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First and foremost, international linkages have risen dramatically over the past few decades, increasing the importance of cross border spillovers.6 Growing cross border trade means external demand has greater effects on domestic resource allocation and therefore inflation. The integration of low-cost producers into the global economy has imparted a steady disinflationary bias through its direct effect on prices. The expansion in global value chains has increased the synchronisation of producer prices across countries. Financial linkages have increased leading to a faster and more powerful transmission of shocks across countries. And globalisation has increased the contestability of markets, weakening the extent to which slack in domestic labour markets influences domestic inflationary pressures.7 Second, the changing nature of trade invoicing is affecting import price pass through and changing the inflation-output volatility trade-off facing monetary policy makers. Dominant currency pricing is widespread (partly due to the growth of supply chains), leading to deviations from the law of one price and misalignments in countries’ terms of trade.8 The dollar represents the currency of choice for at least half of international trade invoices, around five times greater than the US’s share in world goods imports, and three times its share in world exports.9 The resulting stickiness of import prices in dollar terms means exchange rate pass-through for changes in the dollar is high regardless of the country of export and import, while pass-through of non-dominant currencies is negligible. | In this context, the SNB fully supports FINMA’s efforts to ensure that risk-taking by individual banks is reduced or backed by specific capital charges whenever the risk exposure is deemed exceptionally large by historical or industry standards. In parallel with these measures, the SNB will continue to monitor developments on the mortgage and real estate markets closely, and will reassess the need for an adjustment to the CCB on a regular basis. BIS central bankers’ speeches 3 | 0 |
Basle Report Findings As you know, I chair the Basle Committee on Banking Supervision, comprised of bank supervisors from the G-10 countries who coordinate supervisory policy for internationally active banks. While the Committee does not have formal legal enforcement powers, its conclusions and recommendations are widely implemented, both in G-10 countries and many others. In late January, the Committee issued a report dealing with the relationship between 1 BIS Review 27/1999 banks and highly-leveraged institutions, or “HLIs”. The Committee’ s report provides a framework for addressing the broader issues raised by the LTCM episode, the policy responses of supervisors, and some key risk management challenges for the banking industry going forward. In the United States, the Federal Reserve System, the New York State Banking Department, and the Office of the Comptroller of the Currency have conducted target reviews of a number of large-bank dealings with hedge funds. These reviews contributed to the Committee’ s work, to the Federal Reserve System’ s issuance on February 1 of new guidance to financial examiners and banks, and to similar guidance from the Comptroller of the Currency issued in January. These new standards emphasize the need for improvements in the credit risk management process at banks. The new standards will likely be complemented by a study of the implications of the LTCM episode by the President’ s Working Group on Financial Markets. | Mr McDonough comments on Capital Markets, Securities and Government Sponsored Enterprises Statement by the President of the Federal Reserve Bank of New York, Mr William J. McDonough, before the Committee on Banking and Financial Services, U.S. House of Representatives, Washington, D.C., on 3 March 1999. Good morning Chairmen Leach and Baker and members of the Subcommittee. When I appeared before the full Committee in October, I spoke about the near-collapse of Long-Term Capital Management and the events leading up to the private-sector recapitalization of its fund, Long-Term Capital Portfolio. At that time, I promised you that we would take a hard look at the issues growing out of that experience, particularly as they affect our responsibilities as bank supervisors. I am pleased to appear before you today to report on the lessons we have learned and the actions we have taken to reduce the possibility that such an episode could repeat itself in the future. As I indicated last fall, three issues require particular attention by banks and their supervisors in the wake of LTCM. These are, first, the adequacy of banks’ credit analysis processes; second, the effectiveness of exposure measurement; and third, the role of stress testing of counterparty exposure. In my remarks today I will detail the substantial progress that has been made, both domestically and internationally, to address each of these supervisory concerns. | 1 |
And then we do not have the same element of speculation in the Swedish housing market as in, for instance, Australia and to some extent the United Kingdom. What I mean here is the phenomenon that households buy housing as a financial investment and then rent it out, which may contribute to imbalances building up. This type of activity is not profitable in Sweden in the same way. There are several reasons for this, but the most important ones are probably the tax system and rent legislation. In Sweden we usually buy a house to live in rather than as a financial asset. However, having said this I would nevertheless like to say a word of caution. It is quite right to wonder whether the developments in recent years are actually sustainable. Households’ debts in relation to incomes peaked at around 120 per cent in connection with the crisis in the 1990s. Today this figure is almost 170 per cent! Also at the beginning of the 1990s many models and fundamental driving forces behind house price developments pointed to there not being a serious over-valuation in the property market. Nevertheless prices fell in many areas by around 30 per cent! Such a development could affect the real economy and thereby also the conditions for monetary policy. | It aims to help people find out more about the notes and coins they use every day. On this occasion, though, there’s something new. The highlight today is the brand new ten euro note. It’s the first time it has been on public display since it was unveiled to the media just two days ago at the ECB in Frankfurt. That means you’ll be one of the first to see this new note before it starts circulating on 23 September this year. The new ten euro is part of what we call the Europa series of banknotes. It’s named after the figure from Greek mythology whose portrait is included in the hologram and the watermark on the notes. Take a closer look at those two security features in the exhibition, as well as the distinctive emerald number, which changes colour from green to deep blue when you tilt the note. They’re all examples of how we have used advanced technologies to make the notes even more secure. The security features will keep us well ahead of counterfeiters – and justify the confidence that the people of the euro area have in their money. There’s a lot more to be seen in this exhibition, which I hope you will all find as interesting and entertaining as I did. So without further ado, allow me to declare it open. BIS central bankers’ speeches 1 | 0 |
During the interval they have an encounter with Global’s friend from the time he was a student. It turns out that he recently got married and his wife used to work with Global on a project several years ago. They decide to go for a drink together. Using their communicators they choose a cosy restaurant next to the theatre and book a table. After the performance they are all in great mood, and recall the beginning of the 21st century with amusement. The waiter discreetly charges Global’s non-contact e-wallet for actually ordered dishes. John can easily accept the payments after he comes back home. Global registers all transaction details in his financial organizer build into the communicator. Thanks to it he can track and analyze his transactions and schedule expenses. He is fully in control of his finances. His personal communicator receives financial operations on an ongoing basis, and confirms or accepts them. Once a weak it receives a financial e-analysis drawing Global’s attention to offers better tailored to his appetite for risk and lifestyle. Small hours. Mr. and Mrs. Global are coming back home. Why have I told you this story? Why does a central banker tell stories about future instead of delivering a 30-minute speech of the success achieved by the National Bank of Poland and its partners in building a safe, efficient and modern payment infrastructure in Poland? The reason for this is that we have to prepare for the future. | William C Dudley: The evolving structure of the US treasury market Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at The Evolving Structure of the U.S. Treasury Market: Second Annual Conference, Federal Reserve Bank of New York, New York City, 24 October 2016. * * * On behalf of the New York Fed and our co-sponsors, it is my pleasure to welcome you to this second annual conference on the evolving structure of the U.S. Treasury market. We have the opportunity today to continue the dialogue around the changing nature of the Treasury market, a discussion that grew more urgent following the events of October 15, 2014.1 We have made significant progress since last year’s conference in improving our collective understanding of the Treasury market, and I believe it is important to continue official and private sector collaboration on this topic. Indeed, there is much left to do to ensure the continued integrity and effectiveness of this market, and I look forward to the further progress we will make today. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.2 Over the past year, the Joint Member Agencies 3 have engaged with market participants and other members of the public to gain more information on the changing structure of the Treasury market. | 0 |
Ultimately, the most important measure of success for the reforms that we are now pursuing in the general insurance industry will be how far they contribute towards addressing the protection gap that exists, in turn strengthening our foundations for growth and stability. Today, I would like to talk about how agents have a key role in this process. In a more liberalised environment, insurers will have much greater flexibility in the design and pricing of products based on their respective business and risk strategies. This should encourage pricing that is more aligned to risks (let’s call this point “A”), and place greater power in the hands of consumers to manage the cost of insurance by controlling the risk factors that influence pricing (let’s call this point “B”). This in turn can make insurance more affordable for more people and businesses, especially small businesses. However, interventions by an agent are what effectively connects points “A” and “B”. In a detariffed environment, the number and range of risk factors that determine insurance prices are expected to expand. Consumers will also have more choice on the scope and level of protection that they purchase. Agents, having both direct access to consumers, and intimate knowledge of an insurance provider’s underwriting considerations and products, are best placed to explain the insurance options that are available to the consumer and make recommendations on how to maximize the value of a purchase. A number of things will need to happen for agents to deliver on this expectation. | It will improve incentives for safe driving behaviours and better risk management practices by both risk owners and insurers. And it will address market distortions which have threatened access to motor insurance, particularly for higher risks. This is also a time when businesses and households are facing rising costs and more uncertain conditions which can adversely affect discretionary spending on insurance. At the same time, the exposures of households and businesses which insurance is designed to protect, have actually increased as evidenced by more frequent and severe incidents of natural and man-made disasters. All of these developments raise critical questions for insurance agents. One question that comes up time and again is: Will insurance agents continue to be relevant? If you are in this room today, then I assume you will agree with me that the answer is clearly ‘yes’. But I believe you are also here because there is a recognition that agents will have to evolve. Even if some of you were not completely convinced of this before, that reality surely can no longer be ignored or dismissed. So the more important question then is how agents can be a meaningful part of this change in order to advance the important benefits of insurance for the economy and the wider society? Today in Malaysia, the general insurance penetration level measured in terms of premiums as a share of GDP stands at less than 2% (1.68% as at end 2015). | 1 |
With the new quarterly data, published by the Scottish Executive, it looks as though in the year to Q1 output growth in Scotland was higher than in the UK as a whole. The latest surveys show business confidence continuing to rise. And most welcome of all, unemployment has continued to fall in Scotland, as in most parts of the UK. Nevertheless, the high level of sterling has undoubtedly caused serious problems for many sectors of the economy. As a result, some critics have argued that, with sterling at its present level, the burden of containing inflation should fall more on fiscal policy. By raising taxes or cutting expenditure this would, it is argued, enable the Monetary Policy Committee to lower interest rates, thus bringing down the pound. There is, it is alleged, a failure of coordination between monetary and fiscal policy. This argument deserves a reasoned answer. So tonight I want to answer two questions. First, why did the MPC feel it necessary to raise interest rates in September, at a time when inflation was a little below target and might fall further in the next few months? Second, is there adequate coordination between monetary and fiscal policy under the new arrangements? 2. Setting interest rates to meet the inflation target What a difference a year makes. Last October, bankers, especially in the United States, were talking about the worst financial crisis of their adult lifetimes. | We are committed to a dialogue, and that includes a dialogue with the people of Scotland. I cannot claim that we shall always do what some of you would like us to. But I can promise that we shall explain and we shall listen. And we shall remember those words of Rabbie Burns, O wad some Pow’r the giftie gie us To see oursels as others see us! It wad frae mony a blunder free us, And foolish notion. Some of you may still feel that the MPC’s decision to raise interest rates was a “foolish notion”. But I can assure you that our mission to explain will continue, and that we shall take the case for stability to every part of the country in order “to see oursels as others see us”. 5 BIS Review 111/1999 | 1 |
It also seeks to enhance regional connectivity by reducing behind-the-border non-tariff trade barriers and promoting consistency in regulation across all the member countries. Singapore views the TPP, along with the RCEP, as complementary tracks that will lead towards increased regional integration, and eventually, to a Free Trade Agreement of the Asia Pacific. The recent decision by Japan to join the TPP will further reinforce the TPP as a platform for broader economic integration across the Pacific. With Japan’s inclusion, the TPP’s membership has now expanded to 12 countries. This represents nearly 40 per cent of the global economy and one-third of world trade. As you all know, joining the TPP is a key element of the three-arrow strategy embodied in Abenomics. The prognosis for Japan has improved considerably compared to six months ago. After stagnating for much of last year, the Japanese economy rebounded strongly in the first quarter of this year, with GDP growth of 3.5 per cent on a pick-up in consumer spending. Growth forecast for the whole of this year has been progressively raised, with room for further upward revision. Sentiments have improved strongly since the announcements of aggressive monetary and fiscal policy measures to revive the Japanese economy. The sharp depreciation of the Yen has also helped to boost expectations for GDP growth and corporate profits. One example of this is Toyota Motor. It has reported consolidated operating profit of 1.3 trillion yen for the 2012 business year, about 3.7 times that of the previous year. | The CLMV countries have reduced tariffs on 98.86% of their tariff lines to the 0–5% tariff range in 2010, and are expected to eliminate tariffs on these goods by 2015, with flexibility for a few tariff lines until 2018. BIS central bankers’ speeches 1 • On services, ASEAN Member States have recently completed the eighth package of commitments under the ASEAN Framework Agreement on Services. What this means is that we can expect the reduction of services barriers, such as foreign equity limits in the ASEAN countries. • On investment, the ASEAN Comprehensive Investment Agreement entered into force in March last year. This agreement has established stronger, pro-business rules, with enhanced investment protection for both ASEAN-owned investments and also foreign-owned investments based in ASEAN2. Singapore’s multilateral agreements However, to enable businesses to access major markets more easily, Singapore has also broadened our engagement with Asia Pacific beyond ASEAN. By doing so, we aim to reduce trading costs. To this end, Singapore actively participates in negotiations of several multilateral trade agreements. One example of such a multilateral trade agreement is the Regional Comprehensive Economic Partnership, or RCEP, which is a partnership between ASEAN and six other countries, namely Australia, New Zealand, China, Japan, India and South Korea. Regional Comprehensive Economic Partnership (RCEP) and Renminbi (RMB) Internationalisation This agreement builds upon the existing ASEAN+1 free trade agreements (FTAs) FTAs by bringing together ASEAN’s existing FTAs with its key partners into a single comprehensive agreement. | 1 |
Another important task for the financial system is to reduce risks for both savers and investors. The fact that some companies can involve greater risk than others can be balanced in a well-differentiated financial market by savers spreading their savings across different forms, buying different shares, bonds, shares in mutual funds that in themselves represent a risk spread, and by depositing some in banks. A company that takes on debt in order to make profits in future through sales on foreign markets can protect itself against exchange rate fluctuations by signing futures contracts, which state when and at what prices future income will be converted to kronor. The company can also buy input goods, such as oil, and sell, for instance, pulp at a forward rate, so that the company knows for certain what its future costs and income will be. It costs to do this, but the company then faces no risks. It is quite simply a form of insurance. BIS Review 9/2002 3 When it comes to smaller companies and individual households, the securities market is hardly a suitable alternative. The risks for operators on the capital market are difficult to assess and the costs of the transactions have to be spread out over large amounts. Instead, banks and insurance companies supply services to small companies and households. The banks act as intermediaries, who receive deposits that are liquid and convert them into long-term lending, so that savers' requirements can be reconciled with the needs of the investing company. | Key policy rate is low because inflation is low and because the downturn abroad and a strong krone are dragging down on growth in some sectors in Norway. Very low interest rates abroad and high premiums in money and credit markets reinforce this picture. There are unusually wide differences between various interest rates, reflecting the high level of money 4 BIS central bankers’ speeches market and credit premiums. Many households are paying up to 4 percent on housing loans and interest rates on corporate loans range between 5 and 6 percent. When setting interest rates, the Bank does not give weight exclusively to bringing inflation back to target. Weight is also given to the effects of the interest rate on output and employment. At the same time, weight is given to the risk that a prolonged period of low interest rates can lead to elevated risk-taking and excessive debt accumulation in the household and business sector. Such imbalances may have spillover effects further ahead, with substantial effects on output and employment. In the March 2012 Monetary Policy Report, Norges Bank clarified how these considerations are expressed in the Bank’s response pattern. In that connection, the Bank adjusted the criteria to which it gives weight in interest rate forecasting. The key policy rate is set so that inflation is brought back to target. At the same time, inflation targeting is flexible, which means that the path for inflation should be weighed against developments in output and employments. Interest rate setting should also be robust. | 0 |
In its conduct of monetary policy, Norges Bank focuses on the fundamental preconditions for achieving exchange rate stability against the euro. First, price and cost inflation must be brought down towards the corresponding aim for inflation for the European Central Bank (ECB). At the same time, monetary policy must not in itself contribute to deflationary recessions as this could undermine confidence in the krone. There are few significant differences between Norway's actual response pattern and that of countries with explicit inflation targets. Price and cost inflation must be steered towards that aimed at by the ECB. However, in Norway fiscal policy has traditionally had an important role in stabilisation policy. This has reduced the burden on monetary policy. In addition, the Norwegian wage determination system has probably contributed in periods to dampening the impact of shocks hitting the economy. Monetary policy influences price and cost inflation with a time lag of perhaps one to three years. In consequence, projections for price and cost inflation with a horizon of a couple of years play an important part in the setting of interest rates. From the time interest rate decisions are taken until the interest rate has an impact on prices and costs, various types of disturbance occur which influence price and cost inflation. Thus it is not possible to maintain full control over developments in prices and costs. Actual price and cost developments normally deviate somewhat from earlier projections. | And lastly, we will do more in the future to enhance the attractiveness of the Paris financial centre: the Government will do its part – the Prime Minister will talk about this later –; the Ile-de-France region and the Paris City too; and the ACPR will examine in a prompt way all applications in its remit coming from financial institutions that are already licensed in another EU member state. Of course, Paris is not the only financial centre in the euro area, but it has everything it needs to be one of the best. It depends on us, on all of us. Therefore, now more than ever, the time has come for Paris Europlace to take center stage. BIS central bankers’ speeches 3 | 0 |
