine technology, we can now see the light at the end of the tunnel. But we still cannot see exactly how long that tunnel is. We will continue to face a period of high uncertainty until more people have been vaccinated against the virus. In this setting, it is crucial that the bridge for SMEs remains in place for as long as needed. The ECB will help ensure that firms and families can access the finance they need to weather this storm – and that they can do so in the confidence that financing conditions will not tighten prematurely. That commitment is the best way to provide certainty to all sectors of the economy and to bring stability back to the euro area swiftly. And this, in turn, is the best contribution we can make to delivering on our mandate of price stability. 5/8 As Goethe said, “Im Idealen kommt alles auf die élans, im Realen auf die Beharrlichkeit an.”[13] Reality is currently hard for many firms and the future remains uncertain. And so we will persist and persevere until the pandemic emergency has passed. | 1 |
It has made the right diagnosis and, in the Basel III framework, drawn the appropriate lessons. My friend Nout Wellink is chairing the Basel Committee; I myself have the privilege of chairing the Committee of Governors and Heads of Supervision, which provides guidance to the Basel Committee. The second building block is regulation of the financial markets. Here, reform must ensure much greater transparency for the various market segments and products, ensure sufficient competition in all markets, and attenuate as much as possible the pro-cyclicality that derives from information asymmetries, structural features such as ratings and market phenomena such as herding. The third building block is macroprudential oversight. This new discipline focuses on the interactions between the various parts of the financial system and between the financial sector and the real economy. New institutions, including the ESRB and equivalent oversight committees around the world, will pursue the task of identifying sources of systemic risk, issuing early warnings and recommending remedial action. The birth date of macroprudential oversight in Europe will probably be identified as the start of this year but it was originally conceived in 2009 through the work of Jacques de Larosière and his high-level group, which included my friend Otmar Issing. Eighteen months from policy design to institutional establishment is a remarkable achievement. It was made possible by thorough groundwork as well as excellent transposition by the Commission and very rapid decisions by the European Parliament and the European Council. I feel very honoured to chair this new body, the ESRB. | The MyInfo platform allows banks to more effectively and efficiently obtain authenticated and updated information for account opening and other applications, doing away with the tedium of manual physical authentication and resulting in time saving of as much as 80% for banks and their customers. 25. Second, we are reviewing our regulatory framework to balance the tension between encouraging innovation and managing risk. The Payments Services Act is a forward looking and flexible framework for the regulation of payment systems and payment service providers in Singapore. It gives regulatory certainty to new players to pursue innovation and growth, while at the same time providing sufficient safeguards for consumers. 26. Third, we are creating more channels to promote the exchange of ideas and collaboration among financial and technology firms. Since 2016, MAS has partnered industry players to bring together financial and technology players from all over the world in the week-long Singapore FinTech Festivals. Turnout has more than quadrupled over the past three years with 45,000 participants from 130 countries in 2018. It is early days yet, but the results of our efforts are encouraging. Singapore is widely regarded as one of the leading FinTech hubs in the world. A report by Ernst & Young finds that nearly 7 out of 10 Singaporeans have made use of FinTech solutions in 2019, making us a leader in the Asia-Pacific region. 27. Another important development has been among our local banks themselves. They have been expanding their digital platforms to better cater to customers’ needs, and grow markets abroad. | 0 |
The assumption underlying both reports was that the Central Bank’s key objective would continue to be price stability, as is mandated by law, and that the exchange rate of the króna would remain flexible, although it would not need to be entirely free-floating. I will not explain the grounds for these assumptions here, as they have been discussed widely, except to point out that it is unrealistic to entrust monetary policy with objectives other than those it has the chance to fulfil using the available instruments, and that adopting a fixed exchange rate would eliminate the advantages of an independent currency and independent monetary policy without eliminating the disadvantages. Therefore, policy formation lies in finding a framework that can work under the above-described conditions. There were a number of drawbacks to Iceland’s pre-crisis monetary policy framework. A major flaw was the lack of an adequate response to the excessive capital inflows that contributed to credit and asset price bubbles and domestic residents’ significant foreign exchange risk, which was to a large extent unhedged. Furthermore, monetary and fiscal policy were not well enough aligned, and the same can be said of other Government decisions that affected demand. The burden on monetary policy was therefore greater than it would have been otherwise, which further stimulated capital inflows. This, together with strong demand, pushed the real exchange rate higher than it would have been otherwise and exacerbated macroeconomic imbalances, as could be seen most clearly in a sizeable current account deficit. | According to the Central Bank’s forecast from February, GDP growth will be robust in 2016 and above its historical average for the two years thereafter. This certainly entails an increase in the positive output gap this year, but that tension will subside as the forecast horizon progresses, owing in part to a tighter monetary stance. Inflation will also rise with a larger positive output gap and reduced deflationary pressures from abroad as the year progresses, but monetary policy will counteract it. According to the forecast, inflation will peak at just over 4% in 2017 and then taper off over the remainder of the forecast horizon. Unlike in many previous forecasts, the strong current account surplus will persist for the entire forecast period, which extends until 2018, in part because national saving will remain above the historical average. In this context, we must bear in mind that things can change quite suddenly. It is also worth noting that numerical economic forecasts, by their very nature, have a tendency to be much more stable than historical reality. In the recent past, we have reaped the benefits of developments abroad, but we do not know how long this will last, and tailwinds could turn into headwinds. History also tells us that we have a tendency to make economic policy mistakes during booms and mistake temporary positive shocks for permanent improvements. If history repeats itself, domestic demand and inflation could increase more than is assumed in the forecast. | 1 |
So, referring again to one of the purposes of the IMF, as defined in its Articles of Agreement, there is a clear need “to promote international monetary co-operation” through “consultation and collaboration” on these “international monetary problems” that we now face in the Asian region. The Way Forward 40. I would like now to spell out how I think monetary co-operation in this region should proceed. In order to have effective monetary co-operation, we must have clearly defined and realistic goals. Over-ambitious goals may not be credible, and may even be counterproductive. In any case, they may not be politically acceptable to the individual economies. Monetary co-operation, and indeed any type of co-operation, is meaningless when you do not have common goals. 41. Notwithstanding increasing economic integration, one has to accept reality, and this is that the economies in Asia are a very diverse group. There are dramatic differences with regard to political institutions, economic systems, basic infrastructure and any aspect you care to think of. In terms of economic structure, for example, they range from some of the largest agricultural economies in the world to the most urban economies. In terms of economic philosophy, they range from some of the freest economies in the world to economies where there is considerable central planning. In terms of the stage of economic development, they range from economies with the highest per capita incomes to those still with a large part of their population living in poverty. | To this end, the Bank continues to spearhead the Financial Sector Development Plan, which is aimed at strengthening the Zambian financial sector as well as guiding efforts for realising the vision of a stable, sound and market based financial system that would support the efficient mobilisation and allocation of resources necessary for economic diversification and sustainable growth. In concluding, I wish all entrants to this competition, the best of luck. I further with to congratulate in advance the ultimate winners of this inaugural business plan competition – VentureComp 2010. I thank you. 2 BIS Review 5/2010 | 0 |
