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Supervision of savings banks commenced as early as 1900, with the establishment of the position of Inspector of Savings Banks. This was probably one reason why savings banks were not as expansive as commercial banks during World War I. Nor were they as severely affected by the banking crisis. A gradual increase in the regulation and supervision of financial enterprises and the introduction of a financial safety net did not mean that the market-based system was abandoned. However, recessions and demands for more protectionism led to restrictions on international trade and capital movements. The result was that domestic investments increasingly had to be financed through domestic savings. This can be illustrated by looking at the relationship between the saving ratio and the fixed investment rate for selected countries. A strong correlation indicates a limited degree of openness. Measured in 6 this way, integration was greater before 1914 than in the interwar period. Protectionism had a very harmful effect on economic developments. 5 Ecklund, G. J. and S. Knutsen (2000). Vern mot kriser? Norsk finanstilsyn gjennom 100 år. (Protection against crises? 100 years of Norwegian financial supervision) Fagbokforlaget. 6 Jones, M. T. and M. Obstfeld (1997). Saving, Investment, and Gold: A Reassessment of Historical Current Account Data. NBER Working Paper Series. 4 BIS Review 86/2001 After World War II, international organisations were established to promote economic cooperation and their objective was increased integration of international trade and fixed investment. However, crossborder capital movements remained heavily regulated. | The first situation is when the highly leveraged institutions taking very large positions are overwhelmed by market forces. As the case of LTCM has illustrated, highly leveraged positions can pose serious risks to systemic stability even in the large and established markets of the developed economies. As the highly leveraged institutions are, for circumstances they have not factored into their mathematical models, forced to unwind their very large positions, particularly against the background of highly volatile and illiquid market conditions, the credit losses of institutions providing the highly leveraged institutions with funding can be huge. The rapid de-leveraging of large positions by highly leveraged institutions is also highly contagious in that it in turn exacerbates volatility and reduces liquidity not only in the markets concerned, but also in other markets. The rapid de-leveraging of the short yen positions by the hedge funds in October last year is a good example of the volatility that can result. The yen strengthened by 11% to 111 over a couple of days. Such volatility affects the positions of yet other highly leveraged institutions and their counter-parties providing them with credit. The potential for market dislocation and the systemic risks this posed were so serious that, as you all know, last September the Federal Reserve Bank found it necessary to broker an unusual package by a consortium of banks to rescue LTCM. The second situation is when the smaller markets are overwhelmed by the forces of the highly leveraged institutions. | 0 |
This has risen sharply in the past couple of 5 years and to historic highs; it fell back in the most recent, 4 April, data, but remains high. Against the backdrop I 3 have been discussing of slowing global growth, trade 2 tensions and Brexit uncertainty, that is not surprising. 1 But it suggests a policy environment that could 0 potentially be challenging. -1 Many of the drivers of elevated policy uncertainty are Differences from averages since 2002 (number of standard deviations) -2 2002 2006 2010 2014 Policy uncertainty 2018 VIX fundamentally shocks to supply, which monetary policy is not able to offset, rather than demand. But they could introduce a more complicated policy trade-off for the The policy uncertainty index is available at http://www.policyuncertainty.com/. This chart shows data to end-April. MPC. And they represent risks to financial stability which the FPC needs to be mindful of and prepared to respond to. That is particularly the case given the apparent disconnect between this measure of policy uncertainty and measures of market uncertainty, for example the VIX measure of US equity market uncertainty which is also shown on the chart. The VIX has risen far less than the policy uncertainty index in recent months, suggesting market participants see relatively little risk of major disruption. | If the weakness in finance sector productivity has been a result of households and firms paying down debt – a process which has now largely run its course – then you might Chart 5: Frequency of mentions of Chart 6: Sectoral contributions to the “productivity” in the Inflation Report slowdown in productivity growth Mentions per million words Percentage ICT 4000 2.5 Prof. & scientific 3500 Finance 2.0 Manufacturing 1.5 3000 Other 2500 Total 1.0 0.5 2000 0.0 1500 -0.5 1000 -1.0 500 -1.5 0 1997 -2.0 2001 2005 2009 2013 2017 1997-07 2008-09 2010-17 Difference (2010-17 minus 199707) 5 All speeches are available online at www.bankofengland.co.uk/news/speeches 5 expect to see an increasing contribution from finance in the coming years, and perhaps also spillovers to professional services and other complementary industries.4 This would help underpin the pickup in productivity growth that we are forecasting at the aggregate level. I am less confident, because I put more weight on the view that pre-crisis growth in finance sector productivity was simply unsustainable. Much of the apparent growth in finance sector productivity before the crisis reflected profits on the risky lending that led to the crisis itself. | 1 |
This problem was significantly mitigated with the FX swap lines that the US Fed negotiated with the ECB and other major central banks, especially after these became uncapped in some cases. But the problem was not confined to currency pairs involving the US dollar, and a similar kind of dynamic played out for smaller currencies in Europe vis-à-vis the euro, especially where banking systems had significant short-term foreign refinancing needs, or what can also be called rollover risk in terms of foreign currency. In some cases, FX swap lines were granted vis-à-vis the dollar, the euro and the yen, and in some cases not. Where swap lines were granted, it helped. And for some of the smaller players, it might not have mattered terribly much which of the major international currencies they hooked on to in this sense, especially after the uncapped swap lines had been established. What we observed during this peak of the crisis was thus a run on cross-border banking operations. We know how to solve such problems domestically by letting central banks lend to markets and/or institutions through their almost unlimited short-run capacity to expand their domestic balance sheet. However, when it comes to foreign currency, a central bank’s capacity to help banks to refinance the foreign liquidity denied them on the market is limited by the size of its reserves or the willingness of its big neighbours to help. This is what did the Icelandic banks in. | Instead, the Government, on the advice of the Central Bank, announced on 29 September that it was taking a 75% equity stake in Glitnir valued at € m. This implied a big fall from what such a stake was valued at in the market the week before. In the following week, the equity price collapsed further, ending the week 75% below its value at the end of the preceding week. This action did not boost market confidence in the Icelandic banking system. On the contrary, it intensified the run. On the following day, both the sovereign and the banks were 2 Baba, Naohiko, Frank Packer and Teppei Nagano, (2008). “The spillover of money market turbulance to FX swap and cross-currency swap markets”, BIS Quarterly Review, March 2008, 73–86; Baba, Naohiko, and Frank Packer, (2008). “Interpreting deviations from covered interest parity during the financial market turmoil of 2007–08”, BIS Working Papers, No. 267. See also Box III-1, “The recent turmoil in the Icelandic foreign exchange swap market” in the Central Bank of Iceland Monetary Bulletin 2008/1, pp. 26–29. 4 BIS Review 9/2010 downgraded by two notches, followed by widespread margin calls and closing of credit lines. The foreign deposits that had helped to alleviate the foreign liquidity squeeze experienced outflows. And the equity loss involved in the Glitnir takeover created a domino effect within the Icelandic financial system. | 1 |
A second basic conclusion is that, if the economy is close to the effective lower bound, it is vitally important to adopt especially forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched. In turn, this may also imply a transitory period in which inflation is moderately above target. In particular, the review identified forward guidance, asset purchases and longer-term refinancing operations as instruments in the monetary policy toolbox that can help to address the constraint of the effective lower bound on policy rates. At its 21 July monetary policy meeting, the Governing Council revised its forward guidance on policy rates in line with this new strategic orientation. In particular, the new forward guidance specified three conditions that need to be met before we would start raising our policy rates. The first condition is that the Governing Council “sees inflation reaching two per cent well ahead of the end of its projection horizon.” The second condition is that the two per cent target is reached 1/2 BIS central bankers' speeches “durably for the rest of the projection horizon.” The third condition is that the Governing Council “judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.” Let me highlight today two key features of this rate forward guidance. | Philip R Lane: The monetary policy toolbox and the effective lower bound Welcome address by Mr Philip R Lane, Member of the Executive Board of the European Central Bank, at the ECB Conference on Monetary Policy “bridging science and practice”, Frankfurt am Main, 11 October 2021. * * * It is a pleasure to welcome you to the 2021 edition of the annual ECB Conference on Monetary Policy. As captured in the title of this year’s event, this conference series serves a vital role in bridging the science and practice of monetary policy. In particular, it is essential for the ECB to incorporate in our analytical framework the theoretical and empirical insights generated by the global academic community, and the conference format (albeit in webinar mode again this year) is very effective in providing us with a platform to discuss the latest developments. The breadth of academic research (in terms of both topics and research techniques) that is relevant for monetary policy is quite wide and this is reflected in the composition of the conference programme. The agenda includes research that exploits financial market data to examine the transmission of monetary policy, studies the impact of the pandemic on firms and banks using entity-level datasets, analyses the interactions between monetary policy and financial stability in a full-scale macroeconomic model, and explores the impact of monetary and fiscal policies on the formation of household expectations. | 1 |
A country with such challenges should not and actually – given our euro area membership and the background of market globalisation – cannot pursue any economic policy avenue other than one which, firstly, provides for and boosts higher employment growth or, on the other side of the same coin, brings about swifter and more sustainable gains in our productivity and competitiveness; and, secondly, helps curb the growth of our public and private debt with a view to subsequently reducing it. In economic policy, hits and misses only become clearly manifest after some time. Just like big vessels which, owing to their great inertia, can only change course or speed slowly, an economy such as ours also moves with considerable inertia: correcting mistakes takes time and, almost always, entails losses in income and well-being, and social instability. Our experience – both in the pre-crisis expansionary phase while the imbalances were accumulating and during their correction and the recovery of growth – should help us avoid errors, persevere with reforms to safeguard and enhance our competitiveness, and fulfil our public finance commitments in the European Union. Thank you. BIS central bankers’ speeches 5 | Our central projection, on the basis that there are reasonable grounds to expect the US to return to moderate growth in the latter part of this year, is that the impact on the UK from the weakening of global activity should be moderate. But we judge that the risks are weighted on the downside, principally on the basis that the pause in US growth could be deeper or more prolonged than expected. Domestically, on our central projection we see reasons for domestic demand to remain fairly well sustained. Overall, therefore, our central projection is for some slowdown in UK growth, to around 2% in the latter half of this year, reflecting the deterioration in global prospects, but thereafter a recovery in growth to around its trend rate as world activity recovers. In parallel, we project RPIX inflation running around 2% through this year, but picking up to reach our target of 2 1/2% at around our two-year forecast horizon. On this basis, recognising that the risks are clearly on the downside of the central projection, we implemented a modest reduction in rates, from 6% to 5 3/4%, in February. Decision-making under conditions of uncertainty lies at the core of any business activity, so I was once taught, and that is just as much true of our job on the MPC as for yours. We all of us get used in our professional lives to looking through a glass darkly. | 0 |
BIS Review 43/1998 -5- • • But despite these efforts at crisis prevention, crises may continue to arise from time to time. In this regard, the Interim Committee also reaffirmed both the central role of the Fund in crisis management and the need to develop more effective procedures to involve the private sector in forestalling or resolving financial crises.2 Finally, as I have already alluded, the Committee reaffirmed its view that the time has come to add a new chapter to the Bretton Woods Agreement by making the liberalization of capital movements one of the purposes of the Fund and extending, as needed, the Fund’s jurisdiction for this purpose. It requested the Executive Board to pursue its work on this issue with determination, with the aim of submitting an appropriate amendment of our Articles of Agreement as soon as possible. Greater transparency and availability of economic information, adoption of standards and dissemination of best practices, a continuous strengthening of IMF surveillance, the orderly liberalization of capital movements, and better private sector involvement in crisis prevention and resolution - taken together and utilized to their full potential - these first five pillars could be a very significant contribution to a new financial architecture much more attune to dramatically modernized and globalized markets. I have no doubt the G-7/G-8 leaders in Birmingham will invite us to build on this basis. | Mr. Camdessus shares his views on a new financial architecture for a globalized world Address by the Managing Director of the International Monetary Fund, Mr. M. Camdessus, at the Royal Institute for International Affairs in London on 8/5/98. The G-7/G-8 Summit will be held in Birmingham next week. High on the Summit agenda will be the issue of how to renovate the architecture of the international financial system in the face of the tremendous changes under way in the global economy. The Asian crisis has been so unexpected in many of its aspects, so broad, so cruel in its human consequences that even before the crisis has run its full course - the leaders of the world want to embark on the design of a new architecture. This is certainly the right thing to do, and the venue of this meeting could hardly be more fitting. Like many other cities in advanced countries, Birmingham has experienced the forces of change in the global economy first hand - from the loss of traditional industries to the challenge of finding new employment opportunities. Moreover, two centuries ago, this city was at the heart of the Industrial Revolution, an era that, like our own, was a time of extremely rapid change. At that time, intellectuals of all schools of thought used to meet frequently in Birmingham - every full moon, I understand - and bring their reflections to bear on the challenges of their new world. | 1 |
While this is not really a new type of risk, the relevance of misconduct costs became painfully clear in the aftermath of the global financial crisis. If we also include the reputational costs associated with these forms of malpractice, the actual damage to the banking sector goes far beyond the standard estimates presented. At a time when regulation and supervision have been strengthened and when the banking sector is facing fierce competitive pressures from brand new players, any additional governance failure may lead to both an economic penalty and reputational damage that could jeopardise the solvency of the affected bank(s). In this respect, it is crucial that financial market participants keep improving their governance and restore the confidence of their clients as soon as possible. These efforts should be pursued even though they may impose an additional burden in the short run both in economic and administrative terms. 10 Progress towards the Capital Markets Union: the need for deeper euro area financial integration Against the backdrop of the complex global financial stability outlook outlined above, let me now address the issue of the Capital Markets Union and, more broadly, reinforcing European financial union. Barely two weeks ago, the United Kingdom officially departed from the European Union. Discussing financial integration in Europe has now become even more relevant, because the City of London has played a notable role as a provider of financial services for the whole Union. | The main challenge is to understand these activities, technologies, players and instruments before it is too late and they originate disruptive episodes. Largely, this can only be achieved through strengthened 1 8 See “The Cost of Cybercrime”, Ninth Annual Cost of Cybercrime Study, Accenture, 2019. and strategic collaboration not only across regulators but also with financial market participants. - ESG principles: climate-related risks Besides the new risks stemming from the irruption of new technologies, at a time when ESG principles are gaining momentum I would also like to highlight risks to financial stability from climate change and governance failures. Climate change and the transition towards a more sustainable economy is currently a most topical issue. This is so for obvious reasons. It is a challenge that affects virtually all economic and social agents, and it has the potential to lead to a major transformational change not just for the economy but for society at large. Of course, the financial sector is not immune to these developments. In particular, climate change may affect financial stability through two types of risks. Following a classification that has already become standard, we can distinguish between physical and transition risks. The former have to do with the direct consequences of climate change on the value of financial and real assets, due for instance to natural disasters, floods, drought and migration flows. | 1 |
The aim of preventing inflation expectations from becoming entrenched markedly below target was one of the main reasons for reducing the key policy rate to a very low level when inflation fell and approached zero in 2003 and 2004, at a time when there was also spare capacity in the Norwegian economy. We indicated that the interest rate would remain low until we saw clear signs of rising inflation. Since summer 2003, the Norwegian economy has been in a clear upswing. Low interest rates, high oil prices and a favourable global environment have been important driving forces. Growth is strong in most industries, and profitability in the business sector is solid. Underlying inflation is still considerably lower than the inflation target. However, several factors point to higher inflation further ahead. Capacity utilisation is high and there is little spare capacity in the Norwegian economy. Employment is BIS Review 10/2007 1 rising rapidly and unemployment has fallen markedly. There are signs of higher wage growth and expectations of rising inflation. We are now normalising the interest rate gradually. Since summer 2005, the key rate has been increased by 2.0 percentage points and there are prospects of further interest rate hikes. The shortest money market rates are determined by the central bank via the key policy rate. But private-sector consumption and investment decisions depend more on expectations regarding future developments in the key rate. To be successful, monetary policy must be able to influence these expectations. | Accountability and transparency are essential counterparts of independence, and the media play a fundamental role in ensuring that they are put into practice, which is why our participation in events such as this one is so important. So I should like to thank the APIE for organising this event and inviting us to participate. This look back reminds us that, more than 10 years ago now, an international financial crisis hit Spain particularly strongly, arriving at a time when the economy was suffering from significant domestic and external macro-financial imbalances. Spain’s banking system was clearly excessively large at the time, over-concentrated on lending funds to real estate and residential construction activities and highly dependent on international wholesale financing. These significant vulnerabilities meant that the cost of the crisis in terms of GDP and – even more importantly for society – unemployment, was very high and much larger than for our main competitors. In fact, Spain’s GDP returned to its pre-crisis level only two years ago. As regards the labour market, the unemployment rate is still five percentage points higher than in 2008 and more than 10 percentage points higher than in countries like the United States and Germany. And that is a reminder of the importance of strengthening mechanisms to analyse and diagnose promptly the risks and vulnerabilities facing the economy and, in particular, the financial system. | 0 |
Despite many challenges, I am delighted that exciting developments and initiatives are taking place in Thailand and around the region using fintech to address these problems. Allow me to highlight some of these initiatives. We have: Accounting service applications for SMEs and start-ups on cloud platforms Online mortgage refinance portals that help select the best refinancing option for mortgage clients Real-time and low cost cross-border money transfer and remittance platforms Biometric verifications for e-KYC to facilitate remote access to financial services Machine learning using alternative data such as social media for credit scoring Real-time invoice financing through common supply chain platform Standardized QR Code for e-payments, which has reached nearly 1 million merchants within six months after exiting from the Bank of Thailand’s Regulatory Sandbox; and last but not least PromptPay, a real-time payment infrastructure that has facilitated electronic payments for over 39 million registered IDs in Thailand 6-7 These are just some of the solutions available for SMEs and consumers in our market. To this end, I believe that over the next two days we will get to see many more exciting products and projects that can inspire innovation; broaden our understanding of the current technology landscape; and help set the policy agenda for strengthening Thailand’s and our region’s fintech ecosystems, especially to serve SMEs and consumers. | These include changes that have heightened competition and which have fostered the emergence of increasingly diverse market participants and organisations. The dramatically changing landscape calls for a new generation of highly-qualified professionals equipped with more comprehensive skills. To support and sustain these developments, the education system must evolve so as to meet these new demands. Against this backdrop, our ability to sustain long-term growth clearly depends on our ability to build, maintain and continuously expand our knowledge base. The key to this process is thus to be able to adapt to the new environment. As Charles Darwin observed "It is not the strongest", "nor the most intelligent that survive" but it is those that are "the most responsive to change." It is this capability that needs to be cultivated to ensure a mobile and agile work force that can adjust and respond to the emerging developments in the changing environment. As graduates today, you embody the hopes of the nation in making the transition towards a knowledge-based economy a reality. In graduating today, you would have achieved an important milestone in your life. This is indeed an important and distinct mark of success for all of you. Not so much because of the degree which you now hold in your hand, but more importantly its promise for your future. Your journey to reach this moment is a testimony of your own individual potential, determination and hard work. BIS Review 3/2006 1 The learning experience, however, needs to go on. | 0 |
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. | Yes, we have had one or two very highly publicised revelations on legacy problems – but none of that should take away from the fact that the UK system is stronger today, in my view markedly so. But, I can tell you that achieving such progress on this public good has not been as straightforward or uncontroversial as you might think. And that continues to concern me, because it conveys the message that acceptance of the benefit of the public good is not as entrenched as it needs to be – we have work to do to build the consensus around what constitutes financial stability. I am firmly of the view that last year’s actions on capital were correct, and I have no doubt at all that the recovery in bank lending to support economic activity requires a belief and an expectation that the banking system is and will remain well capitalised, and that if we doubt either of these positions, action will be taken. And that is why we, and other countries, are introducing, or have done introduced, regular stress tests. It is about regulation being forward-looking and using judgement. The second point I would make here is that a stable financial system is a necessary precondition of realising other benefits. Let me give a few pertinent examples. The first one comes from the insurance industry, in which I also have a very strong interest. The Government announced some very major reforms in the Budget to the provision of pensions, notably in the annuities market. | 0 |
But this does not seem to be an excessively long period, given that we were affected by the worst financial turmoil in the recent history of the region. I am aware, however, that there has been some controversy over the performance of the Hong Kong economy, compared with that of other Asian economies, in coping with the Asian financial crisis. There seems to be the impression that Hong Kong has been the slowest to recover. This may be true according to one measure or another, and we should obviously look critically into the reasons, if indeed there are structural defects that may have inhibited our recovery. Economic cycles come and go, and there is no way that Hong Kong, as an open and externally oriented economy, can be immunised from external shocks of the dimension that we have seen. But we need to make sure that we come out of the crisis stronger rather than weaker. Structural defects, if any, need to be corrected decisively, to the extent that this is within the powers of Government to do so. But we also need to keep our heads cool and be objective in this self-assessment. The loud and heartfelt complaints of a community in pain, legitimate though they may be, can sometimes drown out the arguments in support of policies that are in the long-term interests of Hong Kong. | Although this was not a major decision for us, it was a very prominent confirmation of our status in the world economy. BIS has less than 50 shareholders and is really an elite clique of the leading central banks. That it has decided to invite us to become shareholders was in recognition of the status that Thailand now has in the financial and economic market place of the world. That the BIS last week decided to buy back all its privately held shares, becoming purely a central bank for central banks is of course a reinforcement of this development. Another achievement of our own doing, this time towards transparency is that we are now qualified in the Special Data Dissemination Standard of the IMF, the 21st country to do so in May this year. This set of data is a guarantee whereby a country delivers enough information in a timely manner, such that international investors have a reasonable chance of evaluating its performance and prospects. Many leading countries are still unable to qualify, because they have things that they wish not to be shown to the public, whereas we have taken the road that what cannot be shown in public perhaps 1 BIS Review 86/2000 should not be done. We therefore participated also in the international reserves template both voting for it, and qualifying in the first group of countries to do so that have subscribed to the SDDS. | 0 |
Our robust regulatory infrastructure, sound Shariah governance framework, wide international connectivity, diversified players and products, elevated by the Malaysia International Islamic Financial Centre (MIFC) agenda, provides a conducive landscape for the Islamic financial industry to tap into emerging opportunities in these areas of focus. To underpin this is the development of a vibrant Islamic Financial Market. As part of Financial Market Committee’s (FMC) effort to further develop the onshore financial markets, we have established two subcommittees: the Bond Market Subcommittee and the Islamic Financial Market Subcommittee to formulate specific market development initiatives to take us forward. The creation of these subcommittees underlines the importance of both of these markets in the context of overall development of the domestic financial markets. The Islamic Financial Market Subcommittee will review the current landscape to identify and address challenges to the continued growth and development of the Islamic financial market, particularly in light of the growing importance of Malaysia's Islamic Banking sector as well as the significance of Malaysia's Islamic capital market, both domestically and globally. Domestic Islamic banks account for about 42.5% of the overall commercial banking loan book and could reach 45% by the end of 2026[1]. In the Sukuk segment, Malaysia has maintained its leadership position in the global sukuk market in 2021 by commanding a market share of 37% of the global sukuk outstanding[2]. The industry has already developed an encouraging track record in the sustainable finance space, as evident from the sovereign and corporate sustainability sukuk issuances to finance green and social-related projects. | Islamic financial institutions now play a major role in driving the sustainability agenda in Malaysia hence, it is encouraging to see players such as CIMB Islamic and Standard Chartered Saadiq keep the momentum with this landmark deal which furthers Islamic finance and ESG convergence. I’m confident the Islamic finance sector will continue to do more in advancing sustainability practices by leading ESG innovations aligned to the value-based intermediation agenda. The introduction of ESG Islamic Repurchase Agreement is thus timely and it will further encourage the development of Islamic Repurchase market. Islamic Repurchase market registered RM39.4 billion in volume in 2021, more than double the volume in 2020[3]. The huge potential lies ahead as the volume registered is thus far, only around 1% of the total Islamic money market volume during the year. I would like to thus congratulate CIMB Islamic and Standard Chartered Saadiq on today’s signing. I wish you a successful partnership in this and potentially pave the way for more within the industry. Thanks also to the organisers for inviting me today and wish everyone a good weekend. Thank you [1] Source: S&P Global [2] Source: Moody’s Investors Service [3] Source: BNM | 1 |
The guideline for fiscal policy implies that the central government budget deficit shall be equivalent over time to the expected real return on the Government Petroleum Fund. The new guidelines for economic policy received broad support in the Storting. The guideline specifying that only the real return on the Petroleum Fund is to be used means that the capital in the Fund is not depleted. The capital in the Petroleum Fund will increase as long as there is a positive cash flow (to the central government) from petroleum activities. When the conversion from petroleum assets to financial wealth has been completed, the objective will still be to restrict withdrawals so that the real value of the Fund’s capital is maintained - in principle, indefinitely. The guideline thereby provides a long-term anchor for fiscal policy. The guideline provides a stable framework that contributes to curbing fluctuations in the Norwegian economy that are caused by converting petroleum assets into investment at home and abroad. The guideline has been adhered to in the past two years. As mentioned, the largest conversion of our national wealth in the next thirty years will be from oil as recoverable reserves to oil as financial wealth. The question might, of course, be raised as to whether an alternative option would be to keep our wealth in the form of oil and extract what we needed. Whether this would be profitable or not depends on oil price developments compared with the return on financial assets. | The chart illustrates developments in the labour force and the number of pensioners in the period up to 2050. The blue line shows that the labour force is projected to increase by about 150 000 from 2000 to 2030. Old-age and disability pensioners will increase by some 500 000, shown by the grey line. This means that the number of persons in the labour force relative to the number of pensioners will fall from 2.6 to 1.8. These rough estimates are among other things based on the assumption that labour immigration remains at the present level. The increase in the number of pensioners will result in a sharp increase in the obligations of old-age and disability pension funds. Expenditure on old-age and disability pensions is expected to more than double as a share of total GDP in the course of the next 30 years. The increase in the number of elderly, especially those over the age of 80, will in time require an increase in resources for nursing and care services. Welfare reforms that have been adopted will also contribute to increasing the need for resources in the public service sector in the years ahead. BIS Review 13/2003 1 With an ageing population and strong growth in expenditure on pensions and nursing and care services, our petroleum wealth will be a welcome source of revenues. This is why it is particularly important that it is managed in a sound manner. Petroleum activities are a substantial component of the Norwegian economy. | 1 |