For reasons set out earlier, it has probably also increased the chances of self-reinforcing and self-referential waves of collective irrationality taking hold. 35 If so, these waves of collective irrationality could be becoming larger than ever. While a vestige of our hunter-gatherer past, the madness of crowds can these days spread to a global village. That leaves us with a conundrum. If decision-makers in complex environments were to draw on a wider set of non-expert opinion, what are they likely to encounter? Is it a case of harnessing the wisdom of crowds or avoiding their madness? Will greater public engagement help inform and improve expert decision-making by widening the pool of lived experience? Or will it hinder that decision-making by polluting the information pool with irrational or irrelevant opinions? Perhaps the most comprehensive study of the value of expert and non-expert opinion, as it applies to complex decision-making in the social sciences, has been provided by political scientist Philip Tetlock. Over a more than 20-year period, he has researched forecast accuracy and, most recently, run The Good Judgement Project. This explored the performance of a set of experts and non-experts in forecasting the outcome of a particularly complex set of decision problems. So what does Tetlock’s evidence suggest? That the usefulness of non-expert opinion in complex decision settings depends on how exactly this information is drawn in and drawn on. From Tetlock’s book with Dan Gardner in 2015, Super-forecasting, I would highlight two key findings. | Interestingly, these seek to strike a rather different balance between diversity and deliberation, both relative to the Athenian model and especially relative to each other. One is executive democracy. Under this model, an elected or appointed set of representatives take decisions on society’s behalf, often through a Parliament or Congress. This model underpins modern democracies in a great many countries; it has grown in popularity for much of the past 200 years. Such has been its success, many people these days would define democracy in terms of this model. For most of history, this was not the case. Aristotle was not alone in seeing an executive democratic model as an “elected oligarchy”. 42 At the time many executive democracies were being put in place, their Founding Fathers (they were all still men) were often deeply suspicious of Athenian-style democracy. John Adams, second President of the United States, captured it thus: “Remember democracy never lasts long. It soon wastes, exhausts and murders itself”. 43 The Greek Empire lasted only 350 years before exhausting itself. 40 Hennig (2017), Van Reybrouck (2016). Gruen (2018), Fiskhin et al (2008). Politics, Aristotle. 43 From John Adams to John Taylor, 17 December 1814. 41 42 17 All speeches are available online at www.bankofengland.co.uk/speeches 17 While Adams was wrong about the durability of executive democracy, suspicions about whether it properly represents all slices of society have persisted. Indeed, these suspicions have risen recently. | 1 |
Programmable money means embedding rules within the medium of exchange itself that defines its usage. These rules are retained even when the money is transferred. Why is this useful? Take for example, donations to charity. With programmable money, we can have better assurance that donations reach their intended beneficiaries and the funds are used for their intended purposes. We can programme the beneficiaries and purposes into the money itself. The programmability comes from tokenising the money and placing it on a distributed ledger. There are four options for programmable money: cryptocurrencies, stablecoins, tokenised bank deposits, and central bank digital currencies or CBDCs. Cryptocurrencies are a non-starter. They have performed poorly as a medium of exchange as well as a store of value. Given its volatility and speculative nature, cryptocurrencies do not hold promise to serve as money in the first place. Stablecoins are more promising. If well-regulated and securely backed by reserves – as per MAS' latest proposed regulations – they combine the benefits of stability and programmability. But their pervasive take-up remains to be seen. Tokenised bank deposits are digital representation of commercial banks' deposits that can be used as digital cash to make payments or buy and sell digital assets without going through the banking system. CBDCs, as direct liabilities of the central bank, marry the advantages of central bank issued cash with the advantages of the blockchain. They are essentially digital, programmable versions of cash. Where does MAS stand with respect to these four forms of programmable money? | Thus Hong Kong will adopt Basel II at the same time as other major international financial centres, such as London, Frankfurt and Tokyo. From a regional perspective, the implementation timetable in Hong Kong is broadly similar to that being adopted by Australia and Singapore. For several years now the HKMA has been developing its supervisory approach along Basel II lines, and this is leading to some significant changes in how supervision is conducted. Central to this is the issue of "process versus rules". Process versus rules The original Basel Capital Accord was developed when risk management was still very much in its infancy. It reflects what might be called a "rules-based" approach to regulation in the sense that it sets prescriptive standards that banks are required to follow. It relies largely on the application of simple, mechanical formulas for assessing how much capital a bank should hold. The essence of the old Capital Accord was that it represented an attempt to monitor the prudential soundness of banks by using a standardised risk measurement framework, which was applied to all institutions and which employed data based on a snap-shot of their balance sheets at certain specified reporting dates. The approach was standardised since regulators specify the precise form in which the calculation of capital adequacy is to be performed - for example, the specific risk categories into which assets are to be assigned. | 0 |
As you may know, Peter Fisher, an executive vice president of the New York Fed, chaired a working group of the Euro-Currency Standing Committee of the G-10 central banks, which published a discussion paper on “Public Disclosure of Market and Credit Risks by Financial Intermediaries” in September 1994. This so-called Fisher report described how trading and financial risk management practices had developed far beyond the public disclosure of financial information, creating a gap between the precision with which a firm’s management could assess and adjust the firm’s own risk exposures and the information available to outsiders to help them assess the riskiness of that firm’s activities. Recognizing that such an asymmetry of available information could cause the misallocation of capital among firms and amplify market disturbances, the Fisher report recommended that all financial intermediaries -- regulated and unregulated -- move in the direction of publicly disclosing periodic quantitative information. The information requested would provide estimates relied upon by the firm’s management of: the market risks in the relevant portfolio or portfolios, as well as the firm’s actual performance in managing the market risks in these portfolios; and the counterparty credit risks arising from the firm’s trading and risk management activities. By and large, these proposed measures for reporting risk have been adopted voluntarily by many major banking institutions around the world, with many others moving in that direction. As such, they have contributed importantly to improved transparency in financial markets. | This is prospectively very positive. A couple of years ago I asked around London who were the best analysts of banks. Pretty well all those named were current or past equity analysts. A measure of success of our reforms will be that some leading analysts will concentrate on debt rather than equity, on the downside risks: credit analysts. They will be needed. Maybe there are some already. The upshot is that withdrawing the safety net from banks will require the other parts of the financial system to be sound, because they will have to stand on their own feet. It is sometimes pointed out that the insurance industry – other than AIG – did not benefit from state support. But, of course, insurance companies holding bank debt were the direct BIS central bankers’ speeches 1 beneficiaries of state support for the banking system. Regulators of insurers – including, in this country, prospectively the Bank of England through the Prudential Regulation Authority – will need to take the changed regime for banks into account. We no more want insurance to be part of a “socialised” financial sector than banking. Finally on the “whats”, a world in which bank debt is perceived to carry risk is a world in which, as I have said before, it may be helpful for banks’ management to be remunerated partly through subordinated debt rather than just equity. Management would then have a clear personal incentive to focus on and contain tail risks. | 0 |
And how agile and resolute is the bank in actually changing the beliefs, structures, dynamics and thus behavioural patterns that are preventing it from reaching, or restoring, its reputational and strategic goals? Conclusion Let me conclude. Some of you here today are non-executive directors at banks. As such, you play a vital role in setting the right tone for your entire institution. Your conduct is crucial in creating a healthy risk culture within your organisation, and you are responsible for nurturing behaviour which reflects the core values of your organisation and protects its best interests, not just in the short-term, but also in the future. Beyond your technical skills and your experience in banking, there are broader expectations regarding your conduct and behaviour as board members. You must ensure that there are concrete consequences for failing to adhere to prudent behaviour. Governance in the stricter sense deals with the structure which shapes a banks’ actions. Getting these structures right is of the utmost importance. But that is not the whole story. It is also relevant how people behave within these more formal structures and what the underlying cultural drivers of their behaviours are. Banks would be well advised to seek to identify these behavioural patterns and to act on them if such patterns encourage conduct which is not in line with their values and risk appetite. | Mr Bäckström reports on the Swedish economy and monetary policy Speech given by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, to the FöreningsSparbanken, in Malmö on 16 February 2000. * * * The repo rate increases In order to understand why the Riksbank has raised the repo rate in two steps from 2.90% last November to 3.75% less than a fortnight ago, it is necessary to consider the situation in 1998. The mood at that time, in the global economy as well as in Sweden, was coloured by the Asian crisis, the suspension of Russian payments, the problems with the hedge fund Long Term Capital Management and falling stock-market prices. It was considered that in addition to direct problems, the financial crisis in the autumn of 1998 would have negative effects on real economic activity. Forecasters altered their assessments and the prospects for global output and inflation were revised downwards. Central banks around the world did likewise and the Riksbank was no exception. Instrumental rates were reduced in many countries. Between the early summer of 1998 and the spring of 1999 the Riksbank cut the repo rate by a total of 150 basis points, bringing it down from 4.40 to 2.90%. The actions of central banks probably mitigated effects of the various shocks. | 0 |
Clearly, given that the Swiss franc is significantly overvalued, the earnings outlook for Swiss franc investments compared to those in other currencies is considerably reduced. BIS central bankers’ speeches 3 There is widespread discussion on negative interest rates, in part because institutional investors, and pension funds in particular, could now incur costs for holding liquidity. However, in the current environment, there are no real alternatives to our measure. Negative interest helps to reduce the overvaluation of the Swiss franc. If the Swiss franc were even stronger, this would have a direct or indirect effect on everyone in the economy: companies, households and the public sector. With all the concern about negative interest it is important to remember that when inflation is negative, real interest rates are higher than nominal interest rates. In the past, the inflation rate was often higher than the nominal rate of interest. In other words, in terms of real returns, there have been times when saving was less worthwhile than it is now, indeed, times when savings balances actually lost value in real terms. Moreover, in the current situation, efforts to circumvent negative interest rates by obtaining exemptions or shifting to cash are not in Switzerland’s general interest, since they undermine monetary policy intentions. It should be remembered, in this respect, that holding cash also entails substantial costs and is subject to a high level of risk. We will retain the current interest rate level for the time being. It will continue to support the weakening of the Swiss franc. | Andrew Bailey: The case for an open financial system Speech by Mr Andrew Bailey, Governor of the Bank of England, at the Financial and Professional Services Address, Mansion House, London, 10 February 2021. * * * As we look forward – and for so many reasons we must look forward – it is important to focus on the future of financial services, and the important role they play in our economy and internationally. This will be my focus today. I am going to look forward with the benefit of history and context and set out why open financial markets are in the interests of all – home and abroad – and something we should always strive for. I want to start with the Bretton Woods agreement towards the end of the Second World War. This was a fundamental and decisive commitment to an open world economy. This commitment did not come free at the time – the adjustment was hard for this country – and of course the more formal Bretton Woods system broke down in the 1970s. But that breakdown did not compromise the commitment shared broadly across nations to an open world economy. There have been times when the commitment has been sorely tested, but it has not been abandoned. What followed the breakdown was a shift of emphasis, not a free for all. | 0 |
As you remember, around this period of last year, one of the issues that had attracted a lot of public attention was the continued influx of fund flows into the emerging markets including Thailand. But this theme has suddenly changed when the US Federal Reserve signaled in May its intention to scale down, and eventually terminate, its asset purchasing program. The signaling immediately sparked turbulence in capital and currency markets in emerging economies and certainly serves as a recurring reminder that the linkages in the international economy are as psychological as they are mechanical. From June to August, Thailand, like other economies in the region, continued to witness further episodes of outflows as investors continued to reform their expectations towards the exact tapering timeline. 4. In the recent months, turbulence in the markets seems to have somewhat been moderated. This possibly reflects the fact that much has been priced in during the earlier outflow episodes, as well as the fact that it has been clearer to the markets now that any further tapering by the Fed will likely be done in an incremental manner. This is, however, not to say that short-term volatilities are no longer with us. The challenges going forward for policymakers are, therefore, not only to have the right set of policy responses in place to deal with these short-term volatilities, but also to make sure that all the market participants are well prepared for the scenarios that could be expected. 5. | If today’s inflation targeting regime is to avoid the same label, it must be practiced flexibly so that it fosters economic stability over time. 16 BIS central bankers’ speeches Confidence in low and stable inflation remains firm. That must always be the main task of monetary policy. Yet our own history and the recent experience of other central banks have shown that the system can come under pressure. When circumstances change, central banks must also be capable of adapting and new thinking. We must learn from the past, be prepared for sudden shifts and seek out new solutions. Come what may. BIS central bankers’ speeches 17 | 0 |
In 2017, the record $ billion of insured losses were eclipsed by an additional $ billion of uninsured ones.11 In some of the countries most exposed to climate change - Bangladesh, India, Vietnam, Philippines, Indonesia, Egypt and Nigeria - insurance penetration is under 1%.12 The potential economic benefits of closing the insurance gap are striking. Lloyd’s of London estimates that a 1% rise in insurance penetration can translate to a 13% reduction in uninsured losses and over 20% reduction in disaster recover burden on taxpayers. Substantial macroeconomic benefits include increased investment, higher output (potentially up to 2% of GDP) and greater climate resilience.13 Despite this prize, progress is proving stubbornly slow – over the past 30 years the gap has narrowed by only from 78% to 70% globally, underscoring the importance of the IDF’s work.14 The role of insurance for adaptation and resilience So what should be done? 10 Munich Re (2019), The natural disasters of 2018 in figures, See: https://www.munichre.com/topics-online/en/climate-change-and-naturaldisasters/natural-disasters/the-natural-disasters-of-2018-in-figures.html. 11 Swiss Re institute (2018). See: https://www.swissre.com/institute/research/sigma-research/sigma-2018-05.html. 12 See Lloyd’s of London global underinsurance report (2018). Available online at: https://www.lloyds.com/~/media/files/news-and-insight/riskinsight/2018/underinsurance/lloyds_underinsurance-report_final.pdf. 13 Lloyd’s City Risk Index, 2015-2025 (2015), available at: https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/risk/downloads/crslloydscityriskindex-execsummary.pdf. 14 Geneva Association, Understanding and Addressing Global Insurance Protection Gaps (2018). See: https://www.genevaassociation.org/sites/default/files/research-topics-documenttype/pdf_public/understanding_and_addressing_global_insurance_protection_gaps.pdf. 5 All speeches are available online at www.bankofengland.co.uk/news/speeches 5 Both sides of insurers’ balance sheets need to respond. On the liability side, the focus must be reducing the protection gap and supporting the resilience of households and companies to growing climate risks. | We are now working out the details for both schemes, and we look forward to further consultations with HKAB and other bodies as the proposals progress. The theme of the reform programme is facilitating greater competition in the banking sector while strengthening safety and soundness. Perhaps the single most important measure to remove barriers to competition will be the abolition early next month of the last remaining Interest Rate Rules, which involves removing the interest rate cap on savings accounts and ending the prohibition on interest on current accounts. There is, of course, much speculation about the immediate impact of this event: whether it will be a big bang that will change the face of banking services, or merely a quiet change of gear. Given the plentiful liquidity in the banking system, it is likely that it will be the latter. But there should be no doubt about its significance in bringing to an end restrictions that have been in existence for more than a third of a century. The restrictions, some of you may recall, were introduced in 1964 as a measure to prevent cut-throat competition among banks. They served their purpose, but they have now outlived their usefulness. Why do we place so much stress on facilitating competition through regulatory reform? I use the term “facilitate” because it is not within the power of a government – and it is certainly not the policy of our government – to create competition, or to force competition to happen. | 0 |
The financial collapse in Russia, deepening recession in Japan, the long battle – then sudden defeat last week – in Brazil’s attempt to hold its exchange rate, and fluctuating fears of possible knock-on effects on the major countries’ financial markets all contributed to an increased sense of financial fragility, which has not been easy to contain. We can, I believe, still avert a more general international financial upheaval (and the financial markets’ response to the latest developments in Brazil, as well as the beginnings of a recovery in capital flows to some countries in Asia, are reasonably encouraging in this respect). But, we are nevertheless bound to see a pronounced slowdown of world economic activity. The IMF has cut its latest (December) forecast for world growth to less than 2¼% in 1998/1999. And the risks almost certainly remain on the downside. That’s still not global slump or recession. But large parts of the world economy are in fact in recession and the prospect for the world as a whole turns very much on what happens in the major industrial countries. In essence, what we are seeing is a sharp cutback in capital flows to much of the emerging world and to some of the transition economies, enforcing on those countries a corresponding cutback in domestic demand and creating the need for an urgent improvement in their current accounts. | The Bank of Albania is an active supporter of financial and economic integration, considering it as one of the most important pillars to release the potential of the economy and boost its resilience to shocks. 3. On the Memorandum All the above, underlines the great importance of our economic and financial cooperation with Turkey. This cooperation imposes even us – the policy makers – to intensify the exchange of information and opinions, and seek to promote the finding of common solutions to common challenges. In this spirit, the Bank of Albania and the Central Bank of the Republic of Turkey are signing today this Memorandum of Cooperation, which may be well considered as the coronation of the insofar cooperation, as well as of our efforts to continue with drafting the relevant institutional framework for clarifying the operational cooperation protocols, in a series of central bank fields. This memorandum elevates the relations between our two countries to a new dimension. It confirms the will to elevate the level of cooperation and consolidate the ties between the two countries, providing for both institutions the necessary space for the intensification of mutual exchange of information and expertise in various fields of central banking, such as: supervision, financial stability, research, and financial education, and the regular dialogue at technical and political level. It is an important step for obtaining maximum benefits from the positive effects of integration and minimising the negative ones. | 0 |
Calculated through a combination of ‘SOC2KM’, ‘SC102KM’, SC2KMMJ’, ‘SOC10M’ and ‘SOCMAIN’ to create 10 classes of occupations as these change across time Pay Log of average gross hourly pay in main job (‘HOURPAY’) Public sector or private ‘PUBLICR’ Whether working in the public or sector private sector Region Region of usual residence ‘URESMC’ Sector A combination of Sector (SIC2007) ‘IND07’ and industry section (main job) ‘IND07M’ as these change across time Tenure Length of time continuously employed ‘EMPLEN’ 36 All speeches are available online at www.bankofengland.co.uk/speeches 36 UK-born A combination of varying country of origin and country of birth variables: ‘CRYOX’, ‘CRYOX7’, ‘CRYO’, ‘CRYO7’ and ‘CRY01’ Usual hours worked Log of total usual hours in main job (including overtime) ‘TTUSHR’ Wave ‘THISWV’ Wave to which the data refers to 37 All speeches are available online at www.bankofengland.co.uk/speeches 37 References Alkadry, M G and Tower, L E (2006), 'Unequal Pay: The Role of Gender', Public Administration Review, Vol. 66, No. 6, pp. 888-898. BEIS (2017), 'Race in the workplace: The McGregor-Smith Review', Department of Business, Energy and Industrial Strategy. Bjerk, D (2007), 'The Differing Nature of Black-White Wage Inequality across Occupational Sectors', The Journal of Human Resources, Vol. 42, No. 2, pp. 398-434. Black, D, Haviland, A, Sanders, S and Taylor, L (2006), 'Why do Minority Men Earn Less? | Today, financial firms with around $ trillion assets under management have committed to harmonised reporting using the Task-Force on Climate-related Financial Disclosures (TCFD) template.16 This has encouraged wider scrutiny of, and actions to mitigate, the risks to companies’ profits and balance sheets posed by climate change. Pay gap disclosure could have a similarly profound behavioural effect on companies. Fourth, there is also a strong case for improving the sets of data available publicly to monitor progress towards equality of pay and opportunity in the workplace. One example of useful additional data would be longitudinal data tracking individuals from school into employment, perhaps using administrative data or new surveys. This would help to understand the key determinants, and obstacles, to career and pay progression. Fifth and finally, published pay gap data are imperfect and can sometimes give a misleading impression of diversity patterns. We have demonstrated how raw pay gap data can sometimes give rise to puzzles. We 15 https://www.gov.uk/government/publications/business-population-estimates-2019/business-population-estimates-for-the-uk-andregions-2019-statistical-release-html 16 TCFD (2019). 34 All speeches are available online at www.bankofengland.co.uk/speeches 34 have also demonstrated, however, that a careful consideration of various compositional factors can resolve these puzzles and provide a clearer picture of underlying patterns. There is no reason why companies could not use these techniques when interpreting their own results. | 1 |