The last paragraph specifies what Norges Bank is required to do. The first sentence in the mandate refers to the value of the krone. Stability in the internal value of the krone implies that inflation must be low and stable. Low and stable inflation fosters economic growth and stability in financial and property markets. The regulation also states that monetary policy shall be aimed at stability in the Norwegian krone’s external value, contributing to stable expectations concerning exchange rate developments. With open trade with other countries and free capital movements, we do not have the instruments to fine-tune the krone exchange rate. The krone has appreciated when economic activity has been high and there have been expectations of a wide interest rate differential between Norway and other countries. The krone has depreciated when activity has declined and the interest rate differential has narrowed. There is also a strong tendency for the krone to revert to a level that stabilises the price level in Norway relative to our trading partners, measured in a common currency.1 The task of monetary policy is to provide a nominal anchor. The inflation target is such an anchor. The conduct of monetary policy Norges Bank’s operational conduct of monetary policy shall be oriented towards low and stable inflation. Norges Bank operates a flexible inflation targeting regime, so that weight is given to variability in inflation as well as variability in output and employment. Inflation shall be 2½ per cent over time. | The financial accounting rules for balance sheet netting for repo transactions are spelled out in Financial Accounting Standards Board (FASB) Interpretation No. 41, “ Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements” (FIN 41). For other derivatives contracts, FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts” (FIN 39) states the relevant requirements. 23 I discussed the foreign repo pool in my 2016 remarks. See Potter, “Money Markets after Liftoff: Assessment to Date and the Road Ahead,” February 22, 2016. It is also discussed in the annual report. 24 See “The Recent Increase in the Effective Fed Funds and Overnight Bank Funding Rates,” Wrightson ICAP, October 17, 2016. 25 See “Factors Affecting Reserve Balances,” March 10, 2016 and January 5, 2017. 26 Duffie and Krishnamurthy, “Passthrough Efficiency in the Fed’s New Monetary Policy Setting,” 2016. 27 In constructing this time series, Darrell and Arvind combine two things: before mid-2009, they use a now- discontinued secondary market rate for tradable certificates of deposit. This is a wholesale market rate, and during normal times it generally tracked the federal funds rate. However, after mid-2009, they use a primary market deposit rate (i.e., rates offered in bank branches to customers) that did not rise after the December 2015 tightening. This low responsiveness of primary market rates to tightening of monetary policy is consistent with similar behavior during previous tightening cycles, as documented by Driscoll and Judson, “Sticky Deposit Rates,” October 1, 2013. The OECD’s dataset includes a 90-day interest rate series. | 0 |
Fluctuations in house prices and lending can in this way reinforce fluctuations in production and employment. In short, rising property prices often go hand in hand with an increase in lending. This means that problems in the property market often have greater effects on the financial system and the economy as a whole than do problems in, for instance, the stock market. And it is therefore important to be particularly vigilant with regard to the property market when discussing monetary policy and asset prices. I should also add that it is mainly commercial property, and not residential property, that usually causes this type of problem. “Lean or clean” – act sooner rather than just later? Let us say that property prices and credit volumes are increasing at a rate that does not appear sustainable. How should a central bank react? This is an “old” debate that has been given new life by the recent crisis. And it mainly concerns how the central bank should act when asset prices rise. In these situations it is often difficult to assess whether the current developments are reasonable or whether they are the result of over-optimistic expectations and speculation. It is also difficult to estimate the effects on the real economy and inflation. Moreover, it is difficult to judge when a potential bubble might burst. When property prices fall heavily, the real economy is often weaker and inflation lower. In this type of situation it is more obvious how the central bank should react. | In doing so it is contributing to strengthening international interlinkages between financial markets and systems that is more widespread and inclusive. The number of Islamic financial institutions worldwide has increased to more than 300 spanning over 75 countries. Total assets of the Islamic financial system are estimated to exceed one trillion US dollars. It is among the fastest growing financial segments in the world with an estimated annual growth in the region of 15 to 20 percent. There is now a growing strong demand for Islamic financial product in the global market, far exceeding the current availability of financial products and services being provided by the Islamic financial institutions. The global development of the Islamic financial system has become particularly important in this more challenging financial and economic environment. As the international financial system becomes more diversified and as this new form of financial intermediation develops, it has presented businesses with alternative means of raising funds while investors are presented with new asset classes. It has contributed towards greater diversification of risks. More importantly, the very fundamental requirement of Islamic finance is that it requires an underlying economic transaction thereby avoiding emphasis on speculative purposes. It also prohibits the commoditisation of risks, which leads to its proliferation through multiple layers 2 BIS Review 94/2007 of leveraging and disproportionate distribution. Islamic finance as a form of financial intermediation will also contribute towards enhancing the efficient mobilisation and allocation of funds across regions. | 0 |
Under a scenario consistent with the Banco de España’s March 2022 projections, the exercise included in the Financial Stability Report estimated that firms’ interest expenses as a percentage of gross operating surplus would begin to increase from 2023 onwards to stand, by the end of 2024, 1 pp above 2021 levels. In any event, the subsequent upward revision to market expectations of future interest rates means that the estimated share of firms’ interest expenses as a percentage of gross operating surplus is likely to rise by a further 1.8 pp by end-2024, increasing by a total of 2.8 pp on their 2021 level.16 16 Given that business income may be expected to fall under this scenario, the increase in the weight of interest expenses should be considered to be the lower bound of the total impact of the rise in interest rates. Meanwhile, every additional 100 bp increase in short and long-term interest rates above the levels currently priced in to market expectations is likely to add an additional 1.7 pp to the weight of interest expenses in 2024. 12 For households, moderate interest rate rises would have a relatively small impact on their debt repayment capacity, partly because of the increase seen in recent years in the proportion of fixed-rate mortgages, which accounted for 24.9% of the outstanding amount at December 2021. | In the case of bank lending and pricing, uncertainty in cash flows from the projected carbon credit, and the slow process of local approval, is seen as a major risk to banks. Lack of understanding of CDM and carbon trading market by financial institutions is also a factor weighing on its progress. In the case of investment fund, this is an area that has the strongest potential for private investors’ participation in supporting clean technology and energy-efficient companies. Again, clarity beyond 2012 is needed for evaluating the longer-term economic payoffs, and whether carbon credit is considered securities legally is an issue in some countries. What I have mentioned are some of the practical issues that have emerged in emerging markets, and need to be addressed in order to be able to speed up the process. To conclude, climate change is a big deal for the financial system for a number of reasons that I have mentioned. As for the response, the overall direction of the financial sector’s response to climate change so far is positive, but still very much in an early stage. The progress, however, is more limited in Asia. To promote greater engagement of the financial system, the issues of incentive and availability of tools are important. | 0 |