Despite the series of shocks from the foreign and domestic environment which the Macedonian economy has faced in recent years, we maintain the average inflation rate at the level of 1.5%, which is very close to the average inflation of the Euro area countries and confirms the adequacy of the monetary setup in this period. The nominal exchange rate of the denar against the euro has been maintained at a stable level, contributing to stable expectations and maintaining the confidence of economic agents. We have maintained the foreign reserves at a comfortable level by guarantying currency stability and dealing with shocks. The banking system is set on a completely market basis, with the presence of renowned international banking groups – stable, liquid and capitalized. Our permanent investment in observing the international standards in the banking regulation and the modern supervisory standards has made a great contribution. 1/2 BIS central bankers' speeches No central banking institution can be set on firm grounds without dedicated and responsible people who have a vision, follow the direction of the modern central banks and at the same time work very hard to follow that path. In recent years, we have been continuously investing in the human capital. The support that we receive from international financial institutions, along with our dedication enables us to have a high quality core of professionals. | The first years of monetary independence were years of hyperinflation, recession, insufficient foreign reserves, permanent depreciation of domestic currency and general macroeconomic instability. I would like to mention, as an illustration, that just after the monetary independence, the exchange rate depreciated almost on a daily basis, which along with the high monetary and fiscal expansion led to hyperinflation. In 1993, for instance, the average inflation reached nearly 350%, which was devastating for the economy. With the joint efforts of policy makers and scientists, policies for managing the exchange rate volatility as well as inflationary spiral were quickly adopted, which together with the support of the international financial institutions enabled the economy to stabilize and market principals to function. In October 1995, a monetary strategy of stable exchange rate of the denar against the Deutsche mark was adopted and against the euro since January 2002 – a strategy that then as well as now is considered to have been one of the supporting pillars of the stability of the Macedonian economy. Today, after 28 years of monetary independence, it is my pleasure to note that the National Bank is an institution whose credibility and integrity are being permanently reaffirmed. Maintaining price stability is the ultimate objective of the National Bank’s monetary policy. | 1 |
Norges Bank now devotes considerable resources to improving and developing our model apparatus for such “nowcasting”. We engage in extensive cooperation with researchers in Norway and abroad and with other central banks. Results and documentation of this work will be published in coming monetary policy reports and articles by researchers at Norges Bank. BIS Review 102/2007 5 In order to forecast somewhat further ahead, we must gain more insight into the forces at work and how they are affecting the economy. Statistical forecasting models, or models largely based on previous experiences, will be of limited help. For example, previous experience provides limited guidance in explaining the driving forces behind this cyclical upturn because of the many differences in relation to earlier periods. A solid basis in economic theory is required to shed light on causal relationships. Norges Bank's work on models in recent years has aimed at constructing a theoretical macro model that can enhance our understanding of economic developments. By looking at households' and firms' behaviour, we can analyse the effect of changes of a more structural nature on the economy. In the model that has been given the name NEMO (Norwegian Economy Model), developments in the Norwegian economy can be explained among other things by changes in business technology, market structure in the product and labour market, household preferences with regard to work and leisure and monetary policy. | If monetary policy can be made expansionary without this causing economic actors to fear that inflation will rise sharply, their expectations of what inflation will be in the longer term will not be affected either. However, if fears of sharply rising inflation arise as a result of the expansionary policy, long-term inflation expectations may also begin to creep upwards. If the anchor comes loose completely, the long-term consequence may be that inflation continues to rise in a price and wage spiral. And, just as it may take a great deal of effort to restore confidence in public finances that have begun to erode, it may be difficult and costly to bring inflation back under control. As I mentioned at the start, in Sweden we have some experience of price and wage spirals of this type, even though this was some decades ago. Too low inflation is also a problem… However, it is not only an anchor that is drifting ‘upwards’ that is a cause for concern. Monetary policy can also have major problems if it drifts ‘downwards’ and inflation becomes persistently very low. In this case, monetary policy becomes less effective because the main instrument, the policy rate, becomes more difficult to use. | 0 |
The Fund’s business is to take calculated risks, and in the new environment of integrated markets, there are cases where heavy financing of a country’s balance of payments difficulties is justified. In Korea, for instance, it was BIS Review 69/2004 3 a success. The 50billion dollar rescue package supported a rapid turnaround in confidence and economic performance. This being said, however, one point should be very clear. The IMF is not, and should not be, in a position to always fully offset the volume of private flows. For one thing, Fund resources are limited. For another, the systematic relief of debtors’ and private creditors’ responsibilities through Fund financing would create problems of moral hazard. An excessive bail-out of negligent investors would also be perceived as unfair by those who are left behind to bear the cost of the crisis. The most important aspect in decisions on exceptional access to Fund resources does not concern amounts. It is rather an issue of whether lending is justified altogether. To help to take this decision - and also to increase the predictability of Fund action - a framework was developed. According to this framework, the Fund should grant exceptional access if three basic conditions are fulfilled. First, there must be a high probability that the debt will remain sustainable; second, the country must have good prospects of regaining access to private capital markets; and third, the policy program of the member country must provide a reasonably strong probability of success. | Under the circumstances, it should come as no surprise that Switzerland fully supports the IMF in attaching the highest priority to stability and crisis prevention. The main tool in this endeavour is clearly surveillance. Surveillance remains the most important activity of the Fund as its first line of defense against turmoil. However, this activity is hardly known to the wider public. Unlike an agreement on a multi-billion rescue package, efforts to prevent a financial crisis never hit the headlines. Surveillance is relatively unknown, probably also because it is a very complex animal, hard to explain, and with dozens of connotations. I have neither the time nor the desire to elaborate on all the elements of present-day Fund surveillance. However I believe that some points are worth emphasizing. In the first part of my presentation I shall begin with some remarks on transparency, both in the context of the Fund and with regard to its role in promoting market discipline. I shall then elaborate a bit on surveillance in financial markets. In the second part of my presentation, I shall take up issues linked to crisis resolution. However, much effort goes into crisis prevention, crises cannot be completely ruled out in an open and dynamic global economy; the IMF, therefore, needs to be and to remain an efficient “fire-fighter”. I shall elaborate on this “fire fighter” role of the Fund, on the limits of its action, and on what is necessary to preserve efficiency and credibility in this context. BIS Review 69/2004 1 2. | 1 |
First, it provides greater clarity regarding the MPC’s view of the appropriate trade-off between the speed with which inflation is returned to the target and the support given to the recovery. Second, it can reduce uncertainty about the future path of monetary policy as the economy recovers. And third, it delivers a robust framework within which the MPC can explore the scope for economic expansion without putting price stability and financial stability at risk. This latter point is especially important to grasp in order to understand the intent of the policy. Since 2008, aggregate productivity in the UK – measured as output per hour worked – has behaved unlike any previous recession/recovery. The level of productivity in the economy as a whole today is around 15% below where it would have been on an unchanged long-term trend. We don’t know how much of this productivity gap can be reclaimed. But if even only a small part could be recovered then output should be able to grow strongly for some years without generating much inflationary pressure. In particular, firms should collectively be carrying enough spare labour to expand output without putting pressure on the labour market. Unemployment would consequently fall slowly relative to normal experience, for a given rate of output growth. It is important to stress that forward guidance is not a guarantee to hold rates where they are for a set period of time, as has been widely mis-reported. | Over the past two centuries, upswings or downswings in the trend money growth have usually been followed, a few years later, by swings in the same direction in trend inflation.2 This relationship has remained significant over the past two centuries, across a variety of different monetary policy regimes and in spite of financial innovation. This naturally suggests that it is “hardwired” into the deep structure of the economy, i.e. that it is structural in nature. In turn, this suggests that by analyzing monetary developments – and in particular, by identifying swings in trend money growth, as well as its components and counterparts – a central bank can implement a more forward-looking monetary policy. The monetary nature of inflation, and given that money growth at the long-run horizon is ultimately under the control of the central bank, logically leads to a fifth key principle: the central bank has ultimate responsibility for inflation. Of course, in the short-run macroeconomic dynamics, and therefore also inflation, are determined to a significant extent by events outside the central bank’s control. The last four years provided a forceful reminder with the 2008 shocks in food and energy prices, which led to a temporary hump in Euro area inflation, followed by the large contractionary shock associated with the financial crisis and several months of deflation. These exceptional circumstances brought euro area HICP inflation to 4 per cent in the summer of 2008 and then to –0.6 per cent one year later. | 0 |
In the same way, the crisis revealed the critical deficiencies in the toolkits available to the regulators to deal with nonbank institutions in duress. Emergency lending by the Fed might be enough to forestall the disorderly failure of a systemically important institution and all the wider damage such a failure might cause, but it was a blunt and messy solution, employed as a stopgap measure because better alternatives were not available. What is needed – what our country still lacks – is a large-firm resolution process that would allow for the orderly failure even of a systemically important institution. 2 BIS Review 6/2010 Thus, in the fall of 2008, regulators and policymakers found themselves facing the prospect of the total collapse of a complex and interconnected system. It was these circumstances, and the prospect they created for an even deeper and more protracted downturn in real economic activity and employment, that required truly extraordinary actions on the part of the Federal Reserve, as well as the Treasury and many other agencies. This is a situation in which the United States must never again find itself. For its part, the Federal Reserve is hard at work on developing and implementing new regulations and policy guidance that take on broad lessons of the recent crisis. We are working with other banking regulators in the United States and overseas to strengthen bank capital standards, both by raising the required level of capital where appropriate and improving the risk capture of our standards. | Even though their importance has been reduced in recent years, mortgage companies still provide most residential mortgages. With the predominance of mortgage companies, fixed-rate mortgages have been a tradition in Denmark and Sweden. This has not been the case for Norway. Mortgages from the State Housing Bank were primarily adjustable-rate loans. After credit market liberalisation, adjustable-rate mortgages were also offered by banks. The supply of fixed-rate mortgages was limited. Fixed-rate loans are less common in Norway than in the other Nordic countries. From the 1980s to the 1990s, the Norwegian economy moved from high to low inflation with, until recently, falling nominal long-term interest rates. Borrowers with fixed-rate mortgages fared poorly in this period, and even more poorly than maturity or mortgage insurance premiums alone would imply. But with a clear monetary policy objective to keep inflation low and stable – and with an independent central bank tasked with achieving this objective – the result would be different. The high inflation expectations that were built into long-term interest rates no longer exist and a further marked fall does not seem likely, nor for that matter does any substantial inflation-driven increase in long-term rates. Purchasing a home is a long-term investment. A fixed-rate mortgage reduces borrowers’ uncertainty about expenses over the life of the loan. Longer-term financing in banks Banks play an important role in the economy. Their task is to convert short-term deposits into long-term loans. In times of crisis, fulfilment of this task is put to the test. | 0 |
Each of the concepts poses a serious threat to the reputation and credibility of the Facility. a. Excessive leverage is now regarded as one of the causes of the financial crisis. b. The proposals for protection and a first loss tranche of 20% of the nominal debt are also laden with problems. The example of Greece demonstrates that the losses may run to 60%. There is great uncertainty about who would pay for the difference between the insured loss and the actual loss if the Greek BIS central bankers’ speeches 1 scenario was to be repeated in other countries. Likewise, it is not clear how freely tradable protection certificates would be traded, priced, settled and, in the event of default, enforced if they were to be introduced. Such certificates would de facto be quasi CDS instruments underwritten by the official institution of a community of countries that are simultaneously waging a campaign against credit derivatives because they regard them as one of the causes of the crisis. c. The signs of a gradual shift towards short-term funding of the EFSF are a worrying signal. The risk arising from financing assets that are by definition long-term and illiquid (primarily rescue loans) through a programme of shortterm debt instruments (liability rollover risk) is more than clear. This ALM model proved to be extremely risky during the financial crisis when the commercial paper market dried up. 4. Another uncertainty is related to the project of purchasing bonds in the secondary market. | Second, our decisions are based on the inflation path over the medium run, not on the latest observed inflation. This requires projecting inflation via different approaches. Recent ECB staff forecasts see inflation averaging 2.3% in 2024. Given this, earlier this month we decided to front-load the normalisation path of our key interest rates, and to announce further rate hikes down the road, in order to ensure the return of medium-term inflation to our 2% target. Third, it is very difficult to know how much further our key rates will need to rise eventually in this hiking cycle, given the huge uncertainty that we face in the current context. But for this very reason, economic models are helpful in providing us central bankers with some guidance. I have provided in this speech some estimates based on models developed by Banco de España staff. Crucially, this is a data-dependent forecast which may change as time goes by and new information comes in. Also, it will depend on our future decisions regarding our asset purchase programmes. I hope that my words have reassured you about our determination to rein in inflation without causing unnecessary suffering to our fellow euro area citizens. We live in difficult times, but we expect to rise to the challenge. Thank you for your attention. 8 | 0 |
While he has moved on to new challenges as head of the Public Company Accounting Oversight Board in Washington, the U.S. delegation to the Basel Committee remains in excellent hands. The hard work of leaders such as Roger Ferguson, the Vice Chairman of the Federal Reserve, and Jerry Hawke, the U.S. Comptroller of the Currency, and of other U.S. supervisors in the negotiations, has strengthened the quality of the capital rules. They have helped ensure that the New Accord will be flexible, forward-looking, and fit for the service of twenty-first century banking. Basel II: a blend of reinforcing policy approaches The long-term objective of fostering greater financial stability led to our decision to supplement the revised minimum capital requirements, which constitute the first pillar of the New Accord, with two equally important pillars. Although this may be an oversimplification, one could argue that each of the three pillars can be viewed as representing a different policy approach for a regulatory/supervisory framework. The first pillar emphasises the adoption of uniform rules. The second pillar relies more on the use of discretion in setting requirements for individual banks. And the third pillar can be expressive of a market-based approach. Each of these choices individually considered has its merits, but also certain downsides. The point I want to make is that the risk/reward features of each of the three options - rules, discretion and market discipline - have their own particularities and are not totally correlated. | Mainly: • Proprietary versus public information • Principles versus Rules • Consistency of Accounting Standards and the New Basel Accord Finally, I will review the present status of the Accord, the significant progress made in our last meeting in Madrid and I will outline the next steps in its rapid finalisation, as well as our plans for keeping it fit for the future. Basel II: a new, comprehensive approach to achieve greater financial stability To begin, I would like to re-emphasise the importance of market discipline to banking supervision, especially in a rapidly changing environment. Supervisors seek improvements in the public’s access to information on a bank’s condition precisely to bolster the ability of rating agencies, of business counterparties, and even of investors or depositors to evaluate the profile of a bank’s risks and the quality of its controls. Yet as safety and soundness regulators, we wish to fortify the stability and resilience of the financial system. In our view this goal requires not just greater transparency, but also BIS Review 47/2003 1 significant advances in the state of the art of risk management and adequate capital when unexpected losses materialise. For the first time, the Capital Accord will include not only explicit economic incentives expressed in the minimum capital requirements but also implicit incentives built into the processes for supervisory review and market disclosure. | 1 |
Most people who need insurance and takaful products may not have the time or access to information to even know that it’s there for them. Agents create that awareness. For many, their first contact with insurance would have been through an agent-initiated meeting. For this reason, customers tend to rely on agents to a large degree for information to help them make the right decisions, quite often ones involving lifelong commitments. While competition will only intensifies moving forward, agents who will excel are those that are knowledgeable, diligent and trustworthy. However, findings from the Bank’s recent supervisory reviews are rather disappointing – three in four agents were found to have failed to complete a comprehensive fact-finding process for more than 80% of their customers. This may be a symptom of a product-pushing mentality at the expense of customer welfare. The lack of objectivity increases the risk of unsuitable products being sold to customers, and could well permanently taint the industry’s reputation in the long-run. Things can, and must be done better. With the new Balanced Scorecard developed in consultation with the industry – including NAMLIFA, the incentive structure has been improved so that agents work more effectively and objectively in the best interest of their customers. The Scorecard also reinforces our vision for agents to move towards higher value-add activities that involve advice, sales and customer support for more complex products. | I’d like to conclude with another quote on the future, this time from Nelson Mandela, more than 150 years after Kierkegaard: “A bright future beckons. The onus is on us, through hard work, 4/5 BIS central bankers' speeches honesty and integrity, to reach for the stars.” I have every confidence that today’s agents have what it takes to thrive in the future, but the hard work of laying the necessary foundations must begin today. With that, I thank you for your time, and wish all of you a productive day ahead. 1 Customer Behavior and Loyalty in Insurance: Global Edition www.bain.com/publications/articles/customer-behavior-loyalty-in-insurance-global-2017.aspx 2017. 2 Insurance Barometer Study survey in 2016 by the Life and Health Insurance Foundation for Education (LIFE) and LIMRA 3 Customer Behavior and Loyalty in Insurance: Global Edition www.bain.com/publications/articles/customer-behavior-loyalty-in-insurance-global-2017.aspx 5/5 2017. BIS central bankers' speeches | 1 |
If existing players and Fintechs did not both know how to innovate, and often innovate together, it’s the Bigtechs that would ultimately reap the rewards. 2. Promote the integration of Fintechs into the regulatory framework In response to these transformations, our role as public authorities is twofold: to continue to safeguard financial stability and therefore trust, but also to act as a catalyst for innovation – two roles that are far more complementary than they are contradictory. Financial stability without innovation would be a form of dying conservatism; innovation without trust would be a fleeting fad. We therefore want, clearly, concretely and firmly, to facilitate the entry of new players into the regulated arena. To this end, at the end of last year, we adopted the Fintech Charter,iv and today we want to update you on how we have lived up to our commitments. - Between January and August, the ACPR’s Fintech-Innovation Unit received 107 contact requests from new project initiators. In 90% of cases, a first response was given within two weeks, with an average response time of six days. | As we work to help restore balance to the economy and bring down inflation, our actions will always be driven by the data, and we will remain focused on achieving maximum employment and price stability. 1 Board of Governors of the Federal Reserve System, Statement on Longer-Run Goals and Monetary Policy Strategy, as adopted effective January 24, 2012. 2 See Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, November 3, 2021; Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, December 15, 2021; and Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, January 26, 2022. 3 Board of Governors of the Federal Reserve System, Principles for Reducing the Size of the Federal Reserve's Balance Sheet, January 26, 2022. 4/4 BIS central bankers' speeches | 0 |
Ida Wolden Bache: The policy rate has been raised to bring down inflation Introductory statement by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), at the press conference following Norway's announcement of the policy rate, Oslo, 4 May 2023. *** Accompanying charts to the speech Chart 1: Policy rate raised by 0.25 percentage point Norges Bank's Monetary Policy and Financial Stability Committee decided to raise the policy rate by 0.25 percentage point to 3.25 percent. Norges Bank's task is to keep inflation low and stable. The operational target is inflation of close to 2 percent over time. We are also mandated to help keep employment as high as possible and to promote economic stability. Chart 2: Inflation is too high Inflation is now markedly above the target. In March, consumer prices were 6.5 percent higher than one year earlier. High energy prices are a key driver of inflation, but other goods and services prices have also risen rapidly. Price stability is crucial for maintaining a well-functioning economy. The policy rate is being set with the aim of bringing inflation back to the target of 2 percent. At the same time, we want to avoid a slowdown in economic growth beyond what is necessary to tackle inflation. We have not yet seen the full effects of our past rate hikes. Our March forecasts indicated a policy rate increase to around 3.5 percent this summer. | Mr. Erçel reviews central bank operations in 1996 and discusses the philosophy of central banks Remarks by the Governor of the Central Bank of the Republic of Turkey, Mr. Gazi Erçel, on the occasion of the 65th Shareholders’ Ordinary General Meeting in Ankara on 15/4/97. I expressed my views concerning the main functions of a central bank in my speech to last year’s General Assembly. Today I would like to summarize the past year’s operations and share with you my thoughts on the philosophy of central banking. You will find detailed assessments of economic developments in Turkey and abroad in the Bank’s Annual Report for 1996, which has already been distributed to you. Instead of repeating these details, I will describe the implications of the events of 1996 for the operations of the Central Bank. The most important circumstance affecting the economy last year was the long-lasting period of political uncertainty. After the general elections, it took the first six months of the year to put together a coalition government. Political instability, Turkey’s entry into the Customs Union, and lack of the political determination needed to fight inflation created uncertainty in the financial markets. The Central Bank responded by aiming its monetary policies at achieving and protecting stability in the financial markets instead of aiming them at decreasing the rate of inflation. While withholding announcement of its targets for the second half of 1996, the Central Bank implemented a monetary program in keeping with its inner discipline. | 0 |
Vittorio Corbo: Monetary policy under inflation targeting in Chile and around the world Speech by Mr Vittorio Corbo, Governor of the Central Bank of Chile, at the ninth annual conference of the Central Bank of Chile, “Monetary policy under inflation targeting”, Santiago, 20 October 2005. * * * Dear First Deputy Managing Director of the International Monetary Fund, Dear Central Bank Governors, Dear Central Bank officials, professors and economists visiting from abroad, Dear friends, I am very pleased to welcome you to this Ninth Annual Conference of the Central Bank of Chile, which has become a traditional event in the discussion of central banking policies and for the economic development of our countries. This Annual Conference focuses on the subject “Monetary Policy under Inflation Targeting,” the monetary system that is gradually being adopted in countries around the world. I am not surprised at the great participation of central bankers from inflation targeting economies in this Conference. Thank you so much for coming down. This year, our annual conference coincides with the eightieth anniversary of the creation of the Central Bank of Chile. The occasion calls for a brief retrospective account of our Bank, which will help to better understand its path to the present monetary policy framework in Chile. Next I will review some of the challenges facing monetary policy in Chile today, which motivate several of the topics that will be discussed during this conference, which I will also list shortly later on. | The price of fresh salmon remains at the same level as in the last half of the 1990s. Exports of fish and fish products increased by 3.9 per cent from the second quarter of 2000 to the second quarter of 2001. Due to international developments, the uncertainties and the downside risks are now greater for many export industries. The krone has appreciated recently measured against our trading partners (trade-weighted exchange rate index). This partly reflects more than 20 per cent appreciation against the Swedish krone since spring 2000. Measured by the trade-weighted exchange rate index, the krone is now about 2 per cent weaker than in 1990 and on a par with the level in 1994-95. So far this year, the volume of traditional merchandise exports have increased more than in the same period last year, but growth is levelling off. The exposure of Norwegian exports in the ICT sector, where the international downturn has been most severe, is limited. Norway’s manufacturing output has declined somewhat this year, but less than in other countries. On the other hand, Norwegian manufacturing industry did not experience the upswing in 1999 and 2000. The business sentiment indicator does not suggest a severe decline. The order situation is still satisfactory in many industries. This does not necessarily mean that the turnaround will not occur in Norway as well. A sharp fall in share prices, tighter borrowing terms and an imbalance in international credit markets may quickly affect investment, prices, profitability and expectations. | 0 |
The context of the Russian war in Ukraine challenges us to reinvent the dialogue with political authorities, for at least three reasons: because geopolitics are today a major determinant of the economy; because the energy markets, their regulation and pricing are key for inflation; and lastly because fiscal choices regarding subsidies to households or even to firms are far from neutral for monetary authorities. Another challenge, and a much more tough one, is that the populist ideology creates an atmosphere of general mistrust of institutions – and still more of independent ones. In the name of popular sovereignty, we would return to a power of elected sovereign that would be absolute – and not relative anymore. At worst, this would call into question our democracy and its necessary checks and balances. At the very least, it is imperative for us to be efficient in our mandate, and to increase our accountability. 2. Efficiency of our mandate Price stability, which is a prerequisite for long-term growth, is the primary objective of most central banks. Broader mandates nevertheless apply to some, notably the Federal Reserve with its dual objective on employment and inflation. Other central banks have expressed sensitivity to inequalities, or to other issues, and have therefore contemplated a broadening of their mandate. Some observers questioned this alleged “mission creep”, and wondered whether central banks have lost sight of their primary responsibility. | - The cyclical component pertains to the way we can combine agility and predictability in a very uncertain environment. We should be careful not to return to secrecy, or to unnecessarily add to financial and economic volatility. Otherwise, as research at the Banque de France shows, economic agents may begin to question our ability and commitment to fulfil our objectives, which could translate into dis-anchored long-term inflation expectationsiv. I suggest in my recent Jackson Hole speech some principles for this “new predictability”v. Not having a forward guidance does not mean, cannot mean, not having a narrative and a monetary strategy. - The structural component is that our communication must not only resist the risk of “political dominance” or “market dominance” that would run counter to our independence, but two additional risks that appear more specific to the current period. The first risk is the dictatorship of short-termism, imposed on us by the recent series of crises. Of course, we have to deal with them, but we must not become a prisoner of emergencies. We must continue to focus on the longer-term, in keeping with our role of advanced sentinels: central banks rely on their close monitoring of all financial and economic indicators, and also on their anticipation of how they may evolve in the future. The second risk is that of corporatist fragmentation. It is the other disease of the century. Of course, we are not responsible for it, and we are not corporatists. | 1 |