.” and affording “the means of discounting commercial paper.” Decision-making authority was vested in an institution structured to bring a diversity of largely independent perspectives to the table, for many of the same reasons that most governments vest monetary policy authority today with committees rather than individuals. The Federal Reserve was set up with a balance of public and private perspectives, drawn from across the country – a structure designed to avoid concentrating too much power in Washington, and also to provide a counterweight to New York. This body was comprised of a group of seven governors appointed by the President and confirmed by the Senate – five governors and the Secretary of the Treasury, the Comptroller of the Currency – and the heads (then called Governors) of 12 reserve banks. The terms of the Washington-based “Board of Governors” were long and staggered, giving them an extended horizon for policy making more consistent with the time frame in which monetary policy works and with the long-term interests of the nation than might be shaped by the electoral calendar. Reserve Bank presidents were appointed by their boards of directors. The Reserve Banks, spread across the country, were established as individual corporate entities, owned by banks, with individual boards of directors, a majority of which were elected by the bank shareholders. | Greater transparency in this form cannot eliminate policy uncertainty, but it can reduce it to a level closer to what the members of the FOMC individually confront. Alongside these changes in the conduct of monetary policy, the Fed today operates with a significantly greater degree of deference from the Executive branch than was true for most of its history. Executive branch officials do not comment publicly on the desirable course of monetary policy, and it would be unusual today for a White House or Treasury official to admit to seeking to influence in private the actions of the Chairman or the FOMC. These improvements in the de facto degree of independence with which the Fed operates are the result of changes in behavior and practice of the Executive branch. They are not written into law. They probably were aided by improvements in monetary policy transparency and by the favorable results the Fed has delivered under the past two chairmen. And they are in part the result of a broader recognition that monetary policy credibility depends significantly on both the de jure and de facto independence of the central bank. Changes in practice based on knowledge and learning may be as important as what is established by law in contributing to the independence of the central bank. The formal institutional arrangements of the central banks around the world have changed more over the last few decades than those governing the Fed. Central bank independence is much more firmly established and more widespread. | 1 |
Ravi Menon: Skills for the future Welcome remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Institute of Banking and Finance Distinction Evening, Singapore, 29 September 2017. * * * Mr Lim Swee Say, Minister for Manpower Members of the IBF Council, Distinguished guests, ladies and gentlemen, Welcome to the IBF Distinction Evening 2017. Tonight, we are honoured to have Mr Lim Swee Say, Minister for Manpower, as our Guest-ofHonour. Minister Lim, as you know, has been a lifelong passionate advocate for helping our workers build up their skills, grow in their jobs, and contribute to the economy. He will speak later in the evening on these issues – issues that are close to his heart – and also to all of us as part of the IBF community. The global economy is in a better place this year compared to last year. Let us take stock of where we are. The Singapore economy is on track to achieve slightly higher growth this year compared to 2016. And so is the financial sector. For the first five years after the global financial crisis, our financial sector grew twice as fast as the overall economy. Last year, for the first time, the financial sector grew slower than the overall economy, weighed down by weaker lending growth to the region. This year, the financial sector is expected to grow by 2.5-3.5%, slightly faster than the 2.03.0% expected for the overall economy. | Beyond the headline growth rates, Singapore has also made significant strides as an international financial centre in recent years. We are consistently ranked among the top five financial centres in the world, sometimes even top three. Singapore, along with Hong Kong, remains the dominant centre in the Asia-Pacific for offshore lending, debt markets, and derivatives trading. Our role as the leading regional hub has grown in re-insurance and infrastructure finance. We have a global position in foreign exchange, private banking, and asset management. But we have quite some way to go in the equities market space, beyond of course REITS where we are still Asia’s largest hub. Financial services are a major export engine for the Singapore market. Singapore runs a surplus in financial services trade. This surplus has grown by 40% since 2011. Singapore has been gaining market share in the imports of financial services by several major economies including China, India, and ASEAN. The medium-term prospects for the financial sector are good. 1/3 BIS central bankers' speeches I say this, with full recognition of the daunting challenges facing the industry. But our challenges are not without silver linings – which, if we are smart and nimble, we can harness to our advantage. Global growth is very unlikely to pick up to the levels that we saw in the heady days before the financial crisis. But Asia will remain the most dynamic region in the world. Its middle class is rapidly growing and its businesses are expanding across the region. | 1 |
At the same time, the Central Bank has also been conducting Open Market Operations aggressively, to manage the liquidity position in the market to be within the reserve money targets. Figure 3: Repo, Reverse Repo and Call Money Rates Per Cent 15.00 13.00 11.00 9.00 7.00 02-Dec-06 21-Oct-06 11-Nov-06 30-Sep-06 09-Sep-06 29-Jul-06 19-Aug-06 08-Jul-06 17-Jun-06 27-May-06 15-Apr-06 06-May-06 25-Mar-06 04-Mar-06 21-Jan-06 11-Feb-06 31-Dec-05 5.00 Repo Rate Reverse Repo Rate Weighted Average Call Money rate (Tax Adjusted) Responding to the tight monetary policy measures adopted thus far, market interest rates have increased, thereby discouraging excessive consumption and borrowing for such purposes. In turn, this has led to a deceleration in the high growth in the money supply. We believe that the tight monetary policy exercised by the Central Bank was instrumental in pulling back the growth in Reserve money from 20 per cent at end 2004 to 17 per cent by end August 2006. This decrease would have naturally led to a corresponding deceleration in broad money growth in the future, although in absolute terms, the growth in broad money remained uncomfortably high, around 19-20 per cent, during January to June 2006, a legacy of the high reserve money growth in the past. | The key policy instrument used in this endeavour is the establishment of policy interest rates for borrowing (Repurchase Rate) and for lending (Reverse Repurchase Rate) that operates through the Bank’s Open Market Operations. The Central Bank conducts Open Market Operations to keep the level of Reserve money in the system at an appropriate level, while it uses the Statutory Reserve Ratio (SRR) on commercial bank deposit liabilities to further support the monetary policy. Financial System Stability, the other core objective of the Central Bank, is achieved through the regulation and supervision of financial institutions, the overseeing of the financial infrastructure which includes critical payment and settlement systems, as well as keeping a close watch on the financial markets as a whole. To achieve this objective, the Central Bank employs a series of prudential and regulatory measures. In addition to the core objectives, the Central Bank provides policy advice to the Government and vital state sector enterprises to strengthen macroeconomic stability and to enhance growth prospects. The Bank also undertakes several agency and ancillary functions, which include managing the Foreign Reserves of the country, Public Debt and Employees’ Provident Fund (EPF). Further, the Central Bank plays a key role in broadening the financial infrastructure and strengthening the small, medium and microfinance sectors in the country. 2. Outline of today's statement The policy statement presented today for the year 2007 and beyond focuses on several areas. | 1 |
Here the Stability and Growth Pact lays down clear constraints on budget policy: the countries are to strive for budgetary positions close to balance or in surplus in the medium term and under normal circumstances they are to prevent the budget deficit from exceeding 3 per cent of GDP. A process has been set up for supporting the forces in each country that back a responsible policy. The process gets its muscle from the ultimate possibility of applying sanctions to countries that do not follow the guidelines. BIS Review 9/1999 –2– The background to the EU countries’ agreement on strict guidelines in this field is the concern about the size of government debt and the central role of fiscal policy in relation to monetary policy. Fiscal policy affects price stability both via the level of economic activity and via expectations of future inflation. Without the support of generally consolidated fiscal policies in the euro area, the task of achieving price stability would be a heavy one. Problems and shortcomings in fiscal policy hit growth and employment in that they necessitate a level of interest rates that is higher than otherwise. Today, far too few countries fulfil the medium-term fiscal policy objectives and the major euro countries have very small margins to the Pact’s definition of an excessive deficit. This can lead to problems in the Union, particularly if a weaker economic development were to result in further budgetary deterioration. | Now that the euro has been introduced, there is still work to be done to ensure that the monetary union also functions properly in the longer run. One of the major challenges is to achieve a good working relationship in the euro area between the single monetary policy and other components of economic policy. Achieving this interaction can be difficult even at the national level. Sweden’s problems in the 1980s are a good example: fiscal policy was not sufficiently tight to counter the rapid expansion of credit and neither was the supply side functioning all that well, which also contributed to the overheating. In the monetary union, the single monetary policy has to mesh with the national fiscal, wage and structural policies of eleven countries. While decisions about the other components of economic policy are still mainly national, they are highly important for the monetary union’s success. It is envisaged that good interaction will be achieved in that the euro countries monitor each other and jointly discuss their national policies. Starting from mutually agreed policy guidelines, each EU country is to present regular accounts of how it intends to fulfil the common objectives. If a country’s policy diverges from the agreed guidelines, the idea is that other countries will protest at an early stage; each country must shoulder its share of the responsibility for this. The work of constructing uniform rules has made most progress in the field of fiscal policy. | 1 |
At the end of this month, it is planned to approve the restructuring plans of the banks in Group 1 (those controlled by the FROB), and those of Group 2 (the other banks which will require State aid) will foreseeably be approved before year-end. The restructuring plans envisage the transfer of assets to the asset management company, which will become operational in December, and the recapitalisation of banks which need it. Each bank will 4 BIS central bankers’ speeches have a schedule for implementing the measures that it must adopt, and these are expected to be completed in the first quarter of 2013. Conclusions The State Budget for 2013 represents a substantial effort in terms of austerity. The intended fiscal adjustment is certainly very ambitious, given the ongoing recessionary setting for public finances next year. Central government efforts would be insufficient if not accompanied too by the adjustment to which regional and local government have committed. From the macroeconomic standpoint, some data show progress is being made in rebalancing the Spanish economy. The bulk of the correction has already been made by the current account and it is close to balance in 2012 which, foreseeably, will enable it to run a surplus in 2013. Similarly, we can see improvements in the competitiveness of the Spanish economy both with regard to labour cost indicators and productivity. We forecast that in 2014, and measured by unit labour costs, Spain will have recovered practically all of the competitiveness lost between 1998 and 2008. | Those are absolute prerequisites for stability in banking. Active, and sometimes intrusive, supervision of banks, and particularly of global banks, has to be at the foundation for stable banking and finance. I don’t think any reconfiguration of the structure of banking and finance is going to get us to an intrinsically safer system, taken as a whole. And we have to remember that this last global crisis, which is still with us in many ways, started not with large universal banks or large global banks, but with narrow or specialised players. Countrywide (the mortgage provider) in the US, Northern Rock in the UK, investment banks like Bear Stearns and Lehman Brothers. It was accentuated through AIG’s Financial Products division, which played a prominent role on the derivative markets. But it was not global banks that sparked off the crisis, although they helped propagate it globally. It bears reminding ourselves of that. BIS central bankers’ speeches 1 No matter how we restructure the system, no matter how we cut down or dice the pieces, banking will involve risk. And without the right culture – whether it’s about an investment bank or commercial bank or a mono-line player – and without the active and intelligent supervision, we’d have the same problems over and over again. The problems that underpinned this global crisis were old-fashioned problems – property booms that were misjudged by banks, regulators and borrowers; and the problem of banks relying too heavily on borrowing short term to invest long-term. | 0 |
The authorities in the Mainland of China, whilst repeatedly emphasizing that the responsibility for monetary policy in Hong Kong is for Hong Kong, in accordance with the principle of “one country, two systems”, have also expressed unequivocal support for the Hong Kong dollar’s link to the US dollar. There is a standing offer for extending help, if help is required, in the use of the Mainland’s foreign reserves. There is also a clear commitment of not devaluing the RMB, with full and convincing economic justifications in their own right, but also out of concern on the possible adverse psychological impact on the Hong Kong dollar’s fixed link with the US dollar. 32. But we obviously should not be complacent. Typically in financial markets there are inevitably those who feel that a doomsdayish forecast will bring them headline attention, without bothering too much about the facts. And as always responses from officials supported by hard facts are given only very little attention. But we shall continue to stick firmly to our policy, as we did in the past fourteen years, without wavering. We did so through an abundance of events, including the stock market crash in 1987, the events in the Mainland of China in June 1989, the collapse of BCCI in 1991, the ERM crisis in 1992, Mexico in 1994, Barings in 1995 and now financial turmoil in Asia, and every time the Hong Kong dollar remained rock solid. 33. | The Bank of Albania asserts that the financial markets and agents have sound and liquid balance sheets, but they continue to be risk averse into undertaking long-term investments. In conclusion, the Supervisory Council decided that the actual monetary policy stance is appropriate and decided to keep the key interest rate unchanged at 2.0%. The new information analysed at the meeting does not change our evaluations for the current situation of the economy and financial markets, and expectations for their outlook. The current monetary conditions are adequate for ensuring the return of inflation to our 3.0 % target in the medium term. Judging from the expected developments and the balance of risks surrounding them, the Supervisory Council deems that the monetary policy of the Bank of Albania will continue to maintain its stimulating nature, for some quarters ahead. 2 BIS central bankers’ speeches | 0 |
Given these responsibilities, the banking institutions therefore need to play their role effectively and efficiently to contribute to the overall stability of the financial system, and the growth and development of the economy. Visioning for the Islamic banking system In charting the future development of the Islamic banking system, due consideration would therefore need to be given to the role of the banking system in the economy. The ultimate goal is to enhance wealth creation, and promote sustainable and balanced economic growth. The vision is, therefore, to develop a progressive and robust Islamic banking and financial system, rooted in the Islamic core values and principles, that best serves the needs of our economies. By indicating the destination in the journey, to developing the Islamic banking industry, the Master Plan would provide a road map to drive convergence towards the common vision among countries in the development of an Islamic financial system. While collective efforts can be directed to achieve this common vision, consideration needs to be given to the stage of development of the respective economies. In particular, the expected role that the banking system needs to fulfill can be identified accordingly. This could range from the development of an Islamic banking system to efficiently intermediate funds in the economy, to having in place a sophisticated Islamic banking and financial system that is internationally integrated and that is in itself, an engine of growth. | I regret this somewhat as it would have been useful for us. Is the French banking system still sufficiently robust? In fact, French banks are increasingly robust as they are reducing their risks and increasing their capital. The reduction of risk has resulted from the selling-off of business lines, often abroad, and a scaling-back of some market activities; the increase in their capital reflects the setting aside of profits that remain substantial thanks, in particular, to the resilience of retail banking in the face of the economic slowdown. Their core tier 1 capital grew by 0.5 percentage point in the second quarter and they have exceeded the target set by the EBA. In terms of liquidity, they have managed very well the withdrawal of US money market funds last year by adjusting their assets, as well as the rebalancing of their sovereign bond portfolios. This goes to show that, if it is based on a sound internal model, the universal banking model works well. 2 BIS central bankers’ speeches Do you remain opposed to the separation of investment and retail activities? I really do not understand the benefit of this principle of separating activities. The only thing I wish to see is the outright prohibition of speculative activities and stronger internal controls for the risks associated with market activities. Otherwise, banks should be able to serve their customers, whether they are private individuals, companies or institutions, in all of their operations – on bond markets, forex and hedging operations, and creating savings products. | 0 |
To illustrate this point: Lowering the policy rate is not the only thing a central bank can do to ensure financial stability in the short run; a central bank has other efficient instruments at hand, which, depending on the situation, may be equally or even better suited to safeguarding financial stability. Also, these instruments do not affect the stance of monetary policy and thus the economic stability and price stability objective, or only do so to a lesser degree. The difference between liquidity management operations and changes in the stance of monetary policy has been poorly understood by many observers. Liquidity injections, as large as they may have appeared, have in general not resulted in significantly higher levels of reserve money, because they were only of a temporary nature. The liquidity management operations have thus not resulted, as is sometimes claimed by analysts, in huge amounts of excess liquidity, nor can they necessarily be equated with a more expansionary monetary policy stance. Many of the recent central bank liquidity management operations have not affected the monetary policy stance. However, there have of course been changes in the monetary policy stance during the financial market crisis: the Federal Reserve has significantly lowered interest rates, and in some other countries, the path of the (partly realised, partly expected) monetary policy rate is lower now than last August, which is equivalent to an expansion in the monetary policy stance. | Central bank action is a first-aid kit to ensure that the patient does not die on the site of the crash from a loss of blood, but the subsequent healing process is up to the patient. Taking moral hazard into account The final lesson concerns the moral hazard problem arising from liquidity management operations. Roughly speaking, moral hazard is the name we give to the situation in which, financial institutions and investors incur higher risks than they would otherwise because they expect the central bank to intervene in times of crisis. This, in turn, may increase the likelihood of future crises. Moral hazard is relevant both at the level of systemically relevant market players and at the level of markets as a whole. Market participants that are “too big to fail” or “too interconnected to fail” may automatically factor in the help from central banks when deciding about their business strategy. However, smaller players and investors that cannot count on individual help may also take the expected central bank reaction to financial market crises into account in their investment decisions. BIS Review 71/2008 7 Because of moral hazard, central bank intervention in order to safeguard financial stability in the short term may be destabilising in the long term. Therefore, when reacting to a financial crisis, the benefits of central bank intervention in terms of short-term stabilisation must be weighed against the long-term cost in terms of moral hazard. | 1 |
Moreover, the relatively close co-movement between finished manufactured goods import prices and consumer goods prices (excluding energy and food) over the past two years is suggestive of relatively high and rapid pass-through (Chart 2). The faster adjustment of prices relative to that implied by the evidence from the Great Stability may partly reflect the fact that much of that evidence for the UK is based on the 2 For example, see Section 4 and the box on pages 48-49 of the August 2010 Inflation Report, Fisher (2010) and Sentance (2009). 3 Much of the recent analysis of exchange rate pass-through is based on evidence taken from the Great Stability period (see for example Campa and Goldberg (2006) and Ihrig, Marazzi and Rothenberg (2006)). The results from these studies pick up the average lag structure of the past, and are sensitive to the window in which exchange rate effects are identified. It may be that the lag structure following sterling’s depreciation was quicker. To the extent that businesses adjusted more quickly, pass-through in the current period might appear larger than suggested by the econometric techniques used in previous studies, when in fact the adjustment was only faster. BIS Review 122/2010 3 behaviour of prices following sterling’s appreciation in 1996. It is quite possible that those businesses whose margins were squeezed following the recent exchange rate depreciation responded more quickly than they did to the increase in margins associated with the mid1990s appreciation. | Assets are managed on behalf of end-investors, whether institutional (such as pension funds and life insurance companies) or retail, the former typically through Separately Managed Accounts, the latter through Collective Investment Schemes. The industry’s Assets Under Management (AUM) are currently estimated at around $ trillion globally (TheCityUK (2013)). 1 This is large. It is equal to around one year’s global GDP or around three quarters of the assets of the global banking industry. It has also grown fairly rapidly, with AUM roughly doubling over the past decade in dollar terms. The longer-term picture is more striking still. In the United States, AUM have risen almost fivefold relative to GDP since 1946, from around 50% of GDP to around 240% of GDP (Chart 1). In the United Kingdom this pattern has been replicated, but over a much shorter time period since around 1980 (Chart 2). Across most OECD countries, the patterns are similar. The asset management industry has, it appears, come of age. The drivers of this growth are reasonably well-understood. The pool of prospective global savers has become larger, older and richer, each of which tends to be a boon for the asset management industry. Since 1950, average life expectancy has risen by nearly 50%, world population has risen by a factor of three and world GDP per capita has risen by a factor of nearly 40. There is a strong cross-country correlation between GDP per capita and AUM relative to GDP (Chart 3). | 0 |