So there is clearly still lots of work to do, and I hope to see more research dedicated to this subject in the future. Intangibles and Productivity I can now come full circle and consider the implications of the findings so far for another important equilibrium concept: potential output. As intangibles seem to be important for the puzzling weakness of investment, can they also help us rationalise recent developments in productivity and hence the implications for potential output? Page 14 Since the global financial crisis we have observed a substantial productivity puzzle. Average labour productivity growth in the United Kingdom has been around 1.3 percentage points lower since the crisis. While intangibles help to explain the missing investment puzzle, their effect on productivity is mixed as, if anything, there is evidence that they might be driving this productivity slowdown. Chart 9 shows that intangible-intensive industries have experienced the strongest slowdowns in labour productivity growth since the global financial crisis, consistent with a recent study by my colleague Jonathan Haskel. [23] Chart 9: Productivity slowdown is stronger in intangible-intensive industries Note: The y-axis shows the change in average labour productivity growth over 2008-2018 with respect to the 2000-2007 period. The x-axis covers the average share of intangible assets in total capital. Each ‘bubble’ represents an industry, with the area of the bubbles reflecting its share in total employment within each country, thereby measuring the industry’s contribution to aggregate labour productivity growth. EU4 consists of Germany, Spain, France and Italy. Source: Source. | In such an environment, to facilitate the flow of payments, companies with a substantial number of cross-border payments have to maintain bank accounts in all the countries in which they do business. Imagine enterprises in Poland had to keep bank accounts in each voivodship in order to operate efficiently, and each voivodship had a different settlement system and different legal regulations. Would enterprises in such a situation be able to operate as efficiently as they do now? What would it mean for the costs and competitiveness of Polish banks and prices of payment services? This fragmentation not only affects cross-border payments but also national euro payments, as it prevents innovation and competition on the euro area level. Payers and payees may also be subject to different rules and requirements depending on their country of origin. The creation of a common framework will create the opportunity for innovative payment solutions to be offered irrespective of national borders. The goal of SEPA is thus to create an integrated, competitive and innovative retail payments market for all non-cash euro payments, which, in time, will be conducted entirely electronically. As such, SEPA will benefit all customers. New payment instruments will be available throughout the euro area, making life easier for both consumers and business. Consumers will need only one bank account. From this account, they will be able to make euro credit transfers and direct debit payments anywhere in the euro area as easily as they make national payments. | 0 |
I have now described the fault lines in cross-border banking, both at the global and the EU/EEA level, and how they burst open in a particularly violent form in the case of Iceland. But what is and what should be done about this? The problem with giving a precise answer to this question is that what needs to be done at the national level will depend on what is ultimately done at the global level, and for countries that are part of the EU single market it also depends on what is done at that level. In turn, necessary reforms at the EU or global level are put in place partly to avoid national responses that would unduly fragment the international financial system or, in the case of the EU, undermine the single market and the eurozone. Bearing in mind that circularity, let me start at the national level. The key issue here is that, as long as global risks and EU flaws are not dealt with, individual countries are forced to take action to protect themselves: action that might contribute further to the retreat of cross-border banking and financial globalisation more generally. Such action might take the form of restricting international activities of home banks, placing much stricter prudential limits on foreign currency maturity mismatches, limiting FX lending to unhedged parties, and deciding that deposit insurance shall be paid only in the local currency. | The EEA Agreement is basically a mechanism through which EFTA countries like Iceland and Norway were allowed to participate in the EU single market, which includes free movement of capital and provision of financial services. The underlying principles are those of home licensing for operation anywhere in the area and of a level playing field for competition, where size and location are not supposed to matter. It therefore goes against the underlying principles of this framework to consider the size of banks relative to GDP as a metric for concern, as is now so rightly in fashion. This so-called European “Passport” enabled the Icelandic banks to operate throughout the EEA, including through branches in other EEA countries. We now know that there are deep flaws in this framework and that these flaws are important elements in the current euro area crisis. A key issue here is the contradiction between the European Passport rights, on the one hand, and national supervision, national deposit insurance, and national crisis management and resolution regimes, on the other. This is what recent proposals of a banking union are supposed to address. All of these problems are much aggravated when different currencies come into play, and for EEA countries and EU countries outside the euro area, this framework also has embedded in it a potentially huge foreign currency liquidity risk in the banking system that is not covered by a LOLR. | 1 |
How do I think policy should balance these divergent risks? How should these risks affect my views about how to follow the FOMC strategy of pursuing a balanced approach to achieving our policy goals? In my mind, current circumstances and a weighing of alternative risks mean that a balanced policy approach calls for being patient in reducing accommodation – that is, being patient about when we first increase the federal funds rate and being patient about setting the pace of rate increases once we have begun to move. Let me explain how I get there. Proceed cautiously in normalizing policy To say the least, conducting monetary policy at the ZLB has been a difficult experience that we all want to avoid repeating unnecessarily. In the winter of 2009, with the unemployment rate soaring to double digits, the Fed would have very much liked to lower the nominal federal funds rate an additional 300 basis points; but we couldn’t because the rate was already at zero. Faced with a pressing need to provide additional accommodation, we were forced to turn to innovative, but controversial, unconventional monetary policies. These policies have been extremely helpful. But there is no denying that they were second-best options; the ZLB had made lowering the fed funds rate, which is our first-best interest rate tool, infeasible. Everyone will welcome a return to more normal times and a reliance on the traditional policy framework of adjustments to the federal funds rate. | Indeed, in the Committee’s Summary of Economic Projections released about a week ago, most participants anticipated that the unemployment rate would return to its long-run neutral level by the end of 2016 and that inflation then would be in the range of 1–3/4 to 2 percent. A balanced approach to monetary policy Now let me turn to my views on monetary policy. I can’t speak to my FOMC colleagues’ forecasts and how they interact with their views regarding appropriate policy. But, for my part, I think it is more likely that we will achieve our employment mandate before inflation is clearly headed back to 2 percent. Conceptually, this could raise a policy dilemma – achieving our inflation objective would call for strong accommodation, while achieving our employment target usually would call for earlier policy normalization. However, the story is even more complicated than that because important risk factors also come into play. In some ways the insight from Nobel laureates Lars Hansen and Tom Sargent regarding robust control evaluations help form my assessment. 13 I see two important and divergent ways my forecast could go wrong. One is that I may be overestimating the underlying strength in the real economy and its ability to exit from the ZLB. Guarding against this risk calls for a more patient removal of accommodation. The second is that I may be wrong about the inflation outlook, and we could be poised for a much stronger rise in inflation than I am forecasting. This risk calls for more aggressive rate hikes. | 1 |
By handling more financial flows, a centre will be able to further improve and innovate on its risk management capability. The process is interactive and there would be a clustering effect once a centre has established the leading position in risk management and client servicing. 5. Here I should mention several important developments in the last decade that are highly relevant and instrumental to Hong Kong’s rise to become the risk management hub in Asia. Internationalisation of Renminbi (RMB) 6. From 2009 onwards, Hong Kong has rapidly developed into the biggest offshore hub for RMB businesses in the world. Hong Kong is the source of around 50% of the global offshore 1/4 BIS central bankers' speeches RMB liquidity. On average, Hong Kong’s RMB Real Time Gross Settlement system clears and settles over RMB1 trillion a day. Moreover, over 70% of the global RMB SWIFT settlement goes through Hong Kong. All these figures suggest that Hong Kong is already the largest centre for RMB loans, Dim Sum bond issuance and RMB-related products and financial derivatives. The availability of a wide range of banking products, investment and hedging instruments in Hong Kong has made us the undoubted leader in risk management in the offshore RMB market. Stock Connect 7. The launch of the Hong Kong-Shanghai Stock Connect in 2014, followed by the Hong KongShenzhen Stock Connect in 2016, has opened up the most important part of the Mainland capital market to the world’s investors through Hong Kong. | François Villeroy de Galhau: Challenges and opportunities in Europe and beyond Keynote address by Mr François Villeroy de Galhau, Governor of the Bank of France, at the 2018 Paris Europlace International Financial Forum, Tokyo, 19 November 2018. * * * It is a pleasure to be with you again in Tokyo, with my colleague and friend Governor Kuroda. This 22nd edition of the annual International Financial Forum is focused on the disruptive world that Europe is facing. But beyond disruption, the world is also increasingly uncertain, with tensions coming from protectionism, rising oil prices, a controversial policy-mix in the United States, and equity market valuations that remain volatile; but also, within Europe itself, the Italian fiscal policy and Brexit. So in my remarks today, allow me to elaborate on these two dimensions: the challenges and opportunities for Europe, but also the global questions that we have to address collectively. ** 1. Our European challenges and opportunities Let me first speak about the gradual normalisation of our monetary policy. The broad-based expansion of the euro area economy is continuing, although at a more moderate pace. Despite a slowdown in the first half of the year, GDP growth is still expected above potential in 2018, even if the output gap is closed. 9.2 million jobs have been created since 2013 and the unemployment rate has fallen from 12.1% to 8.1%. | 0 |