BIS central bankers’ speeches 9 Figure 7 Change in the Central Bank of Chile's international reserves (percentage of GDP) 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 -3 -3 91 93 95 97 99 01 03 05 07 09 (*) Reserves consider purchase of $ billion announced in January this year. For GDP, growth and inflation forecasts contained in March 2011's Monetary Policy Report are used. Source: Central Bank of Chile. Figure 8 Copper price and multilateral dollar (1) $ index, January 2006=100) 5 130 4 120 3 110 2 100 1 90 06 07 Copper price 08 09 10 11 Current and one year ahead copper price forecast (3) Multilateral USD (2) (1) Gray bars depict forex intervention period. (2) Dollar against currency basket of the U.S.'s main trading partners. An increase shows an appreciation of the dollar. (3) In Monetary Policy Reports of May 2008 and March 2011, respectively. Sources: Central Bank of Chile, Bloomberg and U.S. Federal Reserve. | These vulnerabilities increase the sensitivity of the economy and of financial and real estate markets to adverse shocks. I would now like to outline the position of the two globally active banks, Credit Suisse and UBS. I will then present our assessment of the situation at the domestically focused banks. Page 1/3 Berne, 16 June 2022 Fritz Zurbrügg News conference Globally active banks The two globally active banks developed differently in terms of profitability. UBS’s profitability increased and was high by historical comparison. At Credit Suisse, however, profitability was negative. This is on the one hand due to extraordinary items, such as large provisions for litigation, and on the other to relatively low operating performance during the period under review. The differing profitability is also reflected in market indicators such as CDS premia and stock prices. After the Archegos losses, the market drew a stronger distinction between the two banks and it continues to have a more positive assessment of UBS than Credit Suisse. With the outbreak of the war in Ukraine, the market’s assessment of the globally active Swiss banks and their international peers deteriorated overall. By contrast, the capital position of both banks has improved further since the publication of the last Financial Stability Report. In the case of UBS, this improvement is attributable to a capital build-up due to retained earnings; in the case of Credit Suisse, it is attributable to a reduction in exposure and a capital increase. | 0 |
The question is whether this tightening of the laws will be sufficient; the incentives for following the competition laws are still fairly weak. It is individuals (company managers, directors, owners) who prepare and make the decisions on limiting competition in contravention of the law, but the current legislation is fairly weak with regard to personal responsibility. In the USA, on the other hand, legislation is more stringent - the responsible decision-makers can be personally sentenced to high fines or to imprisonment. Perhaps we need to have the same principle in Sweden. The government has also said that if the proposed tightening of the competition laws does not prove sufficient, it may consider designating these matters a criminal offence. The existence of what is known as non-tariff trade barriers creates difficulties for import competition, which could otherwise have subdued prices. One example is the building materials market, where special national regulations and voluntary product standards make import competition difficult. Sometimes the endeavour to satisfy information and protection interests can lead to trade barriers that hamper competition. The requirement that chemical products such as washing powder and cleaning fluids (which are more than 90 per cent more expensive in Sweden than the EU average) must be 8 The Swedish Competition Authority, (2001), "Why are construction goods more expensive in Skåne and food cheaper in Western Sweden? ", Swedish Competition Authority's report series, no. 1. 9 The Swedish Competition Authority, (2001), "Can local authorities push down food prices? ", Swedish Competition Authority's report series no. 4. | The part of household consumption that takes place in Swedish markets exposed to competition has 6 increased during the 1990s – from 25 per cent in 1991 to 32 per cent in 1999. However, this level is still below the EU, where 46 per cent of consumption is in markets exposed to competition. A number of different markets have been opened up to competition over the past ten years and Sweden is in many aspects a model for other countries to follow. Examples of markets that have been exposed to competition are the electricity market, post and telecommunications, the capital and foreign exchange market and a large part of the transport sector. The main areas where competitive pressure in Sweden is tangibly lower than in the EU and prices are higher are the food and housing sectors (and the construction sector). Swedish food prices are just over 20 per cent higher than in the rest of the EU, 7 while housing is around 35 per cent more expensive. These areas of expenditure together comprise more than ¼ of the CPI basket and are also responsible for a large part of low income earners' total expenditure. The absence of competition in the greater part of the public sector, which constitutes approximately 30 per cent of the Swedish economy, entails both a risk of lower efficiency and that a significant part of the economy is not offered alternatives in the form of new business ventures with the growth and th flexibility that small companies can offer. | 1 |
Within a few years, the former Soviet empire, China and other Asian economies, with their combined workforce of over a billion people, entered the world trading system as market economies. Their focus on export-led growth allowed consumers in the West to enjoy rising living standards as the prices of traded goods fell. But the trade surpluses in emerging economies implied an outflow of capital. Relatively poor countries were lending money to richer western ones – the reverse of the traditional model of development. In the process, countries like China built up huge holdings of foreign assets – running into trillions of dollars – matched by equally huge debts in the deficit countries. Such massive imbalances were never likely to be sustainable, and so it proved. If the first fundamental cause of the crisis was the scale of imbalances in the world economy, the second was the inability of our banking system to absorb such large inflows of capital BIS Review 117/2010 1 without taking excessive risk. In the five years leading up to the crisis, the balance sheets of the West’s largest banks doubled – mainly because banks lent more to other firms within the financial sector than to the wider economy. And the proportion of capital held by banks shrank so that their leverage – the ratio of total liabilities to equity capital – rose to unprecedented levels. Immediately prior to the crisis, the leverage ratios of some UK banks approached 50. | Even so, around a million more people in Britain are out of work than before the crisis. Many, especially the young unemployed, have had their futures blighted. So we cannot just carry on as we are. Unless we reform our economy – rebalance demand, restructure banking, and restore the sustainability of our public finances – we shall not only jeopardise recovery, but also fail the next generation. To my mind, a market economy and its disciplines offer the best way of raising living standards. But a market economy cannot survive on incentives alone. It must align those incentives to the common good. It must command support among the vast majority who do not receive the large rewards that accrue to the successful and the lucky. And it must show a sense of fairness if its efficiency is to yield fruit. There was nothing fair about the financial crisis. It was caused not by problems in the real economy; it came out of the financial sector. But it was the real economy that suffered and the banks that were bailed out. Your members, and indeed the businesses which employ them, are entitled to be angry. But however legitimate, anger will not produce change unless its energy is harnessed to a cool analysis of what happened and why. So I want to discuss the fundamental causes of the crisis before turning to current policy. The fall of the Berlin Wall in 1989 changed both politics and economics. | 1 |
In reading these stories, I could not help but think, if these individual acts could result in such outstanding outcomes, surely we can achieve a lot more given our resources, capabilities and outreach? With this, I would like to speak on COVID-19 and climate change, Collective responsibility, Commitment, and Collaboration. That’s 4 Cs. But before that, let me begin by thanking the organiser Climate Governance Malaysia, for inviting me to speak today and for successfully organising this event. COVID-19 & Climate Change My first C is “COVID-19 and climate change”. The fight against the COVID-19 pandemic brings into sharp focus the balance between safeguarding public health and the economy. Parallels have been drawn between this very current policy challenge and our struggle to manage climate risks. There are both differences and similarities. COVID-19 represents a singular common enemy, while climate risks are more multi-faceted. It could also be argued that the time dimension also differs, with COVID-19 being more immediate whilst climate challenges often come and go with climatic events. Given the latter, oftentimes our intensity to tackle climate change also ebbs and flows. But despite all this, the single biggest common point is the devastation that both COVID-19 and climate change bring to our lives and livelihood. Hence, there is a silver lining to this current health crisis. The pandemic was once a distant issue or someone else’s problem. Now, everyone from Australia to Zimbabwe is experiencing its full brunt. It is therefore an opportune time to reflect, reset and reprioritise. | We need strong commitment to combat climate change and take immediate actions to take charge of future economic growth. For corporations and businesses, over and above concerns on regulation and legal risks, is the need to commit to invest in doing the right thing for “people, profit and planet”. Corporations and businesses that align their policy and advocacy agenda to climate action have an important role in averting a path towards climate catastrophe. As we forge the path towards a climate conscious future, and for the whole system to change at the needed pace and scale, policy makers need to step up as well. For emerging economies such as Malaysia, there is a careful policy balance between transitioning to a low-carbon economy while addressing needs of society and businesses. This is meant to minimise unintended consequences of channelling financing towards non-green and non-sustainable practices and to minimise transition risk. As the central bank, Bank Negara Malaysia is cognisant of this in crafting our strategies to respond to climate risk. Our commitment stems from the direct relevance that climate change has to our mandates in preserving monetary stability and financial stability. Approximately 11.7% of Malaysian financial institutions assets are potentially exposed to climate change. Our aim is to ensure that financial institutions are adequately measuring, mitigating and building buffers against climate risk. Our target is for climate risk to be featured more visibly in the risk management practices of financial institutions by 2022. | 1 |
For example, outstanding foreign exchange swaps have declined from a peak of $ billion last December to about $ billion currently, and outstanding commercial paper held by the CPFF has fallen from a peak of about $ billion last fall to around $ billion currently. Despite the recent dip in the size of the balance sheet, the size of the purchase programs underway makes it likely that balance-sheet growth will resume as assets acquired in conjunction with these programs overwhelm any further declines in the funds advanced via the shorter-term liquidity facilities. The size of the Federal Reserve’s balance sheet seems likely to grow to roughly $ trillion, somewhat above the peak reached last December. 1 However, it was anticipated that the attractiveness of the Fed’s facilities would decline as market conditions improved. In fact, it was a key element of the exit strategy that was deliberately built into the design of most of the facilities. BIS Review 94/2009 3 It is no coincidence that the growth of the Federal Reserve’s balance sheet since last fall has been accompanied by a sharp rise in the amount of excess reserves. When the Federal Reserve extends a loan or purchases a security, this automatically adds reserves to the banking system unless the Fed undertakes an offsetting reserve draining operation. | Has the publication of regular forecasts, which are seen to bear a close relationship to the decision taking process, helped to make the policy decisions themselves more predictable? The test is whether markets are less likely to be surprised by interest rate changes, given full knowledge of all the relevant economic news. We ran some simple statistical tests on two measures of ‘market surprises’. One is based on the Reuters poll of economists. The surprise measure is the difference between the actual repo rate change and the mean expected repo rate change. The other surprise measure is a bit further out along the yield curve: changes in the implied three-month forward LIBOR rate.11 Both measures suggest that interest rate surprises have become significantly smaller in the post-2001 period than previously (Table 2 Panel C), consistent with improved policy predictability. But, intriguingly, there is also some tentative evidence that surprises in Inflation Report months tend to be relatively large.12 What are we to make of that? 11 More precisely, this is an implied 3-month Libor forward rate at a constant horizon of 3-months, where the constant horizon is calculated by linear interpolation of adjacent futures contracts. The results are largely invariant to using six or twelve month horizons. 12 This could, of course, be entirely driven by the expectation that there would be no move in non-Inflation Report months: in the extreme, if the distribution of surprises in those months is degenerate (i.e. | 0 |
Svein Gjedrem: The economic outlook Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), to invited foreign embassy representatives, Norges Bank, Oslo, 2 April 2009. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 25 March, Monetary Policy Report 1/09 and on previous speeches. Please note that the text below may differ slightly from the actual presentation. * * * Excellencies, Ladies and Gentlemen, Since our last meeting about a year ago, the international economic environment has changed dramatically. In my presentation today, I will focus on how the international downturn has influenced the Norwegian economy and the outlook for our economy. The crisis has its core in the financial system, and I will therefore discuss the need for a new international financial architecture. Finally, I will comment on the Government Pension Fund – Global and how the financial crisis has influenced its investments and returns. Sudden global downturn in the real economy In September 2008, the turbulence in financial markets erupted into a full-blown global crisis. On 15 September Lehman Brothers filed for bankruptcy. The next day, money markets seized up. Confidence between banks had been compromised. Liquidity dried up, interest rates rose sharply and equity prices fell. Exchange rate volatility – the daily fluctuations in the exchange rate – showed a marked rise. Bond markets in turn shut down. | Activity in the economy will be boosted by strong growth in government spending. The projections are based on the assumption that Norges Bank’s interest rate changes will translate into lower lending rates for households and businesses. At the same time, owing to tighter credit standards in banks, monetary policy appears to be somewhat less effective than normal. Inflation is projected to fall below 2 per cent in 2010, before gradually moving up towards the target towards the end of the projection period as the output gap gradually closes. There is a risk that the structural changes brought about by the crisis may result in persistently lower productivity growth and perhaps higher unemployment. It appears that inflation will remain considerably lower in the years ahead than we expected in December. Both the objective of stabilising inflation around the target and the objective of ensuring stable developments in the real economy suggest that the interest rate should be low. Financial architecture In many countries, banks’ share of GDP has increased considerably over the past few years. This share is smaller in Norway than in other countries and, as a result, the Norwegian economy has been less exposed to the financial crisis. Although banks in Norway have not been as oversized as in many other countries, banking still contributes to fluctuations in our real economy. 4 BIS Review 42/2009 Banking is procyclical. In upturns, loan losses are low, increasing banks’ profits. Access to equity capital is ample, providing the basis for strong lending growth. | 1 |
In particular, with the high non-resident investors’ participation in the onshore financial market, we saw significant growth in the ringgit NDF market. More recently, in November 2016, non-resident investors’ holdings reached a record high of 34.7% of Malaysian Government Bonds. While some argue that the ringgit NDF market is used by non-resident investors to hedge their ringgit assets, the reality is far more sobering. It is mostly used for speculative purposes. These speculative activities have shown to have adverse negative spillovers to the onshore financial market due to its volatility. More importantly, the sheer volume of this market, which surpassed over 300% of GDP in 2015, underscores the extent of disconnect between NDF trading and economic reality. Given the size, onshore markets were vulnerable to the arbitrary and unpredictable nature of the offshore market. Besides this vulnerability, there was an even larger long term challenge that we faced. The offshore market was developing and thriving at the expense and detriment of the onshore market and domestic stability. The recent developments following the US presidential election have attested to this fact. Following the results of the presidential election, the ringgit NDF was traded 2/6 BIS central bankers' speeches as high as 2168 pips away from the onshore market close during the New York trading hours. Such a significant move is obviously driven more by speculative activities and misplaced market sentiment rather than any significant change in the economic fundamentals of the country. | The first series of initiatives announced on 2 December 2016, seeks to provide greater room for the onshore ringgit hedging for both resident and non-residents. The focus was on ensuring better access to the onshore financial market. In particular, residents can now hedge without providing underlying documents up to certain limits, while registered non-resident investors have the flexibility to carry out dynamic hedging. At the same time, the scope of the appointed overseas office framework was widened to provide greater avenues for non-residents to access the onshore financial market. 3/6 BIS central bankers' speeches The second series of initiatives announced on 13 April 2017, introduced greater flexibility for investors to manage currency and interest rate risks. Registered investors can now conduct full dynamic hedging and resident investors can now conduct short-selling for Malaysian government securities. All these flexibilities are expected to increase the ease of hedging business risks. The aim is to promote a two-way liquidity in the onshore financial market. At the end of the day, we envision that the implementation of these initiatives will make the domestic financial market a market of choice, where prices are determined by the real economy devoid of speculative and damaging activities. In this respect, we have introduced initiative that enables non-resident investors to access and hedge ringgit assets in the domestic markets. | 1 |
I would be happy to take a few questions. BIS central bankers’ speeches 5 | These FTAs will lead to further opening up of the financial sector. Other countries are doing the same. The EU is enlarging its markets through FTAs with East European, African and Latin American economies. North and South America, including the US, aim to conclude a Free Trade Area of the Americas by 2005. Japan and South Korea have mooted the idea of a Northeast Asia FTA, but otherwise, amidst this flurry of activity, Asia has been conspicuously quiet. Our FTA strategy is an insurance policy so that we will not be left out in the cold, should a weakened WTO fail to protect our interests. In every FTA negotiation, our partner will ask for bilateral trade concessions beyond what we have committed in WTO. Our regime for trade in goods is already almost totally open. What many of our FTA partners want is preferential market access in services, in particular in financial services. For the US, this would be a major motivation for their considering an FTA with Singapore. Singapore financial institutions must clearly brace themselves for the greater competition this development would bring. 4. Financial sector reform - a change in mindset Our response to these challenges must be to press on with liberalising and upgrading in the financial sector. The key shift is in the mindset of the players. We must be keenly aware of the changing environment, and of the urgency to respond. For all the concrete changes over the last two years, changing mindsets will be even harder. | 0 |
At this stage, risks of an abrupt turn in the cycle with consequences similar to those observed in 2007-08 appear limited in France for several reasons.v To give just a few in addition to macroprudential measures: over 97% of the stock of housing loans are fixed-rate; borrowers’ solvency is assessed in a very cautious way; real-estate is not used as collateral for credit (as they are in many Anglo-Saxon countries), meaning that real-estate price adjustments do not result in an increased repayment burden. We nevertheless have to remain very vigilant, including in other segments of the market. In particular, commercial real estate (CRE) comes to mind, which has been slowing around the world because of the greater recourse to remote work and online business, and because of rising interest rates. The commercial property sector entails both direct and indirect risks for credit institutions: direct through CRE credits, and indirect through CRE assets pledged to them as a collateral for other kinds of credit. Ireland has once more been a pioneer on this Page 11 sur 11 front by implementing macroprudential leverage limits for investment funds,vi which could pave the way for a more comprehensive macroprudential framework. In France, at this stage, indicators do not show any particular risk accumulation: both non-performing loans- and loan-to-value ratios are tending to decline. But we will definitely keep monitoring risk indicators closely, given the amounts at stake (around EUR 150 billion of direct exposure, and EUR 85 billion of indirect exposure for French banks). | How to ensure that macroprudential policy can help in this context? If we release, we may contribute to the inflation dynamics through the usual credit channel. If we tighten, we can contribute to triggering financial risks. Complementarity with monetary policy remains, but prudence is of the essence, and this could be the time for some macroprudential pause. II. The case of the real-estate sector: how macroprudential tools help mitigate growing risks In France, our macroprudential body is the High Council for Financial Stability (HCSF): it’s chaired by the Finance Minister, but I as Governor have the sole power to propose macroprudential measures to the Council. It’s a subtle institutional balance… but it works. In recent years, we have used actively the countercyclical capital buffer (CCyB): removing it in March 2020, reintroducing it at 0.5 % in April this year, and planning to raise it at 1% next December. As Page 8 sur 11 the CCyB is always difficult to explain to public opinion, we also decided to rebrand it “credit protection reserve”. Let me now focus on a practical case, on a sector that has often proved critical to financial stability, namely the real estate sector. It is politically most sensitive for citizens. Severe financial crises have often been related to housing boomand-bust cycles: the great financial crisis was a stark example of this. Lessons have been learned and a wide range of macroprudential tools have been implemented since then to mitigate vulnerabilities arising in the residential real estate sector,iii including in France and Ireland. | 1 |
Jessica Chew Cheng Lian: Corporate governance at the Central Bank of Malaysia Opening speech by Ms Jessica Chew Cheng Lian, Assistant Governor of the Central Bank of Malaysia, at the Third Institute of Chartered Accountants in Australia-The Malaysian Institute of Certified Public Accountants (ICAA-MICPA) Audit Forum, Kuala Lumpur, 27 September 2012. * * * It gives me great pleasure to be here this morning at the 3rd ICAA-MICPA Audit Forum. The theme for the Forum this year is the role of the audit committee within the context of corporate governance in insurance companies. It has been said that an audit committee is like a good insurance policy - it is better to have it and not need it, than to need it and not have it. I am certainly happy to know that we have established strong audit committee practice within our financial industry, and while admittedly, some institutions have moved further than others in improving the effectiveness of the audit committee, it represents without exception a core pillar of governance systems in our financial sector. I say this because as we speak, there are countries that are now debating the requirement for financial institutions to establish separate audit committees. There are a number of reasons why the theme chosen for this forum is particularly relevant in current times. Corporate governance problems have once again come under intense global scrutiny since the outbreak of the global financial crisis. | However, my assessment is that the low inflationary expectations are making it take a longer time before overheating tendencies are expressed in increasing consumer prices. This leads me to make the assessment that prices will not start to rise until the end of the forecast period but that price increases will then be stronger than the majority believes. My assessment is therefore that inflation at the end of the forecast period, in my main scenario, will end up marginally over the forecast that was reported in the last inflation report, which the Executive Board majority did not find reason to revise. My assessments of developments during the next two years differ then only marginally from the majority view. I am more concerned about the price tendency and the risks I see in developments after the forecast horizon. The assessments of the use of resources and future production possibilities are uncertain. Structural changes of the Swedish as well as the international markets make it particularly difficult to draw conclusions about future growth prospects. There is a risk that we go to excess. High, increasing indebtedness calculated as a share of GDP for both households and companies make me concerned for financial imbalances that can be on their way to being created, although our knowledge of what can be assumed to be long-term sustainable development is small. In my view, there is a risk that we overestimate potential output in the coming years and that we therefore accept an excessively high level of demand in the economy. | 0 |
6 All speeches are available online at www.bankofengland.co.uk/speeches 6 Flows of workers and their bargaining power are, in turn, affected by structural features of the labour market. A rise in job insecurity will reduce flows of workers between jobs and their bargaining strength. A fall in the degree of unionisation and collective bargaining in the labour market, and a rise in the degree of automation and concentration in the company sector, will also reduce workers’ pay power. We discuss each in turn. If these structural forces were reducing workers’ bargaining power, we might expect them to receive a declining share of the income pie – a fall in the “labour share”. Internationally, there is strong evidence of the 8 labour share having fallen across a large number of developed countries. Structural factors, such as rising levels of automation and falling rates of unionisation, are typically found to have been an important contributor to those falls in international labour shares. 9 At face value, the UK appears to have bucked those trends. Chart 12 plots the UK labour share since 1955. Over the past two decades, it has been broadly flat. The UK labour share in 1990 was 50%, largely unchanged from today. In the UK, there appear to be fewer signs of any significant shift in the bargaining power of workers having resulted in them taking away a smaller slice of the income pie. I will discuss some of the reasons for that below. | 5 There are various measures of under-employment, including the proportion of the workforce working part-time involuntarily and the gap between actual and desired hours worked. In practice, these two measures exhibit a very similar pattern (Chart 9). They also track the unemployment rate closely. This suggests the incremental information contained in measures of under-employment, relative to measures of unemployment, might be relatively modest. Econometric estimates confirm that impression. Replacing the unemployment gap with a measure of the 6 under-employment gap produces a very similar wage equation (Table 1). And in a pairwise comparison, under-employment is statistically insignificant if the unemployment gap is included. Under-employment is important for pay, but does not appear to much improve the explanation of recent wage dynamics. A third factor determining pay pressures is productivity. It is through gains in productivity that individual firms, and the economy at large, can finance increases in workers’ pay. Econometric estimates confirm that intuition. The productivity of the labour force is a (statistically and economically) significant determinant of pay (Table 1). On average across firms, a 1 percentage point rise in productivity raises aggregate wage growth by around 0.8 percentage points. 4 5 6 Espinosa-Vega and Russell (1997) provide a history and review of the NAIRU concept. For example, Bell & Blanchflower (2018). Specifically, the involuntary part-time share of employment. | 1 |
If it cannot be helped, he shares part of his riches with his students. - You might find this type of economist too, but only very, very rarely! 3. Economists in government “Give me a one-handed economist! All my economists say, ‘on the one hand … on the other’.” - You surely know this quote which goes back to the late Harry S. Truman (1884-1972), when he was President of the USA. It is an expression of the impatience that befalls politicians when they call on economists for advice. Another quote by the same man is: “If you can’t stand the heat, get out of the kitchen.” The two quotes describe better than almost anything the challenges an economist has to face when he chooses to work for the government. Politicians are usually confronted with sensitive questions. The replies are decisive for a politician’s success. Frequently time is short and straightforward answers are preferred - as long as they fit the preferences. Politicians have a natural predisposition to seek advice that is compatible with their political needs. Economists acting as civil servants or as government advisers are therefore quite naturally tempted to behave opportunistically. This will not pay since in the long term a serious loss of professional reputation is inevitable. Economists must not let themselves be carried away by a desire to please. Their added value lies in an objective application of their analytical and empirical tools. Economics is, not without justification, sometimes called the “dismal science” (Thomas Carlyle, 18201905). Economics is about tradeoffs. | That said, it was the risk in 2011-12 of the single currency breaking up which prompted the decision to undertake the reform of EU governance, moving towards a new model that 5/7 would transfer to the area as a whole many of the responsibilities for supervising banks and managing bank crises, which we know as the Banking Union. Following this initial momentum, which culminated in the launch of the Single Supervisory Mechanism in late 2014 and the approval of new Directives on capital requirements and resolution, political considerations are hampering further steps in financial union projects; and progress on the reform agenda considered by national governments has been uneven. The reform agenda in Spain In Spain, from 2010 onwards, the reforms carried out have provided for a better adjustment of labour costs to firms’ cyclical position, preventing employment from being the only adjustment factor. The reforms have also been conducive to a greater degree of flexibility in the organisation of work within firms. These factors have played a significant role in improving our economy’s competitiveness, which is at the very root of the recovery. The gains in competitiveness have been clearly reflected in the pick-up in exports. From 2011 to 2016, the share of goods exports in GDP has increased by 2.6 pp, amounting to almost 23%; goods and services exports, including tourism, have climbed by almost 4 pp of GDP, rising last year to 33%. | 0 |
The forecast for 2004-2006 is that of the National Board of Housing, Building and Planning . Household indebtedness Per cent 160 16 120 12 80 8 40 4 0 1980 0 1982 1984 1986 1988 1990 1992 Debt to income ratio (LHS) 1994 1996 1998 2000 2002 Post-tax interest ratio (RHS) Sources: Statistics Sweden and the Riksbank Households’ real and financial assets 45 5000 Real assets (Billion SEK, LHS) Financial assets (Billion SEK, LHS) 4000 40 Debt as percentage of total assets (RHS) 3000 35 2000 30 1000 25 20 0 1988 1990 1992 1997 1999 2001 2003 2004 kv2 Sources: Statistics Sweden and the Riksbank. BIS Review 67/2004 5 The major banks’ profits SEK billion, prices in 2004 Profit before loan losses dec-04 0 dec-02 0 dec-00 30 dec-98 30 dec-96 60 dec-94 60 dec-92 90 dec-90 90 Loan losses, net Sources: The banks’ reports and the Riksbank. 6 BIS Review 67/2004 | The NEU-CP market in Paris is by far the most active in the euro area, with outstandings of EUR 72 billion in mid-May, and the Banque de France’s most recent involvement since the end of March has been very effective and widely acknowledged by industry professionals. With its new Main Street Lending Program, the Fed recently went a step further by giving itself the possibility to fund the purchases of bank loans to businesses, via a special-purpose vehicle created with a US Treasury Department guarantee. We are not at that stage yet – the euro area has a different institutional framework – but we should not necessarily exclude it in the future if it proves to be a lever needed to maintain the financing of the economy by lightening bank balance sheets. What’s more, the French proposal for a “recovery fund” envisages its partial use for this very purpose. The Covid crisis has once again called upon the Eurosystem’s reactivity and creativity to fulfil its mandate in total independence. To conclude with the words of Jean Monnet, “I have always believed that Europe would be built through crises, and that it would be the sum of their solutions”. Without, of course, wishing for it, this is the situation we find ourselves in. And rest assured, the ECB has risen to this challenge. 5/5 BIS central bankers' speeches | 0 |