We are all eyewitnesses to the tremendous economic impact of the integration of hundreds of millions of people in China, India, and the former Soviet Union into the world trading system. Globalisation has magnified world supplies of manufactured goods and capital as well as the labour force. Prices of all three have changed, and we have not been immune to those changes. Between 1995 and 2005 the prices of consumer goods imported into Britain fell by around one-third relative to the average price of other goods and services. But the greater supply of manufactured goods from newly-industrialised countries has come at the cost of a greater demand by those same countries for energy and raw materials of all kinds. The prices of oil, steel, copper, lead and nickel have all more than doubled. And in a buoyant British labour market it is not just foreign-born footballers who have been in demand. Over the past two years, around half a million migrant workers (or possibly considerably more, we simply do not know) have arrived from the new member countries of the European Union and elsewhere in the world. It is unlikely that migration on that scale has had no effect on wages, or, indeed, on rents and house prices. Some of you may be tempted to think that because the growth of the Chinese economy has affected key prices in our own economy, inflation in Britain is now largely determined overseas. Low inflation in industrialised countries, it is argued, is made in China. | Have an effective resolution regime that allows such firms to fail without threatening to take down the rest of the nation’s financial system, and without requiring taxpayer support. Preserve the important structural changes put in place since the financial crisis that make the financial system more resilient to shocks. These include the centralized clearing of over-the-counter (OTC) derivatives, better supervision and oversight of key financial market utilities, and the reforms of the money market mutual fund industry and the tri-party repurchase funding (“repo”) system. In contemplating changes to the regulatory regime, the good news is that the U.S. financial system is much sounder today than it was on the eve of the financial crisis. The quantity and quality of capital and liquidity for U.S. banks have markedly improved, meaning that the banking industry can support the economy even under considerably more adverse economic conditions. And, although returns on equity have dropped as balance sheet leverage has declined, banks remain profitable enough to cover their cost of capital and continue to serve their household and business customers. Much of this progress is due to regulatory changes enacted since the crisis. In addition to buttressing the capital and liquidity standards for major banks, the regulatory community has made significant strides in many other areas. We developed a resolution framework for systemically important banks that better enables a failing bank to recapitalize with less risk to the rest of the financial system, and in a way that should not require taxpayer assistance. | 0 |
This is the worrying trend that we are seeing at the moment with respect to housing loans: margins on housing loans – veritable loss leaders – are being compressed in order to attract customers who become captive due to their borrowing. In these circumstances, the level of margins may not be sufficient to cover the cost of the risk, or even the cost of the funding. * * * I would like, finally, to underline the need for accurate traceability of funding flows. From this perspective, improving the management of liquidity risk linked to OTC-traded derivatives requires stronger supervision of markets and market participants. That is why the Banque de France supports all of the initiatives taken to this end: – the clearing through central counterparties (CCP) of all products deemed sufficiently standardised. The management of margin calls and collateral is more robust here than in OTC-trades; – the recording of trades by dedicated infrastructures (trade repositories) in order to identify all of the systemic players; – extending the scope of regulation to include players that are part of the unregulated or “shadow banking” sector. Several reforms are already well under way as they correspond to G20 guidelines. The United States adopted the Dodd-Frank Act in July 2010. At the European level, the draft EMIR regulation should be adopted in summer 2011. * * * By way of conclusion, I would like to stress the persistence of a number of warning signals that are still present. | The international recovery is progressing It is natural to begin a survey of inflation perspectives by touching upon the international economy. At the end of 2002, the Riksbank and other forecasters expected world economic activity to embark on an upturn. However, during spring 2003, we gradually had to revise down our growth forecasts. While a recovery in the world economy was still expected, it was now judged to occur at a later stage. The weak growth, however, prompted a shift to more expansionary economic policy in many countries. Both the European Central Bank (ECB) and the US Federal Reserve, as well as the Riksbank and other central banks, continued to cut key interest rates to historically very low levels. However, most factors now indicate that both the Riksbank and other forecasters were somewhat overly pessimistic in connection with the Iraq war, particularly regarding the view of economic developments in the US. During the second half of 2003, we have had reason to again revise up our growth forecasts for the world economy. What has happened then since December, when the Riksbank published its latest Inflation Report and forecasts? The most apparent and perhaps the single most important change in the world economy has been the sharp depreciation of the dollar, mainly against the euro. It is likely that the dollar’s weakening against both the euro and the yen is an effect of the US current account deficit, coupled with a growing deficit in the US federal budget. | 0 |
Usage to date across these facilities has not been particularly high. But as I have explained more fully elsewhere, their impact has been large and sustained, and I continue to attribute much of the 3 2/4 BIS central bankers' speeches facilities' initial success to the size, scope, and flexibility of these backstops.3 We've seen encouraging progress from these policy actions in recent months. As Chair Powell has noted, though, full recovery will take some time.4 Moreover, the timing for fully achieving our goals will depend on more than just our monetary and financial policies. Most important will be our public health authorities' success in containing the virus itself. And fiscal measures, which helped many smaller firms, the unemployed, and lower income households weather the initial stresses of the crisis, will continue to play a critical role in promoting sustained recovery. The Fed's Policy Response: How We Implement Also Matters I'd like to shift away from the Fed's policy actions and explain why their implementation can also make a difference in addressing the unequal impact of the pandemic. Recall that as we launched the facilities, the principles of transparency, governance, and accountability were at the forefront of our execution strategy. Why? The Fed, together with Treasury, has been entrusted to deploy large sums of public resources, and transparency is fundamental to our credibility. In practice, this requires clarity in the terms and conditions of the facilities, timely reporting on facility usage, and publication of vendor contracts, just to list a few aspects. | Smaller and midsize firms participating in the facilities can offer additional services to their clients, and more broadly, these firms may develop new business relationships and skills and deepen their expertise when operating in the markets for these facilities. With this as the motivation, let me review how we are broadening access to the facilities for two primary types of service providers: vendors and counterparties. Starting with vendors, in our effort to contain the damage from the pandemic and speed the launch of the facilities, the Fed directly negotiated with several outside vendors to accelerate the rollout of various facilities and to supplement our areas of internal expertise. Our initial vendor selections prioritized scale and, in many cases, the ability to dedicate a large team of personnel behind a wall of confidentiality. This approach proved successful in launching our facilities at maximum speed, but our strategy from the beginning has been to diversify our vendor base in the post-launch phase. Importantly, all of the contracts the New York Fed has signed are short term; each has a provision to cancel with 30 days' notice. Given this flexibility, we are evaluating all contracts after 90 days, with 3/4 BIS central bankers' speeches priority on re-bidding those that were not competitively bid. The New York Fed will shortly commence a competitive bidding process for some of these vendor roles. | 1 |
Monetary policy in Norway is oriented towards low and stable inflation. This is the most important contribution monetary policy can make to sound economic developments in the long term. Low and stable inflation provides enterprises and households with an anchor for inflation expectations. In its conduct of monetary policy, Norges Bank operates a flexible inflation targeting regime, so that weight is given both to variability in inflation and variability in output and employment. Flexible inflation targeting builds a bridge between the long-term objective of monetary policy, which is to keep inflation on target and provide an anchor for inflation expectations, and the short-term objective of stabilising economic developments. Transparency surrounding Norges Bank’s assessments of monetary policy trade-offs enhances economic agents’ understanding of how economic news influences the interest rate. In recent years, it has become easier to read the Bank’s intentions. As a result, monetary policy has become more effective. The background material for the Executive Board’s monetary policy meetings is published and the assessments underlying the interest rate decisions are explained. As from last autumn, the Bank publishes its own interest rate forecast. From using technical assumptions and others’ assessments, we have taken ownership of the interest rate path in our projections. Even though BIS Review 44/2006 1 considerable uncertainty still remains, it becomes easier for economic agents to assess interest rate developments. Weak growth in the world economy early this decade led to low interest rates in many countries. | On 17 September, American International Group (AIG), the largest US insurance company, had to rely on an emergency loan from the Federal Reserve. The company played a key role in the credit default insurance market. The financial crisis has heightened in several European countries. Banks in Belgium, Denmark, France, the Netherlands, the UK, Sweden and Germany have been taken over by the government or other financial institutions. In Iceland, the authorities took over the three largest banks and are now unwinding their international operations. The crisis at these banks prompted a flight from Iceland’s national currency which, combined with a property market crash, has triggered a sharp recession. In Norway, the effects of the financial crisis have also occurred more rapidly and become more pronounced than the outlook seemed to imply only recently. Norway is still in a better position than most countries. Capacity utilisation in the Norwegian economy has been very high. The surplus on current account is considerable and government finances are solid. Norwegian banks have limited exposures to international securities. They have suffered only small losses and recorded solid earnings in recent years. Furthermore, the Norwegian banking system is not large relative to the size of the Norwegian economy. In response to the uncertain environment, banks abroad and at home are reluctant to lend to each other and are tightening their credit standards. Credit channels are drying up. Money market rates have increased markedly, and to levels substantially higher than central bank key rates. | 0 |
There are no guaranties that levels of income in the CESEE countries are going to converge towards those of the developed Western economies. No guarantees that these countries are not going to form one, or more, of the so-called convergence clubs at a lower level of per capita income compared to their developed peers. However, it is our job to dare to introduce reforms even if we are not a 100 percent sure about the timing and the scale of the effects, as these are often not under our direct control. But if history teaches us anything, and if we follow the best practices from around the world, not only the EU, then the path we have to follow becomes much clearer. And the closest thing to a recipe for reducing the probability of being caught in the middle income trap (of low growth and slow or no convergence) would be to dare to reform. Be it the education system with an aim to increase the quality of human capital, be it liberalising product and labour markets controls, be it the reform of justice or public administrations systems, or anything else that is proven to enhance the business environment in the country. It is as simple or as difficult as that. But, and this is my final thought – we have to keep in mind the political economy dimension of the process, and there things do not look encouraging. | In terms of data, however, this is the best we have at the moment. So, notwithstanding substantial data issues, the question is how can we, as policymakers, influence these unobservables? 5 While we can expect a re-launch of capital investment growth, I am quite certain that growth rate that we have witnessed in the 2000s, with strong inflow of FDIs and real estate bubbles in some countries will not be seen again in the near future. That is why so much focus is on the total factor productivity, ultimately seen as the only source of long-term growth. Of course, the TFP is an unobservable variable, usually measured by the Solow residual. What drives the TFP growth is a much trickier question. Is it innovations, technology advances? For us as policy makers, understanding the determinants of technology adoption, the TFP growth, is key, as this gives us the channel to act through. There is an increasing number of theory and empirical papers linking development and the adoption of technologies to the role of institutions defined in a very broad way. And data seem to be supportive of the link – there is a strong positive relationship between the quality of institutions and human capital on one side, and growth on the other. But then, when it comes to the quality of institutions, or human capital, there has been little or no convergence of the CEE. | 1 |
And stretching it or infringing it until it is no longer credible would undermine confidence and, in the end, be counterproductive for growth. In other words, flexibility without damaging the credibility of the rules. Q: Germany does not seem to share this need for fiscal stimulus. A: Our measures will be much more effective if we see structural reforms and a fiscal position appropriate for the euro area. This should be discussed and evaluated at the euro area level. It is normal for the ECB to say this because it monitors the situation across the euro area and is interested in its stability and growth. Q: Its measures have flooded the market with liquidity. But it will be difficult to have a demand for credit if there are no jobs or if employment is at wage levels of the 1980s. A: People will end up getting work if companies manufacture good products and provide good services and there are customers to buy them. Monetary policy can help by providing sufficient liquidity and by steering that liquidity to where it is most needed. This is what the targeted longer-term refinancing operations adopted in June and the measures announced last Thursday, namely the programme to purchase asset-backed securities from the private sector, are aimed at. We want there to be sufficiently ample liquidity and for the ECB’s balance sheet to move back towards previous levels [note from the editor: to go up to € billion from the current € billion]. | The euro area faces risks to its economic growth on such a scale that it’s necessary to use all available tools to support the economy. And that means using the instruments on the demand side and the supply side. On the demand side, you have monetary policy. And what the ECB has announced shows that we are committed to taking steps and that we have instruments we are ready to use. You have also fiscal policy, in those countries that have space to expand it. But what matters BIS central bankers’ speeches 1 most are the structural reforms, because without them no supply or demand measure will have an effect. Q: Is that message aimed at France and Italy? A: We are not asking anything from anyone in particular. There is nothing of a give and take here. The ECB is independent and does not enter into this kind of bargaining. We do what we think we have to do and we expect others to do their job. We are just highlighting the conditions for it to be effective. For example, in our view, the countries that want flexibility in applying the Stability Pact should announce reforms beforehand, because flexibility is useless if it isn’t backed by reforms. Fiscal policy should be used to support aggregate demand – but within the framework of the Stability Pact, and that’s an important “but”. The Pact creates confidence. | 1 |
And indeed, since mid-2009, when capital flows began to return to Emerging Asia, most regional currencies have appreciated by 3–10% in nominal effective terms. 39. But exchange rates alone cannot shoulder the burden of adjustment to low global interest rates and large capital inflows. In fact, strong and sustained exchange rate appreciation may well attract even more capital inflows. And excessively rapid currency appreciation runs the risk of sharply curtailing exports and dragging down the economy. Nor is it clear that exchange rate appreciation alone could have mitigated the increased demand for credit and consequent surge in property prices that we have seen in Emerging Asia. 40. Likewise, interest rates are too blunt a tool to deal with sector-specific excesses, such as in real estate. An interest rate policy that is sufficiently aggressive to affect credit conditions and asset prices is likely to impose quite a high cost on the rest of the economy. 41. Asian policymakers have therefore been experimenting with a variety of so-called macroprudential policies, to rein in asset price inflation and avoid a build-up of imbalances amidst a low interest rate environment. Macroprudential measures as practised in Asia fall into two broad categories: • One, prudential measures to restrain credit extended to the property market. These include loan-to-value ratios, debt service ratios, and caps on property lending. • Two, fiscal measures to discourage property transactions of a speculative nature. These include transaction taxes, such as stamp duties and capital gains taxes. 42. | As China’s consumption increases, its rising import demand will have a positive impact on Asia and on the rest of the world. Besides China, India’s middle class is estimated to grow to almost 600 million people by 2025, and almost 60% of Indonesian households, in a country of 240 million people, are expected to reach middle-class status by 2020. The Asian Development Bank projects that, by the middle of the century, Asia will account for more than half of global GDP and will own half of the world’s financial assets and financial institutions. I’m sure all of you are cautious about long-term extrapolations, but this projection is one of many which are reflective of the optimism and growth potential that we see not just in China, but Indonesia and other Southeast Asian countries. As these countries in Asia power ahead, they will drive further economic integration within this region. PricewaterhouseCoopers’ “Future of World Trade” study describes how new trade corridors will form within Asia as a result of this integration. In 1990, 20 years ago, the developed economies dominated the world trade map. Europe was responsible for over half of the world’s exports, although these were mainly intra-Europe flows. In 2010, this map has changed with the global shift in manufacturing to Asia, with China accounting for 9 out of the top 25 bilateral trade routes by value. | 0 |
For instance, MAS has set up our regulatory sandbox regime to facilitate testing and experimentation of cutting edge technology or innovative business models within defined parameters and duration. Certain sandbox participants benefit from caseby-case regulatory exemptions following our review. We are exploring the feasibility and scope for a more nimble and flexible regulatory approach; one that is modular and risk-appropriate or even an activities-based regulatory approach towards certain innovative business models, as opposed to a strictly entity-based regulatory framework. We are also devoting resources in our work on “SupTech” or Supervisory Technology. MAS has been beefing up our surveillance and analytical capabilities, including the setting up of a dedicated unit for SupTech within our Data Analytics Group. The aim is to transform our supervisory and market surveillance work to be more digital and effective, This will also allow MAS to be more effective in our supervisory engagement with each of your firms. In addition, we will be employing more advanced techniques such as network analysis, or text and voice analytics to support our investigation and enforcement actions. Conduct gaps Let me now cover my final remarks around conduct gaps. In an increasingly digital environment and as more Singaporeans become technology savvy, financial advisers should evolve to provide more holistic wealth and risk management advice. A successful transition will require maintaining a deep level of consumer trust that representatives will act in the best interest of their clients. | On the issue of trust, recent episodes of large-scale movement of representatives have cast the industry in an unfavourable light. Such mass recruitment of representatives by one firm gives rise to heightened market conduct risks, with respect to aggressive sales tactics and improper switching. MAS has worked closely with LIA on measures to address these risks and we will be issuing a public consultation soon to promote responsible recruitment practices in the financial advisory industry. Meanwhile, LIA members have agreed that they, as well as their Financial Advisory (FA) subsidiaries will go ahead to adopt a number of these measures. This is a positive step. Briefly, these measures include: (a) Capping a representative’s sales targets and sign-on incentives in the first year after the representative joins the new FA firm. This reduces the pressure on representatives to engage in 4/5 BIS central bankers' speeches aggressive sales tactics to meet inflated sales targets; (b) Spreading sign-on incentives over a minimum period of 6 years, to create longer- term alignment between the representative and his new FA firm. This will foster better quality aftersales services to customers; (c) Reducing the entitlement to sign-on incentives if the persistency of the policies serviced by the representative at his previous firm falls below industry norms, to deter improper switching; and (d) Requiring the FA firm to undertake enhanced monitoring of its representative’s sales transactions to verify that the sales and advisory process has been properly conducted, which will include customer call-backs conducted by an independent external party. | 1 |