As a large owner, the state will have to safeguard its financial interests ensuing from its current holdings. This is partly because various owners may have different interests to promote. Joint ownership is not the same as joint interests. The reason for government ownership that seems to have been highlighted most is the importance of national ownership. There may be concern that the acquisition of Norwegian companies could lead to a relocation of head offices, research and product development to a foreign country. Proximity between decision-makers and enterprises may also be important. On the other hand, it may be a disadvantage for an enterprise to be designated as a means of safeguarding national ownership. The state may after a period find that it owns enterprises that were, but no longer are important. The business sector is not static. At the same time, cross-border acquisitions and sales of companies are important for disseminating knowledge and technology and thus for enhancing growth. Value added in Norwegian companies can be increased when they acquire foreign companies, and in many cases Norwegian jobs may be more secure under the ownership of a company located abroad. The best contribution to balanced ownership is a well functioning Norwegian capital market, a solid infrastructure in infrastructure, a neutral tax treatment of investment and a well educated workforce. Changes in state ownership of two of the three largest Norwegian commercial banks illustrate that national considerations, although deemed important, are not always decisive. | Since the banks themselves have massive investments in this market, they were obliged to make writedowns which, in some cases, were hefty. There is still uncertainty about the volume of additional bank writedowns that will be needed, so that the situation on the international money markets remains tense. In this crisis, central banks have reacted fast and flexibly in order to secure the supply of liquidity to banks and counter distortions on the money market. By means of various measures, the Swiss National Bank was able to stabilise the three-month Libor within the target range, thereby keeping fluctuations in the relative restrictiveness of monetary policy low by comparison with other countries. However, it is not possible to solve the fundamental problems in the banking sector through the flexible deployment of an expanded range of monetary policy instruments; neither can they be resolved by means of coordinated actions on the part of central banks alone. The banks themselves must make a substantial contribution to solving the problems which triggered the current crisis. In this respect, the most urgent matters are transparency with regard to endangered positions and their valuation, increasing the capital base, and improving risk management and control systems. BIS Review 37/2008 1 | 0 |
318 (New York: Federal Reserve Bank of New York, March) for a discussion of how adverse selection and asymmetric information along with poor incentives caused a lack of market discipline. 7 For further discussion of the efficient markets hypothesis and the crisis, see Eugene Fama’s blog, “Fama/French Forum” (shared with Kenneth French). In particular, see Eugene Fama and Kenneth French (2008), “Q&A: Market Turmoil” Fama/French Forum (Santa Monica: Dimensional Fund Advisors, December). 8 For a specific example of this phenomenon, see Richard Roll (1984), “Orange Juice and Weather” American Economic Review, vol. 74 (December), pp. 861–880. 4 BIS central bankers’ speeches In normal times, the tension between efficient markets and actual developments is relieved by a series of these tweaked explanations without any substantial changes to underlying views. But as markets came under increasing stress it made the arbitrage and liquidity assumptions underlying efficient market explanations less tenable.9 Further, the signals generated in different markets started to disagree markedly. One of the basic quandaries at the start of the crisis was the differing perspectives from price developments in equity and fixed income markets. The fixed income and equity markets were giving very different signals about the outlook for the economy. Fixed income markets were indicating an abrupt slowdown in economic activity and through derivatives such as the ABX indices substantial credit losses on some of the newly issued structured products related to residential mortgages. The equity market in contrast reached a peak in October 2007 indicating little evidence of such a slowdown. | But even in the capacity of a research economist at a central bank, my understanding of financial markets and the economy was greatly informed by the many types of interactions central banks have with financial markets. Today I will first reflect briefly on the nature and purposes of central bank interactions with financial markets. I will highlight the operational and market monitoring responsibilities of the New York Fed Markets Group and how these responsibilities evolved since the onset of the financial crisis in 2007. Next, I will share some of my personal experience as a research economist at the time trying to make sense of the unprecedented events of the financial crisis through the prism of economic theory, and the lessons I learned. Let me emphasize that my remarks represent my personal views and do not necessarily represent the views of the Federal Reserve Bank of New York or the Federal Reserve System. Pre-crisis central bank interaction with financial markets The Markets Group interacts with financial markets in several important capacities. It is perhaps best known for the role it plays in the implementation of monetary policy by conducting open market operations (OMOs) at the direction of the Federal Open Market Committee (FOMC). As most of you probably know, in an OMO the central bank purchases or sells securities in the market in order to influence the level of central bank reserves available to the banking system. | 1 |
Summer – Supporting the expansion By the end of 2014, the challenge for the MPC had become to keep the economy on this path to a long economic summer by setting policy to return the level of output to potential and total CPI inflation sustainably to the 2% target. The MPC recognised that achieving this trajectory as the headwinds to demand following the crisis continued to fade would likely require some tightening in monetary policy. But how much? During the pre-crisis inflation targeting era, Bank Rate had averaged 5¾%, and the equilibrium real interest rate was generally thought to be around 3¾%. Early in 2014, the Committee concluded that the equilibrium interest rate – the level of the real policy rate that, if allowed to prevail for several years, would place economic activity at its potential and keep inflation low and stable – had fallen significantly.11 This equilibrium rate, r*, is determined not by central banks, but by the real, fundamental factors driving desired savings and investment. For an open economy like the UK, those factors will reflect global influences as well as domestic ones.12 Both long and shorter-term factors have contributed to the fall in equilibrium interest rates. In recent decades, a set of powerful structural forces has been pushing down global r* – including demographic change, slower potential growth, a larger left-hand tail in the distribution of economic outcomes, and the increased cost of financial intermediation. The financial crisis added to this downward pressure. | One reason why equilibrium interest rates are low at the moment is because the distribution of economic outcomes has become more skewed to the downside. In this regard, low rates are a consequence of riskier environment, not the cause of higher risk premia. 26 For example, see Ihrig, J, Klee, E, Li, C, Wei, M, and Kachovec, J (2018), ‘Expectations about the Federal Reserve’s balance sheet and the term structure of interest rates’, International Journal of Central Banking, vol. 14(2), pp. 341-390. 21 All speeches are available online at www.bankofengland.co.uk/news/speeches 21 V. Winter – Monetary policy in a persistently low r* world Looking ahead, deep structural changes in economies are creating disinflationary pressures at a time when conventional monetary policy space is already limited. Inflation targeting frameworks will be tested in new ways. It feels like winter is coming. In all likelihood, equilibrium interest rates will remain low for a prolonged period as many of the structural forces that have pushed them down are set to persist for years. Moreover, these could likely to be reinforced by flaws inherent in the international monetary and financial system27 and the disinflationary effects of advances in technology and the changing nature of commerce.28 The principle structural force leaning in the other direction on inflation is that the shift towards deglobalisation with the potential fracturing of the global trading system. | 1 |