This includes properly designed incentive structures that must reflect risk outcomes. Financial institutions are also required to regularly review their risk management methodologies and processes to account for the changing business environment. This aims to ensure that risk management does not become something one does to check off a box on a list and then forgets about. A second notable observation has been the broader focus of risk management. While financial risks remain a key focus of risk management practices, risks from reputational, human capital and environmental concerns can have equally significant repercussions for a firm’s business. Recovering from reputational damage is a hugely expensive endeavour, takes a long time, and success is often not assured. We have observed in our own work that where institutions take a broader view of risk management in these areas, conversations around the role of risk management at the senior management and board levels are more likely to shift beyond avoiding losses, to enhancing strategic opportunities for improving the institution’s competitive position. This itself can have a mutually reinforcing effect of directing more resources towards risk management and creating better synergies between business and risk functions. While more firms are acknowledging the importance of reputational, human capital and environmental risks, actions however have generally not measured up. Many companies still have weak succession plans in place and remain vulnerable to key-man risks. | In the long run, we will need to rebalance our economy away from domestic spending and towards exports, to reduce our trade deficit, to repay our debts, and to raise the rate of national saving and investment. So you are probably puzzled by the fact that we seem to be doing exactly the opposite of that today. Almost four years ago now, I called this the “paradox of policy” – policy measures that are desirable in the short term appear diametrically opposite to those needed in the long term. Although we cannot avoid the long-term adjustment to our economy, we can try to slow the pace of the adjustment in order to limit the immediate damage to output and employment. Loose monetary policy today will eventually give way to a tighter stance of policy as the economy recovers. In confronting the paradox of policy, the Bank has had to show some of the same fleetness of foot and ability to feint as my Cambridge contemporary, Gerald Davies. So let me try to explain this evening what monetary policy can do and what it can’t. BIS central bankers’ speeches 1 In doing this I am not going to pretend that I shall be entertaining. But these are serious times and you deserve a serious explanation of what we at the Bank can do and what we can’t, or shouldn’t. Let me start with what monetary policy can do. When banks extend loans to their customers, they create money by crediting their customers’ accounts. | 0 |
This cannot go on for ever, and if there is a sudden turnaround it could have substantial negative effects on the real economy. This applies in particular if a situation were to arise where house prices fall and households’ net wealth shrinks. Once households have reached a situation where they consider that they need to consolidate their balance sheets by reducing their debts, it is difficult to break off this process with the aid of monetary policy. This can be clearly seen in the United States right now, for instance. I do not believe in a wait-and-see strategy that could mean that the repo rate needs to be raised even faster further ahead. A slightly higher interest rate now could make households begin to adjust and contribute to a more subdued development. To me, this is a wellbalanced monetary policy. This is fairly self-evident, but let me nevertheless emphasise: My aim is of course as always to try to attain the Riksbank’s objectives – that inflation and inflation expectations should be firmly anchored around the target and that developments in the real economy should be stable. But to achieve this, I would like to take into account risks that I perceive exist and to put them in a slightly longer perspective than the usual forecast horizon – as I currently see good reason to do this. | The second main focus of the Allsopp review is the stark imbalance between the coverage, timeliness and quality of statistics on the services sector relative to those on manufacturing. Suppose you were interested in studying the economic behaviour of the UK textiles industry - which accounts for around one-third of one percent of UK output. The good news is there’s plenty of coverage in the national accounts, although you have some decisions to make. Are you interested in clothing, or carpets and rugs? And if clothing, are you interested in knitted and crocheted garments…or work wear…or outerwear?…or indeed underwear? Each of these has its own data set: the array of sub-categories is truly impressive. However, suppose instead that you were interested in the retail sector, and wanted to know, for example, how much the large supermarket chains have contributed to GDP in recent years, or what inroads they have made into the non-food market. No dice. Although the retail sector nowadays accounts for over 5% of UK output - so it is nearly 20 times the size of the textiles industry - more detailed data are not produced for the UK national accounts. The need for better service sector statistics goes well beyond any interest we might have in detail for its own sake. In the UK, early estimates of GDP rely heavily on measuring output. Since the service sector accounts for more than 70% of UK output, the quality of early GDP estimates is inextricably linked to the quality of service sector statistics. | 0 |
The second contract involves the client purchasing the commodity acquired by the bank on a deferred payment basis and agreeing to a payment schedule. The second type of financing is financial leasing or Ijara, with terms similar to those offered by other leasing companies. Participation banks currently constitute only a small part of the Turkish banking sector, accounting for 3.7 percent, 4.2 percent, and 5.2 percent of total banking sector assets, deposits, and loans, respectively, at the end of 2008. However, they have been expanding rapidly in recent years. The share of participation banks’ assets in total banking sector rose from 1.9 percent in end-2002 to 3.7 percent in end-2008. They have provided finance to mainly small and medium size dynamic firms. At present, participation banks are regulated according to the same standards as conventional banks. Accordingly, they are regulated and supervised by the Banking Regulation and Supervision Agency. Distinguished Guests, While Islamic finance is well settled as a mode of operation, with already living examples, there is no consensus view on the role of Islamic finance on price and financial stability. On the financial stability side, although there has been a wide consensus that the establishment of a powerful regulation and supervision system is vital to resume financial stability, there are contradictory views on the support of the Islamic financial institutions to financial stability. On the other hand, the role of Islamic finance on price stability has not been fully covered by the recent empirical studies. | Ladies and Gentlemen, In the Turkish context, the Islamic finance practices are embodied in a uniquely defined compartment of the banking system. These banks are called as the “participation banks” in Turkey and they constitute an integral part of the Turkish banking system. There are four Islamic banks categorized as participation banks, and 45 conventional banks in Turkey as of BIS Review 124/2009 1 September 2009. It is crucial to highlight that the participation banks are not considered as an alternative to the conventional banks. While they are functioning similar to deposit banks, their fund collecting and lending processes differ significantly. Participation banks are authorized by the Turkish Banking Act to collect funds from the public under the “profit and loss participation accounts” and the “special current accounts”. The profit and loss participation accounts are essentially a version of the Islamic financial instrument, where the bank utilizes the funds deposited by account holders to fund specific business activities. Any profits earned are shared between the account holder and the bank, in proportion to an agreed ratio. Participation banks in Turkey mainly offer two types of lending. The first type of financing is Murabaha, which is a transaction consisting of two sales contracts. The first contract involves a bank client requesting the bank to undertake a Murabaha transaction and promising to buy the commodity specified by him or her if the bank acquires that commodity. | 1 |
Developments in technology, both to enhance resilience of existing payments and to innovate in new forms of payments, are important to support the Bank in advancing its objectives. This is equally true for physical and electronic payments. In my previous role as Chief Cashier, I led our work to issue banknotes printed on polymer. We harnessed innovative technology both in the security features selected, and in introducing a tactile feature on the new £ polymer banknote to help blind and vision impaired people identify our notes. This meant we exploited technology to produce banknotes which are not only secure, but inclusive. And now we are assessing how we can embrace diverse technologies through RTGS Renewal. Although the Bank has concluded that Distributed Ledger Technology (DLT) is not yet sufficiently mature to provide the core for the next generation of RTGS, we still place a high priority on ensuring the new service is capable of interfacing with DLT. In summer 2018 we ran a Proof of Concept12 with four firms to develop payment arrangements using innovative technologies. Importantly, the results demonstrated that participants using such technologies could connect to and settle in RTGS. This has informed our thinking on how RTGS could support settlement in a more diverse range of systems, and provided broader insight into the range of functionality the Bank might need to offer to support this sector. | This will bring significant and long term benefits for a wide range of firms. In particular, the Bank and Pay.UK will introduce a Common Credit Message across CHAPS, Bacs and FPS which will bring message harmonisation for the UK’s main interbank payment systems and compatibility with the emerging international consensus. We will provide improved user functionality in the new RTGS service and build a flexible infrastructure capable of adapting easily to new and changing requirements, enabling us to respond to continued innovation from new fintech firms as well as established players. Improved functionality will include read and write APIs and richer payment and liquidity data. In 2017 we brought the operation of CHAPS into the Bank to strengthen end-to-end risk management and to enhance the safety and security of the £ of payments that flow through CHAPS on an average day. We are increasingly able to draw on the diverse set of tools and expertise available within the Bank, e.g. cyber security skills, to support CHAPS. We are starting to reshape the requirements that apply to CHAPS direct participants, reflecting the expanding range of participants: up from 14 in 1987 to 34 today. CHAPS access criteria and requirements already accommodate a wider range of participants than five years ago – including three Financial Market Infrastructures and one non-bank payment service provider. | 1 |
I just came back from a trip to Puerto Rico and the U.S. Virgin Islands, which are part of the New York Fed’s district. The overwhelming feedback I received from community leaders there was how useful they found our research reports for thinking about how to strengthen their local economy. An example closer to home is the work we do looking at the credit behavior of households at the zip code level. Analysis from the New York Fed is used by Financial Empowerment Centers across New York City to support people on low and middle incomes get out of financial trouble and build a credit profile. It also acts as a barometer for the success of programs, which helps practitioners learn which interventions are most effective. 2/4 BIS central bankers' speeches Convene As well as connecting people with research and data, we play an important role creating spaces where different stakeholders convene, discuss the challenges and opportunities facing their communities, and share best practices. This is where our workforce development program comes in, and it’s an area where Federal Reserve Banks from across the country have been collaborating to share knowledge among key stakeholders. The work we’re doing bringing together schools and local employers is also in this vein. We owe it to young people to ensure that their investments in education pay off and that there’s a job at the end of all their hard work and study. | Alex Brazier: Nurturing resilience to the financial cycle Speech by Mr Alex Brazier, Executive Director for Financial Stability Strategy and Risk of the Bank of England, at the Property Investor’s Banquet, London, 19 October 2015. * * * I am grateful to Martin Arrowsmith, Oliver Burrows, Neil Crosby, Kishore Kamath, Magda Rutkowska and Robert Sturrock for their assistance in preparing these remarks. My Lord Mayor, Lady Mayoress, Ladies and Gentlemen. It is a great honour to join you this evening. It’s clear why you are celebrating. A crane-filled skyline to the City. New office space completion in Central London: a ten-year high; More than thirty schemes underway: a twenty-year high; And transactions that are near a record high. Half of them financed by capital attracted from overseas. Commercial property is punching well above its weight in attracting capital to Britain. Those capital inflows are helping to sustain steady growth while our major trading partners lag behind. So your industry is contributing to the livelihoods of people up and down the country. But while that’s true in the good times, it’s true in the bad times too: when commercial real estate catches a cold, the whole economy starts to shiver. It’s not just that the construction industry suffers and jobs are lost, or that banks are injured, impairing their lending to the rest of the economy. It’s that small businesses see their own property fall in value – assets that are vital to secure their borrowing. | 0 |
In the last HCSF communiqué in December 2015, for example, we indicated, on the subject of the property market, that “the price adjustment in the residential market since 2012 appears appropriate, whereas commercial real estate prices remain high”. We are ready, when needed, to take action with macroprudential measures, to prevent and mitigate any systemic risks that might arise. Monetary policy is thus doing a great deal to counter weak inflation and support economic activity – it is our duty and we will continue to do so with steadfast resolve: we are consistent in our objective, ready to act with the right instruments, and alert to any possible risks. However, I would also like to stress that “monetary policy cannot be the only game in town”. Other economic policies also have a role to play. This is precisely what the members of the G20 reiterated in Shanghai on 27 February: “Monetary policies will continue to support economic activity and ensure price stability, consistent with central banks’ mandates, but monetary policy alone cannot lead to balanced growth”. Where there is sufficient margin to do so, fiscal policy must support demand – this is not currently the case in France, but it is in other countries in Europe. Moreover, structural reforms remain absolutely vital in France, to encourage creations of jobs and of businesses and thus bring the economy back to full potential. Our country can’t wait any longer; its unemployed, its young people – such as yourselves – can’t wait any longer. | 11.07.2022 Welcoming remarks to the conference on econometric methods and empirical analysis of microdata in honour of Manuel Arellano Pablo Hernández de Cos Governor Good morning, and welcome to this conference on econometric methods and empirical analysis of microdata in honour of Manuel Arellano, one of our country’s leading economists and a key figure in the field of econometrics at international level. Let me take this opportunity to, once again, congratulate professor Arellano on all his important achievements. We are indeed very honoured at the Banco the España to have Manuel with us at the CEMFI. In his recent acceptance speech at the award ceremony of the King of Spain’s Prize for Economics, Manuel Arellano argued that a nation without good administrative data is like a hospital system without access to advanced magnetic resonance equipment. I couldn’t agree more with this comparison. To have an accurate diagnosis of the problems of an economy it is crucial to be able to observe economic reality in sufficient detail. And, the analysis of an economy in high resolution is possible thanks to the empirical analysis of data, of microdata in particular, using, of course, the appropriate econometric methods. Indeed, in recent decades, the analysis of microdata has revolutionised research in the social sciences1 and policy evaluation. The availability of granular data, together with the development of innovative econometric methods, has radically changed the way researchers approach and understand social issues. | 0 |
Unlike inflation targeting, should inflation temporarily fall below 2% for any reason, the central bank will have to ensure that it rises above 2% in the future so that the price level returns to its target path. This strategy forces the central bank to correct in the future any past inflation deviation from the value consistent with the price-level target. 7 See Chapter 3 of the Banco de España's Annual Report 2018 for a detailed discussion of make-up strategies. 9 A less radical strategy, but kindred in spirit, is that known as average inflation targeting. In this case, the central bank targets average inflation running at its target rate over a given period. Unlike traditional inflation targeting, it includes a component for making up for past deviations, but only over a specific period of time. This contrasts with price-level targeting, where all past deviations should be compensated for, regardless of how long ago they occurred. One characteristic of these make-up strategies is their symmetry, understood as the central bank’s commitment to react equally to both undershooting — which, as we have seen, are the really problematic deviations in the current context — and overshooting. In other words, after a period of above-target inflation the central bank would have to reduce inflation below the target, which would require depressing economic activity and employment. Given that such a commitment may not be entirely credible, it has recently been proposed that such strategies be temporary. | Faced with this situation, the digital euro could be a vehicle for retaining the option whereby citizens have access to the central bank’s safe money and avoiding the risks that would arise from total dependence on private means of payment. However, before launching a digital euro we must resolve many questions. Only thus will we be in a position to respond to the challenges and react swiftly where necessary. For one thing, we have to acquire practical experience regarding the possibilities technology offers for the operational design of this digital euro. Within the Eurosystem we must consider, among other matters, what the most appropriate technology would be, how we should shape it to ensure maximum resilience and how we would have to involve the private sector in the provision of the digital euro. Purely technical issues aside, we must further analyse the macroeconomic and financial consequences of a digital euro in the different scenarios identified, as there are basic aspects regarding the potential impact of the digital euro on the economy that would have to be clarified before taking a decision on issuing it. By way of example, I would highlight the need to minimise the adverse impact that potential banking disintermediation would have on financial stability, or the possible effects of the digital euro on situations of financial instability. These aspects probably require an additional analytical push to ensure that these unwanted secondary effects can be avoided. | 1 |
In his February 10 testimony, Chairman Bernanke described a possible approach for managing the size of the balance sheet. In particular, he indicated that he does not currently anticipate that the Fed will sell any of its asset holdings until the economic recovery is more firmly established and policy tightening has gotten underway. Until that time, the portfolio would shrink only through asset redemptions. Chairman Bernanke noted that the Fed’s holdings of agency debt and MBS are being allowed to roll off the balance sheet, without reinvestment, as those securities mature or are prepaid, and that the FOMC may choose to redeem some of its holdings of Treasury securities in the future, as well. With this approach, the FOMC would be shrinking its balance sheet in a gradual and passive manner. That, in my view, is a crucial message for the markets. It should limit any reversal of the portfolio balance effects described earlier, effectively putting reductions in asset holdings in the background for now as a policy instrument. As long as this approach is maintained, it would leave the adjustment of short-term interest rates as the more active policy instrument – the one that would carry the bulk of the work in tightening financial conditions when appropriate. This approach is cautious in several dimensions. First, a decision to shrink the balance sheet more aggressively could be disruptive to market functioning. | Zamani Abdul Ghani: Malaysia – seizing the opportunity to evolve Opening remarks by Mr Zamani Abdul Ghani, Deputy Governor of the Central Bank of Malaysia, at the Seminar on Financing for Overseas Project, Kuala Lumpur, 14 January 2010. * * * I am pleased to be invited today to officiate this Seminar on Financing for Overseas Project. On behalf of Bank Negara Malaysia, I wish to thank and congratulate the EXIM Bank, the ICD and the CIDB for their efforts in organizing this important and invaluable Seminar. The continuous collaboration among Malaysian private and public related organizations with the IDB and its related organizations demonstrate the solidarity of the Muslim Ummah and the community at large towards achieving a strong and sustainable economic development. This also reflects the growing importance of cross border trade and investment among the OIC member countries. We, at Bank Negara Malaysia, are pleased to note that over 200 participants from more than 100 companies in Malaysia are participating in this Seminar. Today’s Seminar which brings together participants in the related industries, not only provide information on the business opportunities abroad, but also serves as an excellent platform to establish new networking links as well as sharing of innovative ideas and invaluable experiences. Malaysia has always accorded and will continue to accord a high priority on enhancing collaboration with the OIC member countries towards fostering intra-OIC trade and investment. Realizing the large business opportunities in the OIC countries, Malaysia entered into an MoU with the IDB in 2004. | 0 |
4 BIS central bankers’ speeches • Foreign labour, which had driven Singapore’s labour force growth since the late 1970s, was already one-third of the total workforce. • It was neither economically efficient nor socially desirable to allow the foreign workforce to expand much faster than the local workforce. By 2020, average total labour force growth was down to 1% per annum. The central thrust of economic strategies in the 2010s and early 2020s was therefore to shift to a productivity-driven growth model. The aim was to increase productivity growth to at least 2% per annum, from the 1.4% averaged during the 2000s. • The growth of lower-skilled foreign labour was curbed through increases in the foreign worker levy and reductions in the foreign worker dependency ratio ceilings. • Financial incentives were given to firms to undertake capital deepening and adopt technology solutions to raise productivity. • Programmes were put in place to help Singaporeans develop and master skills in new growth clusters. While the manufacturing sector had continually undergone restructuring and moved up the value chain in the preceding five decades, this was the first time the entire economy was undergoing such a transition. • It proved particularly challenging for many traditional domestically-oriented services like retail, hospitality, construction, real estate, and social services, which had come to be heavily dependent on cheap labour over the decades. | Singapore’s first Prime Minister, Mr Lee Kuan Yew, had said in 1957 that the idea of an independent Singapore was a “political, economic, and geographical absurdity”. It is not hard to see why. • An island of 580 squares kilometres at low tide, Singapore in 1965 had no natural resources, no hinterland, no industry. • It depended on the outside world not just for food and energy, but even water. • Industrial strife was common. Unemployment was close to 9%. Singapore’s birth pangs were traumatic. • Separation from Malaysia meant the loss of not just a common market but a hinterland. • Indonesia’s Confrontasi cut off Singapore’s southern hinterland, further undermining the fledgling nation’s traditional role as an entrepot trading post for the region. • In 1968, the British government announced a withdrawal of its troops from Singapore, which left thousands of workers without a job and as much as a fifth of the economy at risk of coming to a halt. Surviving as a nation and creating a better life for the people were thus the over-riding priorities. And economic growth was seen as the principal means to help achieve this. The government made two strategic decisions – both sharply at odds with the conventional economic wisdom of the time. • The first was to shift away from import-substitution in favour of export-led industrialisation. 2 BIS central bankers’ speeches • The second was to attract global multinational corporations as vehicles to achieve industrial growth. | 1 |
Tarisa Watanagase: Changes in Thailand’s economic dynamism after the 1997 crisis Speech by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the International Symposium “Ten Years After the Asian Currency Crisis: Future Challenges for the Asian Economies and Financial Markets”, hosted by the Center for Monetary Cooperation in Asia (CeMCoA), Bank of Japan, Tokyo, 22 January 2007. * * * At the outset, I would like to thank Governor Fukui and the Center for Monetary Cooperation in Asia, Bank of Japan, for inviting me to speak at this special international symposium and for the excellent arrangements made. It gives me both a great honor and pleasure to meet with many people who are genuinely interested in our ASEAN economies. In this first session, I have been asked to speak on changes in Thailand’s economic dynamism after the 1997 crisis as well as the Bank of Thailand’s view on where the Thai economy is heading. Due to the time constraint, I will limit my talk to only three key points. The first is that the Thai economy is now back on a firm growth path and has become more resilient. For nearly five years after the 1997 crisis, the Thai economy went through a period of substantial adjustment. The tough adjustment was unavoidable because the crisis had inflicted a deep wound on the economy. | In other words, ECB actions that support market confidence are of benefit not only to countries in difficulty, but also to the euro area as a whole. Our measures ensure the proper transmission of monetary policy, which means neither excessively high interest rates nor excessively low interest rates. The measures enable the ECB to continue to maintain price stability for the benefit of all citizens of the euro area. The announcement on OMTs has already triggered positive effects. Sentiment in financial markets has improved significantly. Excessive government bond spreads have gone down, a number of banks in stressed countries have been able to regain access to markets and Target2 balances have broadly stabilised. The way forward Let me draw to a close. Actions by the ECB can build confidence in the euro area in the near term. But only actions by governments can secure confidence in the euro area over the longer term. In particular, governments need to work together to establish a stronger institutional structure for the euro area. 4 BIS central bankers’ speeches This process began in June this year with what has been called the “Four Presidents’ Report”. That report – of which I am a co-author – identified four key pillars on which a stable and prosperous monetary union should be built. These pillars are financial union, fiscal union, economic union and political union. In the near term, the most important pillar is financial union. | 0 |
This is particularly pertinent to the Distributed Ledger Technology 2/3 BIS central bankers' speeches platform for trade finance that we are building with the industry. This is why we have earlier announced a collaborative initiative with Singapore in this area. And I am also very pleased to note that HM Treasury and the HKMA have just started a dialogue to explore further cooperation under this project. Green Finance If I am asked to predict what will be an emerging theme for the financial services sector in 2018, green finance looks like a safe bet. Green finance is growing rapidly and Mainland China has become one of the major markets for green bonds. Hong Kong is also keen on tapping into the green finance opportunities. The Hong Kong Government plans to issue a green bond for the first time next year. There is much we can learn from and collaborate with London, which has been a forerunner in this segment of the market. One of the burning issues is the divergence in various green bonds standards and assessments currently in the market. I hope today’s Seminar could shed some light on this and also the way forward for green finance development. Conclusion The future is not all rosy though. Challenges and uncertainties abound and this calls for stronger cross-border collaboration. The success of this Forum in the past six years shows that London and Hong Kong can be an all-weather friend. And I wish all of you a very fruitful discussion today. Thank you. | As housing prices have climbed, the number of homes moving into the foreclosure process and the number of households with mortgages underwater have fallen sharply. Moreover, households have deleveraged their balance sheets. Debt levels have declined and lower interest rates have cut financing costs. As a result, the financial obligation ratio, which measures the debt servicing cost of households, has declined from a peak of 18.1 percent of disposable income in the fourth quarter of 2007 to 15.4 percent in the fourth quarter of 2013. This is a level not seen since the early 1980s. On the fiscal side, the amount of restraint has diminished sharply. For 2014, the projected drag is about ½ percent of GDP, roughly half the level of 2013. Moreover, much of this restraint was frontloaded into the beginning of the year, with the cessation of long-term unemployment compensation, the expiration of the bonus depreciation provisions and the higher tax rates that applied to final tax settlements for the 2013 tax year. For the remainder of this year and next, the degree of fiscal restraint should be very modest. BIS central bankers’ speeches 1 In terms of the outlook abroad, the circumstances are more mixed. Although Europe is doing better, Japan is digesting the large hike in consumption taxes that was implemented on April 1, Chinese growth is slowing and some other emerging market economies are coping with structural imbalances that are anticipated to lead to slower growth this year. | 0 |
You could think of this as a new piece of critical national infrastructure – a publically-available digital platform for diffusing new processes and practices across the UK company sector, enhancing technological trickle-down to the furthest reaches of the long tail. (b) Supporting Technology Transfer A second area where progress could be made in creating an improved diffusion infrastructure is by harnessing the UK’s university network. The UK’s top-ranked universities are already playing a crucial role 56 Baldwin (2016). 21 All speeches are available online at www.bankofengland.co.uk/speeches 21 in establishing the UK as an international innovation hub. Their business parks serve as crucibles of creativity. They are an important reason why the UK ranks so highly on innovation and start-ups. The question, raised in a speech of mine last month, is whether the UK’s other universities could serve as spokes for these hubs, helping diffuse innovation more broadly across sectors and regions. In principle, using the university network in this way has advantages. Unlike the Catapults, these institutional spokes do not need to be created anew. And the universities already have extensive regional and sectoral reach. Clearly, this would require a fairly significant repurposing of universities. Any new activities would also need adequate financing. But neither of these problems seems insurmountable. And looking ahead, it seems likely universities will need to rethink their purpose and focus, in the light of profound shifts in the future of work and the skills demands of students. | The UK’s Productivity Problem: Hub No Spokes Speech given by Andrew G Haldane Chief Economist Bank of England Academy of Social Sciences Annual Lecture 28 June 2018 The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Sandra Batten, Shiv Chowla, Gabor Pinter, Patrick Schneider, Brad Speigner and Pawel Smietanka for their help in preparing the text. I would like to thank Tera Allas, Ben Broadbent, Caroline Butler, Jeremy Franklin, Colm Manning, Richard Sherrington, Silvana Tenreyro, Ryland Thomas and Jan Vlieghe for their comments and contributions. This work contains statistical data from ONS which is Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. 1 All speeches are available online at www.bankofengland.co.uk/speeches Introduction I am delighted to be giving this year’s Annual Lecture of the Academy of Social Sciences and honoured to be a Fellow of the Academy. I thought I would use the occasion to discuss an issue of pressing public policy concern, an issue that affects the living standards of each and every one of us and has, as best we can tell, since the dawn of time: productivity. It is a terrible word, as it leaves most people dazed and confused. | 1 |