Then, at the end of 2008 and at the beginning of 2009, we endured a severe economic downturn and disinflation, also triggered by a foreign event, namely the severe global financial crisis and the associated collapse of confidence. In both episodes the baseline scenario we outlined in the IPoM and IEF at the time went through unprecedented changes. Most recently, February’s catastrophe made it necessary to adjust our projections, particularly for the short term, to include the effects on output of this natural disaster. As we shared with you a minute ago, the data for the last quarters show, beyond the immediate and medium-term effects of the earthquake, that the economy is growing strongly, financial conditions have been steadily normalizing, employment is on the rise and inflation is approaching the 3% target. The most important difference between now and previous episodes during 2007–2009 are the fundamentals behind our current macroeconomic scenario. While in earlier years the larger part of inflationary and output fluctuations originated abroad, today they are related with macroeconomic developments at home. In particular, the foreseen closing of output gaps and the current level of the MPR, which is highly stimulative compared with several measurements of its neutral level. Thus, monetary policy must be applied in consistency with a stronger domestic scenario and in line with the inflation target. High risks persist internationally. Financial markets around the world and in some European countries are raising a red flag. | This topic has obvious importance to central bank practice past, present, and future. In addition, the Journal of Money, Credit and Banking (JMCB), the 50th anniversary of which we are recognizing today, played a very important role in shaping how we think about the ZLB. Today I’d like to highlight how this work has influenced my own thinking, as a researcher and policymaker. Before I proceed any further, I should give the usual disclaimer that everything I say today reflects my own views and not necessarily those of the FOMC or anyone else in the Federal Reserve System. The Zero Lower Bound Emerges Although the ZLB was not a new idea by any means, three circumstances—two empirical, one theoretical—came together to reignite interest in this topic by researchers and policymakers in the 1990s.1 The first was the achievement of low inflation in the United States, which, all else equal, implied lower interest rates. The second was Japan’s lengthening period of deflation and near-zero interest rates.2 The third was renewed curiosity about the theory of monetary policy as decision rules for interest rates, following the publication of John Taylor’s “Discretion versus Policy Rules in Practice.”3 Although that paper did not mention the ZLB, it fundamentally transformed how many economists, including one impressionable Stanford grad student, thought about monetary policy. Indeed, the very logic of the Taylor rule—that interest rates systematically move up and down with changes in economic conditions—forced macroeconomists to come to terms with the presence of the ZLB. | 0 |
Yet, about 1.7 billion adults remain unbanked with persistent inequality in account ownership between the rich and the poor3. In recent months, new and unprecedented challenges to sustainability and effectiveness of financial inclusion initiatives worldwide have surfaced. Workers, especially in the informal sector and low income segment, have experienced sudden loss of employment and income. Job replacement and reskilling programmes require time to complete before these workers are able to gain new employment opportunities. The limited employment prospects and labour mobility, especially for low-skilled, low income workers, may impede effective usage of financial services going forward. Containment measures, while necessary to contain the spread of the virus, have also reduced accessibility to financial services. This is especially so in areas with poor digital connectivity, and among communities with low digital financial literacy. From a human development standpoint, a United Nations Development Programme’s (UNDP) report estimated that the combined impact of income, health and education shocks arising from the pandemic could signify the largest reversal in human development on record, equivalent to erasing all the progress in human development of the past six years4. The risk of reversing progress in achieving financial inclusion is accentuating why financial inclusion matters now more than ever. Optimising Islamic finance for inclusive economic recovery Policy and regulatory responses across the globe, and likewise in Malaysia, have been focused on safeguarding economic resilience, managing risks to financial stability and minimising repercussions to society. This is done in tandem with the different stages of the pandemic – namely, containment, stabilisation and recovery. | (…) With credit and money markets essentially frozen and equity prices plummeting, banks and other financial firms saw their access to funding eroded and their capital shrink owing to accumulating mark to market losses.” The Lehman bankruptcy had triggered a widespread crisis of confidence. Among other repercussions of the Lehman Brothers collapse, the above-mentioned virtually completed sale of Glitnir assets did not materialise. This kicked off the well-known chain of events. Glitnir turned to the Central Bank for assistance. Not only was the bank unsuccessful in its attempt to sell assets, it was unable to renew a bank loan that it had expected to extend without any difficulty. Ultimately, the Government decided that the Treasury should acquire a majority holding in Glitnir, but before that could be finalised, the bank collapsed. In early October, there was substantial pressure on Landsbanki’s deposit accounts in London, and the British Financial Services Authority (FSA) steadily tightened the demands it made on the bank. Landsbanki’s liquidity difficulties became insurmountable, and it was clear that rescuing the bank would not represent prudent use of the Central Bank’s foreign exchange reserves. The amounts involved were simply too large. By this time, only Kaupthing remained of the three large banks. In view of the prospects for Kaupthing’s liquidity, the bank was deemed likely to survive the storm. On the basis of that assumption, the Central Bank, after consulting the Government, granted Kaupthing a collateralized fourday loan that should have sufficed – as things stood then. | 0 |
New conditions have been created not only for households and firms in the euro area and adjacent countries but also for economic policy. Sweden is by no means unaffected by this change, even though we are outside the euro area at the start. Economic development in the euro area is crucial for Sweden’s economy. As a member of the European Union, moreover, we are involved in many of the contexts where policy is formed. We have also undertaken to conduct our policy in accordance with the rules that have been established for the Union. Against this background it is important that we are engaged in the discussion of economic policy in Europe. My purpose today has been to highlight a number of issues of importance for the European debate. I have tried to describe how the ECB works, the rules that have been built up for fiscal policy and so on. I have also said something about events in the past six months and discussed some of the problems as I see them. One thing is certain: the euro’s introduction does not constitute the final step in the integration of Europe. The single currency will raise new questions that will be answered by degrees through the cooperation between the countries of Europe. It is important that Sweden takes an active part in that debate. BIS Review 76/1999 6 7 BIS Review 76/1999 | The TCFD report signposts existing models that firms can use, and the PRA’s Climate Financial Risk Forum will work with industry to review tools and metrics, with the view to publishing reference scenarios and standard assumptions.15 For supervisors, assessing strategic resilience will require climate-related stress testing. This involves linking high-level data-driven narratives on the evolution of physical and transition risks to quantitative metrics to measure the impact on the financial system. Next month, the PRA will ask UK insurers, as part of a market-wide insurance stress test, to consider how their businesses would be affected in different physical and transition risks scenarios. Testing the banks, and possibly other participants in the financial system, with climate-change scenario stress tests would have two objectives: 15 The most widely used and well-known are the IEA transition scenarios, which model six different assumed pathways and associated temperature increases. For modelling physical risks, the IPCC’s four Representative Concentration Pathways (RCPs) fix greenhouse emissions and analyse the resulting change to the climate. 7 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 7 1. To consider whether, across the financial system, financing flows are consistent with an orderly transition to the climate outcome set out in the Paris agreement. These long-term scenarios can facilitate discussions between firms and their clients about possible risks across different sectors and geographies; and 2. To consider whether the financial system would be resilient to shorter-term shocks – including a climate “Minsky moment” when climate risks materialise suddenly. | 0 |
Some property companies, which before the current crisis funded parts of their operations abroad, appear to be experiencing difficulties with their funding. 8 In simple terms one can say that the price of a property is determined by the expected operating surplus, that is rental income minus operating and maintenance costs, and by the investors' return requirement, which is the risk-free interest rate plus a risk premium. Investors are prepared to pay more for a property if they expect the rents to increase or if they do not require the capital they invest to generate such a high return. BIS Review 105/2009 5 Let me now say a few words about the Swedish housing market. Here, prices have not fallen in anything like the same way as for commercial properties. Despite the fact that we are experiencing the severest slump of the post-war period, house prices fell by only approximately two percent during the second quarter of this year compared to the same period last year. House prices in Sweden have so far fallen much less than in a number of other industrial countries (see Figure 14). Several of these countries, for example Ireland, Spain and the UK, have, however, had a much more ioverheated housing market than Sweden. Another reason why house prices in Sweden have not fallen as much may be that the Swedish banks have not been hit so hard by the financial crisis that they have found it difficult to lend money to the households. | But not many of us know that that when it comes to technology, Dr Zhou was ahead of the curve amongst his peers. In 2014, before the words “fintech” and “digital currencies” became popular, Dr Zhou set up a Digital Currency Research Institute within the PBoC to explore how new technologies like the blockchain and digital tokens could improve and strengthen China’s financial system. Today, China is a leading fintech player and there is even speculation that PBoC may become the first central bank in the world to issue its own digital currency – a topic that Dr Zhou will probably touch on, and if he does not, one of you I am sure will ask him about! And now, ladies and gentlemen, please join me in welcoming Dr Zhou Xiaochuan to deliver the tenth MAS Lecture. 2/2 BIS central bankers' speeches | 0 |
Figure 3 Bank deposit inflows (*) (billions of dollars) 250 250 200 200 150 150 100 100 50 50 0 0 -50 -50 -100 -100 -150 -150 -200 -200 06 07 08 09 (*) Change in the external liability position of emerging economies' reporting banks. Includes Brazil, Chile, Mexico, Panama, Taipei (Chinese province), Hong Kong, India, Malaysia, Korean Rep., Singapore, South Africa, Turkey. Source: BIS. 8 BIS Review 72/2010 Figure 4 Price-to-earnings ratio in emerging economies (percentage) 40 40 30 30 20 20 10 10 0 0 07 Colombia Malaysia 08 09 Chile Korean Rep. 10 Mexico Singapore Brazil Source: Bloomberg. Figure 5 Real exchange rates in emerging economies (index, 2007-2010 average =100) 140 140 120 120 100 100 80 80 60 60 07 Chile Mexico 08 Brazil Peru 09 China Poland 10 Colombia Singapore Malaysia Korean Rep. Source: Bloomberg. | Inflation has risen more slowly following the recent pay hikes than perhaps could have been expected in view of historical experience, and it is still well below target. This could be due in part to the additional scope provided by the favourable initial position of many firms and by the improvement in terms of trade. But the most obvious explanation is that lower prices in international trade and low or zero inflation in trading partner countries offsets domestic inflationary pressures, as can be seen in Chart 3. The downward price pressures from abroad have been stronger in recent months than was projected last spring, partly because of economic developments in China. But it is unlikely that the price of oil and other commodities will continue falling for a long time to come. The question, then, is what happens when prices stop falling – not to mention if they begin to rise again, as is forecast. Other things being equal, measured inflation would rise in Iceland. The Central Bank’s new forecast assumes, in fact, that oil prices will begin to rise again towards the end of this year. In addition, a portion of the wage increases will finally pass through to prices. According to the forecast, inflation will therefore rise in coming months, overtaking the target next year and peaking at just over 4% in the first half of 2017. It will not return to target until 2018. | 0 |
On the one hand, it allows the economy a sufficiently long time span to accommodate significant changes in prices and monetary policy without entailing excessive costs in terms of lost activity or employment. The current environment is a good example of this. In the face of a shock such as the one we are dealing with, a shorter-term target would force a much more significant rise in the rate, thus increasing sharply the costs to the economy. On the other hand, a 24-month time horizon is a sufficient time limit for households and firms to avoid being affected by the uncertainty that could result from being unable to correctly anticipate how inflation will unfold. At a time when our economy is going through complex circumstances, reducing the spaces of uncertainty is greatly appreciated. Certainly, some of these spaces are beyond our ability to act, such as the war in Ukraine or monetary tightening in the world. But there are others where we do have the power to act. On our side, by assuring all those who live in Chile that the Central Bank will continue to do everything necessary to bring inflation down and return it to the defined target within the appropriate time frame. Maintaining and fulfilling this commitment is vital to help mitigate the costs that high inflation has on Chilean families. | In the first quarter, the seasonally-adjusted GDP series declined 0.8% from the previous quarter, with a drop of 0.2% 2 in non-mining GDP. In April, the seasonally-adjusted Imacec series showed a 0.3% drop compared to March; however, this variation was positive (0.2%) for the non-mining Imacec. Demand has evolved with a marked difference between private consumption and investment, where the former is persistently high. First-quarter data show that private consumption has not lost any significant dynamism and remains above expectations in March, remaining around the highs observed during 2021. Consumption of durable goods has undone part of the fall of the end of last year and services consumption has continued to perform strongly, especially in areas such as health care, restaurants & hotels, and transport, reflecting that the economy has been easing restrictions. Gross fixed capital formation (GFCF), in contrast, has shrunk in its every line, as we anticipated in March. In the first quarter, its seasonally-adjusted series fell by almost 6% from the previous quarter. The most notable decline was seen in the construction and other works component, although machinery and equipment also fell (figure 4). In the labor market, the demand for work has lost strength. This is reflected in the decline in the online job postings Index from its peak of a few months ago, although it is still above its levels of mid-2019. | 1 |
The Funding for Lending Scheme: one year on It was on the day of this lecture last year that the Bank of England announced the first 13 banks and building societies to have signed up to the FLS. There are now over 40 firms participating, representing over 80% of the stock of lending to the UK economy. The total amount of outstanding drawings under the Scheme is over £ and rising. The MPC has been using a wide range of indicators at various stages of the transmission mechanism to help assess the extent to which credit conditions have improved since its launch. Let me run through those. Stage 1: bank funding costs Our first objective was to reduce bank funding costs – and this phase has been remarkably successful. Over the past year, those costs have fallen sharply (Chart 6). Of course, they are likely to have been affected by developments internationally, including Mario Draghi’s “do whatever it takes” remarks in July 2012. But usually sterling funding markets would react by less than euro-denominated markets to European developments. In fact, UK unsecured bond spreads fell further in the UK than in core euro-area countries – indicative of an additional boost from the FLS over and above general market developments. | On average we’ve seen rates on two-year fixed rate mortgage products come down by around 110bps since the FLS was announced, and floating rate mortgages by a bit less (around 60bps) (Chart 6). The availability of household credit, particularly secured credit, has improved according to recent Credit Conditions Surveys by the Bank of England. 8 BIS central bankers’ speeches Chart 6 Changes in quoted mortgage rates and indicative UK bank funding costs over the first year of the FLS(a) Change in mortgage rate Change in bank funding cost(b) Percentage points 0.0 -0.5 -1.0 -1.5 75% LTV two-year floatingrate mortgage 75% LTV two-year fixed-rate mortgage 75% LTV five-year fixed-rate mortgage 90% LTV two-year fixed-rate mortgage -2.0 Sources: Bank of England, Bloomberg and Bank calculations. (a) Change between 30 June 2012 and 30 June 2013. (b) For fixed-rate mortgages, calculated as the sum of indicative UK bank secondary market bond spreads and the swap rate corresponding to the term of the mortgage. For floating-rate mortgages, three-month Libor is used in place of a swap rate. For more details see Chart 1.8 of the August 2013 Inflation Report. It’s harder to measure what has happened to lending rates to businesses as the borrowers and loan products available are less homogenous than in the household sector. | 1 |
In time to come, I hope that it will be further fine-tuned so as to reflect the five qualities that I have just spoken about. In this process, it might be useful to modellers in Singapore and even from the region to meet more regularly to exchange ideas and learn from each other’s experiences. In the post-Asian crisis era, one of the main concerns of regional policymakers is that of monitoring vulnerabilities of the domestic economies to external shocks. There is a need for a formal and reliable monitoring mechanism to help supplement overall surveillance efforts. Perhaps macro models could be employed to this end. If workable, this might just be the function that renders models not only relevant but actually indispensable to policymakers. I leave you with this thought and wish you all a day of fruitful deliberations. 4 “Empirical Modelling in Economics: Specification and Evaluation”, The 1998 Marshall Lectures. 3 BIS Review 9/2000 | Abdul Rasheed Ghaffour: Opening remarks – Forum on Central Bank Foreign Currency Operations Opening remarks by Mr Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the OSSP-BNM-SEACEN Forum on Central Bank Foreign Currency Operations, Kuala Lumpur, 6 August 2020. * * * It is my great pleasure to welcome all participants to the OSSP-BNM-SEACEN Forum on Central Bank Foreign Currency Operations. My appreciation also goes out to OSSP and SEACEN Centre for organising this forum. Although we have been looking forward to hosting all delegates and speakers in Kuala Lumpur, I am glad that technology has enabled us to come together regardless of this challenging time. I believe this forum is timely, given the myriad of issues associated with the current global landscape and the evolving environment for cross-border payment operations. The COVID-19 pandemic has caused widespread disruption within an inconceivably short period. We see disruptions in the lives and livelihoods of families and individuals; in the way work is done and trade conducted; and in our perspective of the world and our solutions to its problems. In at least one area we see the pandemic accelerate a growing trend both domestically and internationally – in digital trade and e-commerce. Retail purchases have more than halved year-on-year, and this gap is quickly filled by the rapid growth of e-commerce. This digitalisation trend is likely to continue post-pandemic with new norms in day-to-day domestic as well as cross-border economic activities. | 0 |
In particular, there is evidence that the agency MBS market, due to the nature of its trading conventions, is prone to dislocation when market participants expect large transitions in central bank agency MBS flows.17 Such concerns can be self-fulfilling: if market participants are concerned that an abrupt shift in flow might be disruptive, they might, for example, withdraw from liquidity provision. An overly fast redemption flow of Treasuries could also create challenges in the government’s management of public debt auctions and result in communications challenges.18 A sustained portfolio runoff at an overly fast pace could also shrink the balance sheet so quickly that it impacts other aspects of monetary policy implementation. Rapid portfolio declines could have unforeseen impacts on overnight money markets, for example by creating significant shifts in dealers’ demand for overnight repo financing. We have seen such impacts in the past. During the Maturity Extension Program, the Federal Reserve sold substantial amounts of shorter-dated Treasuries. Some of these securities accumulated in dealers’ inventories, and secured financing rates rose a bit as dealers sought to finance these holdings. This sort of volatility did not, and would not now, pose a major problem to markets or policy implementation, but it is something worth avoiding if possible. Rapid portfolio runoff could also make it more likely that bank reserves become scarce unexpectedly or more quickly than policymakers had anticipated. Finally, overly fast portfolio runoff could introduce undesired noise into financial conditions. | We could have chosen instead to offset the price level shocks by running a much tighter monetary policy. Had we done so, spending in the economy, activity and employment would all have been squeezed. Conditions have anyway been difficult for many households due to the squeeze on real incomes, but I think it would have been worse if we had tightened policy. Our ability to sustain exceptional monetary stimulus has, I should reiterate, depended on the credibility of our commitment to low inflation over the medium term being preserved. I worried that chatter in the markets in late 2010/early 2011 marked incipient signs of fragility in that credibility. That was one of the reasons why, at the beginning of this year, I had expected to vote for an increase in Bank Rate at our February meeting. The weak output data for Q4 2010 published shortly before that meeting changed my mind, and the Committee’s course, as they revealed that the economy was softer than I had thought. Escape velocity In the months that followed, I made clear that, with inflation well above our 2% target, I would be looking for an opportunity to begin the process of withdrawing the exceptional monetary stimulus once the economy had achieved “escape velocity”. By that, I meant that the economy would need to be growing, and be set to continue to grow, at a rate that would gradually absorb the slack in the economy. “Escape velocity” has not yet been achieved. | 0 |