John C Williams: A jack of all trades is a master of none Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the 2022 US Treasury Market Conference, New York, 16 November 2022. *** As prepared for delivery Good morning, everyone. We are excited to have you back in person at the New York Fed for the annual U.S. Treasury Market Conference. You may have noticed that our auditorium has gotten a new look since you were last here. I hope you'll find it a comfortable space since we have a very busy day ahead. The Last Time (LIBOR's Version) The topic of today's conference is resiliency in the U.S. Treasury market. Before I speak about that, I'd be remiss if I did not take this opportunity-hopefully for the last time-to remind everyone that we are entering the final stretch of the transition away from the London Interbank Offered Rate (LIBOR). I'm pleased to report that the transition has been extremely successful so far, thanks to the significant and coordinated efforts from stakeholders across the globe. A special shout-out to the Alternative Reference Rates Committee (ARRC) for its outstanding work and dedication in guiding the move off of U.S. dollar LIBOR and promoting the adoption of more robust rates like the Secured Overnight Financing Rate (SOFR). They proved that LIBOR was far from irreplaceable. But there's still more work to do. | In 2021, the FOMC introduced the Standing Repo Facility and the FIMA Repo Facility.6 These standing facilities are priced such that they are not used often in normal times but remain ready to provide liquidity as needed should funding pressures arise. We also must continue to prioritize having a robust financial system, and that starts with the most core market of all: the U.S. Treasury market. The Inter-Agency Working Group for Treasury Market Surveillance is doing just that. Ahead of today's conference, the group published a progress report around its work to enhance the resilience of the U.S. Treasury market, which I strongly encourage everyone to read.7 The report emphasizes progress made on the proposed expansion of central clearing, enhancements to data collection and transparency, and the potential for evolution in market structure. It's also important to recognize that the world is not static. The Treasury market has increased enormously over the past quarter century, and the key players have changed significantly. And the rest of the financial system continues to evolve, with nonbank financial institutions (NBFIs) playing an increasingly important role. The Financial Stability Board has been actively engaged in this space, assessing global trends and risks through a monitoring exercise and developing policy recommendations to strengthen oversight and regulation.8 Here at the New York Fed, we too are deepening our expertise and monitoring of NBFIs. 3/4 BIS - Central bankers' speeches But this is not just a job for the official sector. | 1 |
When I tapped my phone against an ipad to buy my coffee earlier, my payment may have involved as many as four different non-bank entities – in addition to my own bank, the retailer’s bank, and the payment system (in this case, Visa). It is possible that over time, one of these new entities will become so critical that disruption to it could take down the entire chain. And, if they could disrupt the entire chain, the risks these entities could pose would be comparable to the risks posed by the payments systems we currently regulate for financial stability. To safeguard and future-proof our regulatory framework, we need to move away from a system in which how you are regulated depends on the type of entity you are, towards one in which what matters is what risks you 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 pose. In other words: regulation of payments should reflect the financial stability risk, rather than the legal form, of payments activities. This should cover the entire chain, end-to-end. This may seem obvious: same risk, same regulation. It is hard to argue that regulation should not reflect risks. And a framework that focused on risks rather than legal form would help level the playing field – ensuring that regulation isn’t unfairly applied to one type of firm but not another as a result of their legal structure or status. | Third, the entry into force of the Mechanism will entail the need to conduct new activities and develop new functions: the monitoring of the banking systems of the remaining euro area countries, which is needed to underpin the Banco de España’s place on the Supervisory Board; participation in the definition of the Mechanism’s supervisory policies and in the administrative procedures in relation to the significant banks; and also collaboration in the performance of other horizontal and specialised supervisory functions developed by the SSM. Fourth, there are certain areas of banking activity whose supervision will not be assumed by the Mechanism, but will continue to be within the remit of the national authorities. The Banco de España will thus continue to exercise supervisory powers in the areas of money laundering prevention, consumer protection and, partly, in the oversight of financial markets. It will also retain the supervision of banking foundations within its sphere of competence, that is to say having regard to regional governments. Fifth, the Banco de España, like the other national supervisory authorities participating in the SSM, fully retains its supervisory powers over non-bank financial institutions, other financial institutions and entities related to the financial sector such as payment institutions, electronic money institutions, credit financial intermediaries, mutual guarantee companies, currencyexchange bureaux and appraisal companies. In short, with the launch of the SSM, the main centre of supervisory decision-making on significant Spanish banks has passed from the Banco de España to the ECB. | 0 |
The Heads of State and Government of the European Union committed to a banking union in June 2012. Since then, major steps have been taken, within a very challenging timeframe, to set the basis for common supervision, through the single supervisory mechanism and common resolution arrangements; as for harmonized rules to protect depositors, they are also on the agenda, but the progress is clearly lagging behind. Let me now address each of these three pillars of the Banking Union. Single Supervisory Mechanism Last week the European Council adopted the Regulation establishing a Single Supervisory Mechanism (or SSM). Within one year, the ECB will, together with the national supervisory authorities, assume broad supervisory competences over the whole banking sector of the Euro area and of those other EU countries which decide to opt-in. The ECB will be the central player within this new mechanism. Those credit institutions deemed to be significant according to the criteria laid down in the Regulation will be directly supervised by the ECB with the assistance of the national supervisory authorities, while the rest of the system will be indirectly supervised by the ECB through the national supervisors. In numbers, out of approximately 6,000 credit institutions in the Eurozone, the ECB will directly supervise around 130 banks, covering around 85% of total banking assets. The single mechanism will be based on the idea of centralised supervision, offering a common view for the supervision of the whole sector, while building on the knowledge and expertise which exist at national level. | Following their pre-university programmes, Imran aspires to be a Mechanical Engineer, Hajar is keen to read Chemistry while both Ying Xin and Nur Shazlin aspire to be Doctors. I am confident that all of you will do your best and will contribute for the future of the nation. BIS central bankers’ speeches 1 In addition to the Kijang Emas Scholarship award, every year the Bank also awards scholarships to 50 high achieving SPM students for them to pursue their undergraduate studies abroad with the objective of them being part of the Bank’s future talent pool. The Bank has put in place a structured, holistic and collaborative Scholar’s Development Programme to support all of our scholars throughout their studies. The programme aims to develop high-quality and well-rounded scholars with leadership qualities as the next generation of young talent who will be the leaders of tomorrow for the Bank and our nation. 2 BIS central bankers’ speeches | 0 |
While many digital-asset-related activities fall within existing U.S. laws and regulations, the rapid evolution and adoption of digital assets highlight unique risks that warrant a more comprehensive and aligned approach by agencies across the U.S. government with different regulatory remits. The Federal Reserve, as an independent central bank, is only one part of the puzzle. Many of these other stakeholders across the U.S. government, such as the Treasury Department, market regulators, and federal banking supervisors, will be involved in providing guidance and guardrails to the financial system as the universe of digital assets continues to evolve.7 In the current environment of rapid technological change, it is crucial that innovation proceeds responsibly in order to safeguard the stability of the financial system. To that end, on March 9 of this year, President Biden issued an Executive Order on Ensuring Responsible Development of Digital Assets. 