Chart 10: Chinese credit growth Percentage change on a year ago 45 40 35 30 Non-bank 25 Headline TSF 20 Bank 15 10 Nominal GDP 5 0 2013 2014 2015 2016 2017 2018 Sources: CEIC, Datastream from Refinitiv, The People's Bank of China and Bank calculations. A downturn in the Chinese economy would test the resilience elsewhere. China’s contribution to global growth has risen from one-fifth to one-third since the last US tightening cycle. 22 22 Reflecting the increased importance for China to the global economy, the scenario used in the FPC’s annual stress tests of the major UK banks includes a significant slowdown in the Chinese economy. 14 All speeches are available online at www.bankofengland.co.uk/speeches 14 To give a sense of the issue, in the 21 credit booms that matched the scale of China’s since 1975, annual growth dropped by 3¼ percentage points on average in the subsequent years. Adjusting for progress thus far and China’s degree of development, this suggests growth could slow a further 1 to 1½ percentage points. Of course, deeper trade tensions would worsen the slowdown. The Bank of England estimates that a 3% drop in Chinese GDP would knock one per cent off global activity, including half a per cent off each of UK, US and euro area GDP, through trade, commodities and financial market channels. | 10 With this range of motivating factors and the impact they have on the culture in mind, a number of firms have integrated “how” factors into an employee’s performance evaluations by assessing the methods used to achieve a performance goal alongside the “what” components such as contributing to their group’s financial performance. Industry Benchmarking Another perspective is from the industry as a whole. I think we can gain important insights by looking across the financial industry, identifying best practices, and understanding what approaches are most effective in positively influencing conduct and culture. Conferences and workshops like those hosted regularly by the New York Fed and others can help. In addition, standardized metrics and indicators can provide insights when assessing changes over time and across firms. The BSB, for example, provides one lens on assessing culture change for a broad cross-section of financial services firms operating in the U.K.11 Each firm participating in the survey has the ability to see its outcomes relative to others and the industry average. This type of industry-wide assessment gives firms insight into areas they can individually focus on, as well as areas they may want to address as an industry. The U.K. is not alone in this approach. | 0 |
Other countries have abandoned the attempt to maintain rigidly fixed exchange rates, and adopted a BIS Review 71/2001 1 combination of domestic monetary management based on an inflation target and a floating exchange rate. Examples include both developed economies, such as the UK and Canada, and emerging market economies, such as Brazil and South Africa. There are arguments for and against both of these approaches. But what is clear is that both in theory and practice there is now a recognition that pegged (fixed but adjustable) exchange rates do not provide a viable long-term middle course. More interesting, perhaps, is the absence of serious debate on the merits of the third position, namely the willingness to forego freedom of capital movements in order to retain domestic monetary autonomy and stable exchange rates. That is perhaps surprising in the light of the experience of the two major countries in Asia that escaped the financial crisis of 1997-98, namely India and China, which had in common the presence of capital controls. The willingness to impose controls on capital movements, at least temporarily, was certainly evident at the Bretton Woods Conference. Mindful of the weakness of Britain's national balance sheet, Lord Keynes, urged on by the Bank of England, argued that there should be no legally binding obligation to make the sterling balances convertible into dollars. | One reaction to these extremely large packages – "bailouts" – and the accompanying moral hazard is simply to say that the official sector should have no part to play in what is essentially a private international capital market. Official lending is now small relative to private capital flows. Over the last three years, private flows have been around 7.5 times greater than official flows, according to IIF data. Against that backdrop, some have argued that the IMF should be abolished. This would be to throw out the baby with the bath water. What is needed is a "middle way" between full IMF insurance and no insurance at all. This middle way would comprise IMF lending but within strong presumptive limits. A key principle underlying this approach is that the international community needs to set out as clearly as possible the criteria that will govern the size and scope of IMF lending. Since most agree that there are limits on IMF lending, there is merit in explaining those limits to both potential borrowing countries and their private creditors. This would enable debtor countries better to plan their policies. It would also allow creditors to assess risk more accurately. Indeed, put more controversially, how can sovereign risk be accurately assessed without clarity about the Fund's role? A lack of clarity about the likely response of the international community to potential crises is a recipe for inaccurate assessments of risk. Such uncertainty would add to the (already high) cost of borrowing by emerging markets. | 1 |
Together, we can raise standards, professionalism and accountability of market participants within the FX market in Singapore and globally. On that note, I hope that you will have good discussions and a fruitful conference ahead. 1 Source: BIS Triennial FX Surveys. 2 By signing the Code, a market participant represents that it (a) supports the Code and recognises it as a set of principles of good practice for the FX market; (b) is committed to conducting its FX market activities in a manner that is consistent with the principles of the Code; and (c) considers that it has taken appropriate steps, based on the size and complexity of its activities, and the nature of its engagement in the FX market, to align its activities with the principles of the Code. 3 The assessment would take into account issues such as the breadth of adoption of the Code, the effectiveness of adherence mechanisms, the extent to which behaviour in the market has changed and the effect of the Code on market functioning. 4 BIS press release, 25 May 2017, “Central bank Governors welcome global code of conduct for currency markets” 5 Source: 2016 BIS Triennial FX Survey. 6/6 BIS central bankers' speeches | Looking forward, roles of Asian banks as intermediary could be diminished on the back of the growing capital markets and shadow banking, which includes not only traditional ones like asset management companies and savings cooperatives, but also more modern ones like crowd-funding and peer-to-peer lending. Capital account liberalization will also lead to asset diversification abroad. Banks’ funding sources are likely prone to be more vulnerable and volatile, with the increasing interconnectedness between banks, non-banks and capital markets. After many years of consolidating our financial systems after the Asian financial crisis, technology could fragment our financial systems in an unprecedented way. Regulatory arbitrage could lead to pockets of vulnerability, particularly in the less-regulated or unregulated areas of shadow banking. Ladies and gentlemen, the need for rapid transformation in Asia is not limited to only banks and financial institutions. Changing technology, changing demographic structure, and changing global operating environment also necessitate that Asian businesses transform themselves to be able to compete in the new environment, where productivity is key. In addition, they need to improve their risk management and immunity to be able to cope with increasing volatility and uncertainties of the modern world. It is also crucial that Asian banks and businesses understand developments in the society at large that could affect their operating environment, chief among these is income inequality. | 0 |
It is thus no exaggeration to say that small IMF Update of World Economic Outlook, January 2010.businesses form the backbone of European economies, including Malta’s. A better understanding by policymakers of this sector and of the constraints it faces, which are often different from those encountered by larger firms, is therefore crucial for the purpose of further expanding the economy’s growth potential. In the current environment characterised by a reduced availability of credit and tighter lending standards, the financing needs of small businesses deserve particular attention. In this regard it is important to recall that SMEs in general, and micro enterprises in particular, are more dependent on the banking sector than larger firms, which have the expertise and the resources to tap the capital market. This is very much the case in the euro area: between 2004 and 2008, banks accounted for roughly 70% of the total external financing requirements compared to just 20% in the US. This critical role of bank credit partly explains the unprecedented liquidity-providing operations undertaken by the European Central Bank since August 2007 designed to sustain the flow of credit to the real economy during the crisis, and the repeated calls by the Governing Council for banks to reinforce their balance sheets so as to be better able to fulfil their responsibility in this regard. The economic environment in the near term The world economy is finally emerging from the most severe recession in recent history. Global output declined by 0.8% in 2009, while trade volumes shrank by more than 12%. | Michael C Bonello: Financing the small business sector – constraints and opportunities Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the European Federation of Ethical and Alternative Banks and Financiers Seminar, St.Julian's, 15 April 2010. * * * The holding of a seminar on credit for small businesses is both appropriate and timely given the important role played by these enterprises in modern, free-market economies and the contribution they are likely to make in the recovery phase as economies emerge from recession. It is perhaps not widely known that of the almost 20 million enterprises active within the European Union (EU) in 2005, 99.8% were small and medium-sized enterprises (SMEs), defined as businesses that employ fewer than 250 persons. 1 In turn, more than nine-tenths of these were micro enterprises, with a workforce of fewer than 10. In 2005 SMEs accounted for 58% of the value added generated in the EU and 67% of all employment, compared to 55% in the US. 2 Small businesses are a major source of dynamism in the Maltese economy too. SMEs constitute the overwhelming majority of businesses, accounting for over 99% of the total and two-thirds of total employment. The vast majority are micro enterprises. These small operations act as customers of, and suppliers to, larger companies and are an essential source of entrepreneurship and innovation. | 1 |
The system of (interest-bearing) minimum reserves has contributed towards smoothing out daily liquidity fluctuations in the money market, whilst the “standing facilities” effectively limit fluctuations in the money market interest rate. The efficiency of this set of instruments can be demonstrated by the fact that the Eurosystem has been able to manage to date without having recourse to any fine-tuning operations in the money market. In fact, developments in short-term money market interest rates have thus far been exceptionally stable and money market rates have been relatively close to the interest rates at which the ECB has provided liquidity through its weekly main refinancing operations. This is a notable success, as is the extremely rapid integration of the money markets in the euro area, in which, since January, temporary interest rate differentials have been rapidly eliminated during the day through arbitrage by active market participants. Initial monetary policy decisions Conditions at the start of the introduction of the euro were favourable, given a rate of inflation of below 2% (measured by the Harmonised Index of Consumer Prices) and moderate monetary growth rates in the two years leading up to the beginning of Monetary Union. However, the outlook in the euro area became increasingly gloomy in the second half of 1998 as a result of the crises in Asia and in Russia, thereby causing inflationary pressure to weaken further. The central banks of the participating countries reacted by reducing short-term interest rates. | Henrique Meirelles: Brazil-Argentina Local Currency Payment System Speech by Mr Henrique Meirelles, Governor of the Central Bank of Brazil, at the Inauguration of the Brazil-Argentina Local Currency System, Buenos Aires, 2 October 2008. * * * It is an honor to attend today the launching of the Brazil-Argentina Local Currency Payments System (SML). I am certain that this initiative will be a watershed in the bilateral relations between the two nations. Coincidentally, the new system kicks off in a period of financial turmoil and liquidity crunch in international trade, in which cooperation among central banks becomes fundamental to facilitate trade and to deepen economic ties. Central banks are responsible for ensuring adequate international payments systems. In processes of economic, financial and trade integration, the objective is to establish an efficient payments structure for intra-regional transactions. When flexible and unobstructed payments systems are available, trade transactions flow with greater ease and lower costs, and financial flows tend to intensify. This is what we expect from the new SML system. Initial obstacles have been overcome. The mechanism of the SML will trigger significant changes in the way in which companies export and import. In Brazil, exporters may now operate in real, while Argentine businesspeople may operate in pesos. Each one of our countries established a consistent framework for management of the system. | 0 |
Or other macro-economic 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 factors may have more than offset their impact in order to keep inflation stable. How the evidence is reconciled could have important implications for inflation dynamics and the setting of monetary policy. 19 All speeches are available online at www.bankofengland.co.uk/speeches 19 References Abdih, Y and Danninger, S (2017), ‘What Explains the Decline of the U.S. Labor Share of Income? An Analysis of State and Industry Data’, IMF Working Paper, No. 17/167. Acemoglu, D and Restrepo, P (2018), ‘Artificial Intelligence, Automation and Work’, NBER Working Paper, No. 24196. Aghion, P, Bloom, N, Blundell, R, Griffith, R and Howitt, P (2005), ‘Competition and Innovation: an Inverted-U Relationship’, Quarterly Journal of Economics, Vol. 120, No. 2, pp. 701-728. Andrews, D, Criscuolo, C and Gal, P (2016), ‘The Global Productivity Slowdown, Technology Divergence and Public Policy: A Firm Level Perspective’, Hutchins Center Working Papers. Autor, D, Dorn, D, Katz, L, Patterson, C and Van Reenen, J (2017), ‘The Fall Of The Labor Share And The Rise Of Superstar Firms’, NBER Working Paper, No. 23396. Baldwin, R (2016), The Great Convergence: Information Technology and the New Globalization, Harvard University Press. Ball, L and Romer, D (1990), ‘Real Rigidities and the Non-Neutrality of Money’, Review of Economic Studies, Vol. 57, No. 2, pp. 183-203. Baquee, D and Farhi, E (2018), ‘Productivity and Misallocation in General Equilibrium’, NBER Working Paper, No. 24007. Barkai, S (2017), ‘Declining labor and capital shares’, London Business School. | 36 All speeches are available online at www.bankofengland.co.uk/speeches 36 Chart 16: Mark-ups and the slope of the Phillips curve Slope of Phillips curve 0.3 0.2 0.1 Estimated increase in global mark-ups 0.0 1.0 1.2 1.4 1.6 1.8 2.0 Mark-up level Sources: De Loecker and Eeckhout (2018), Galí (2008) model and Bank calculations. Notes: Parametrisation such that 𝛽 = 0.99, 𝜃 = 2/3, 𝛼 = 1/3, 𝜑 = 𝜎 =1. Chart 17: Global mark-ups and real interest rates Mark up Per cent 3.5 1 3 1.2 2.5 2 1.4 1.5 1 1.6 0.5 0 1.8 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Laubach & Williams estimate of US natural rate of interest (LHS) Global mark-up (inverted, RHS) Sources: Updated estimates from Laubach and Williams (2003) (available online), De Loecker and Eeckhout (2018) and Bank calculations. Notes: Estimate of US natural rate of interest shown here uses annual averages of quarterly Laubach and Williams estimates. We would like to thank Jan De Loecker and Jan Eeckhout for kindly sharing their series of global mark-ups. | 1 |
The currency played a significant role, both in the build-up to the crisis and during subsequent stabilisation and recovery. The currency crisis materialised in an over 50% depreciation of the króna over the course of 2008. It hit highly indebted corporate and household sectors, a large share of whose debt was either denominated in or linked directly to foreign currency, or linked indirectly to it through price indexation at a time of strong and rapid exchange rate passthrough. The contractionary balance sheet effects of the currency depreciation were therefore substantial. Hence the need to stabilise the exchange rate, which was achieved in the middle of 2009. But the real depreciation – which took the real exchange rate to around 30% below its historical average for a time and left it at the current level of around 20% below that average – compressed imports and provided some stimulus to exports, thus helping to turn a double-digit current account deficit into an underlying surplus. But the stimulus to exports is limited by the fact that Iceland’s major export industries, such as fisheries and energy-intensive metal smelters, face capacity constraints that can only be lifted through investments that have been rather limited so far. 4 BIS central bankers’ speeches BIS central bankers’ speeches 5 A very important and somewhat novel element of the successful policy response was the interplay of fiscal consolidation, monetary policy, and capital controls. The crisis dealt a heavy blow to government finances in Iceland, as can be seen from Figure 5. | We can distinguish between financial, political and administrative elements of accountability. The exercise of accountability requires a system of laws, regulations and codes of conduct. In addition, mechanisms should be established for monitoring compliance and deviations, and institution of corrective measures. Financial accountability, which tends to be the main focus in this context, pays special attention to budgetary processes. It is deemed a necessary condition for good governance; prudent management of public resources; reduced corruption; better delivery of services; and a support to efforts at poverty alleviation. Strengthening financial accountability requires reforms almost across the board, touching on the parliamentary, judicial and administrative structures and modalities of government, and could thus entail a far-reaching revamping of governance systems. Governance and development We may now wish to address some thoughts on the reasons for the recent emphasis on governance in the development discourse. We have already alluded to the relationship between changes in the development paradigm and the evolution of the governance concept. Specifically in the context of World Bank interventions to foster development in the third world, various strategies had been pursued since about the 1960s, but the effort had not yielded the expected results. In grappling with this problem, the perception gained ground that the institutions of the state were fundamental to the development process and the use of aid, hence the “institutions matter” perspective that eventually emerged. The 1989 “crisis of governance” in Sub-Saharan African report was a landmark in this evolution, which triggered the mainstreaming of governance in the Bank’s development work. | 0 |
This is shown for the UK in Chart 14. The crisis has tended to reinforce these trends. Unemployment among the highly-skilled rose less during the crisis (Chart 15). With employment growth strong (Chart 14), unemployment within the highly-skilled sectors has returned to close to pre-crisis levels. By contrast, unemployment rates among the mid-skilled rose by more during the crisis (Chart 15). In keeping with pre-crisis trends, employment has contracted (Chart 14). Meanwhile, for the lowest skilled the picture is more nuanced. While suffering most during the crisis, they have also benefitted from rapid rises in employment during the recovery (Chart 14). In principle, these patterns of employment ought to have been reflected in real wages. We might expect wages to have risen at either end of the skill distribution, but potentially to have stalled for the mid-skilled. There would have been a “hollowing out” of wages, but the aggregate wage distribution ought to have been relatively static. In practice, the distribution of wages has not been static; it has widened over the past 20 years (Chart 16). In the late 1990s, wages for the top 10% of earners were around 6.5 times higher than the bottom 10%. Today, the figure is closer to eight. Or, put differently, in the decade prior to the recession, real wages for the top decile rose on average by 3% per year, while for the bottom decile they rose by around half that. Since the crisis, there has been an across-the-board squeeze on real wages (Gregg et al (2014)). | This is what I intend to talk about today. What should we consider when we evaluate monetary policy? What are the principles for a good 1 The evaluation of monetary policy in New Zealand and Norges Bank Watch 2002 are available on my website: www.larseosvensson.net. BIS Review 29/2009 1 evaluation of monetary policy and what is practically possible? How can principles and practice be developed compared with how evaluations are carried out today? Here I present a number of preliminary proposals for such development. Why not just examine whether inflation deviates from the target? An increasing number of central banks focus their monetary policy on achieving an inflation target. My discussion today will therefore be about evaluations of monetary policy with an inflation target. Given this, you may ask why an evaluation of monetary policy should be so complicated. When there is an inflation target, is it not simply enough to compare the actual outcome for inflation with the inflation target; that is to evaluate monetary policy after the fact? There are at least two circumstances that make such an evaluation inadequate. Unforeseen shocks affect outcomes First, monetary policy does not provide complete control over inflation. A central bank is therefore unable to ensure that inflation will be exactly on target at every point in time. In actual fact, monetary policy is conducted under conditions of great uncertainty. | 0 |
They raise the risk that future shocks to domestic confidence or adverse changes in the external environment could lead to new pressures on exchange rates, on interest rates, and on the capacity of countries to fund themselves on sustainable terms. Apart from the risk of crisis, these debt levels are large enough to depress domestic investment and long-term growth prospects. In part because of these balance sheet and debt burdens, many emerging market economies face a protracted transition before they can expect to be comfortably considered stable investment grade credits, with sufficient levels of self-insurance against external and domestic challenges to financial stability. One of the most pressing challenges for the Fund is to help assist in this process of reducing vulnerability, by promoting an unwinding of these large balance sheet risks and, at the same time, providing a credible form of contingent insurance for those hopefully rare circumstances when its members face extraordinary financing needs. The Fund would be better able to contribute to this process if it were to strengthen its policies in a number of specific areas. My suggestions cover four types of reforms: changes to the substantive focus of Fund policy advice; to the relationship between the Fund and its members in the surveillance framework; to the Fund’s approach to countries undertaking a debt restructuring; and to how the Fund uses its financial resources. | Jointly with several countries in the region, we were positioned in the group of efficiency enhancers, meaning that reforms must be intensified to increase the growth efficiency and quality. Increasing the technological readiness was one of the identified priorities. Thus, in the last decade, the Macedonian productivity level has been staggering to around 40% of the level of advanced economies, such as German economy. This clearly points that if we want to grow at stronger pace and in a more sustainable, green and inclusive way, we need to continue intensively addressing the structural hurdles for the key long-term determinants of the growth: labour, capital and productivity. Let me focus on productivity. At this point, I think I can bring in the highlight of the latest Transition Report, i.e., innovation and digitalisation of the economies. The adoption of digital technologies can unleash productivity revival and possibly counteract some forces that act as drag on growth, such as adverse demographic and emigration trends that dampen the labour supply. What is the pace of digitalization of the Macedonian Economy? The new EBRD digitalization index points to a progress in both segments that are captured by the index – first, the preconditions for the use of digital technologies (digital infrastructure, skills, regulation, provision of government services), and second, the actual use of digital technologies by individuals and companies. The progress is particularly visible in the area of regulation and provision of government services, where score has more than doubled. | 0 |
Mr. Erçel explains developments in the Turkish economy that help in understanding the country’s market opportunites Speech by the Governor of the Central Bank of the Republic of Turkey, Mr. Gazi Erçel, on the occasion of the Conference on “Private provision of infrastructure in Turkey” held at Çiragan Palace in Istanbul on 3/4/97. For a comprehensive understanding of the opportunities offered by Turkey’s market, I should stress the implications of our journey toward liberalisation. In 1980, with world conditions changing and the domestic economy in crisis, Turkey launched a structural adjustment program based on free market principles and an outward-looking economic policy. Since then, a series of liberalisation measures have been taken. The most significant accomplishment of the Turkish liberalisation process is that it has restructured economic relations. Both the financial system and the foreign exchange system have been liberalised. Before discussing Turkey’s economic performance, I would like to describe some features of our foreign exchange system and financial system. Let me begin with the foreign exchange system. Efforts to liberalise Turkey’s balance of payments go all the way back to the Great Depression, and ever since the 1930’s, the issue has been whether to liberalise the current account or the capital account. Now these questions have been settled. Let me summarise the state of the foreign exchange regime under five headings: 1. Residents are permitted to buy, sell, and use foreign exchange freely. 2. | In addition, the return of the Istanbul Stock Exchange, though volatile, increased substantially this year. Market volatility creates liquidity and great trading opportunities. When I talk about money markets I mean the Turkish lira money market and the foreign exchange cash and deposit market, open market operations, and government securities auction markets. These markets, which were introduced as a part of the financial sector reforms, have increased the effectiveness of the central bank’s control over the liquidity in the financial system, and increased the role of market mechanisms in money management. When market mechanisms began to play a larger part in the allocation of resources, the responsibilities and instruments of the central bank also changed, bringing the issue of central bank autonomy onto the agenda of the Turkish economy. Turkey now has a well established and efficient system of financial markets. The main obstacle at present to the functioning of the financial markets is our large public sector borrowing requirement, which crowds out other demands for financing. The inability of domestic resources to cover the financing needs of the public sector has kept real interest rates very high for over a decade. Bold privatization efforts, broadening the tax base, and reforming the social security system are the best ways to correct this situation, and I may say that they are all under way. Macroeconomic stability and political stability are the keys to achieving sustainable growth in a low inflation environment. BIS Review 42/1997 | 1 |
Firstly, in line with existing practice for the credit, compliance and treasury functions, key personnel in other critical functions will also be required to acquire the appropriate specialised qualifications to better equip themselves in performing their respective functions. For example, staff who are involved in the development of internal models or those that carry out penetration testing to address cyber threats shall undergo specialised training and certification in the relevant fields to ensure effectiveness in discharging their role. To ensure smooth implementation, the industry is expected to work with AICB and the regulators to jointly develop the curriculum and a working timeline for implementation. 2. Secondly, to ensure that adequate attention is accorded to quality training and human capital development, the Bank will extend its supervisory oversight to review the quality of staff training expenditure. Capacity and capability development will be reinforced through qualification-based training and certification provided by professional bodies such as AICB. In this respect, the Board of financial institutions shall devise appropriate incentive structures to promote such programs by according appropriate weightage in the performance appraisal of senior management, including the chief executive officers. 3. Thirdly, I wish to lend my support to a proposal, that sometime into the future, all reporting submissions made by banks to Bank Negara Malaysia are to be undersigned by a Chartered Banker. This practice is not new. It is akin to the insurance industry where qualified actuaries are required to certify certain submission to the central bank. This idea came from a senior banker amongst us. | With this requirement, my wish is that it will provide an impetus to the attainment of the chartered banker qualification. Second is Character. If competence represents the ‘head’ of a professional banker, then character must surely be the ‘heart’. Over the last decade, the ethical scorecard of the financial sector was blemished by irresponsible risk-taking and opaque practices of bankers in the lead up to the global financial crisis. Ethical lapses and conduct failures in more recent years have compounded matters. Far too often, we witness the rise of bankers who are highly competent but ethically deficient. Worse, we allow and tolerate such practices. This is unsustainable. It also tarnishes the reputation of the many who spent their lifelong careers in the industry, and who hold the profession with great dignity and regard. Another principle worth attention in the Hippocratic Oath is the adage, “Do no harm”. There is a lot of richness in this ethos. It is worth emulating. Considering that consumers come into contact with banking personnel far more frequently than they visit their doctors, one may even argue a higher expectation ought to be applied for the banking industry. The Bank has actively worked towards reinforcing this objective over the years. The Bank believes that when the right set of fundamental principles is followed, it can positively shape the 2/4 BIS central bankers' speeches actions and behaviour of people. Therefore, the Bank, in consultation with the industry, is due to publish five universal ‘Principles for a Fair and Effective Financial Market'. | 1 |
But countries are staring down the barrel of increasing expenditures and decreasing revenues… Countries will experience a deep recession that will have an impact on their public finances. This will entail greater funding needs, of between € trillion and € trillion, an amount the likes of which we’ve probably never seen before. They will also issue public debt to finance themselves, which is precisely why the ECB’s intervention in the bond markets aims to avoid fragmentation at an extremely difficult time. The ECB balance sheet is overflowing with debt from euro area countries. Where will this end? Is it possible that in the future this debt could be forgiven or written-off? Debt levels in the euro area are sustainable and when this crisis is over, economic conditions will get back to normal. We are not looking at any scenarios where this debt is a problem. It’s not a scenario I’m considering. Nevertheless, EU institutions are going through a severe crisis as they finance the cost of the pandemic. At the most recent EU summit and last Eurogroup meeting, we saw unprecedented clashes involving EU founding members, such as Italy. Europe currently has three main instruments at its disposal. First, the EIB guarantee fund that I mentioned previously, with € billion made available to provide support of up to € billion. | In periods of zero interest rates, such purchases help to counter the risk of deflation. The Swiss economy faces an exceptionally difficult year in 2009. Economic activity is set to pick up again gradually over the course of 2010, thanks to the extremely expansive monetary policy. This is, however, conditional upon an economic recovery by our main trading partners, as well as a return to stability on financial markets. The SNB measures are also aimed at reducing the risk of deflation in Switzerland. Despite the creation of massive amounts of liquidity, the SNB remains committed to ensuring price stability in the future. We will use all means at our disposal to reduce liquidity again in good time, so as to prevent any upsurge of inflation in Switzerland once the crisis has ended. BIS Review 33/2009 1 | 0 |