This does not preclude that we, as well as others, will with time forget the lessons of the crisis and find ways to create problems or even failures of our banks, but it should be a much more domestic and contained affair. So what did we do? Deposits were given priority over unsecured bond holders prior to the failure of the banks. At the point of failure, smaller domestic banks were carved out of the failing private cross-border banks, which went into resolution governed by law. It was not a clean split, which later became a major impediment to lifting capital controls; however, that impediment has now been removed. Although they were not necessarily clearly articulated at the time, these measures were guided by the following goals: to preserve a functioning domestic payment system, ring-fence the state in the case of bank failures, limit the socialisation of private sector losses, and create the conditions for rebuilding a domestic banking system. 1/2 BIS central bankers' speeches I have already alluded to some of the lessons learned, which relate to large, internationally active banks in small countries and the flaws in the framework for cross-border banking. This is by now well accepted and is partly what a banking union is all about. But it will not fix the problem for EEA countries outside the eurozone, due to potential FX risks on banks’ balance sheets. Let me now turn back to the other story about macroeconomic management and financial stability in SOFIEs. | Már Guðmundsson: Capital flows and systemic risk in Iceland Panel comments by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, in Norges Bank's (Central Bank of Norway) 200th Anniversary Symposium, Oslo, 16 June 2016. * * * In my short introductory remarks, I would like to discuss what I consider to be one of the key factors behind the financial crisis in Iceland: the interaction between capital flows and systemic risk. I will focus in particular on those aspects that have more general relevance and herald unsolved problems for economic management and financial stability in small, open, and financially integrated economies (SOFIEs), such as Iceland was before the crisis and now strives to be again, at least up to a degree. The saga of Iceland’s experience during the Great Financial Crisis had two separate but interrelated sub-stories. The first story was related to Iceland’s boom-bust cycle and problems with macroeconomic management in small, open, and financially integrated economies. This is a story that has played out many times around the globe, and many of its elements have been seen before in Iceland. It might have been somewhat more extreme this time around, but it wasn’t fundamentally different. Strong capital inflows that met with an insufficient policy response and contributed to huge imbalances in the domestic economy were a key part of the story. I will come back to this later. The second story was the rise and fall of three cross-border banks operating on the basis of EU legislation (the European “passport”). | 1 |
But capital flows may also demonstrate an imbalance between demand and output in an economy, which must eventually correct if debt and wealth stocks are not to become unsustainable. Sharp corrections in rates of domestic absorption and/or capital flows could then result, with attendant output costs. In that sense, global imbalances may also be bad cholesterol. 1 So which are capital flows today? Historical evidence is illuminating. Chart 1 plots (the absolute value of) current account balances in thirteen countries, as a % of GDP, since 1880. Other than in wartime, global imbalances are at their highest in well over a century. They have surpassed levels which prevailed during the classical Gold Standard and are more than twice levels during the Bretton Woods period (Chart 2). For some individual countries, these capital flows look larger still, both absolutely and relative to historical norms (Chart 3). It is not just the size of these global flows that is unusual. So too is their direction. Contrary to theory, capital is flowing from developing countries with a low capital stock, towards developed countries with a high capital stock (Lucas (1990)). In other words, capital is flowing “uphill”, away from countries where the marginal product of capital should be high and towards countries where it should be low. This makes the pattern of global capital flows doubly perplexing. 1 Blanchard and Milesi-Ferretti (2009) discuss the causes of “good” and “bad” imbalances. BIS Review 174/2010 1 Perplexing need not mean bad. | They show that home equity withdrawal was driven primarily by households with low credit scores and high credit card utilisation rates, who are most likely to have been credit-constrained in the past (Mian and Sufi (2009)). As these constraints loosened, spending rose and saving fell. Liberalisation fed impatience. These patterns are also consistent with an inequality-based explanation for lower saving (Rajan (2010)). Rising inequality may generate an increased desire to “keep up with the Jones’s”. That, in turn, may have led to higher borrowing, and lower net saving, by the poor. And what applies within countries appears also to apply across them. Among advanced countries, there is a significant negative relationship between within-country measures of inequality and the current account position (Chart 15). Rising inequality, by lowering savings rates among the poor, appears to be deficit-inducing. Rising imbalances may have important social, as well as economic, roots. 6 BIS Review 174/2010 BIS Review 174/2010 7 8 BIS Review 174/2010 Global imbalances – future So what will be the key forces driving global imbalances in the period ahead? Judging from the recent past, two factors have been important: Global financial integration; Differential savings behaviour. Consider in turn their likely evolution. Global financial integration. In the period ahead, this will be shaped by a number of mediumterm structural factors. One key such factor is cross-country GDP convergence. | 1 |
It should also be noted that Spanish banks were the ones that had to make the smallest adjustments as a result of the asset quality review: a total of only 0.14% of their riskweighted assets. In conclusion, the results of the comprehensive assessment show that the restructuring process undertaken in the Spanish financial system from 2012 has been successful and that our credit institutions face the future with healthy balance sheets and a sound solvency position. Similarly, the structural reforms undertaken in recent years have played a crucial role in providing for a firm recovery and in correcting imbalances. It is imperative to stay the course and ensure sufficient growth to reduce the unemployment rate and anchor the economic underpinnings needed to sustain domestic and foreign demand. Thank you. 6 BIS central bankers’ speeches | The opposite approach – to ignore the relative riskiness of a bank’s assets in setting its capital requirements, and hold them only to a leverage ratio – is equally dangerous. This is not a difficult point to grasp – it does not make sense to make a lender hold no more capital against a 100% LTV mortgage than it has to hold against a 50% LTV one. The answer to this is to use both metrics on a ‘higher of’ basis – and this is where the post-crisis debate has settled both in Basel and here in the UK. I know this is a sensitive topic with the building societies sector given its concentration in mortgages and the implications for bail-in firms – but I think it makes sense. Although the leverage ratio is sometimes presented as a simple measure, and indeed is often simpler than the risk-weighted side, it is not totally straightforward and there are some important judgements which go into calculating what banks’ exposures actually are for leverage ratio purposes. One area we should pay close attention to is where similar forms of financing – specifically repo, collateral swaps and synthetic prime brokerage – are captured differently in the leverage exposure measure. Of these I think the most important one to watch is collateral swaps. Under the Basel framework, following extensive debate it was agreed that repo transactions would be captured in the leverage exposure measure by including the cash leg of the repo plus an add-on for counterparty credit risk (CCR). | 0 |
Innovation is as much about creating new institutions and smart collaborations to advance common goals, as it is about inventing a new product. We see this in the notion of “co-opetition”, where competing firms have found benefits in coming together to build shared infrastructure, or to facilitate the exchange of information for the purpose of preventing criminal activity and guarding against cyber threats, all the while remaining fierce competitors in their product and service offerings. Innovation is also about constantly finding better ways to do things within an organisation in order to deliver a better customer experience and to keep organisations interesting and fresh. It is about changing mindsets and culture to ensure that institutions never become tired or irrelevant. It is about re-thinking our approach to developing the workforce so that we are at our most agile to deal with new challenges and risks. These are all important aspects of innovation and I am reminded that in Malaysia’s own journey to transform the MSB industry, we benefitted from charting new and sometimes, untested paths to solve the problems that we faced. For example, we learnt from and then re-defined the principal-agent model to meet the dual objectives of maintaining broad access to money services while raising compliance and operational standards. We departed from conventional regulatory and supervisory approaches, on the conviction that we could not achieve our objectives through enforcement alone. | Prasarn Trairatvorakul: Managing emerging market challenges – Thailand’s and Asian perspectives Remarks by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the reception of the 2011 Emerging Markets Central Bank Governor of the Year Award for Asia, Emerging Markets, Washington DC, 24 September 2011. * * * Distinguished Ministers and Governors, Ladies and Gentlemen, It is my great honor to receive this prestigious award, and I would like to thank the Emerging Markets for your kind recognition. In fact, such recognition is unexpected as I simply fulfill my obligations as central bank governor. To be awarded for doing your job, I guess the job must be quite difficult or challenging. More importantly, I consider this award a recognition of the dedication of the staff of the Bank of Thailand, who have worked hard to ensure Thailand’s sustainable economic and financial stability over the years. As the Bank of Thailand enters its seventieth anniversary next year, our institution is faced with a great challenge to maintain price stability while sustaining growth in the midst of heightened global economic and financial risks. We have no luxury of taking a wait-and-see approach but to continue our best efforts to better manage the external spillovers on our economy and financial system. With continued volatile global capital movements, central banks in emerging markets need to ensure that our financial institutions and markets remain robust; that they can safely and efficiently manage foreign capital inflows as well as outflows, without disrupting the real economy. | 0 |
6 anticipates reducing the quantity of reserve balances to a level “appreciably below that seen in recent years but larger than before the financial crisis.” While the FOMC has articulated how the balance sheet will be reduced, there remains uncertainty about the long-run size and composition of the Federal Reserve’s balance sheet. Importantly, the size and composition will depend on growth in the various non-reserve liabilities, demand for reserve balances, and the future monetary policy implementation framework. The FOMC has not made any decisions about the long-run monetary policy implementation framework; however, the minutes from the July/August FOMC meeting suggest that the Committee will likely resume a discussion of operating frameworks in the near future. 17 It is also not known how non-reserve and reserve liabilities will evolve going forward; however, our regular surveys give us a sense of how some market participants are viewing many of these components, which we show in Figure 7. In particular, the surveys ask respondents about their expectations for the size and composition of the Federal Reserve’s balance sheet, on average, in 2025, under the assumption of no return to the zero lower bound. The responses serve as a good proxy for expectations about the long-run size of the balance sheet. The median expectations are for the balance sheet to be $ trillion on average in 2025 and for reserve balances to be $ billion, or about $ trillion below their current level. | As prepared for delivery Date accessed: October 29, 2018 “U.S. Monetary Policy Normalization is Proceeding Smoothly” Remarks by Simon M. Potter Executive Vice President Federal Reserve Bank of New York at Banque de France Paris, France October 26, 2018 Thank you for the invitation to participate in today’s discussion about post-financialcrisis monetary policies. 1 My remarks today will focus on the implementation of monetary policy normalization. 2 The Federal Open Market Committee (FOMC) has carefully developed and articulated a clear and transparent normalization strategy and is implementing that strategy. This approach has instilled confidence—a key to maintaining market stability, which has supported the orderly functioning of the broader set of dollar money market rates that are important to policy transmission and financial conditions. 3 Against this backdrop, the FOMC has increased the federal funds target rate from the 0 to ¼ percent range that had been in effect between December 2008 and December 2015, to 2 to 2 ¼ percent at its last meeting. Additionally, since late last year, when the Federal Reserve began a program to reduce its securities holdings by reinvesting principal maturities only to the extent that they exceed gradually increasing caps, the FOMC has reduced the size of the portfolio holdings from nearly $ trillion to about $ trillion. 4 Notably, this month, the principal payments from the agency mortgage-backed securities (MBS) portfolios are below the level of the redemption caps. | 1 |
The contrast between North and South Korea serves as a striking example of how institutional differences can lead to wildly divergent paths between two regions that were initially very similar culturally and geographically. This does not mean that a country needs to achieve comprehensive institutional development before growth can occur. “Big bang” institutional reform is typically infeasible. Instead, tackling the most binding constraints one-by-one can yield substantial growth benefits. A country does not need to attain Swiss level of institutional quality in order to be able to compete with Swiss producers in many products. For example, China’s growth miracle has occurred through selective market-oriented reforms against a backdrop of pervasive economic and political institutional weaknesses. But eventually, the growth process has to evolve to be sustained. At this point weak institutions will hamper growth. Transitioning towards a diverse and sophisticated growth model is only possible once institutional strength is achieved along sufficiently many dimensions. This reflects the existence of large complementarities. A strong legal system and enforcement of property rights, for example, won’t boost innovation much if the education system fails to produce a skilled workforce. A highly educated workforce cannot contribute meaningfully if macroeconomic stability is lacking. Good macro policy will make 2 BIS central bankers’ speeches little difference if corruption is rampant. The individual institutional elements complement each other in such a way that the whole is greater than the sum. Without sufficiently broad institutional development, growth will stall. | More recently, the Central banks in the East Asian region have come together to put in place a comprehensive regional surveillance system that is supported by a comprehensive integrated crisis management framework that would deal with any imminent financial crisis in the region. These initiatives are aimed at effectively preventing or containing developments that could trigger destabilising consequences, thereby promoting regional financial stability. Deposit insurance system Ladies and Gentlemen: Following the restructuring and reform of our financial system, Malaysia has two years ago implemented the deposit insurance system as part of our efforts to build a cohesive and mutually reinforcing financial safety net system. The deposit insurance system has an important role not just in promoting confidence with explicit coverage of deposits, but also in reinforcing sound risk management practices. It therefore has embed features that complements the supervisory process in promoting sound risk management practices in the financial institutions. In addition, the deposit insurance corporation in Malaysia is also mandated with the responsibility for the “least-cost” resolution of problem financial institutions. 4 BIS Review 130/2007 A comprehensive approach was thus adopted in establishing the Malaysia Deposit Insurance Corporation (MDIC). To promote depositors confidence, the deposit insurance scheme was designed to ensure that there was optimum coverage with sufficient reach to retail depositors. In designing the deposit insurance scheme, about 95% of all depositors are covered in full while in value terms about 35% of total deposits is covered. | 0 |
Credit volumes, house prices and the level of economic activity should only affect monetary policy to the extent that they affect the forecasts for inflation and resource utilisation. Credit volumes and house prices are not targets for monetary policy. One can claim, however, that the repo-rate path chosen should not threaten financial stability. This may mean that one avoids repo-rate paths with very high repo rates in a situation in which financial stability is fragile and there is a lack of instruments to deal with this. It is also possible that in certain situations this can justify the avoidance of very low repo rates. But, as long as financial stability is not threatened I see no reason to rule out any reporate path at a monetary policy decision. The extended repo-rate path has the same effects as the lower repo-rate path This leads me to the latest monetary policy decision. One of the reasons why different people may prefer different repo-rate paths is of course that they have different views about underlying – of monetary policy independent – economic developments in Sweden and abroad. One may for example have different views about international growth, wage bargaining outcomes and productivity growth. Here I would like to make it clear that I share the view of underlying economic developments in Sweden and abroad presented in the latest Monetary Policy Update. | Managing risk in a soft market Speaking to firms about their approach to the market, they often talk about prioritising margins over growth, focusing on more profitable lines of business – for example, where they have established strong market positions or a particular niche, and making more active use of reinsurance. These all seem sensible approaches for an individual firm but, in aggregate, the risk must end up with someone. One indicator of the competitive pressure on insurers to source new business in the wholesale markets is that brokerage commissions have been increasing as a share of gross written premiums despite the common desire to lower costs in line with lower premium rates. Looking forward, the key challenge for insurers is how they preserve or even grow their activities while avoiding the “Winner’s Curse” of under-pricing in order to get the business. The PRA is a not a price-regulator. But we are concerned to see that firms are adequately managing their exposures – that they can identify and quantify the risks being covered, manage and control overall exposures, and estimate likely claims costs under different loss scenarios. Against this background, I make no apology for repeating the points made earlier this year by my colleague Chris Moulder, our Director of General Insurance, in a Dear CEO letter and subsequent speech. | 0 |
During this period, a new credit of Lek BIS Review 8/2004 1 70.6 billion (USD 660 million) was extended to the economy, or 45 percent more than the same period in the previous year. Based on the developments noticed during the first ten months, on the current developments of the banking system liquidity, etc., it could be summarized that monetary developments of 2003 will be a greater contribution to the consolidation of the overall macroeconomic equilibrium of the country. In order to have a clearer view of the expected economic situation by end of 2003, following is given a table showing the general indicators of the country’s economic development, including here the monetary ones as well. | Foreign currency credit increase is expected to be nearly Lek 14.5 billion, or 88 percent of the total increase of the credit to the economy. The difference between the credit interest rates in Lek and those in foreign currency is assumed to be one of main reasons of the slow increase of credit in Lek. Moreover, the high level of the banking system liquidity during 2003 does not seem to have influenced the increase of the credit balance in Lek. The higher increase of the credit balance to the economy forecasted for 2004 is based on the upward tendency of private sector financing needs. Meanwhile, the forecast for a small increase of Lek 2 billion, or 12 percent of the Lek crediting, is based on higher interest rates of Lek rather than foreign currency crediting. The assumption to approach the crediting interests rates in Lek and in foreign currency, would also alter the forecasts on the credit balance increase, for the respective currencies in the future. 8 BIS Review 8/2004 | 1 |
The teething problems with the Stability and Growth Pact have been an example of these challenges. One of the key motivations of the Pact was an effort to avoid free riding by national governments in a multinational currency area. In other words, the desire to achieve a proper policy mix was present at the birth of this rule. In spite of that, the Pact is now criticised for being too rigid, not allowing for a proper policy response in times of distress, and thus ultimately leading to poor real economic performance. This naturally undermines its credibility and supports calls for various “escape clauses”, to use the inflation-targeting terminology. The Pact is thus fighting the same battle that the conservative central banker was some time ago. It should evolve towards a “constrained discretion” system that will fulfil its major goals - sustainability, credibility and co-ordination of stabilisation policies - yet at the same time be sufficiently flexible to allow for proper responses in adverse periods. It has yet to convince policy-makers and the public that it can deliver the lunch without them having to pay too high a price for it in terms of cyclical stabilisation. So far, the Pact has seemed to be losing the battle. This is somewhat unfair, as the adverse period came before most EU countries had achieved the target of balanced structural budgets, which reduced their manoeuvring space considerably. In a sense, the Pact is thus paying a price for being too lax in the previous period, i.e. | William C Dudley: The economic outlook and the Fed's balance sheet – the issue of "how" versus "when" Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Association for a Better New York Breakfast Meeting, New York, 29 July 2009. * * * It is a pleasure to have the opportunity to speak here at the Association for a Better New York. This group has obviously been very successful. New York today is a far different and vastly superior place from what I found when I first arrived as a freshman at Columbia University in 1970. Today, I’d like to accomplish two tasks. First, I’ll comment briefly on the economy and the economic outlook – where we have been and where we may be going. I’m going to suggest that the balance of risks is still tilted toward weakness in growth and employment and not toward higher inflation. I will also argue that it is premature to talk about “when” we are going to exit from this period of unusual policy accommodation. Second, I will talk about the impact of the Federal Reserve’s lending facilities and purchase programs on the size of the Fed’s balance sheet. I’ll explain why an expanded balance sheet does not constrain our ability to exit from the current degree of policy accommodation. In other words, contrary to what is sometimes argued, it is not the case that our expanded balance sheet will inevitably prove inflationary. | 0 |