8 This executive order outlined the first whole-of-government approach to addressing the risks and harnessing the potential 2/5 BIS - Central bankers' speeches benefits of digital assets and their underlying technology. In response, over the past six months, agencies across the government have worked together to develop frameworks and policy recommendations that advance the six key priorities identified in the executive order: consumer and investor protection; promoting financial stability; countering illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. The executive order will be a catalyst to increased coordination among U.S. regulators. | Second, innovative financing solutions. To meet Asia’s green financing needs, it is not enough to rely on just the public sector or the banking sector. We need innovative platforms to catalyse capital flows to marginally bankable but worthy green projects. In Singapore, one of our sovereign wealth funds, Temasek, has partnered HSBC to set up a debt financing platform to invest in marginally bankable sustainable infrastructure projects in Asia. We need new instruments such as blended finance to draw in different types of financers. Government agencies and multilateral development banks can potentially help to derisk sustainability projects by taking on first loss equity or providing a guarantee, to help crowd-in more private sector financing. This includes not just commercial banks but also capital providers such as foundations and family offices. We need to deploy technical assistance alongside financing. This is to support a range of activities such as project preparation, project implementation, and even training and capacity building to achieve maximum development impact. Third, financial supervision. Regulators are in a strong position to steward the financial system towards net zero through supervising financial institutions’ management of climate related risks. The Network for Greening the Financial System, or NGFS, plays a key role in helping to mainstream climate-related risk management. The NGFS has just issued a report highlighting the different paths that supervisors can take towards a set of internationally aligned supervisory practices. We strongly support the NGFS Declaration1 to green the financial system. The MAS is progressively embedding climate risk considerations in its supervisory framework. | 0 |
There is in the marketplace a lingering fear that the Fed has already expanded its balance sheet to its stretching point and that an exit strategy, though articulated, remains theoretical and untested in practice. And there is a growing sense that we are unwittingly, or worse, deliberately, monetizing the wayward ways of Congress. I believe that were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as an accomplice to the mischief that has become synonymous with Washington. Raeburn versus Munch There is no question that these are worrisome times: The world economy is slowing, joblessness is rampant in many countries, and in the United States, growth is anemic and unemployment remains unacceptably high. To me, this means that the Fed, and all central BIS central bankers’ speeches 5 banks, must keep their heads about them and not give in to the convenient recommendations of those who are given to solving all problems with monetary policy. If only for your visual pleasure, I have chosen two paintings anybody in the vicinity of St. Andrews and Edinburgh would know, in order to illustrate alternative approaches to central banking at this juncture. The first is an icon of Scottish culture: Sir Henry Raeburn’s depiction of The Reverend Robert Walker Skating on Duddingston Loch, a seminal work in the permanent collection of the Scottish National Gallery and a favorite of mine since I first saw it some 30 years ago. | The limits of monetary policy and the importance of fiscal policy Here is the rub. As mentioned, the FOMC sets monetary policy for the nation, for all 50 states – its influence is uniform across America. The same rate of interest is charged on bank loans to businesses and individuals in Texas as is charged New Yorkers or the good people of Illinois or Californians; Texans pay the same rates on mortgages and so on. Why is it that the Texas economy has radically outperformed the rest of the states? A cheap answer is to revert to the hackneyed argument that Texas has oil and gas. It is true that we produce as much oil as Norway and almost as much natural gas as Canada. And we have some 60 percent of the refineries of the United States. But remember that the numbers I showed you are employment numbers. Only 2 percent of employment in Texas is directly generated by oil and gas and mining and related services. We are grateful that we are energy rich. But we are a diversified economy not unlike the United States, where business and financial services, health care, travel and leisure activities and education account for similar portions of our workforce. Why, then, do we outperform the rest of the United States? 4 BIS central bankers’ speeches To me, the answer is obvious: We have state and local governments whose tax, spending and regulatory policies are oriented toward job creation. | 1 |
One of the key questions going forward is where the potential for financing might come from. The potential of capital markets is usually determined by the domestic institutional investor base. Traditional institutional investors (pension funds, investment funds and insurance companies) are present in all CESEE countries, but mostly in the government bond-market segment. However, their role in the CESEE region is smaller, compared to the EU as a whole, and there is a lot of variation across countries. For instance, assets of insurance undertakings and pensions, as a share of GDP, stood roughly at 33% in Croatia, compared to 6% in Romania. Chart 15: Banking sector assets and assets of institutional investors (pension funds, insurance corporations and investment funds) in CESEE countries, as % of GDP Banking sector assets, as % of GDP Assets of institutional investors, as % of GDP 80 400 2012 60 300 200 40 2013 20 2014 0 Baltics CEE SEE Pension funds Eurozone Source: ECB, OECD statistics. 13 Insuruance corporations Eurozone SEE CEE Baltics Eurozone SEE CEE Baltics Eurozone SEE 100 CEE Baltics 0 Investments funds 2015 2016 Another aspect linked to the potential of institutional investors and relevant in the context of capital markets development are household saving preferences. Large part of financial wealth of households in CESEE countries is invested in bank deposits. | We need to link information on borrower decisions about the kind and amount of education they receive to long-run outcomes for them and for the overall economy. So I commend to you the work before you – finding new ways to get the information that policymakers need to answer important questions about how we finance higher education. I look forward to your insights and recommendations. BIS central bankers’ speeches 3 | 0 |
Ensuring Stability in Turbulent Times1 Your Excellencies, Distinguished Guests, Sabah-al-khair and a very good morning. I am very delighted to be here today and I am grateful to H.E. Dr. Abdulrahman A. Al Hamidy for inviting me to speak before this august gathering. Thanks to the active collaboration of the Basel Committee on Banking Supervision, Financial Stability Institute, and the Arab Monetary Fund, these high-level meetings provide a valuable forum for exchange of views for the regulators and supervisors in the region. The agenda of this conference adequately captures key developments, issues, and challenges that we need to focus our attention on. Today, I would like to touch upon two major forces that have swept across the financial world. First is the tech-driven revolution, which has brought its own set of risks and rewards. Second is the wide range of measures that have been introduced to strengthen the resilience of our banking systems. Let me start with innovations first. Innovation; opportunities and risks Tech-driven innovations have unleashed drastic changes in the way we conduct business, interact with each other, or consume various products and services. Financial sector, essentially an ‘information industry’, is experiencing a major transformation, fueled by advances in technology. Though the imprint of modern technologies is now ubiquitous, let me briefly highlight a few areas of finance where the developments are particularly significant. | Caleb M Fundanga: Promoting financial inclusiveness Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the second AFRACA Central Banks’ Forum, Livingstone, 23-25 September 2008. * • • • • • • • • • • • • • * * The Guest of honour; Honourable Ng’andu P. Magande, MP Minister of Finance and National Planning; Your Worship the Mayor, Mrs Grace Shafik; Provincial Minister, Hon Daniel Munkombwe; Permanent Secretary, Southern Province, Mr Darius Hakayobe; Deputy Governor-Operations, Dr Denny Kalyalya; Chairperson; The Secretary General of the African Rural and Agricultural Credit Association (AFRACA), Mrs Mary Nandazi; Co-operating partners; Distinguished invited guests from Central Banks; Resource Persons; Chief Executive Officers of Banks and Non bank financial institutions; Distinguished invited guests; Ladies and gentlemen; On behalf of the Bank of Zambia and indeed on my own behalf, I would like to extend a very warm welcome to you all to this important African Rural and Agricultural Credit Association (AFRACA) Conference. To our colleagues from outside Zambia, I wish to extend a special welcome to you to Zambia, in particular to Livingstone, our tourist capital. Like the rest of Zambia, Livingstone is a city of tranquility with an easy-going African charm. The city is not short of interesting sites and places to visit. It hosts the Victoria Falls, also known among the locals as “Mosi-o-Tunya, the Smoke that Thunders” and is one of the world’s seven natural wonders! | 0 |