References Bernanke, Benjamin S. 2006, "Global Economic Integration: What's New and What's Not? ", Speech held at the Federal Reserve Bank of Kansas City's Thirtieth Annual Economic Symposium, Jackson Hole, Wyoming, August. Coeuré, Benoit, 2007, "Faut-il Avoir Peur Des Fonds Souverains? ", forthcoming, Les Cahiers, Le Cercle des économistes. Cox, Christopher, 2007, "The Role of Governments in Markets". Speech at Harvard on 24th October 2007 (http://www.sec.gov/news/speech/2007/spch102407cc.htm). Genberg, H., McCauley, R., Park, Y. and Persaud, A. 2005, Official Reserves and Currency Management in Asia: Myth, Reality and the Future. London, Centre for Economic Policy Research. Gourinchas, Pierre-Olivier and Olivier Jeanne, 2007, Capital Flows to Developing Countries: The Allocation Puzzle, CEPR Discussion Paper No. 6561. Hildebrand, Philipp M., 2007, Hedge Funds and Prime Broker Dealers: Steps towards a best practice proposal, in: Banque de France, Financial Stability Review – Special issue on Hedge Funds,” No. 10, April. International Monetary Fund, 2007, Global Financial Stability Report. Washington D.C. September. Johnson, Simon, 2007, "The Rise of Sovereign Wealth Funds, Finance and Development, September 2007, Volume 44, Number 3, International Monetary Fund. Jones, Matthew T. and Maurice Obstfeld, 2000, "Saving, Investment, and Gold: A Reassessment of Historical Current Account Data", in Calvo, Guillermo A., Rudiger Dornbusch, and Maurice Obstfeld, eds., Money, Capital Mobility, and Trade: Essays in Honor of Robert A. Mundell, Cambridge: MIT Press, 2000. 8 BIS Review 150/2007 Lowery, Clay, 2007, "Remarks by Acting Under Secretary for International Affairs Clay Lowery on Sovereign Wealth Funds and the International Financial System", June 21st, San Francisco. | Population ageing, by increasing the relative supply of savings, explains most of the fall across several advanced economies. A low or even negative natural interest rate poses new challenges for stabilisation policies. The lower bound on the nominal policy interest rate may more frequently be binding, and not just in episodes of acute crisis. This leads to the conclusion 3/5 that non-conventional monetary measures may ultimately be used more frequently than originally expected. In addition, many emerging economies face the gradual tightening of global financial conditions in a context of slowdown in their economic activity. In particular, this context is especially challenging for the economies that receive capital flows. In these cases, economic authorities must foster a stable macroeconomic environment and sound institutions that attract permanent capital flows. The widespread scant room for manoeuvre for the traditional stabilisation tools we have witnessed calls for the development of other policies to relieve monetary policy of the excessive role it has played post-crisis in maintaining financial stability. One of the lessons of the crisis is the importance of including new instruments in the policy toolkit, namely macroprudential policy. Therefore, it is essential to identify risks and vulnerabilities to the economy that may stem from the financial system affecting the real economy or vice versa. In any event, it is of paramount importance to develop the appropriate macroprudential instruments covering both bank and non-bank financial intermediation to tackle these risks in order to have a stable financial system with countercyclical buffers that support sustained economic growth. | 0 |
Let me address them in turn. The accounting treatment in many jurisdictions allowed such instruments to be reported offbalance sheet. Furthermore, different valuation methods were used to estimate the risks attached to these transactions. Hence, information was either completely unavailable or incomplete and, even if available, it could not be compared across the sector and jurisdictions owing to different accounting assumptions and valuation methods. It was thus of little value to regulators and supervisors. In addition, financial innovation and strategies that were intended to limit risk – especially securitisation and insurance through derivative products – dramatically increased the complexity of the financial system. Unlike organised markets, such as stock exchanges, which were tightly regulated to protect against market abuse, insider trading, and other transgressions, and were required to disclose information on prices and orders, over-the-counter markets were not. At the height of the crisis, neither market players nor public authorities could monitor the market for corporate credit-default swaps. Hence market participants were unable to evaluate the counterparty risk appropriately. Risk mitigation failed, which ultimately resulted in a drying-up of the whole market. Since that time, many jurisdictions have implemented regulatory frameworks ensuring that counterparties report OTC derivatives trades to trade repositories. In Europe, all derivatives contracts, not only OTC derivatives, are subject to this reporting obligation. In the United States, the reporting and public dissemination of publicly reportable swap transactions in all asset classes is already effective. | It is thus an important responsibility of a central bank to ensure that relevant new insights from academic research find their way into the actual conduct of monetary policy. The Eurosystem attempts to cope with this responsibility by fostering a constant intellectual exchange with the research community. The ECB organises great many seminars, conferences and workshops where the most recent research findings can be discussed, and invites leading scholars to visit and conduct research in the ECB, for example by means of the Wim Duisenberg Fellowship. Moreover, the ECB supports promising young researchers by funding five Lamfalussy Fellowships each year. The aim is to promote policy-relevant research that meets the highest academic standards. The ECB also leads and co-ordinates research efforts through Eurosystem research networks to obtain research output which is necessary for ECB decision-making but which is as of yet unavailable at universities or other research institutes. I will come back to activities of one such research network at the end of my remarks. Research by Nicholas Bloom analysing the effects of uncertainty shocks on the economy is a prime example of a policy-relevant research output. Published in Econometrica in 2009, it could not be more timely.1 The unprecedented level of uncertainty has been one of the key distinguishing features of the Great Recession. Economic uncertainty refers to an environment in which little or nothing is known about the future state of the economy. | 0 |
19 This is not to suggest that Gallatin was opposed to government-sponsored infrastructure projects. Indeed, in 1808, he presented the Gallatin Report on Roads and Canals. As he put it at the time, the vision of roads and canals to link up the young nation “could not be left to individual exertion.” 20 The federal debt stood at approximately USD 83 million when Gallatin took office in 1801. By 1808, Gallatin had succeeded in reducing it to USD 57 million, including the extra USD 15 million added by the Louisiana Purchase. United States nominal GDP has been estimated at approximately USD 520 million in 1800 (see Susan B. Carter, Scott S. Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright (eds. ), Historical Statistics of the United States, Volume Three: Economic Structure and Performance. Cambridge University Press, New York NY, 2006). Hence, almost doubling the size of the United States through the purchase of the Louisiana territory from Napoleon in 1803 cost approximately 3% of the GDP of the existing territory. 21 Balinky, op.cit., for example, comes out strongly against Gallatin’s debt reduction strategy, arguing that it was a narrow-minded and short-sighted fiscal policy for a country in need of economic development. 22 More precisely, the United States debt-to-GDP ratio was reduced by an estimated 56 percent between 1801 and 1808. This estimate is based on nominal GDP estimates for the US in the early 1800s provided in Carter et. | With the world economy now beginning to catch a cold from the slowdown in the US economy, the quality and competitiveness of our exports means that our companies are better equipped than others to hold their own in the global marketplace. Foreign trade not only represents Switzerland's growth driver, but it is also our friend when economic times are hard. BIS Review 45/2008 1 | 0 |
In the US, for example, public debt increased by $ trillion from the end of 2008, with the ratio of public debt to GDP rising from about 74% to the current 100%. Another striking example was Japan where the public-debt-toGDP ratio surged from an already precarious level of around 190% in 2008 to almost 240% in 2012, and is expected to rise even further to over 250% by 2020 along with still more fiscal stimulus under “Abenomics”. In terms of private-sector debt, while the US and the UK underwent more significant private-sector deleveraging, most European countries showed little progress on the reduction in private-sector indebtedness. The weak peripheral countries aside, even in core countries like France, the private non-financial sector debt ratio increased sharply from about 200% of GDP at the end of 2008 to 230% of late. 7. There are many narratives on why this trend of rising indebtedness has occurred. Perhaps the financial “deepening” had made credit much easier and cheaper for many households and corporates to obtain. Or, financial innovation in the form of securitisation and financial derivatives, such as CDS and CDOs, enabled leverage to be amplified and distributed throughout the financial system and beyond. But, the cause of this alarming trend is not the issue. The point I wish to make is that most people had become insensitive to the excessive levels of indebtedness and leveraging, and the resulting imbalances and vulnerabilities that had built up prior to the Global Financial Crisis and the European Sovereign Debt Crisis. | Those discussions have included both the development of a global liquidity contingency plan and a plan to reduce the risk profile of or “derisk” the financial firm by winding down or selling business operations or financial assets. The intention is to have recovery plans, as well as resolution plans, in place by the end of 2011. Recovery planning has several important benefits. The first is to bring about a discussion of the firm’s response to very severe stress scenarios. In addition, the principal supervisors of the firm are present together with the firm to discuss the plan as it evolves, contributing to a common base of understanding of the firm among the supervisors. The second benefit is the identification of impediments to the firm’s recovery. In our discussions with U.S. institutions, four important impediments have surfaced and the same themes, all familiar concerns for supervisors and resolution authorities, have surfaced in other discussions led by members of the Cross Border Crisis Management Group. The difference this time is that the issues are being raised by the firms themselves. The first is the availability of sufficient financial information by legal entity. It begins with simple housekeeping – records that accurately record the legal entities of both the firm and the customer involved in a financial transaction, an asset holding or a liability. | 0 |
Advantages and disadvantages of a higher inflation target The most obvious advantage of raising the inflation target to, say, 3 or 4 per cent would be that this increases the possibilities to stimulate the economy in future deep recessions and to bring up demand and inflation. The experience of the financial crisis shows that the risk of very deep and prolonged recessions has previously been underestimated. Prior to the financial crisis the risks of deep economic crises were assessed on the basis of experiences during the post-war period, when cyclical fluctuations were small and it was thus easy to underestimate the risks. If one studies economic data extending much further back in time, one can see that large downturns have been much more common. At the same time, there are several factors that make raising the inflation target problematic, not least how the actual transition to a new inflation target would be implemented. For instance, the credibility of a new target would be weakened if it were announced in a situation where inflation was far from the old target. It could also be problematic to introduce a new, higher inflation target in Sweden in isolation, if other important central banks around the world stood firm by a target of 2 per cent. Swedish competitiveness could be weakened, for instance, if inflation and wage increases in Sweden were higher than those abroad. In theory, the Swedish krona should weaken in this situation, so that competitiveness would be restored. | Beneath the surface of these encouraging macroeconomic data, there is - and has been for some time a serious imbalance, with some parts of the economy doing very well (including many of the services sectors and some manufacturing activity) while other parts of the economy (including much of agriculture, many manufacturing businesses and even other services sectors such as inward tourism) face the toughest business conditions that many of them can remember. To take just manufacturing, total output has risen by only 2% over the past two years, and it has actually fallen by 0.9% if you exclude the so-called “high tech” sectors (ie computers, office and telecommunications equipment and electronic components). Total employment in manufacturing has fallen over that period by some 230,000, of which 200,000 were outside the “high tech” sectors. For what it’s worth there is a similar imbalance in the US, where total manufacturing has increased by 10½% over the past two years, but by only about 1½% similarly excluding the hi-tech sectors; total employment in US manufacturing has fallen by some 435,000, but by nearly 600,000, outside the “high tech” sectors. There is no single explanation for these developments. They result partly from continuing and unavoidable long-term structural adjustment of capacity to market demand; it results also partly from the effect of increasing global economic integration, inducing the relocation of manufacturing capacity in response to shifts in comparative productive advantage. | 0 |
There are no insolvency laws or bankruptcy forum to address sovereign solvency problems, and IMF attempts to do so during the last decade failed, for several reasons. What is clear is that in the case of an insolvent sovereign, further official finance can only be provided when that sovereign restructures its debts and, at the same time, undertakes serious and credible domestic fiscal adjustment and structural economic reforms.5 3 See US Treasury Secretary Rubin, 1998. 4 The results of the simulations have to be viewed with caution since they are sensitive to the quality of the underlying data and the assumptions used in the exercise. 5 See, for instance, Roubini, 2002. 2 BIS central bankers’ speeches The third feature that generally sets sovereign and corporate debt workouts apart is the externalities they may generate. A debt restructuring of a sovereign may have severe implications, both for the debtor’s and the creditor’s economies. Most of the experience in this area has involved less developed countries. In these cases private sector involvement has largely been a concern for foreign creditors. Taxpayers in creditor countries were affected, depending on the size of the exposure of their respective financial system and on whether the soundness of that system was jeopardised. Measures have been used in the past to try to reduce this impact, in particular through regulatory forbearance. One example is the prudential measures which, during the 1980s, permitted US banks to book Brady bonds at their nominal value. | However, experience has shown that when a country requests such assistance, the national authorities tend to blame European institutions, including the ECB, for having pushed them to do so. “Europe” thus becomes a scapegoat and this may fuel strong – although unjustified – anti-European sentiment in the countries concerned. So governments have a natural inclination not to request financial assistance at an early stage. The second thing that has gone wrong has been the implementation of the Greek programme of reforms. Reform fatigue set in at an early stage and it probably went unnoticed for a while. Member States adopting IMF/EU programmes have to remain firmly committed to very specific measures, which need to be acted upon from the outset. Monitoring has to be strengthened. I will not elaborate on these two first issues but – being here in Berlin today – I would like to focus on the third issue which has not gone well, in my opinion, namely the whole discussion about private sector involvement. The point I would like to make is that having the private sector actively involved in preventing and resolving sovereign crises is a good idea. However, the practical implementation of this idea is fraught with complications and, if done unwisely, may actually be very damaging, and turn out to be more costly for taxpayers. The events of recent months seem to confirm my views. | 1 |
This will support the banking sector’s ability to make long term sustainable business plans into the future. In fact, central bank governors and heads of supervision indicated that they are committed to not significantly increase overall capital requirements across the banking sector. In the euro area, the situation in the banking sector now is very different from what it was in 2012. Perhaps most importantly, euro area banks have significantly strengthened their capital positions over the past few years, notably as a consequence of the Comprehensive Assessment conducted in 2014. For significant institutions, the CET1 ratio has increased from around 9 to 13%, making them more resilient to adverse shocks. In addition, the quality of the banks’ capital has also been substantially improved. With the 2015 Supervisory Review and Evaluation Process (SREP), the ECB has outlined the steady-state Pillar 2 supervisory capital requirements. This means that, all things equal, capital requirements will not be increased further. Hence, the banking sector can now conduct much better capital planning. Moreover, in 2015, the banks under ECB supervision further increased profits relative to 2014. This allows banks to have appropriate distribution policies while still meeting regulatory capital requirements and buffers, and to support lending to the economy. In addition, the ECB’s monetary policy actions continue to support banks’ financing conditions and, more broadly, economic activity. Clearly, some parts of the banking sector in the euro area still face a number of challenges. | But in practice we tend to say that there are prices that are beyond the control of monetary policy, that are somehow disconnected from the conduct of monetary policy, or that are “completely different”. Real estate prices, asset prices etc. Interesting, isn’t it? And conversely, in practice we know what financial instability looks like and what it is. But in theory we haven’t created a rigorous operationalised theoretical system for achieving financial stability, or even for defining financial stability. There is no single, universally accepted definition of financial stability, as quantifiable as the definition of price stability. And what is worse, many believe there will never be one. Again, quite interesting. So this, in my eyes, is the first constraint we face. At least in the area of financial stability, theory lags behind practice. Inflation targeting is a formalised, practical and handy system, while “financial stability targeting” is not, despite huge steps forward recently. And I can’t resist dreaming of a day when we have a system in the financial stability area that is as operationalised as inflation targeting. After all, back in 1978, the U.S. economic historian Charles Kindleberger, in his now classic book “Manias, Panics, and Crashes: A History of Financial Crises”, pointed out that financial upheavals had virtually always been preceded by credit booms, property price and asset price booms and increased leverage in the financial system. All these are, in a sense, monetary phenomena. So why couldn’t we go further here as well? | 0 |
What the typical student expects from higher education in terms of quality will increase once he or she is contributing to its financing, and higher expectations are known to be one of the drivers of an improvement in standards. Anyone who perceives something sinister in these proposals might look up a recent study by economist Andre Sapir. Using a fairly well-established typology, Sapir grouped the EU15 into four main social models, the Continentals, Nordics, Mediterraneans and the Anglo-Saxons, and then estimated the efficiency and equity of each. He shows that there does not need to be a trade-off between efficiency and equity. Just as importantly, however, he underlines that efficiency is always necessary for sustainability 3 . How do other countries approach this challenge? The experience of Singapore, which is twice as well off as Malta on a per capita GDP basis, is instructive. There, undergraduate education is heavily subsidized by the government, but the remaining cost is borne by the student. The student’s annual contribution ranges from the equivalent of Lm1,300 for an engineering degree to Lm3,800 for a medical degree. There are, however, means for the student to finance this co-payment through borrowing from the Central Provident Fund. This is a social security savings plan funded by contributions from employers and employees, and which go into three accounts. Let me mention two of them. One is the Ordinary Account, which can be drawn upon to pay for the family’s educational expenses, or to buy a house. | (2) Up to 25 March 2008. Sources: Central Bank of Chile based on a sample of investment banks (IB), Consensus Forecast and International Monetary Fund. WTI oil price $ 2008 (f) 2007 2009 (f) Jan. MPR 93 Mar.08 Jan. MPR 88 Mar.08 DoE (11 mar) Deutsche Bank (07 mar) JP Morgan Chase (14 mar) Scotiabank (14 mar) Lehman Brothers (29 feb) Barclays (19 mar) 87 80 70 90 82 75 65 -- 87 94 85 82 95 86 101 -- 86 80 75 95 78 -- Goldman Sachs (04 mar) Merril Lynch (19 mar) 97 76 97 102 -- --- IB's Mean (1) 83 90 74 83 97 97 -- -- Central Bank of Chile Actual Mean (2) 72 (1) Excludes Goldman Sachs and Merrill Lynch. (2) Up to 24 March 2008. Sources: Central Bank of Chile based on a sample of investment banks (IB), Consensus Forecast and International Monetary Fund. We are in the presence of a significant relative price shock. The relative price of foodstuff and energy has changed in a number of countries. Given the persistency of these international relative prices changes, domestic prices are adjusting accordingly, giving the appropriate signals for resource reallocation. Chile is an interesting case in this respect. | 0 |
A recent innovative arrangement introduced this year is the risk-sharing arrangements between the government and banks to provide opportunities for the lower income and younger segments of the population to own homes and thus accumulate wealth at an earlier age. Another important form of wealth accumulation is the collective investment schemes such as unit trusts. The pooling of savings provides economies of scale, access to professional investment managers, as well as a diversified investment portfolio. In Malaysia, this was initially promoted through the establishment of government sponsored national savings scheme (Amanah Saham Nasional). Participation of the average household has now paved the way for the growth in the private unit trust industry. The formation of such national savings schemes has also contributed to the development of an institutional investor base in Malaysia that has been able to mobilize substantial volumes of savings. The mobilization of these funds provides the potential for funding of businesses and the corporate sector and for project financing including for infrastructure development. As SMEs and micro enterprises form the majority of business enterprises in most countries, and as they contribute significantly to GDP, employment and wealth creation, efficient access to finance is critical. The Malaysian experience to address this has been the establishment of the Credit Guarantee Corporation to assist viable SMEs with inadequate track record to access financing by providing guarantees and credit enhancements for SME financing. The credit evaluation is carried out by banks, and by the CGC. | Zeti Akhtar Aziz: Innovative financing for transformation Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Langkawi International Dialogue 2011: Innovative Financing for Transformation, Putrajaya, 19 June 2011. * * * The world is transforming. Our motivation for accelerating our own pace of transformation is to ensure that we will be able to effectively participate in this new economic and financial environment, and in the process, maximize our potential performance. Central to this is having a well functioning financial system and the right financial policies. The recent financial crisis in the developed world has shown that when things have gone wrong in the financial system, the consequences have been catastrophic. Instead of creating wealth – it destroys wealth, instead of generating employment – it results in job losses, instead of facilitating economic progress – it derails growth and development. It is my great honour and pleasure to speak at this 2011 Langkawi International Dialogue on Innovative Financing for Transformation. The overarching objectives of economic transformation is surely to generate sustainable and balanced growth, to improve living standards, to create employment opportunities and to achieve a more inclusive development. This decade has however seen how innovative financing in several of the developed economies have fuelled excessive levels of leverage that have resulted in deeply indebted private and public sectors, which in turn have become highly destabilizing to their financial systems and to their economies. | 1 |
Nevertheless, for many observers, Switzerland remains a tiny spot on the European map, a country of 7.5 million inhabitants completely surrounded by the European Union whose population has already grown to several hundred million. Our geographical position obviously puts the question of joining the European Union squarely in the centre of often heated debates. For our economy, however, the real challenge is not to become more European, but to open up further to global markets. Today, Switzerland is more than merely a quaint little country for tourists; it is not only home to watchmakers and bankers or trains that run on time. This cliché is a thing of the past. Switzerland today is a global production platform with 4 million jobs within its borders and 1.8 million people working in Swiss companies abroad. This ratio is unique for an industrialised country. It is the result of a long tradition of Switzerland’s presence abroad. We are all familiar with the big names in our industry which, as early as the beginning of the last century, courageously invested abroad with the goal of conquering new markets. Switzerland’s identity in the world has often been better perceived through the activities of the International Committee of the Red Cross and through our big companies, rather than through diplomacy. The internationalisation of the Swiss economy has not slowed down in recent years - on the contrary, it has amplified. Let’s look at the figures: 20 years ago, our current account surplus, i.e. foreign investment, accounted for 5% of Swiss GDP. | In this respect, the exceptional stimulus measures announced by the ECB and the consequent easing of financial conditions in the currency area, the depreciation of the euro and the sharp drop in oil prices provide a favourable financial backdrop for the euro area and, in particular, for countries like Spain that have made a tremendous effort to correct their imbalances. The benefits of the adjustments made under adverse conditions may now be further bolstered by a favourable financial climate. It is important that the Spanish economy consolidate these gains and that it maintain the pace of reform and the improvements in competitiveness in a framework of stability. BIS central bankers’ speeches 3 | 0 |
Accordingly, much of the burgeoning fiscal deficit that emerged during the crisis is eminently structural. And correcting this means the unavoidable adoption of a far-reaching budgetary consolidation process that bears down precisely on the most permanent and inertial components of public spending. This process is all the more urgent given the seriousness of the repercussions of the Greek fiscal crisis and the pressing need to halt the deterioration in the perception of Spanish public finances. Indeed, the worsening of the fiscal crisis in Greece has substantially altered the conditions governing the design and execution of a fiscal consolidation programme. Systematic and substantive non-compliance with the commitments acquired by the Greek authorities in respect of public finances, added to a repeated lack of informative transparency, resulted in a strong loss of confidence by the markets in the Greek government’s capacity to meet its payment commitments. That gave rise to a completely new situation and, what has finally proved most telling, one not foreseen in the institutional arrangements underpinning the euro area: the perception of a potential risk of insolvency of one of its members. This lack of foresight translated into difficulties in promptly setting up a sufficiently forceful institutional response. These difficulties were clearly identified by the markets and meant that the specific risk of insolvency of a Member State rapidly turned into a systemic risk for the whole of the area. | We have thererfore today decided to continue our expansionary monetary policy, maintaining all of the measures we implemented on 12 March. Inflation forecast chart How has our inflation forecast been revised? The dashed red curve on the chart represents the new forecast. It covers the period from the second quarter of 2009 to the first quarter of 2012, and maps the future development of inflation on the assumption that the three-month Libor remains unchanged at 0.25% over the forecasting period. For purposes of comparison, the dash-dotted green curve shows the inflation forecast of the March monetary assessment, which was also based on a three-month Libor of 0.25%. The new forecast still shows negative inflation for 2009, but with a very slight adjustment upwards. This is explained by the recent upturn in prices of fossil fuels and of commodities in general. However, as an average for the year, inflation will remain negative, at an unchanged rate of -0.5%. In 2010, inflation is likely to return to slightly positive rates and could be a little above the figure forecast in March. This is due to the fact that although domestic inflation is falling it will still amount to around 1% at the end of the year while imported deflation recedes more rapidly. Finally, for 2011, the new forecast shows that inflation will accelerate a little at the end of the forecast horizon if the Libor remains at a level as low as that being aimed for at present. | 0 |
Furthermore, the response of yields to a given quantum of asset purchases seems to vary. There are times – particularly in periods of stress in financial markets – when government debt is viewed in markets as a relatively poor substitute for central bank money, and QE is therefore more powerful. At other times it’s less so. If you also believe that markets (and therefore market prices) embody any impact of QE or QT expected to occur over the future, a forecast conditioned on those prices will also capture its effects. This is why it would not make sense, I think, to include in the MPC’s forecasts some separate and additional drag from the ongoing (and pre-announced) QT. That would be to doublecount its impact. All this said, there will certainly be times when movements in broad money are identifiably more supply than demand-led. The jump in household deposits during the pandemic may not have been the inevitable result of QE but, from the perspective of households, it certainly looks like a windfall addition to their money holdings (i.e. something closer to Friedman’s “helicopter drop”). One might have expected an extra boost to spending whatever the form of these additional assets. But the MPC certainly allowed for a somewhat larger effect because of their liquid nature. In the event, that forecast was too strong. Even before the squeeze on real incomes from the subsequent jumps in import prices, consumer (and aggregate) demand was weaker through 2021 Page 30 than the MPC projected. | As a result the demand for (broad) money rose alongside its rising supply – “velocity” declined, if you prefer – and the rate of M4 growth consistent with on-target inflation was significantly higher than 2%. These were deposits accumulated not as a “medium of exchange” but as a “store of wealth”. What those years also demonstrate is that commercial banks can supply and create such deposits with any commensurate growth in the balance sheet of the central bank. QE is neither necessary nor sufficient for broad money to expand. To take a more recent example, it’s not clear that the jump in household deposits during the pandemic was the direct and inevitable result of the central bank’s asset purchases at that time. If that were true one would presumably have expected to see something similar after every other previous episode of asset purchases. That’s not the case. For me, the more plausible cause is the combined impact of severe restrictions on spending and, thanks in part to fiscal support (in the shape of the furlough scheme), continuing growth in household income. At least in the first instance the resulting jump in saving had nowhere to go but into household deposits. More generally I think it’s better to understand the impact of QE through the lens of asset prices – what it does to bond yields – than quantities (still less as “printing money”). As with commercial banks, the demand for central bank money can change (sometimes very abruptly). | 1 |