In addition, there is still room for improvement, particularly when it is noted that Spain continues to be the EU country with the highest density of branches per head of population. And this does not seem to be very compatible with the technological innovation I have been talking about, whose introduction permits a lesser physical presence. Banks must adapt to the new environment and continue the orderly correction of excess capacity carried out in recent years. The increases in efficiency required could lead to some further consolidation within the sector. 7/8 Finally, as I said at the start, I cannot finish without reminding you of the need to maintain the confidence of bank customers, the most important and also the most fragile asset of the business of deposit institutions. In my first public address as Deputy Governor I mentioned aspects that could be improved. The Banco de España is strengthening its supervisory activities in relation to the conduct of banks. The priority must be the customer, as this is the only way to maintain confidence in the sound functioning of the Spanish banking system. Thank you very much for your attention. 8/8 | 11 All speeches are available online at www.bankofengland.co.uk/speeches 11 One can make the point, albeit with an absurdly extreme example, by imagining that the only thing a sceptical outside observer can see is whether or not there has actually been such a problem. We’re interested in how long it would take, possessing only this information, to conclude that the likelihood of such an event had changed. The precise answer depends on what one means by “conclude” and how sure the observer is of her prior belief12. But imagine, for illustration, that after a relatively long period with several such episodes, our observer’s best guess is that the per-annum chances of a serious problem in the financial system are 8% – she expects it to happen only once every 12½ years, on average (I’m thinking of something less severe and less infrequent than the “once-in-a-century” financial crisis of 2008). What she doesn’t know is that, thanks to some beneficial piece of prudential legislation, the Chart 9: Learning about rare events takes a long time likelihood has actually fallen to 4% a year. Chart 9 shows how her estimate of the probability is likely to evolve over time. Because these events are rare this happens only very slowly. | 0 |
Our definition of price stability is that, in the medium term, prices have to grow less than but close to 2%. Inflationary expectations seen by various panels tell us that, over the next five years, inflation is seen at around 1.9%. I believe it is essential that citizens, savers and investors can trust in the fact that we will take all decisions necessary to ensure that inflation remains at these levels in the medium term. For three reasons: because it is our primary mandate; it is what citizens are asking us to do, and because it is a major contribution to sustainable growth and job creation in Europe. Where do you see risks of price increases? Further increases in oil and commodity prices and in goods and services prices due to past oil price increases. Also additional unexpected increases in administrative prices and indirect taxes. Then, more fundamentally, there are the so-called second-round effects, that is the risk of increases in wages and salaries that would derive from a loss of credibility regarding our capability in countering price increases. It is essential to intervene before these effects materialise. Do your concerns include the increase in VAT to be implemented in Germany in January? The increase in VAT in Germany, which was decided upon some time ago by the government, had already been incorporated in our analysis. BIS Review 87/2006 1 You were in Cernobbio, Italy, in early September. What was the mood among Italian entrepreneurs, politicians and economists? | I saw further confirmation of the great potential of Italy and of the Italian corporate sector, but I also found unanimous agreement that one of the most important problems facing Italy is the insufficient labour productivity and consequently the rise of unit labour costs. It is a European problem, and not only an Italian problem, but in Italy it is particularly visible: we have to do all that we can to implement the Lisbon agenda aiming at accelerating productivity growth. But the Italian industrial structure is weak nowadays. What should be done? Research carried out in Italy and in Europe, more generally, has concluded that we are not benefiting sufficiently from productivity gains in sectors that use new technology (and not only in the sectors that produce the technology themselves) and this seems to be due to overly rigid labour, goods and services and financial markets. Structural reforms that would allow the economy to be made more flexible are the primary tools for achieving a leap in productivity. In the United States this was made possible in the mid-1990s. And, consequently? One should never underestimate the importance of investment in research and development, which are today insufficient both in Italy and in the euro area as a whole. You have mentioned structural reforms, which are currently at the heart of the Italian political debate on developments in the finance laws. Let us begin with the deficit-to–GDP ratio, which is well above the 3% limit. Is the situation in Italy a cause for concern for you? | 1 |
Higher quality capital and larger capital buffers are critical to bank resilience – delivering a more stable system both through lower sensitivity of lending behaviour to shocks and reducing the probability of failure and with it the risk of dramatic shifts in lending behaviour. The capital adequacy framework has made much needed progress in recent years. The framework is now being designed to be fit for purpose both for the micro-prudential purpose of each firm’s safety and soundness, and for the macro-prudential purposes of addressing the risk certain major firms individually present to financial stability and the risk that imbalances building up in the sector as a whole, or part of it, may threaten financial stability. The key elements of the framework are: - first, a common definition of capital resources focussed on genuine loss absorbency in a going concern – Common Equity Tier 1. | Christian Noyer: No moral hazard – the banks are doing their job Comment by Mr Christian Noyer, Governor of the Bank of France, in the Financial Times, 18 September 2007. * * * In recent weeks, Central Banks in Europe and the US have acted repeatedly to provide liquidity to interbank money markets. These interventions have raised some questions. Concerns were expressed that monetary authorities were bailing out speculators, thus creating the same kind of moral hazard that may have led to excesses in the past. There were also concerns as to whether the integrity of monetary policy would be compromised. These are valid questions. On numerous occasions, in the past, we pointed out the potential dangers that mispricing of credit risk posed for financial stability. We may be now seeing some of the consequences. Excessive risks were taken, and losses will have to be accepted. It is important that monetary and financial authorities take no action that would prevent this process from running its course, let alone be seeing to be condoning past or future excesses. However, the logic behind recent interventions is different. Put very simply, financial turbulence and uncertainty have suddenly triggered an upward shift in the demand for Central Bank money. Faced with such a shift, whose direction is apparent but amplitude uncertain, the choice, for monetary authorities, is clear: either accommodate, and provide temporary liquidity; or not, in which case, interest rates would have to rise to restore balance in the interbank market. | 0 |
When profit expectations ultimately fall back to more realistic levels, share prices drop. Corporate investment slackens as the economy’s aggregate capital stock is adjusted to match a more reasonable long-term return. This is accompanied by decreased household consumption, not least of capital goods, to match a more realistic assessment of the long-term development of income. The Austrian School also provides us with a fundamental insight into economic policy’s limitations. If a technological breakthrough leads to a period when the growth of investment and consumption exceeds what is sustainable in the longer run, there is bound to be a fall-off. After a supply shock of this type, measures of economic policy are simply not capable of preventing an adjustment to a more realistic appraisal of the future. The necessity of the adjustment means that the measures only postpone it and presumably tend to make it all the more painful when it does occur. History teaches us that after a period of what I would call “growing pains”, the optimism about what the new technology can achieve will be restored, albeit in a more orderly, realistic guise. In my opinion, neither the rapid fall-off in global activity nor the terrorist attacks on 11 September have upset the grounds for being optimistic about the new technology’s potential. Problems for many companies After the investment boom and the marked slowdown we are now experiencing, there is a risk of a good many companies having balance-sheet problems. | In addition, there are a number of initiatives currently underway to exploit more fully the possibilities of cooperation and convergence provided by this approach, and I think the results will be positive. Now it may be that over the longer term, the current structure is judged to be insufficient to meet the needs of a more integrated market, and that a more fundamental re-think of the organisation of EU supervisory responsibilities is necessary. I personally think that this debate will intensify in the next decade. But we would certainly need to proceed with great caution in this debate. I am a firm supporter of the idea that changes should only be made if clear problems are identified. But whatever happens, I think the solutions we have to look for should be cooperative in nature, embracing the needs of all EU member states. This would, in my view, be preferable to an approach which would tend to concentrate responsibilities in the hands of a few Member States while the implications of their actions would extend far beyond their borders. Taking a more inclusive approach is the way that we have found solutions in the past to European challenges, and I think it is the best way forward. EU-wide financial stability is of interest to all of us. | 0 |
There is also the effect of net exports, part of which we saw in the first quarter, resulting from both higher prices in dollars and the reallocation of internal resources derived from the real depreciation of the currency. Add that the developed world will perform better. Finally, there is the impulse coming from public spending, particularly investment, because of the low budget execution of 2013. In the opposite direction point the aforesaid deterioration in business confidence and the downward revisions to the investment project agenda made by the Chilean capital goods corporation for 2014. The 2014 current account deficit forecast is revised downwards mainly because of the foreseen deceleration in investment and a slight increase in savings because of lower private consumption. In the trade balance this is visible mainly in a downward revision to imports. Accordingly, the baseline scenario includes a current account deficit of 2.5 percent of GDP in 2014 (3.6 percent in March). The lower outlook for expenditure also implies that, at trend prices, the deficit will decline further, to 2.2 percent of GDP (3 percent in March) (table 2). The forecast path for inflation rests on several assumptions. For one, in that the passthrough from the peso depreciation to prices will be in line with its historical pattern. In addition, the Board uses as a methodological assumption that the real exchange rate (RER) will remain close to current values, as it is now within the range that is considered consistent BIS central bankers’ speeches 3 with its long-term fundamentals. | Figure 4 Current account (*) (percent of GDP) 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 05 06 07 08 09 10 11 12 13 14 (*) Accumulated in one moving year. Source: Central Bank of Chile. 8 BIS central bankers’ speeches Figure 5 Interest rates on Central Bank of Chile bonds (*) (percent) 8.5 8.5 7.5 7.5 6.5 6.5 5.5 5.5 4.5 4.5 3.5 3.5 2.5 2.5 1.5 1.5 03 04 05 5-year BCUs 06 07 08 09 10-year BCUs 10 11 10-year BCPs 12 13 14 5-year BCPs (*) Monthly averages. Source: Central Bank of Chile. Figure 6 Domestic companies' funding cost (*) (percent) 6 6 5 5 4 4 3 3 2 2 1 1 0 0 Jul.05 Abr.07 Feb.09 Base Nov.10 Jul.12 May.14 Spread (*) Considers UF-indexed private AA companies' bonds at about 5 year maturities. Dotted vertical line Source: Central Bank of Chile based on information from the Santiago Stock Exchange. | 1 |
Mr Bäckström reviews some topical monetary policy issues in Sweden Speech given by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, at the Swedish Bond Promotion, Stockholm, on 4 October 1999. * * * This year’s economic growth in Sweden has been impressively strong. GDP growth in the first half-year, on the first half of 1998, was 3.4%. The number in employment has risen by approximately 100,000 persons. As many people are returning to the labour market now that more jobs are becoming available, the reduction of unemployment has not been as marked. But total as well as registered unemployment is falling from the previously high levels. This has been accompanied by price increases that are moderate. To date this year, inflation’s underlying rate – measured by UNDIX, which excludes interest expenditure, indirect taxes and subsidies – has fluctuated between 1.0 and 1.5%. The picture since the summer seems to point to a continuation of favourable growth and employment, with no immediate threats to price stability. But we have to be on our guard, particularly as the economy is now in an upward phase. Due to the time lag in monetary policy, the Riksbank’s interest rate decisions have to be based on the prospects fairly far ahead. The most relevant period for our deliberations is the outlook for inflation twelve to twenty-four months ahead. | We presume that oil prices will tend to go down. Consequently, inflationary pressure will subside somewhat, particularly towards the end of 2005. With an unchanged monetary policy, we are likely to see an inflation rate of 0.9% in the first quarter of 2006. 2. Continued recovery In order to assess inflation in the medium term, economic prospects are paramount. During a phase of economic recovery, as we are currently experiencing, how rapidly the capacity utilisation rate increases is important from a monetary policy perspective. Even though GDP growth in the fourth quarter of 2004 is likely to be lower than we projected in the September assessment, we expect the Swiss economy to expand by close to 2% this year. The upswing will continue next year. We anticipate a growth rate of 1.5% to 2% for the whole of 2005. The fact that the economy braved the oil price hike and the stronger franc is testimony to a robust recovery. There is less uncertainty now as to the inflation prospects for next year. Utilisation of economic resources, which is slowly increasing, will not lead to any additional pressure on prices in 2005. As can be gleaned from the new inflation forecast, improved capacity utilisation is likely to have an impact on price development only in the course of 2006. 1/3 The current inflation forecast for the medium term, ie for the coming two years, is characterised by a similar course to the one charted in September. | 0 |
The FOMC has not decided what kind of operating regime it wishes to run in the long run, but one lesson from the crisis is that not all operating frameworks may be robust to a wide range of circumstances, such as implementing policy at the zero lower bound. If one wished to retain the option that the balance sheet could be deployed as an active tool for policy implementation at this threshold and then gradually revert to a passive role when conditions normalize, then one needs to consider how to transition into and out of different operational modalities. This requires operational flexibility. A byproduct of a central bank’s portfolio-expanding asset purchase programs is an increased supply of reserve balances in the banking system.43 Thus, once balance sheet tools are deployed, the central bank will find itself operating in a system with reserve abundance if it wasn’t already, and will need to adopt instruments and arrangements that can deliver interest rate control accordingly. This imperative could imply switching operating regimes—from a corridor regime to a floor regime, or from a liability-driven floor to an asset-driven floor—and staying in the 8 / 13 BIS central bankers' speeches new regime for an extended period. Some central banks, such as the ECB, have monetary policy implementation frameworks in which this transition happens relatively seamlessly, while others, such as the Fed before the crisis, required significant changes to tools and operations. | We are working to anchor in Singapore centres of excellence to undertake Asia-centric research on green finance and build a talent pipeline. In October, we announced the launch of the first research and talent development institute focused on green finance – the Singapore Green Finance Centre – a collaboration between Singapore Management University and Imperial College Business School. Green FinTech Finally, let me focus on the role of FinTech in enabling trusted and efficient sustainable finance flows. We call it Green FinTech. For this year’s Singapore FinTech Festival, theFinTech Innovation Challenge focuses on challenges faced by financial institutions with respect to sustainability and climate risks. The enthusiasm for applying FinTech to sustainable finance has been overwhelming. We received more than 600 submissions from over 50 countries – the highest number of submissions since the Innovation Challenge began in 2016. MAS is pleased to announce we will be embarking on Project Greenprint – a technology platform aimed at promoting a green financial ecosystem. Project Greenprint aims to strengthen three key elements in that ecosystem: mobilise capital; monitor commitment; measure impact. First, mobilise capital. SMEs and FinTech firms working on green and sustainable projects often face difficulty accessing capital in an efficient manner. Project Greenprint provides a platform for these firms to connect with financial institutions and investors to access a wider pool of capital and green solutions. Second, monitor commitment. Investors and financial institutions supporting green projects must be able to monitor whether the projects are indeed meeting their sustainability commitments. | 0 |
But then, when you analyse that credit to the private sector and its development, it is also very clear that those high rates of growth are particularly present in the smaller countries of Europe and not too much in the larger countries, although there is quite a difference between the various countries. So, in itself, that rate of growth of credit, which is already moderating somewhat, is not a cause of inflationary concern for us, and neither is the move today any inducement to the banks to be more forthcoming in giving credit. They are already quite forthcoming. Question (translation): Mr. Duisenberg, the situation in Europe at the moment, especially this latest interest rate move by the ECB, now reminds me somewhat of Japan. You reduce interest rates time and again, yet on the other hand, no progress is being made in the areas of politics and restructuring in BIS Review 39/1999 4 Europe. In December, although I cannot quote you directly, you stated, much in the same way as today, that following the cut in interest rates the situation with regard to interest rates in Europe would be settled. It is now the beginning of April and we see obviously a further cut in interest rates. | Question: In your meeting today, could you describe what the mood was of the meeting and whether there was much debate about your move and much debate about the level of the move and also, whether it was an unanimous vote in the end. Duisenberg: The mood was good. We had a very long and, I must say, very interesting discussion today. There were a few who were not very inclined to do something about the rate - but here I talk about a very few - and a very large majority was inclined to do something and supported the proposal as we put it before the Council. And so, we had a very good discussion. For the final decision, I am afraid I have to tell you that we did not take a vote. But we know all the different views and so, finally, I could conclude as follows: the Governing Council decides that the main refinancing rate will be lowered from 3% to 2.5%. Question: You said there were no monetary risks of inflation at the moment. Can we infer from today’s decision that there were monetary risks of deflation or is it purely a growth-oriented decision that you have taken today? Duisenberg: No, we also see no risks of deflation emerging. We see that inflation has now remained, on a euro area-wide basis, constant at a rate of 0.8% four months in a row up to now. We see some risks on the upside, i.e. | 1 |
Mark Carney: Inflation in a globalised world Remarks by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, 29 August 2015. * * * Accompanying charts can be found at the end of the speech or on the Bank of England’s website. I am grateful to Ambrogio Cesa-Bianchi, Bob Gilhooly, Gene Kindberg-Hanlon, Ben Nelson, Ivan Petrella, Greg Thwaites, and Iain de Weymarn for help in preparing these remarks. I. Introduction In this era of hyperglobalisation, 1 are central banks still masters of their domestic monetary destinies? Or have they become slaves to global factors? To what extent does a global financial cycle dominate domestic transmission mechanisms and does that, as some might suggest, confer particular responsibilities on those central banks that most influence it? On the surface, there’s evidence of global inflationary cycles that correspond with an intensifying globalisation that propagates common shocks via commodity, trade and financial channels. Correlations of CPI are as elevated today as during the first oil shock and on the surface we appear to be in the midst of a highly synchronised global rates cycle. But as is often the case, appearances deceive. Correlations of headline CPI largely reflect price level shocks such as those to oil (Chart 1). Core inflation rates exhibit much less comovement but rather vary with increasingly divergent underlying economic conditions (Chart 2). The stance of monetary policy reflects these differences. | As we meet today we welcome the various measures taken by the Bretton Woods institutions to reduce the impact of the devastating effects of the turbulences in the international monetary and financial markets and look forward to future reforms to help ease the burden on our economies. Another issue I will like to mention is the aspect of voice and representation which is critical for us to be fully represented in these institutions and we are happy that these issues are being addressed. For the next two days we will discuss issues relating to Africa in the context of global financial and economic crisis, lessons learnt and the way forward at the Miatta Conference Hall. This Dinner gives the opportunity to set the scene and get familiar with each other as there are a host of Bank Governors and Finance Ministers here coming from all over the continent, some, if not most, of us are meeting for the first time. I am certain it will not be hard for us to get to know each other because we share a lot in common, in terms of language, culture and socio-economic conditions. It is my belief that it is this common history and economic experience that brings us together and gives us a unique advantage in understanding our collective situations to help us reach consensus on all of the issues on the table for discussion. | 0 |