In particular, they looked at longer-term inflation expectations and found that expectations of inflation five years in the future have barely budged over the past two years.2 This evidence is reassuring that, despite the highly unusual swings in inflation over the past year and a half, inflation expectations are still well anchored. In addition, measures of underlying inflation that are not overly influenced by the effects of the pandemic have remained stable. With underlying inflation and inflation expectations running at levels consistent with our 2 percent longer-run goal, I expect inflation to decline to about two percent next year as the pandemicrelated effects on prices subside. Still, there is a great deal of uncertainty about the inflation outlook, and I will be watching the data on inflation and inflation expectations closely. New York Conditions These numbers tell the story of the economic outlook on a national level. But the New York economy faces unique challenges, and they may be more serious relative to other parts of the country. New York State’s unemployment rate is well above the nationwide rate, and New York City’s is almost double the national figure. Private sector employment in the state is down nearly 10 percent, with the hard-hit leisure and hospitality sector down 27 percent. That said, the most recent data show signs of improvement: employment across the state grew at roughly double the nationwide pace in August, with outsized growth in New York City. | We continue to place an emphasis on promoting the global competitiveness of Thai businesses, while ensuring the integrity of the economic and financial system as a whole, the very foundation of consumer and business confidence. The key challenge this year for the BOT and other policymakers is to preserve the right balance of policy mix, which in turn demands both intra- and inter-agency cooperation. Our common goal is to promote a sustainable growth path and ensure a high standard of living for all Thais. Economic developments and policy implementation in 2012 Last year, the Thai economy had to grapple with the stagnating global economy, volatile capital flows, and challenges in recovering from the flood crisis. Notwithstanding these difficulties, the economy proved to be resilient and flexible enough to withstand various shocks and uncertainties. Indeed, robust domestic demand has become the main engine of growth amid the softening global economy, helped in part by government stimulus measures. Overall economic activities consequently improved, and I would like to thank all parties for their collective efforts. On the monetary policy front last year, a greater emphasis was placed on risks to growth, which justified the accommodative monetary policy stance throughout 2012. The Monetary Policy Committee (MPC) lowered the policy interest rate twice by a total of 0.50 percentage points. The first cut took place earlier in the year, and was designed to help speed up economic recovery after the severe flood. | 0 |
03.10.2016 Second Financial Education Day Banco de España/CNMV Luis M. Linde Governor Good morning I would like to begin by saying how pleased I am to be participating in this celebration of the Financial Education Day. The purpose of this event is to raise society’s awareness of the importance of improving and broadening financial and, more generally, economic knowledge, helping people take decisions that affect many aspects of our lives. At times like the present, characterised by the constant evolution and development of saving and borrowing instruments, the ability to correctly assess the risk and profitability of different financial products is particularly important. Indeed, different products may be more or less appropriate depending on an individual’s risk exposure profile, age and income. The role of experience when choosing products is limited, since we are frequently faced with new products or products with features that are not well known. I would like to stress that the main purpose of financial education is not to train experts in how to understand complex products, but to help ordinary people with their spending, saving and investment decisions. Particular prominence is given in financial education to aspects such as preparing a household budget, prudence when taking decisions, the assumption that higher returns are generally associated with higher risks, and, no less importantly, the time profile of economic decisions, and, specifically, preparation for retirement, which is obviously very important given current demographic trends and the challenges of population ageing. | Encik Abdul Rasheed Ghaffour: ASEAN - advancing its potential, hurdles and the way forward Closing remarks by Mr Encik Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Conference, Kuala Lumpur, 4 August 2017. * * * Thank you for having me here today to deliver the closing remarks for the ASEAN@50 Conference. I am also honoured that you have chosen Sasana Kijang to be your meeting point for this Conference. I’m sure that all of you have greatly benefited from the two thought-provoking panel discussions earlier, that drilled down the measures required for ASEAN to achieve its economic promise. ASEAN proudly welcomes its golden jubilee next week. This momentous occasion not only celebrates our achievements thus far, but also marks the gravity of the work ahead of us. We will continue to galvanise all sectors of society – public, private and civil – to ensure ASEAN’s achievements are not just reflected on paper, but more importantly, can be seen, felt and heard. ASEAN stands out as a dynamic region – with diverse strengths that continues to benefit its growing population of 625 million people. In 2015, ASEAN contributed to more than 7 percent of world exports. Our strong trade performance has contributed to increased employment by about 70 million over the past 17 years – enabling better livelihoods of households. Millions have been lifted out of poverty with the significant rise of ASEAN’s GDP per capita, from USD1,054 in 1996 to USD4,000 in 2016. | 0 |
We expected inflation to fall back, once those changes had passed through. And, second, to prevent even a temporary rise in inflation consequent to those price level shifts, the MPC would have had to try to depress the economy even further, by consciously pushing down on output, employment and nominal wage growth – so real wage growth would have been weaker, not stronger – at a time when the economy was already very weak. So, despite the costs of the inflation which were 1 For a comprehensive review of the costs associated with anticipated and unanticipated inflation, see Briault, C (1995) “The costs of inflation”, Bank of England Quarterly Bulletin: February 1995 (http://www.bankofengland.co.uk/archive/Documents/historicpubs/qb/1995/qb950102.pdf) 2 Because no interest is paid on bank notes and coins. Also because of nominal rigidities in the tax system like fixed personal allowances. BIS central bankers’ speeches 1 experienced, the costs of the policy needed to counteract it would have been even greater in this specific circumstance of one-off shocks and left the UK economy in a much worse position now. I want to stress that these calculations would not lead to the same conclusion were inflation being driven by pressure arising from excess demand or if inflation had led to expectations of above-target inflation in the medium-term. In those circumstances, where inflation would be more persistent and hence much more costly, the benefits of bringing inflation back to target would outweigh the short-run costs of doing so. | But for many investors, such a policy generates low financial returns which are difficult to cope with. Pension funds, for example, need relatively long-term, low credit risk investments – such as gilts – and those have been generating lower than normal returns for some years. In fact, the search for yield has tended to depress all financial returns. But I want to reflect on the relationship between rates of return and the real economy. As a general proposition, one cannot expect to earn high risk-adjusted real returns from financial investments if the underlying real economy is not growing. For example, it is business profitability which drives equity dividends and prices. The real “risk-free” interest rate is also associated with real growth. Slow economic growth and low financial yields have been a feature of most of the developed world in recent years because of the global nature of the recessionary forces at work. Once a recovery in the UK economy has been firmly established then one would naturally expect real financial returns to be higher, and the real policy rate (i.e. Bank Rate minus expected inflation) can start to normalise. We can express this thought in a different way. Would it have helped financial investors to have had higher nominal interest rates over the past few years? | 1 |
With a view to the future, I should note that the current reform will further increase the complexity of the capital adequacy requirements. Although the potential of capital adequacy regulation has not yet been exhausted, other possibilities should also be investigated in the future. Complementing the capital adequacy approach with improved liquidity management of the banks seems to be a particularly promising measure. Shortcomings in liquidity management may give rise to problems that cannot be resolved by adequate capitalisation. It is not surprising that such considerations are made primarily by central banks. After all, liquidity concerns are typical for central banks. On the macro level, maintaining the supply of liquidity is a monetary policy task. On the micro level, however, it is the task of each bank to bring its solvency into line with the risks. This requires that the liquidity risks be correctly assessed and managed, and that assets, which can if necessary be used as collateral, be made available. The central banks and supervisory authorities of the G-10 countries should, therefore, increasingly focus their attention on minimising liquidity risks. This is of particular relevance to banks that are systemically important and internationally active. Integrated financial market oversight: what now? In the meantime, the Federal Council decided on the further procedure regarding the Federal Act on Financial Market Oversight (FINMA Act). The Federal Department of Finance will prepare a statement by the end of next year and submit it to the Federal Council. | In this regard, the Eurosystem’s initial objective is to have a Single Euro Payments Area – a SEPA – for citizens and enterprises in the euro area from 1 January 2008 onwards. According to the Commission’s regulation, the price charged by banks for a cross-border transfer must be the same as that of a transfer within the same country. While prices to the end-customer have been homogenised through legislation, the level of service cannot be influenced by legislation. What is lacking is the possibility of using national instruments for pan-European business as well. A real SEPA will only be achieved when payments can be made throughout the whole area from a single bank account, using a single set of payment instruments, as easily and safely as in the national context today. The ECB’s second objective is to have a SEPA for the infrastructure by the end of 2010. Once national instruments, services and standards have been gradually phased out and replaced by pan-European ones, national infrastructures will be abolished or transformed into pan-European ones. Consequently, decisions related to the next generation of national systems should be made from a pan-European perspective to ensure compliance with the SEPA. To encourage national implementation, the respective national banking communities should translate the SEPA objectives into national transformation plans, allowing each bank and infrastructure provider to tailor its strategies and solutions towards a SEPA. The ECB intends to monitor this progress with the assistance of the European Payments Council (EPC). | 0 |