The changes came into force on 1 January 1999. 1 [13] In a moment I will look more closely at the new environment and discuss a few properties that characterise it and that monetary policy will need to relate to going forward. Lastly, I also intend to provide an overall picture of what might characterise the way forward. But before doing that, allow me to say something about what has brought us here. Where we are coming from I spoke earlier about 2018 being a year of celebration. Another anniversary, but one which does not give cause for any kind of celebration, is that it is also ten years since the collapse of the investment bank Lehman Brothers. The problems on international financial markets, which had been escalating for a long time, came to a head. Confidence in the financial system evaporated and the financial crisis was upon us. Much has happened during the ten years since then. The actions of central banks during this period have not just been about managing the direct crisis of 2008, even though many of the problems stem from there. It is more accurate to describe the actions as reactions to an interconnected series of crises, or, if you like, a crisis that consists of several phases. These have, in turn, formed the backdrop to the different phases of monetary policy that Sweden has gone through. | Before I go into the major socio-economic contexts, I thought I might begin with an anecdote from a smaller context, a personal experience from one of my most recent visits to Hradec Králové, in Bohemia, Czech Republic, the region where my relatives come from. Every time I return there I am pleased and surprised at the changes that have taken place, but during my most recent visit last year I was quite astonished. There, in the small provincial town of Hradec Králové, with only around 100,000 inhabitants, they now have a shopping mall worthy of Stockholm's smartest shopping area, as well as a couple of large discount stores and a D.I.Y. store, all selling goods of better quality but a fraction of the price of those in Sweden, and all full of shoppers. When I left the shops loaded up with shopping bags to take home to Sweden, I remembered how things used to be, when we in Sweden sent parcels to family and friends containing clothing, medicine and even decent soap and washing powder, along with various other things that weren't available in Czechoslovakia then. And here I was doing all my shopping there! This is just a fragment from daily life, but to me it illustrates two things that are typical of our relationship to the coming new members of the EU. One thing is how quickly these countries have changed, how rapidly they are integrating with and moving closer to western Europe. | 0 |
In April we implemented reforms to SONIA that boosted the volume of transactions captured by a factor of three to £ per day. 7 These areas are: the role that ‘cover and deal’ and similar trading models play in the FX market; how market participants adjust their pricing on E-Trading Platforms and when trading by voice; and, disclosures regarding last look practices. 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 The focus now is on transition. Market participants in every sector and market that use Libor now need to come together to identify and resolve issues, change business practices, and adopt alternative benchmarks. In sterling, over 90 institutions, including banks, law firms, corporates, asset managers, trade associations and infrastructure firms, are directly involved in this effort supported by the Bank and FCA. Transition to SONIA will bring a number of benefits. Market participants can have the confidence that SONIA faithfully represents conditions in a deep underlying market. They can also be assured that SONIA’s design is robust to future changes in money markets because, if necessary, SONIA’s data inputs can evolve. Near risk-free rates like SONIA are a better reflection of the general level of interest rates than Libor – which is affected by fluctuations in the perceived credit quality of banks (as well as other technical factors as seen recently). Interest payments for benchmark users should be less volatile as a result, especially in times of stress, and products referencing SONIA should provide a better hedge for duration risk. | BIS central bankers’ speeches 3 To understand our prospects a bit better, we need to look at the likely behaviors of business and household sectors separately. Circumstances for the business sector are mixed with larger corporations generally in much better shape than smaller businesses. Many large corporations entered the recession with healthy balance sheets. While leverage1 did increase sharply in the recession, it has subsequently come back down to levels similar to the 1990s. Record profit margins have enabled large corporations to build substantial buffers of highly liquid assets. Large businesses are cautious because of concerns about the sustainability of growth and demand, political dysfunction, the health of the financial system and their ability to retain their access to credit throughout the business cycle. For smaller firms, the situation is generally more difficult. Because this sector has a higher exposure to real estate, falling real estate values pushed up leverage for this group and it remains well above previous historical highs. Although small businesses identify weak demand as their major problem, the availability of credit is also an issue. An improvement in their ability to obtain credit would seem to require some stabilization of real estate prices and a substantial increase in demand for their products and services. Turning now to the household sector, Chart 4 shows that a combination of the fall in interest rates, paying down of debt and debt write-offs has substantially lowered the share of income required for households to service their debt. | 0 |
Jacqueline Loh: Act now to transition to SORA Keynote speech by Ms Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore, at The Association of Banks in Singapore’s Roundtable Session on SGD Interest Rate Landscape Changes, Singapore, 9 September 2020. * * * 1 Good morning to everyone. First, let me thank Ai Boon and her team in ABS1 for organising this Roundtable session, and inviting me to speak. It is heartening to see the large number of participants comprising banks, as well as corporates, SME and retail customers joining this virtual session. This reflects the importance of the topic that we’re discussing today – the shifts in the interest rate benchmark landscape, and what we must do in preparation. 2 Interest rates in Singapore are determined by global developments given our exchange rate centred monetary policy framework. Against that, robust market-driven interest rate benchmarks, play an important role in the domestic financial system and the broader economy. Similar to other economies, interest rate benchmarks reflect the cost of borrowing in underlying markets. They are used widely by – banks, to price loans to individuals and businesses; financial market participants, in pricing financial products such as bonds, floating rate notes and interest rate swaps; and corporates, as a discount rate for financial reporting of its assets. 3 In Singapore, SIBOR and SOR2 have served as the key interest rate benchmarks in Singapore Dollar (SGD) financial markets for decades. | Second, to facilitate market adoption, MAS also started publishing, on a daily basis, Compounded SORA rates for 1-month, 3-month and 6-month tenors, and a SORA Index.7 These provide market participants with a standardised and simplified way of obtaining compounded rates for any given tenor, and can easily be referenced in new SORA products of different maturities, to suit the needs of different customers. Third, to provide a market-based pricing reference for SORA cash products, and spur hedging activities through the SORA derivatives market, MAS has broadened our suite of money market instruments by issuing floating rate notes based on SORA (MAS SORA FRN). We are encouraged that the first two MAS SORA FRN auctions were met with strong market demand. Fourth, to facilitate price discovery in a nascent SORA derivatives market, MAS established in June, a daily auction process for SORA Overnight Indexed Swaps (or OIS) and SOR-SORA Basis Swaps up to 5-years in tenor. These are the key instruments for developing the SORA derivatives market and for facilitating a transition from SOR derivatives. Going forward, MAS will extend the auction tenors, and make available this process to the wider interdealer market. 11 But MAS’ efforts alone are not enough to achieve a successful transition from SOR to SORA. The financial industry and its stakeholders have a critical role to play, given that you are the ultimate end-users. | 1 |
But, like the SIB, the SROs operate indirectly under statute, and have a duty to regulate in the public interest. We therefore have no self-regulation in the strict sense, rather a variety of statutory and statute-backed bodies with practitioner involvement, each with different relationships with the industry and with Government. Effective regulation needs the input of all BIS Review 21/1997 -4- participants in the market if it is to offer appropriate protection without stifling innovation. Regulators can benefit greatly from effective practitioner input but to retain the confidence of the investing public they must persuade them that regulation puts their interests, and not those of the firms and their shareholders, first. The system we now have is undoubtedly capable of achieving an appropriate balance between market sensitivity and consumer confidence; it has, in many respects, worked well. But it has been stress-tested in a number of difficult episodes: the Maxwell affair, the private pension mis-selling saga, the collapse of BCCI, Barings Bank and Sumitomo. These episodes have taught us something about the strengths and weaknesses of our system, just as the S&L crisis and the Daiwa New York problem have done in the US. Furthermore, markets themselves have moved on. The financial landscape of today is almost unrecognisable from the one which informed legislators’ views in the early 1980s, before the Banking and Financial Services Acts were put on the statute book. | Our April 1995 derivatives survey showed US firms (including securities houses) accounting for around 40% of turnover in both foreign exchange and interest rate derivatives. We therefore attach particular importance to international regulatory cooperation; and as the trend towards globalisation and multi-functionality continues it is becoming increasingly necessary. The Barings and Daiwa cases have highlighted the difficulty that banks can experience in controlling operations which are far from their head offices. Barings, in particular, demonstrated that losses in a subsidiary in a remote location, in a unit which was not thought to be assuming any significant market risk, can be big enough to bring about the failure of the parent. So home and host supervisors have a mutual interest in the health of the subsidiaries. Regulators will rightly be blamed if any reluctance on their part to work together either exacerbates a crisis or fails to prevent one that could otherwise have been avoided. It is possible to argue that an individual regulator can successfully meet his own objectives, by seeking to build firewalls between his entity and the rest of the group to which it belongs. These might include restrictions or even prohibitions on both financial exposures and operational interlinkages. In addition capital adequacy and other requirements might be set at a more onerous level than if the potential for parental support was taken into account. Such measures may be the best that can be achieved at present; they certainly provide host supervisors with a measure of comfort. | 1 |
But it would have meant putting the whole of the economy, including the exposed sectors, at risk of accelerating inflation, and it would in all probability have meant a much sharper downturn in the economy as a whole a little further ahead. We’ve been round that buoy all too often before. And so we tightened policy, trying as best as we could through our tactics to minimise the unwanted upward pressure on the exchange rate. I know, Chairman, only too well that this will be cold comfort to many of you in the exposed sectors - but there’s no point in pretending things are other than they are. The present imbalance means that we are trying to maintain stability in extraordinarily difficult circumstances. But I will make one final point. The inflation target we have been set is symmetrical. A significant, sustained, fall below 2½% is to be regarded just as seriously as a significant, sustained, rise above it. And I give you my assurance that we will be just as rigorous in cutting interest rates if the overall evidence begins to point to our undershooting the target as we have been in raising them when the balance of risks was on the upside. There is now evidence that domestic demand growth is moderating, as it must do, and that the labour market is tightening more slowly than before. | And that, of course, is exactly what we do in fact do - using the vast array of official economic statistics and financial market data, all the publicly available and some private surveys and commentaries, as well as a wealth of anecdotal and structured survey evidence that we collect BIS Review 71/1998 -3- ourselves, through our 16 non-executive directors, through the frequent visits which MPC members make around the country, and through meetings in London, and through our network of 12 regional, information-gathering and disseminating, agencies with their 7000 industrial contacts throughout the United Kingdom. And we openly display the facts as they are available to us, as well as our analysis and our conclusions, regularly through the publication of the minutes of our monthly meeting and in the quarterly Inflation Report. So when people say to me that the economy is headed for recession, I’m interested in comparing the evidence on which they base their views with our own evidence, and I want to know whether or not they are also saying that they expect us to undershoot the Government’s inflation target. Let’s just for a moment turn down the noise and look at some of the relevant facts as they relate to the economy as a whole. Since the economy started to recover from recession in the spring of 1992 - some 6½ years ago - overall output has grown at an average rate of about 3%. | 1 |
We have seen a spike in borrowing costs in past few days. Do you believe that this debate about restructuring can become a selffulfilling prophecy? In the case of a euro area member state, and Greece is a euro area member state, talk of restructuring cannot become a self-fulfilling prophecy in the same sense that could have been the case for other countries that are not part of the European Union. The reason for that is very simple; in the European Union a member state can count on political support and solidarity from other member states. It would take a political decision against supporting a member state in need in order to force a restructuring in the sense you describe. So in my view, to the extent the Greek government continues to implement the programme of structural reforms that it is implementing right now, and to the extent that it recognises that a restructuring would be undesirable and unnecessary, then restructuring can be avoided so long as the Greek government enjoys the support of other member states in the European Union. Under these circumstances the support from other member states is critical. BIS central bankers’ speeches 3 Q. Greece is expected to go back to the markets next year. Do you think this could still happen or do you think there is a need to extend the programme? I think this will be evaluated as time goes by. | In the current state of constant change, building the capacity of supervisors is one of the most critical priorities to guard against threats to stability without impeding growth and innovation. Finally, we need to create room for experimentation. While rules are not meant to restrict innovation, they often have the effect of doing so. This might end up leaving customers worse off, 4/5 BIS central bankers' speeches and insurers exposed to higher business risks than necessary or appropriate. When faced with the stark choice of doing nothing and risking harm to public interests, or writing rules to control something that we do not yet fully understand, it is only sensible to experiment and learn from it. This point is also crucial, when technology offers so much potential to increase financial inclusion. Platform-based solutions and insure-tech companies are opening up insurance access to large segments of the population at a fraction of previous costs. To fully benefit from such possibilities, some regulators have adopted “regulatory sandboxes” to test solutions and design regulations that are appropriate. There will no doubt be other approaches taken to experiment and innovate. And when things do not work, we must be prepared to change tactics and strategy. Conclusion Over the last few decades, the global regulatory community has come together to build stronger supervisory systems and more resilient markets. Insurers have built extensive networks in their pursuit of growth. | 0 |
Jürgen Stark: Towards a safer financial system Speech by Mr Jürgen Stark, Member of the Executive Board of the European Central Bank, at the Transatlantic Business Conference, organised by the American Chamber of Commerce, Frankfurt am Main, 9 November 2011. * * * Ladies and Gentlemen, It is a pleasure for me to speak to you tonight at the Transatlantic Business Conference. 1. Looking back to 2008/09 It is exactly three years ago that the G20 Finance Ministers and Governors met for the first time after the Lehman default. In Sao Paulo, on 9th of November 2008, the Group of Twenty recognized that “the global economy is facing its most serious financial crisis and economic slowdown in decades”.1 In that meeting, they also pointed to the root causes that have led to the crisis: “[…] the current financial crisis is largely a result of excessive risk taking and faulty risk management practices in financial markets, inconsistent macroeconomic policies, which gave rise to domestic and external imbalances, as well as deficiencies in financial regulation and supervision in some advanced countries.” The G20 members drew the conclusion that “all countries […] must improve their regulatory and supervisory regimes.” Let me in my remarks tonight discuss where we stand with this G20 process and assess, particularly, what has been achieved regarding the financial market regulations agenda. My focus will be on the Basel III framework and the priorities for the future. | Jessica Chew Cheng Lian: Corporate governance at the Central Bank of Malaysia Opening speech by Ms Jessica Chew Cheng Lian, Assistant Governor of the Central Bank of Malaysia, at the Third Institute of Chartered Accountants in Australia-The Malaysian Institute of Certified Public Accountants (ICAA-MICPA) Audit Forum, Kuala Lumpur, 27 September 2012. * * * It gives me great pleasure to be here this morning at the 3rd ICAA-MICPA Audit Forum. The theme for the Forum this year is the role of the audit committee within the context of corporate governance in insurance companies. It has been said that an audit committee is like a good insurance policy - it is better to have it and not need it, than to need it and not have it. I am certainly happy to know that we have established strong audit committee practice within our financial industry, and while admittedly, some institutions have moved further than others in improving the effectiveness of the audit committee, it represents without exception a core pillar of governance systems in our financial sector. I say this because as we speak, there are countries that are now debating the requirement for financial institutions to establish separate audit committees. There are a number of reasons why the theme chosen for this forum is particularly relevant in current times. Corporate governance problems have once again come under intense global scrutiny since the outbreak of the global financial crisis. | 0 |
Domestically,3 UK households had accumulated a lot of debt in the run up to the crisis, much of it matched by an accumulation of assets. But households were dependent on economic growth being sustained and on house prices holding up. Property companies likewise, but with the added spice that there had been a boom in commercial real-estate construction. When crisis hit, the government’s balance sheet deteriorated dramatically, because the public finances were highly sensitive to taxes from finance and property and, most important, the UK’s fiscal “automatic stabilizers” are strong. Households and government have subsequently cut spending to repair their balance sheets. The corporate sector has built up what amounts to a cash mountain, some of which will probably find its way into investment as the cloud of uncertainty lifts, helping recovery. Sterling’s 2007/08 depreciation has softened the blow to demand. And if anything, that strengthened the country’s balance sheet because, in contrast to the EMEs discussed in the Draghi Report, the UK’s external liabilities are largely denominated in sterling while our external assets are denominated in foreign currency. 3 2 See Annex 1. BIS central bankers’ speeches I could go through many other countries picking out ex ante vulnerabilities in their national balance sheets, and consequent ex post strains. Banking failures brought on a credit crunch, impaired economic growth, lowering wealth, and adding to the debt burden of borrowers, in what threatened to be a vicious circle. | Effectively implementing the enhanced governance framework, completing the banking union, and building a capital markets union to reduce risk and to allow for more private risk-sharing while establishing additional public risk- sharing mechanisms in parallel are some of the key near-term requirements in this regard. In the longer run, a more perfect EMU will form the basis for a stable, flourishing euro area economy that will not only enable the euro area to tackle challenges in other policy areas, but that will also be to the benefit of global economic and financial stability. BIS central bankers’ speeches 3 | 0 |
Peter Pang: Developing critical financial infrastructure between Hong Kong and Thailand Opening remarks by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority, at the HKMA-BOT Joint Press Conference on the Launch of US Dollar – Thai Baht PvP Link, Hong Kong, 28 July 2014. * * * Deputy Governor, ladies and gentlemen, 1. Good afternoon. It is my great pleasure to welcome you all to this press conference jointly organised by the Hong Kong Monetary Authority (HKMA) and Bank of Thailand (BOT). I would like to thank Deputy Governor Mr. Krirk Vanikkul for joining me here to announce the launch of the payment-versus-payment (PvP) link between BAHTNET, the Thai Baht Real Time Gross Settlement (RTGS) system in Thailand, and the US dollar RTGS system in Hong Kong. 2. Time flies. About a year ago the HKMA and BOT announced in Bangkok to build this PvP link. With the concerted effort of colleagues on both sides, the link went live today as scheduled, after completion of the system development and meticulous testing with the users. The banks in both jurisdictions have been fully engaged to ensure maximum readiness, on both technical and business fronts, for the launch of the link. 3. This PvP link is an iconic project that symbolises the determination of the HKMA and BOT to work together to promote financial integration and financial stability in the region through the linkage of critical financial infrastructure. It will bring significant benefits in three areas. 4. | They showed that GDP fell by only 0.3 per cent between the first and second quarters of this year, which was slightly better than we anticipated. Employment continued to fall in July, but less than expected, and unemployment fell by a tenth of a percentage point, which was better than market expectations. 2 2 IMF, World Economic Outlook Update, July 8 2009. BIS Review 98/2009 CPI inflation in the United States fell to -2.1 per cent in July, but when food and energy prices are excluded it fell to 1.5 per cent (see Figure 7). The underlying inflation rate measured in this way has been relatively stable in recent years and has only declined slightly over the past year. An important condition for a turnaround and stabilisation in the US economy is that house prices touch bottom and begin to rise again. Developments in real house prices in the United States since 1950 comprise a good example of a price bubble (see Figure 8). The question now is how far house prices will fall before the turnaround comes. The Federal Reserve notes in its most recent monetary policy report that developments in the housing market remain weak, although there are some signs of an improvement. 3 Euro area GDP growth in the euro area remains weak. According to the forecast in the Monetary Policy Report, GDP in the euro area will fall by an average of almost 5 per cent in 2009. | 0 |
This is the right time to be discussing this topic, as we are experiencing the aftermath of one of the largest macroeconomic disruptions of the century. In the last three years, we lived through one of the most challenging times for policymakers, where governments and central banks were pushed to deploy everything at their hands to content the health and economic consequences of the pandemic, and lately to contain inflationary pressures. During these years we have learned that the effects of the Pandemic differed significantly between economies but also within households and firms of heterogeneous characteristics. The different exposure that households and firms have to credit conditions, supply chains, and final demand, affected their reaction to the original shock and also to the different policies. Firm size and household income distribution were important sources of heterogeneity to consider as well. Having widespread access to information regarding these dimensions was critical to develop sound policies. In response to these very challenging times, academia also reacted. Since early 2020, we witnessed an explosion of applied research that incorporated the lessons learned in the last 35 years in terms of the importance of considering firm and household heterogeneity to better understand the transmission mechanisms of fiscal and monetary policies. 1/5 BIS - Central bankers' speeches This process of knowledge spillover from academia to policymaking is not something new. | Several objectives have indeed to be met: maximizing the spillover effects of 2/3 BIS central bankers' speeches innovations, protecting the consumer and addressing financial stability issues, and ensuring that innovation is beneficial to all parties, in particular in the form of new services and costs reduction. Such a balance can only be reached through adequate and proportionate rules, based on the risk profile of the service provided and not on the nature or the legal status of the provider. This principle has guided European authorities in the review of the payment services directive, which will be thoroughly discussed during this afternoon’s session. On top of these regulatory changes, technological innovations reinforce the need for fruitful dialogue and cooperation between all parties concerned. At the French level for instance, this is the purpose of the “Fintech Forum” launched in July last year by the French prudential supervision and resolution authority, the ACPR, in coordination with the French Financial Markets Authority. The continuous dialogue between regulators, supervisors and companies will ensure that innovations are properly understood, that the necessary changes in regulation are identified in a timely manner and that information flows appropriately between stakeholders. We have also committed the Banque de France and the ACPR to a gradualist and proportionate approach in the regulation and supervision of Fintechs. We think it is still more appropriate than a “sandbox”, which could create threshold effects. At the European level, cooperation between all stakeholders has been enhanced in the field of payments, so as to prevent market fragmentation. | 0 |
This is particularly true in the euro area, where the gap between savings and investment is huge: the current account surplus reached EUR 350 billion on a yearly basis in August 2016, 2 which is more than 3% of GDP.i I believe that the solution to closing the gap is not to diminish savings, but to increase productive investment – and savings can be instrumental in doing so. Let me delve further into this issue by answering three questions: what is the evidence? What are the causes? What is the remedy? ** First, what evidence do we have? The total investment to GDP ratio offers a first glimpse of the current investment dearth (slide 4). The 2007-08 crisis caused the total investment ratio to fall sharply. In many countries, it has not yet returned to its pre-crisis level. This is particularly the case in the euro area, where the total investment ratio has dropped by around 3 points since the 2007 peak and has only slightly recovered since. By comparison, the pace of the recovery is significantly faster in the United States. Now, (slide 5) let’s dig deeper into the composition of this investment dearth: real estate and public investment have contributed to the post-crisis decline in total investment, but what matters the most for our economy is the contraction in business investment. | ** 6 To conclude, let me quote Benjamin Franklin who, in his essay entitled The Way to Wealth, gave advice that remains highly topical: “vessels large may venture more, but little boats should keep near shore”. In the present situation, savings are certainly closer to large vessels than to little boats. And yet, unlike large vessels, they do not take sufficient reasonable risks. Our future will depend on them venturing more to help fill the investment dearth that plagues our economy. I have given you my view on the forms it can take, and I wish you fruitful debates throughout this conference. i 12-month cumulated current account for the period ending in August 2016. Source: ECB. IMF WEO Chapter 4 ‘Private Investment: What’s the Holdup?’, April 2015. The figures express the average percent deviation from spring 2007 forecasts. iii GFCF in machinery and equipment and intellectual property. iv rd 63% of French small business owners mention demand as an obstacle to investment. Source: Bpifrance, ‘63 survey of the economic climate for SMEs’, May 2016. v Matthieu Bussière, Laurent Ferrara and Juliana Milovich: ‘Explaining the recent slump in investment: the role of expected demand and uncertainty’, Banque de France WP No. 571 – September 2015. vi Ibid. vii The hurdle rate is the internal rate of return that must be cleared for a project to be approved by a company. viii ‘Savings and investment behaviour in the euro area’, ECB occasional paper series No. 167, January 2016. | 1 |
Acemoglu and Robinson (2013). 6 BIS central bankers’ speeches 20-fold. Prior to the Industrial Revolution, institutions in general, and government in particular, became an increasingly important growth-enabler. Institutional and infrastructural capital has continued to accumulate in the period since. Since 1950, the number of countries operating with democratic institutions has risen from around 25 to almost 90. 31 Legal systems globally have continued to improve in quality, and central bank numbers have continued to swell. Cross-country studies have found that the quality of these institutions and infrastructures is often key to driving growth. 32 In what is perhaps the most comprehensive study of historical experience, Daron Acemoglu and James Robinson have taken the institutional argument one step further. For them, the lack of good institutions is the defining reason “Why Nations Fail”. 33 You do not need to go that far to think they have really mattered historically for living standards. The final ingredient in the growth recipe is intellectual capital, for some the source of the Industrial Revolution, Hargreaves, Arkwright, Watt and all. Yet it would be wrong to think innovation somehow began in the 18th century. From the windmill in the 12th century, the mechanical clock in the 13th, the cannon in the 14th, the printing press in the 15th, the postal service in the 16th and the telescope and microscope in the 17th, the innovation escalator was in service well before the Industrial Revolution, albeit stepped and sticky. | We will then have detailed data on GDP for the third quarter, preliminary data on the balance of payments for the entire 2019, as well as current economic statistics for December and first data on inflation in January. We will adjust our mid-term forecast based on this information. Winding up, I would like to get back to the signal of our future actions. We have said today that we will consider the necessity of a further key rate reduction in the first half of 2020. Noting that, after similar signals in the past, it was twice that we cut the key rate already at the next meeting, namely in October and today, and anticipating your clarifying questions, I would like to point out the following. This wording means that we still see room for a slight decrease in the key rate. But both in February and at the next meetings we will comprehensively assess the reasonableness and relevance of such a decision taking into account the entire range of new data that will be available by that time. Our signal does not imply that we will necessarily lower the key rate in February or in the first half of 2020. A further key rate cut will become possible only if our analysis confirms that this is needed to bring inflation back to the Bank of Russia’s 4% target. 3/3 BIS central bankers' speeches | 0 |
The use of credit guarantees, cross guarantees, or credit enhancements – to mention a few ways – can only act as a temporary measure to catalyze interest in Asian issues, and at a cost. Such guarantees increase the issuer’s cost of funding, and usually cannot be sustained indefinitely. The coverage of credit guarantees, for example, would have to be reduced from a full guarantee to a partial guarantee as markets develop. In the meanwhile, countries must tackle their fundamental problems that are hindering the rating of their issues, whether it is infrastructure, legal, or regulatory problems. 4 BIS Review 24/2003 | Moreover, we have seen a common theme running through incidents that have occurred – the dash for cash in 2020, the Archegos Collapse, the LDI pension fund issue, the nickel metals case – namely that for firms to understand and respond to the 4/6 BIS - Central bankers' speeches full risk implications they would have had to observe and respond to a much larger picture of risks than they did observe, and from that came potentially larger risks. There is a challenge of breadth and depth in the NBFI world. It is a very large and disparate landscape with many activities and entities. As a result, we have to survey a lot of ground to look out for risks. But in order to understand these risks, we need to get into the detail, hence the depth issue. LDI was a good case study of this. The LDI fund world comprised 85% of the larger so-called segregated funds, and 15% of the smaller pooled funds. Our stress testing work focussed on the 85%, but the problem arose in the 15%. In some ways the issues around NBFI bear a striking resemblance to ages old challenges in finance, such as leverage, and inter connectivity with other parts of the financial system, creating the scope for spill-overs and systemic consequences. But the heterogeneity of the landscape means that there is no single magic number for leverage as we have with banks, and the inter connectivity can be hard to map, reflecting the recent incidents. | 0 |
Variability of inflation increases uncertainty and exerts a major negative influence on investment and thus on potential output as well as on 15 European Commission, 2004, “A 3% R&D effort in Europe in 2010: an analysis of the consequences”, study prepared by the Research Directorate General of the European Commission. 16 OECD Education at a Glance 2006. 17 European Commission, 2003, “Chapter 3 - Education, training and growth”, in: The EU Economy: 2003 Review BIS Review 82/2007 7 other components of aggregate demand. The environment of price stability, the credibility of the ECB in delivering price stability over time and therefore the solid anchoring of inflation expectations, are paving the way for sustainable economic activity. Conclusions Ladies and gentlemen, I would like to conclude by stressing a few points. Monetary Union has been effective – and very successful – in supporting growth. In 2006, real GDP in the euro area grew by 2.9%, which is the highest rate since 2000. This positive development is very encouraging, but this is no time for complacency. Europe still has some way to go to fully benefit from globalization and meet the challenges of rapid technological changes and ageing population. We should also keep in mind that in a context of monetary union, not only fiscal policies, but also price competitiveness and unit labour cost developments across countries should be continuously and closely monitored. That said, structural reforms are decisive to raise the long-term speed limit of the European growth. | This seems also to have constrained to some extent the economic performance and the development of these sectors in the euro area as illustrated by their disappointing labour productivity growth performance. 9 See the ECB Occasional Paper Series No 44 “Competition, productivity and prices in the euro area services sector”, by the Task Force of the Monetary Policy Committee of the ESCB, April 2006. 10 Although the data available refer mostly to the 15 earliest members of the European Union, the EU15, they are still illustrative of the situation in the euro area. In 2000 only 0.1% of the total EU15 population (or around 225,000 people) moved their official residence between two Member States. Furthermore, only a small proportion of individuals – 0.4% of the EU15 population – were known to commute across borders to work, and half of this amount was to a non EU15 country. In the United States, geographical labour mobility appears to be far higher. Evidence suggests that around 5.9% of the total US population moved their residence between US states in 1999. See F. F. Heinz and M. Ward-Warmedinger, “Cross-border labour mobility within an enlarged EU”, ECB Occasional Paper No 52, 2006. See also “Action plan for skills and mobility”, European Commission, 2002. 11 See EIB “Financial integration in Europe” (2007). | 1 |
Dato’ Ooi Sang Kuang: Malaysia – ready to face a new world Keynote address by Mr Dato’ Ooi Sang Kuang, Deputy Governor of the Central Bank of Malaysia, at the National Economic Outlook Conference 2010–2011, Kuala Lumpur, 1 December 2009. * * * The global economic and financial environment of the past two years has been extremely challenging. Financial market events previously thought to be highly improbable, occurred to create a financial crisis on a global scale. The international financial system froze, wealth destruction not seen since the Great Depression took place, world trade collapsed, and many advanced and emerging economies entered into a deep synchronised recession. Several well-known global financial institutions disappeared overnight while many others were rescued by Government bailouts. The global financial crisis saw policy makers having to respond strongly and adopting a wide range of unorthodox policy measures. A prolonged recession was averted and now the global economy is recovering. What is uncertain is whether the current revival can be maintained and growth sustained. Risks remain that the current recovery could lose momentum. Arising from the worst global financial crisis since the last depression, the world’s economic order and the character of the global financial system will be undergoing a process of transformation that will be significantly different. In a transformed new world, Asia is set to emerge as one of the most vibrant regions, and will increasingly play a critical role in determining the shape of the future global economic landscape. | Banks have demonstrated in recent stress tests their resilience to a sharp adjustment in credit market, and markets, rather than banks, have been the driving force behind recent growth. 10 But recent IMF work shows how rapid growth of corporate debt overall, and any skewing of corporate debt towards riskier firms can – by creating a debt overhang – add to medium term risks to economic growth. 11 The jury is out on whether what we have seen in the UK is material in this respect. But to keep the wider economy protected from financial disruption, it’s important that banks are resilient to these risks if they do become material. And that’s one reason why (as the Financial Policy Committee said in the Record of its March meeting) the FPC intends to “re-consider the adequacy [of capital levels] in June, with a focus on the evolution of domestic risk appetite.” Let’s move on to the other hidden risks: the underwater bergs that can make markets less resilient There were certainly plenty of these lurking under the surface of the system of 2008, making it fragile and amplifying market adjustments. They help to explain how $ of losses on subprime mortgages turned into well over $ of write-downs in the global banking system. The post-crisis reform programme has dealt with them. But our duty is not just to prevent the last crisis, it is to keep up with new risks as the financial system evolves and, where needed, take action to address them. | 0 |
One notable example of this is the growth of corporate leveraged lending in many jurisdictions. The Bank estimates that the global stock of leveraged loans has now reached an all-time high of $ 3.4 trillion, equivalent to 11% of total advanced economy credit to nonfinancial corporates. The share of corporate debt owed by highly leveraged companies is now very close to or above pre-crisis levels in major advanced economies.11 The growth of this market has been accompanied by a marked easing of underwriting standards and compensation for risk. The share of new leveraged loans with no maintenance covenants has tripled since 2007.12 Spreads have declined and remain below their 2015 levels. And there has been growing use of accounting adjustments (‘add-backs’) that could understate leverage13. There are other examples. We have also seen an increase in sales of complex products as investment banks try to boost their income in a challenging trading environment. And in some countries, retail lending conditions have loosened. For example, in the United Kingdom the proportion of mortgage lending at higher loan-to-value (LTV) ratios has been rising over the past few years and is now close to its pre-crisis peak.14 At the same time, interest rate spreads on high LTV lending have declined and are close to recent post-crisis lows.15 Search for yield behaviour may have been more pronounced in the non-bank financial sector. | Hong Kong will shortly have a state-of-the-art facility for conducting US dollar transactions in Asian time. The benefits of this for both local business and international customers, in both trade and finance, should be considerable. I take this opportunity to thank and congratulate those who have worked hard to bring the project to its present advanced stage in so short a time, and I wish every success to all who will be involved in translating the design into reality. BIS Review 22/2000 2 | 0 |
Governance of the euro area can be imagined like a set of interlocking cogs wheels: they do not all need to be of similar size – that is, we do not necessarily need the same degree of centralisation in each area – but they need to all move in the same direction. If one cog moves in the other direction, the whole machine grinds to a halt. There were several inconsistencies between policy areas in the euro area that had such a countervailing effect. To begin with, the frameworks for economic and financial policies pulled in different directions. Increasing financial integration encouraged capital to flow from core to periphery, but this was not accompanied by increasing integration of product and services markets to ensure that this capital was allocated efficiently. In fact, as competitive pressures remained weak, in particular in the non-tradable/services sector, certain industries were able to maintain excessive rents and distort price signals. This meant that the low marginal product 4 BIS central bankers’ speeches of capital in these industries was offset by rising profit margins, leading capital to become misallocated. The fiscal and financial frameworks also interacted negatively with one another. In particular, policy-makers underestimated the extent to which financial integration depended on the false perception of relatively homogenous sovereign credit risk. As euro area banks were heavily exposed to own governments’ debt, when perceptions of sovereign creditworthiness diverged, so did confidence in their respective banking systems. | The life agency force has grown to about 80,000, with more of them earning higher average incomes as they pursue professional careers as full time insurance agents. The industry is on a strong financial footing with excess capital of RM23.5 billion, above the regulatory minimum capital requirement. Expense rates have declined from 41%, prior to the introduction of the Guidelines to Control Operating Cost of Life Insurance Business, to 26.3% in 2013, representing significant efficiency gains that have created a more competitive industry and improved value for policyholders. Most importantly, the life insurance industry has continued to innovate through new products and distribution channels, providing individuals protection against financial risks and help them meet their financial goals, whether for education, retirement, or to pay for medical expenses. In 2013, the industry paid out over RM16 billion in benefit claims to policyholders under various life insurance policies. The life insurance has contributed to the betterment of the health and Malaysian in general. The life insurance industry has also had a key role in the development of Malaysia’s capital market. At 104.5% of GDP, our bond market is the largest in South East Asia, and fourth in Asia after Japan, China and Korea. More than RM150 billion is invested by the life insurance industry in the bond market which provides an important source of long term funding that is critical for the development needs of the economy, in particular in financing long term infrastructure project. | 0 |
M R Pridiyathorn Devakula: Thailand's Monetary Policy - its obstacles and challenges An address by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the Seminar on "Where does Thailand stand now?" Bangkok Post – Tradex Economic Forum Bangkok, 26 September 2001. * * * Your Excellencies, Distinguished Guests, Ladies and Gentlemen, The tragic terrorist attack in the United States, and the repercussion on the financial markets all around the world, reinforced what we already witnessed in the 1997 Asian crisis – that the financial world has become closely inter-twined, globalised and integrated. Disturbances in one market readily spread to and affect all the others. This is the kind of challenge facing policymakers in setting monetary policy these days. Past Achievements Ladies and Gentlemen, Let me briefly review the economic developments. Thailand has faced a number of difficulties and fought hard in the last four years. We have gone through unprecedented adjustments and improvements on both economic and financial reforms. The Thai economy has gradually recovered. The growth rate of GDP, which was a contraction close to 11% in 1998, has now been maintained in a positive territory for more than two years; 4.2% in 1999, 4.4% 2000 and would highly likely be positive again this year, even though at lower percentage of growth. Macroeconomic and financial stability has been restored. | We also recognized that the central bank's credibility is crucial in assuring the public on the smooth operation of our economy. The Bank of Thailand decided to adopt inflation targeting as the framework for our monetary policy. Inflation targeting is not simply setting an inflation target. It is instead an approach that emphasizes (a) a forward looking economic forecasts using the most reliable economic models, (b) transparency in communicating to the public the reasoning for policy stance, and (c) accountability to ensure that promises of price stability are upheld. BIS Review 81/2001 1 We have chosen to target core inflation, a measure which excludes volatile components, namely raw food and energy prices. Our target range has been set between 0 to 3.5 percent until 2002. When I stepped in as a Governor in June, bearing in mind that our current account surplus was decreasing (due to a reduction of external demand) and international reserves may be affected, a review of the monetary policy was made. It was however agreed that inflation targeting framework should remain for price stability is still very important to prevent the economy from another crisis. However additional attention was emphasized on certain elements. International reserves which seem to be treated as exogenous factor under the framework have been brought into consideration, with the belief that healthy reserves are needed to maintain investor's confidence amidst the current slowdown of world economy. | 1 |
It is rather to assess to what extent a merger creates a more solvent bank and with a sound business model, enabling structural costs to be cut significantly and, in short, generating overall value. 6 7 CGFS (2018) Financial Stability Review – November 2019. 7/10 In my view, the lack of cross-border mergers is partly due to the overcapacity and fragmentation of the financial sector in Europe. True, the benefits of synergies, potential cost cuts and improvements in efficiency can be seen mainly in mergers between banks from the same country, thanks to the elimination of the doubling-up in branches and central services. In this connection, the radical consolidation of the Spanish banking system since 2009 is widely known. To give you some figures, there has been a reduction of over 30% in the number of banks. The number of offices has fallen by over 40% (some 20,000) while personnel figures have declined by more than 30% (90,000 fewer staff). Yet given the extremely competitive environment in place, I wish to stress that the map of national mergers may not yet be complete. This is particularly so when the reduction of structural costs is one of the few levers available to improve the profit and loss account. For most cross-border mergers, the economic rationale is more difficult to justify, although there will be potential gains in competitiveness for those banks with a business model that allows vertical savings. | I need not stress that these movements are negative for our recovery prospects and, in general, for an economy such as Spain that is increasingly integrated into the global framework and which in recent years has notably improved its competitive capacity abroad. The United Kingdom’s departure from the European Union is, in my view, a negative phenomenon, although the results in recent European elections appear to indicate a brake on or at least a re-drawing of the lines marking these trends. In any event, in the euro area – where our economy operates – it will be very important to maintain the goals of integration into the financial and banking area and to address the capital markets union project. But it is important, too, that the achievement of a true economic union may go beyond the financial realm. Along these lines, our Annual Report refers to the discussion of possible ways forward towards a fiscal policy that includes common stabilisation elements within the euro area, in a setting, such as the present, in which the high levels of public debt restrict the budgetary room for manoeuvre in a good number of countries. Progress here would contribute to equipping fiscal policies within the area with greater strength and, therefore, to minimising the potential adverse repercussions – economic and social alike – of future crises. Thank you for your attention. 8/8 | 0 |
And while the actual tasks performed by the Bank’s branches have changed since the network began expanding in the 1830s, the end goal remains unchanged: to support and serve local economies in order to back local initiatives and provide assistance in coping with economic and financial risks. From the time of its creation until the First World War, operating in an economy with relatively few banks and in which few people had bank accounts, the branch network of the Banque de France aimed at facilitating payments and supporting the regions during economic shocks by offering discount refinancing solutions. France’s economy has changed enormously since the 19th century. GDP per capita has grown by a factor of more than 20 since 1800 and by more than seven since 1914.9 Our banking and financial system has also been greatly modernised and now offers payment and credit solutions that are much faster and less costly than in the past. Reflecting these dual economic and financial transformations, the way in which the Bank performs its task of serving the regional economies has evolved. Our service to support local economies have expanded and now extend to households, especially the most vulnerable people, and companies, particularly the smallest 8 Leclercq, Yves, 1999, La formation d'une banque centrale: la Banque de France (années 1830 - années 1850), Revue économique Vol. 50, pp. 151-174 9 Source: Our world in data, Maddison Project Database 2020, see Jutta Bolt and Jan Luitten van Zanden, Maddison style estimates of the evolution of the world economy. | Maintaining a stable currency safeguards purchasing power over time and ensures the currency’s continuity across the territory, so that every individual can spend that currency anywhere and at any time and enjoy the same ability to purchase necessary goods and services. Back in the 18th century, France's authorities found themselves unable to guarantee this stability. After the bankruptcy of the John Law note-issuing bank in 1720 and several other 2 failed attempts to set up a central bank,5 the hyperinflation fuelled by monetary financing of the Revolutionary Wars and the ensuing default on two-thirds of France’s public debt in 1797 had destroyed confidence in the currency.6 The most pressing task facing the Consulate government was to rebuild the foundations of that trust, which it did by authorising the establishment of the Banque de France in 1800 and anchoring the value of the franc through the creation of the Germinal franc in 1803. In establishing the Banque de France, France set up a central bank that was capable, because it was trusted by the French people, of offering an “elastic” money supply, to use the economic jargon, that is, of adjusting the money supply to suit the needs of the economy. In this way, the foundations for an active lender-of-last-resort policy were laid very early, providing a means to combat financial crises and thus support the economy. | 1 |
MAS will shortly announce the members of the panel. We will solicit feedback from the public before the panel begins its deliberations and after it has made its recommendations. I appreciate that some of the proposals will impact businesses and representatives. I urge the industry to take a long term view from the customer’s perspective. The aim of FAIR is to bring about a higher quality of financial advisory services and better outcomes for customers, and by enhancing customer trust, promote sustained growth of the financial advisory industry. MAS will work to ease the transition for those most affected by the changes. Conclusion Since its inception in 1962, LIA’s key objectives have always been to promote high standards and best practices in the life insurance industry, ensuring quality financial advisory services and raising public awareness and understanding of life insurance. We see LIA as a key partner in facilitating the FAIR process and developing the insurance industry. I congratulate LIA on your golden anniversary and wish you many more fruitful years ahead. Thank you. BIS central bankers’ speeches 7 | It has proved powerful in the past, and it is crucial that it continues to do so. 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 | 0 |
The risk of excluding entire product groups is that prices in these groups may have changed in a more lasting manner. CPIF excluding energy is an often used index in Sweden. The columns in Figure 4 show how energy prices have contributed to CPIF inflation. The contribution from energy prices has at times been fairly large (just over a percentage point). But one can also see that it does not vary as much from month to month if it is expressed as an annual percentage change. A positive contribution in one month tends to be followed by a positive contribution the next month, too. 7 [19] Figure 4. CPIF inflation and energy prices Annual percentage change. 4.0 105.1 3.5 104.9 3.0 104.7 2.5 104.5 2.0 104.3 1.5 104.1 1.0 103.8 0.5 103.6 0.0 103.4 -0.5 103.2 -1.0 103.0 06 07 08 09 10 11 12 13 14 15 16 17 18 19 CPIF / CPIF excluding energy (index = 100 year 2000), right Contributions to CPIF, oil-related products Contribution to CPIF, electricity Sources: Statistics Sweden and the Riksbank The solid line in the figure is a different way of showing the same thing. The line shows the ratio between index figures for the CPIF and the CPIF excluding energy. | Finally, I would like to close my remarks by thanking our speakers, discussants, the chairpersons, as well as the Bank of Albania's staff for dedicating your time and efforts to this important activity. I kindly invite you to actively participate in and conduct a very lively and fruitful debate. I truly believe that the productive discussions which will certainly take place during these two-day workshop, will contribute to strengthening further cooperation among researchers, and between the institutions. Thank you! 4/4 BIS - Central bankers' speeches | 0 |
That would be a change with profound economic consequences. Central Bank Digital Currencies The rapid decline of cash, the rapidly changing nature of payments and, potentially, of the assets used to make payments, raise the question of whether central banks should leverage new technologies to provide new electronic forms of central bank money – the creation of Central Bank-issued Digital Currencies (CBDC) – as a complement to existing physical banknotes? A CBDC could ensure that the public has continued access to a risk-free form of money issued by the central bank. It could also potentially be designed in a way that contributes to a more resilient, innovative and competitive payments system for UK households and businesses. But, while CBDC poses a number of opportunities, it also raises challenges for the way in which we maintain monetary and financial stability. The potential benefits to financial stability could include more access to and utility of central bank money, including greater public access to a risk free asset enhancing a resilient payments infrastructure. There could also be positive benefits to monetary policy, such as more direct control of the monetary transmission mechanism. But for all the opportunities, there are also some significant potential implications. | There have been some unsavoury practices in this space: “flash loans” being used to manipulate prices in the market; bots being used to front-run retail trades. With decentralised governance, who do you approach to recover lost accounts or reverse accidental transfers of money? Existing regulatory frameworks will need to be adapted if DeFi becomes a reality. Regulations crafted to manage risks in a world of intermediaries are ill-suited where intermediaries are replaced by smart contracts. Enforcement is more challenging when control or governance is dispersed across the blockchain. MAS will follow Web 3.0 and DeFi developments closely, deepen our understanding, and seek to harness the benefits while managing the risks. We will work with both the financial industry and the broader ecosystem to find the right balance. It will be a learning journey. Regulatory Sandbox Plus And what better way to learn than by experimenting? We will facilitate experiments for blockchain and DeFi innovation through regulatory sandboxes. Five years ago, MAS launched the FinTech Regulatory Sandbox, to support live experimentation of technology innovations. Two years ago, we enhanced it with Sandbox Express, so that businesses can begin market testing of low risk activities in a pre-defined environment faster. MAS will enhance its regulatory sandbox with Sandbox Plus.We will broaden participation to early adopters of technology, in addition to first movers. We will provide financial grants to first movers of innovation, to support their technology, human capital, and market development. | 0 |
A slowdown in economic activity is not solely caused by interest rates. Other factors that deserve to be mentioned are the contractionary impact of fishing quota cuts, the downturn in the IT sector which is closely linked to global trends, and fluctuations in power-intensive development projects which are unaffected by domestic interest rates. Cutting interest rates now would have a limited immediate effect on the supply side of the economy, while high interest rates act with full force on the demand side where they serve to reduce inflation and domestic demand, which will contribute to improved macroeconomic balance and low inflation. Iceland’s currency options I have outlined various aspects of the Central Bank’s monetary policy. As I mentioned, Iceland has not taken part in European currency cooperation. Various currency framework options that Iceland ought to consider are often named in public discussions. A detailed account of most of them was given in the Central Bank’s 1997 report on the EMU. It is frequently said that Iceland ought to adopt the Euro as its currency, either unilaterally or through associate membership of the EMU. I strongly warn against simplifying the options available to us in this respect. Even if associate membership were being offered, which does not seem likely, it seems fair to assume that any country which was interested in it would need to fulfil the Maastricht Treaty requirements for EMU membership. | BIS Review 50/1998 -8- Employment growth in the EU area has been weak and unemployment in many countries has been high for a long time compared, for instance, with the United States. Labour force mobility is also lower than in the United States. But we also know that the Member States differ considerably. Some, such as the Netherlands and the United Kingdom, have been comparatively successful in generating new jobs. Others have done considerably worse. The remedies chosen by the successful countries vary, too. Some have adopted highly decentralised solutions and extensive deregulation. Others have sought to build up a consensus and make minor changes in some public systems. The question of how labour markets in Europe work and how they can be improved is already very much a part of the European agenda. There have been political initiatives in a variety of contexts in recent years, including national action plans for employment. These plans include the analysis of labour market laws, effects of tax systems and business conditions. Processes are being built up, inspired by the Maastricht Treaty’s successes with budget policy. The annual employment guidelines require each Member State to present a national action plan with a view to improving people’s employability, entrepreneurial spirit, flexibility and equality. These national action plans are to be specific, with goals and time schedules, so that they can be evaluated. Good examples are to be highlighted so that other countries, if they wish, can adopt them. | 0 |
But since there is no unique “European Social Model”, I will then explore how differences in economic institutions, reflecting different cultural values and social models, may explain the divergence in the growth performance of European countries. Finally, I will focus on the other important dimension of BIS Review 43/2007 1 economic performance and a central policy objective: price stability. I will demonstrate the crucial role of the institutional frameworks for central banking and fiscal policy implementation in ensuring the preservation of price stability and the sustainability of economic growth. II. Economic performance, markets, institutions and values: a simple conceptual framework Before addressing the issues I have raised, it will be useful to define the various concepts more precisely and to specify a simple framework that describes their likely relationships and potential effects. Needless to say, the aim is not to formulate a comprehensive theory but to sketch out a conceptual structure that can help organise our thinking and analysis. This is illustrated in slide 3. The economic performance of a country or economic area will be measured by its trend rate of economic growth and its ability to preserve price stability. These indicators of macroeconomic performance are the aggregate outcome of market mechanisms and forces and of the effects of economic and monetary policies. Economic institutions, as well as other types of institutions (e.g. legal) underpin the functioning of product, labour capital and money markets. | There is evidence of increasing wages in some occupations, but wage growth in general continues to be very modest at about 2–1/4 percent per year. That is a long way from the 3 to 4 percent benchmark implied by productivity growth and our inflation objective. Indeed, over the past three years, the unemployment rate has fallen by a percentage point per year; yet real wage growth has barely budged. It’s hard for me to imagine a full labor market recovery without genuine improvement in compensation growth. But am I wrong? Has the wage Phillips curve completely broken down? Some claim the answer is no – you just have to look at the right measure of unemployment. Alan Krueger, Judd Cramer and David Cho, among others, have shown that the relationship between real wages and the short-term unemployment rate during this cycle has been in line with historical norms, whereas the historical spike in long-term unemployment exerted minimal pressure on real wage growth. 10 Of course, the short-term unemployment rate is now close to its pre-recession level. So their model implies nominal wage growth should be returning to something close to the fundamentals implied by productivity growth and inflation. My staff’s research comes to a somewhat different conclusion. Using models similar to those Michael Kiley presented here this morning, 11 they find that pools of potential workers other than the short-term unemployed, notably the medium-term unemployed and the involuntary part-time work force, substantially influence wage growth at the state or metropolitan statistical area level. | 0 |
At the same time, unlike in most jurisdictions, we have already had for more than a year very advanced legislation on resolution that has been applied in the process of restructuring our financial system and that has entailed a significant saving of public funds. That said, it is true that some specific aspects (especially associated with the deductions introduced for regulatory capital) could be specially demanding for certain Spanish banks, BIS central bankers’ speeches 5 which are already responding in their strategic plans. More generally, the pressure exerted by the market on the availability of capital (beyond the new minimum regulatory requirements) requires an on-going effort to preserve capital and, specifically, to maintain prudent cost containment and dividend policies. Also, it is clear that the productive specialisation of our economy and its dependence on bank financing make it vulnerable to any adverse impact of the new regulation on the ability of banks to finance the real economy. To counter this, all we can do is take advantage of the timetables established to ensure our institutions gradually adapt to the new requirements and, above all, work at the same time to promote the development of our capital markets in order to increase their capacity to intermediate the economy’s financial flows. All told – and I will finish here – the main challenge we face, as I have already mentioned, is the persistent fragmentation of European markets (despite the recent improvement) and the consequent link between sovereign risk and banking risk. | Market data were vital inputs to objective decision making – but they could not answer the ‘whys’ and ‘what ifs’ essential to effective tool design. Key aspects of the intervention – including the range of assets we offered to purchase, the size of daily operations, launch timing and duration of the facility, and pricing – relied on detailed and ongoing qualitative, as well as quantitative, market intelligence. [11] In terms of the intervention tool itself, we would have much preferred to rely solely on collateralised lending. But this wasn’t viable, for the simple reason that there was no-one either willing to, or Page 8 capable of, borrowing from us at sufficient speed to staunch the firesale dynamic. The LDI funds themselves needed less leverage not more. The pension funds that invested in the LDI funds had collateral, but many lacked the ability to borrow, and anyway were too numerous and preoccupied in time-consuming processes aimed at reaching formal decisions as to whether to recapitalise their investments to act at the speed required. We had many ways to provide liquidity to the banks,[12] but they were already flush with liquidity, and no better placed than we were to pass liquidity on, either to pension schemes or LDI funds. [13] In the circumstances we faced, therefore, a buy/sell tool proved the only way to stop firesale dynamics in a timely manner (Figure 3). This is clearly not where we want to be in the steady state. | 0 |
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