And do so together: the German Federal President warned last month, “Germany cannot emerge from the crisis strong and healthy if [its] neighbours do not also become strong and healthy” i. Of course the same applies to, say, the Netherlands or Austria: selfishness today could come at a high price tomorrow. And let me stress the utmost importance of Chancellor Merkel’s words precisely just yesterday: “This will encourage us to do more in the area of economic policy, in order to further integration of the euro area. We will address this issue in connection with what we call the Recovery Fund for Europe”. A. Our common goals: recovery and repair 1/Supporting growth in the recovery phase is a shared objective for all of us in Europe. There is indeed no magic bullet, and – at the end of the day – the debt inherited from the crisis will need to be financed through growth and through our work. As pointed out by my colleague and friend Governor Ignazio Visco, “adequate investment in education is […] needed to face the uncertainty that surrounds the jobs and the skills that will matter in the future” ii. Yet, in the face of such enormous upheaval such as the Covid-crisis, investment at the national level will inevitably reach its limit. | Mr Carse: The importance of corporate governance in banks Speech by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, at The Year 2000 Millennium Dinner of The Association of International Accountants - Hong Kong Branch, Hong Kong Bankers Club, Hong Kong, on 17 March 2000. * * * Ladies and gentlemen, I am very pleased to be here this evening to speak to the Association on the subject of corporate governance in banks. I have chosen this as my theme both because it is highly topical for reasons that I will explain later and because it should be of particular interest to this audience. The Association plays an important role in the training and promotion of the accounting profession; and accountants are a vital component in corporate governance not simply in their specific role as auditors but also as a source of highly trained directors and managers. I will begin by giving you a brief situation report on the banking sector because this is relevant to the governance issue. Clearly, the situation is looking a lot better than it has done for the last two years. As the 1999 results released so far have shown, the performance of individual banks is by no means uniform. Some have done a lot better than others, depending on such factors as the mix of their business and where they are in the provisioning cycle. | 0 |
But I think this is a somewhat misleading view as I will explain later. The SSM and the SRM, both components of the Banking Union thus contribute to reducing the negative feed-back loop between banks and sovereigns. One important objective of the SSM Regulation is to improve the quality of supervision and to ensure strong homogenous supervisory standards across the euro area. The essential contribution that European supervision can give to the separation of banks and sovereigns is the build-up of trust in the robustness of banks as stand-alone entities, so that enhanced confidence by their peers can help normalise interbank markets and overcome financial fragmentation. The establishment of the SRM also addresses the problem of breaking the bank-sovereign nexus because the orderly resolution of banks, even large ones, helps to avoid costly rescues by sovereigns that may endanger their own finances. In practice, however, the SSM and SRM may not be sufficient to completely sever the ties between sovereigns and their domestic banks. The effect of SSM and harmonised supervision on trust among banks may be more limited than expected, while the SRM, important for organising orderly resolutions, is limited in the amount of resources it can contribute to recapitalisations. The Bank Recovering and Resolution Directive (BRRD) is in my view the most crucial regulatory change in Europe in relation to breaking the bank-sovereign nexus. It represents a true paradigm change, ending the culture of bail-out and ushering in a culture of bail-in. | Long-term fiscal policy challenges - the role of the Government Petroleum Fund Nevertheless, the Norwegian economy is facing considerable challenges as a result of an ageing population and a marked rise in pension expenses and in the cost of nursing and care services. The number of old-age and disability pensioners is estimated to rise by 50% by 2030, and central government expenditure on old-age and disability pensions is expected to increase from approximately 7% of GDP in 2000 to 15% in 30 years’ time. 3 BIS Review 105/2000 In order to meet these long-term fiscal policy challenges, it is appropriate for resources to be put aside in times of high petroleum revenues. The larger the Petroleum Fund, the less dependent we will be on petroleum revenues in the future. The Norwegian Ministry of Finance assesses the long-term outlook for public expenditure using generational accounts.1 Such accounts can be used to assess whether the tax burden will need to be increased in the future to meet the government’s long-term social security obligations and to maintain public services and amenities. The calculations presented by the Ministry of Finance2 indicate that the generational accounts are more or less balanced. The ministry emphasises the uncertainty shrouding this type of long-term assessment of fiscal policy. Fluctuations in the oil price and petroleum earnings also create challenges for economy policy in the short and medium term. Let us suppose that the oil price temporarily increased by USD 1 per barrel. | 0 |
Conduct regulators – such as the UK’s Financial Conduct Authority (“FCA”) – have taken an early lead in seeking to ensure that standards for financial advice and services offered are upheld, and that the integrity of the financial system is protected. Second, the twin imperatives of greater inclusion and more competition point to the value of digital identities. Billions of people are still under-or unbanked across advanced and emerging economies. 11 And as the FSB and others have highlighted, some countries are at risk of being cut off from the global financial system as major correspondent banks withdraw. 12 New technologies are providing solutions. Already, biometrics and cryptography are being used to validate customer identities in consistent and reliable ways, facilitating access to the financial system and reducing AML and CFT due diligence costs. For example, since 2010, the Indian government has issued more than 800 million such identities, such that at least four out of five citizens can now use them to make use of governmental and financial services. 10 Oliver Wyman and Santander estimated that distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by $ per annum by 2022. See: https://santanderinnoventures.com/fintech2/ 11 Some 2 billion adults lack a bank account worldwide. 10 million US households and 1.5 million UK adults are also unbanked. | The emergence of mobile telephony, the ubiquity of the internet, availability of high-speed computing, advances in cryptography, and innovations in machine learning could all combine to enable rapid changes in finance – just as they are in other areas of the economy. FinTech’s true promise springs from its potential to unbundle banking into its core functions of: settling payments, performing maturity transformation, sharing risk and allocating capital. This possibility is being driven by new entrants – payment service providers, aggregators and robo advisors, peer-to-peer lenders, and innovative trading platforms. And it is being influenced by incumbents who are adopting new technologies in an effort to reinforce the economies of scale and scope of their business models. In this process, systemic risks will evolve. Changes to customer loyalties could influence the stability of bank funding. New underwriting models could impact credit quality and even macroeconomic dynamics. New investing and risk management paradigms could affect market functioning. A host of applications and new infrastructure could reduce costs, probably improve capital efficiency and possibly create new critical economic functions. The challenge for policymakers is to ensure that FinTech develops in a way that maximises the opportunities and minimises the risks for society. After all, the history of financial innovation is littered with examples that led to early booms, growing unintended consequences, and eventual busts. | 1 |
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