I don’t think so, judging from the strong investor reactions after the collapse of many internet-based crowd funding platforms on the Mainland and overseas. 12. While regulators like the HKMA must exercise care when new technology is introduced in financial services, there are understandable concerns amongst the Fintech industry that overly rigid or conservative regulations may stifle new technology and innovation. So how do we in the HKMA deal with this issue? Let me say this: the regulatory philosophy of the HKMA is that we adopt a risk-based and technology neutral approach. Specifically, we would endeavour to see through the nature and magnitude of the risks involved in a financial transaction or product without positive or negative discrimination on whether a new technology is used. However, it is important not to misinterpret this “technology neutral” approach as one that is insensitive to the contributions that Fintech and innovation can bring to the financial sector. The more correct narrative is that, without compromising consumer and investor protection, the HKMA embraces the use of Fintech and innovation. A practical demonstration of our effort in supporting Fintech development in Hong Kong is the setting up of the “Fintech Facilitation Office” (FFO) by the HKMA earlier this year. In May, the FFO launched its first major initiative, namely, the “Cybersecurity Fortification Initiative”. It is a major endeavour involving the key stakeholders in the banking as well as the Fintech industry. In the interest of time, I do not propose to say much about this important initiative today. 13. | The Bank of Canada already regularly does this, and the Federal Reserve is currently undergoing a review of its framework and strategy.8 Absent such changes, central banks will be severely challenged to achieve stable economies and well-anchored inflation expectations. Outside of monetary policy, there are a number of avenues by which fiscal authorities can enhance the resilience of economies to negative shocks. One is to strengthen the “automatic stabilizers” that provide a boost to the economy during a downturn. A second is to align debt management decisions more with monetary policy. For example, during a downturn, the fiscal authority could choose to shorten the duration of debt issuance to reinforce the effects of central bank quantitative easing. Third, regulatory and supervisory policies that support the resilience of the financial system can limit the economic effects of negative shocks. Finally, fiscal and other economic policies can attack directly the sources of slow growth and low r-star. This includes raising public and private investment in human and physical capital, infrastructure, science and technology, and policies aimed at removing barriers to participation in the labor force and the economy more broadly. Conclusion The facts have changed, and so it is time our change our minds also. It is often said that change is hard. But, experience teaches us that it is better to prepare for the future than wait too long. Ultimately, failure to prepare often means preparation for failure. 1 This is not true for all population groups. | 0 |
The world economy continues to be marked by expectations about the Federal Reserve (Fed)’s decision on the trajectory of its monetary policy normalization, and by the risks coming from the Chinese authorities’ efforts to meet the country’s target growth rates. During most of the quarter, the markets’ assessment of these phenomena resulted in a loosening of financial conditions compared with the beginning of the year. Most recently, however, these trends have been partly reversed. Thus, our new baseline scenario assumes that our trading partners will post similar growth rates to those of 2015, but external lending conditions will be tighter and commodity prices will remain below their long-term levels. In this context, we have held the monetary policy rate (MPR) at 3.5 percent annually and we foresee that, within our forecast horizon, further increases will be necessary. Of course, this will be contingent on incoming information about the projected inflation dynamics. Thus, if new indicators point at higher expected inflation, monetary policy will need to be tightened, and vice-versa. In any case, we have maintained a significantly expansionary monetary stance, which will remain so in the scenario we believe to be the most likely. Let me share with you the workings of our baseline scenario and the main risks we perceive, which are depicted in the Reports I am presenting now. Macroeconomic scenario As I said before, in recent months both headline (CPI) and core (CPIEFE) inflation have behaved as expected. | These are all areas in which Singaporeans can excel. (II) Cross-functional capability Second, we are seeing greater demand for finance professionals with cross-functional abilities, besides a core competence in a particular business area. This is obviously helpful in small institutions, but is also in demand in large institutions as different financial services are being integrated and packaged together for the customer. Cross-functional knowledge and competence also enables financial professionals to take on larger responsibilities, and to achieve greater resilience in their careers in a fast-changing financial sector landscape. (III) Regional knowledge and experience Third, regional knowledge and experience. It is now an essential for a good career in finance, not just nice to have. We must give it far greater emphasis, and encourage and support Singaporeans in building up this capacity. Cross-border solutions and transactions are increasingly the norm in the business. Strong regional knowledge is also necessary in meeting clients’ needs, whether in relationship management, transaction banking, specialised finance or product structuring. It also enables financial institutions to manage BIS central bankers’ speeches 3 their risks well, and operate effectively in Asia’s still diverse regulatory frameworks and market environments. (IV) Technological skills and adaptability Fourth, technological adaptability. I spoke earlier about how technology is changing the business, and changing jobs. It is not a matter of defending ourselves against the onslaught of technology, but taking advantage of it. | 0 |
The IMF called it a model for others and a succession of governments visited London to learn from it. The Chairman of the FSA was invited by the US Treasury Secretary to address the heads of the US regulatory bodies. And the Mayor of New York City and a US Senator commissioned a report which concluded that the US needed to learn from London’s approach to regulation if it was to arrest New York’s decline as a global financial centre.1 In short the separation of the three authorities, each with a clear remit and the independence to pursue it, was seen as a good model for a modern economy (Chart 1). 1 2 http://www.nyc.gov/html/om/pdf/ny_report_final.pdf BIS Review 21/2009 Revisiting the Great Stability And it worked! We should not underestimate the achievement of the next decade. As recently as fifteen years ago, low and stable inflation still seemed an unattainable goal. But, research published by the Bank around the time I joined found that: “the post-1992 inflation-targeting regime has been characterised, to date, by the most stable macroeconomic environment in recorded UK history”2 As Chart 2 shows, volatility of both output and inflation hit new lows. Similar gains were achieved overseas, although the break in macroeconomic performance appears to have happened earlier in the United States. In the UK we did indeed avoid the sort of cyclical booms in output, income and employment we had seen in the 70s, 80s and 90s (Chart 3). | Broadly, these models can be classified according to the underlying micro-economic friction. For example, a well-established body of literature has looked at the effects of asymmetric information between borrowers and lenders in placing limits on credit (Bernanke, Gertler and Gilchrist (1996), Holstrom and Tirole (1997)). These constraints can be loosened by the borrower pledging collateral to the lender, in effect as a substitute for information (Kiyotaki and Moore (1997)). This solves one problem, but at the potential expense of another: movements in the prices of collateral then have the potential to aggravate cycles in leverage and credit (Geanakoplos (2010)). These cycles can in turn act as a “financial accelerator” for the business cycle. These are typically models of a representative bank and creditconstrained investor. A second potential source of credit market friction arises from coordination failures among lenders (Gorton and He (2008)). In these models, banks are heterogeneous and their behaviour strategic. The individually rational actions of heterogeneous lenders can generate collectively sub-optimal credit provision in both the upswing (a credit boom) and the downswing (a credit crunch), perhaps through herding (Acharya (2009), Acharya and Yorulmazer (2008)). This is the result of a collective action, or co-ordination, problem among banks. In credit markets, these co-ordination failures are far from new. Keynes memorably noted: “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way with his fellows, so that no one can really blame him” (Keynes (1931)). | 0 |
Adjustments and increased volatility recently observed in international financial markets are other factors to consider in this conjuncture, and their implications will depend critically on how they will ultimately affect the future inflation trajectory. We have the luxury of having a well-established macro/financial framework that permits us to be well prepared to face turbulences as they occur. BIS Review 97/2007 9 | In such a transaction, banks generally purchase the asset to be financed, and then sells it to the customer at a mark-up, to be paid on a deferred basis. 6 IFSB - Islamic Financial Services Board; IDB – Islamic Development Bank; AAOIFI - Accounting and Auditing Organisation for Islamic Financial Institutions; IIFM - International Islamic Financial Market. 7 The Bahrain Monetary Agency was the primary sponsor in establishing the Liquidity Management Centre. 4 BIS Review 147/2008 Financial Services Board Summit, Singapore's plan to set up a facility to provide Shariahcompliant regulatory assets to these financial institutions as part of our efforts to promote the growth of Islamic Finance in Singapore. The sukuk structure is based broadly on the Al-Ijarah structure, or the sale-and-leaseback of an underlying property. Sukuk issued by the facility will be given equal regulatory treatment as Singapore Government Securities, or SGS, and returns will be tied to the risk-free yield of SGS of equivalent tenor. The facility is open to all financial institutions that plan to or are currently carrying on Shariah-compliant financial services in Singapore. We are issuing on a reverse enquiry basis, which means we can size and time the issuance according to the needs of the financial institutions. A number of financial institutions have already expressed interest and we expect the first issue to take place at the start of next year. We invite eligible and interested financial institutions to approach MAS as we work towards a formal launch. | 0 |
With respect to disclosure, we are going to disclose in March 2019 the climate-risk exposures of our own funds and pension portfolios. We are also working to adopt in the near future a TCFD-like reporting which would fit the specificities of central banks. Regarding the role of monetary policy, some voices have been calling for a “green quantitative easing”. But monetary policy has to be broad based and remain neutral to ensure proper functioning through its transmission channels; it cannot be targeted towards achieving specific social or sectoral impacts. However, this does not preclude the Eurosystem from buying green assets when they fall in the remits of the eligibility criteria of its purchase programmes. For instance, the ECB currently holds around EUR 79 billion viii of eligible green universe bonds from both the public and the private sector, which is already significant. It does not mean though that monetary policy should ignore the question of climate change. Within our price stability mandate, I really believe further analytical work is needed to better understand the medium to long-term impact of climate change on intermediate monetary policy objectives and ultimately on our monetary policy strategy. To this end, a substantial research agenda remains before us and I hope the NGFS can play a role in helping to bridge the “knowledge-gap” in that area. | Chart 8: Accounting for intangibles reduces the missing-investment puzzle Note: The orange line shows the investment puzzle using industry-level data, and the shaded area around it is the 95% confidence intervals. The line shows the estimated year fixed effects from an industry-level regression of investment rates on the wedge, including industry fixed effects, and standard errors clustered at the industry level. See Appendix B to Bailey et al. (2022) for full details. The blue line shows the same statistic from the regressions in which both investment rates and the wedge are adjusted to include intangibles. See Appendix A.2 to Bailey et al. (2022) for a discussion of the adjustment. Source: ONS, KLEMS, Jordà et al. (2017) Macrohistory Database and authors' calculations. The remaining puzzle is mostly concentrated immediately after the global financial crisis, and so it is possible this is not driven by structural factors, but rather the lingering impact of the global financial crisis, for example related to the sluggish demand recovery or financial frictions. [22] While the results suggest an important role for intangibles in explaining the missing-investment puzzle, a few notes of caution are in order. It could be that certain drivers of investment, such as financial frictions, are captured more accurately only at more granular level, such as in firm-level data. Moreover, there could be large non-linearities related to the nature of the global financial crisis that cannot be captured by the simple regression framework used above. | 0 |
Significant progress has been achieved in this direction during the recent period with the creation by the IMF of new facilities and a new SDR allocation, the biggest ever, for the equivalent of 250 bn USD. More needs to be done and work should be undertaken to find sources of international liquidity truly substitutable to reserves without creating undue and excessive moral hazard. And, finally, an important question is to find, in the future ,reliable international stores of value. The crisis has amplified the “asset shortage” as some instruments, up to now considered as riskless, have proved very vulnerable to changing financial conditions. The ability of the private sector to create “safe” assets through financial innovation has proved largely illusory. So, in the period to come there may be both an increased demand worldwide for risk free assets and much less certainty on their future supply. The search for a reliable international store of value has been going on for many decades. When discussions were held to build the Bretton Wood system, Keynes proposed the creation of a new international currency, the “bancor” which could serve both as a source of liquidity and a store of value. Thirty years ago, there was extensive discussion in the IMF on the creation of a substitution account. Most recently, in 2009, Governor Zhou has reopened the debate and suggested, over the long run, the creation of a new “super reserve” currency, while, in the meantime, enhancing the role and status of the SDR. | Moreover, there are strong indications that the deceleration in domestic credit activity in Malta is not due to any shortage of liquidity in the banking sector but rather to the reluctance on the part of banks to extend their exposure beyond certain limits to a number of economic sectors. A promotional or development bank could enable such sectors to gain better access to financing support that may not be readily available from other sources on reasonable terms. A promotional or development bank can thus complement the domestic financial sector in instances where free market conditions may appear to be insufficient to achieve the desired public policy objectives. Such an institution would normally be underpinned by certain privileges geared to optimise promotional activities and therefore one would need to ensure that the promotional operations of such a bank would not give rise to any distortions in competitive conditions in the market. More specifically, it would have to ensure that its activities will be fully in line with EU State Aid regulations at the final beneficiary level. A promotional or development bank would be on similar lines as in many EU countries, particularly Germany, where such banks undertake very successfully at a regional level a role in promoting the economy and assisting the government in social and environmental projects. Such banks have the backing of a government guarantee and thus can borrow on the basis of the sovereign rating of the government either locally or from supranational institutions. | 0 |
The OECD publishes a range of well-being indicators as part of its Better Life Index. An un-weighted average of its indicators ranks the UK 12th out of the 36 countries (Figure 1). The UK does well on measures of income, wealth, security and environment, less well on work-life balance, education, skills, and housing (Figure 2). I set out all of this because it has a direct read-across to measuring the societal value of volunteering, to which I now turn. The scale of volunteering You can only measure what you can first define. The International Labour Organisation (ILO) defines volunteering as: 1 Deaton et al (2014). 2 Coyle (2014). 3 Fitoussi et al (2009). 2 BIS central bankers’ speeches “Unpaid, non-compulsory work; that is, time individuals give without pay to activities performed either through an organisation or directly for others outside their own household”. Within this, there is formal and informal volunteering. The former is done through groups, clubs or organisations and is typically easier to measure; the latter can be through any arrangement and so is often much harder to capture. Clearly, volunteering is work. It also involves producing goods or services outside of your own household. So playing a musical instrument for your own pleasure does not count as volunteering, but playing in an old people’s home does. Driving your children to hospital is not volunteering, but driving your neighbours to hospital is. And so on. Figure 3 gives some more examples taken from the ILO manual. | Figure 12: The average lifetime cost of risk factors associated with sexual exploitation Average cost per individual Preintervention Postintervention Control group Going missing Substance abuse Accommodation Total needs £ Disengagement from education £ £ £ £ £ £ £ £ £ £ £ £ £ £ Source: PBE (2011). BIS central bankers’ speeches 25 Figure 13: Benefit of Centrepoint intervention to the public purse, average per Centrepoint client Central scenario £ 2010/11 prices) 6,989 12,332 2,639 46 188 117 –136 22,174 Avoided welfare benefits Tax raised Crime (avoided costs) Mental health issues (treatment costs avoided) Class A drugs (treatment costs avoided) Cannabis (treatment costs avoided) Alcohol (treatment costs avoided) Benefit of Centrepoint intervention to the public purse Source: PBE (2013). Note: row totals do not add to the total benefit due to rounding. Figure 14: Reasons for not participating in volunteering-related activities, 2010/2011 (% of respondents) Work commitments 60% Doing other things with spare time 34% Looking after children/the home 31% Studying commitments 14% Not knowing any opportunities to help 14% Not knowing of any groups needing help 14% Looking after someone elderly or ill 8% Feeling too old 3% Feeling too young 1% Source: UK Civil Society Almanac (2014), Citizenship Survey (2010/11). 26 BIS central bankers’ speeches | 1 |
Doing this makes the bad scenario less likely to materialize and the improvement in credit supply helps to engineer a stronger recovery than would otherwise materialize.4 The third implication is that the stance of monetary policy needs to be assessed based on the state of the financial system and the real economy. How the monetary policy impulse is transmitted to the real economy is not immutable but changes depending on how monetary policy affects financial conditions and how financial conditions affect economic activity. During and following financial crises, problems in the financial system can impair the transmission of monetary policy to the real economy. When this happens, policy may need to be more accommodative than otherwise in order to achieve its objectives. The experiences of both Japan and United States are cases in point.5 In retrospect, we know that following the collapse of the property bubble and the investment boom in Japan in the 1990s, the Bank of Japan (BoJ) did not follow a sufficiently accommodative monetary policy 4 Ideally, as was the case in the U.S. in 2009, the authorities should require banks to meet their stress scenario capital ratio standards by adding equity capital, with no credit given for reducing assets. This leans against the incentive to deleverage to meet higher capital ratio requirements. 5 See my recent speech “Lessons at the Zero Bound: The Japanese and U.S. Experience”, Japan Society, May 21, 2013. BIS central bankers’ speeches 3 to prevent deflation. | Insurance regulators around the world are adopting risk-based capital and Singapore has been a frontrunner with our current Insurance Risk-Based Capital (RBC) framework introduced in 2004. This risk framework has served us well, and our insurers have navigated largely unscathed through recent financial crises; while the framework allowed for regulatory 2 BIS central bankers’ speeches intervention in a timely and effective manner. Now, I know this begs the question – if it isn’t broken, why fix it? 17. The answer is that the operating environment for global finance including insurance, has and will become increasingly complex given the more connected global markets, the vulnerability of contagion, an overall low interest rate environment that pushes investors including insurers to target more risky higher-yielding products and potential new risk areas such as in some emerging markets or in technology risks. 18. It is important that our insurance capital framework remains relevant and effective and that insurers operating in Singapore are well-capitalised to weather different crises and risk forms. 19. At the global level, the International Association of Insurance Supervisors (IAIS) has also embarked on the development of capital standards for internationally Active Insurance Groups (“IAIGs”); while the International Accounting Standards Board is expected to finalise its guidance on insurance contracts under IFRS4 sometime this year. Progress on RBC2 20. Last year, MAS published our second consultation paper, which outlined our key proposals for RBC2. We also conducted the first quantitative impact study (QIS1) to assess the potential impact of the proposed changes on the industry. | 0 |
Jean-Pierre Roth: Swiss outlook and global developments Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Icon Roadshow Euro 2008, Frankfurt am Main, 17 March 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * The Swiss economy looks back on a number of successful years during which it was a very active participant in the growth of the world economy. The export sector rapidly expanded its presence in the new markets, thereby making an important contribution to this development. What was remarkable was that the increased foreign activities were not detrimental to Switzerland as a production location. On the contrary, the Swiss location benefited overall. Reforms aimed at strengthening and opening up Switzerland as a business location have also made a substantial contribution to economic prosperity in recent years. The turbulence on the financial markets that erupted in mid-2007 is unlikely to leave the Swiss economy unscathed. The export sector, including the banks, will be affected by the slowdown in the international economy. An additional factor is the substantial rise in the value of the Swiss franc over the past few months against the euro and the US dollar. However, we are already in a position to learn quite a bit from the financial market turmoil. | By promoting a more consistent approach to supervisory review, we intend to strengthen the quality of supervision across countries. We recognise as well the special function the Committee can offer in strengthening the ability of host supervisors – particularly those in emerging market economies – to regulate the local operations of foreign banks. Harmonisation of accounting standards and the New Basel Accord Supervisory review helps to create very direct incentives for banks to evaluate and manage their risks carefully. Transparency can supplement that incentive by leveraging the power of financial markets to encourage prudent risk-taking, and I would like now to address the third pillar of the New Accord, namely market discipline. Even just over the past few months, the popular press has reported on several examples of corporations that failed to disclose adequately the kinds of activities in which they were involved and the degree to which they bore risk. Both inside and outside the banking industry, the renewed focus on sound corporate governance practices has highlighted the importance of appropriate disclosure to the market – and the dangers that ensue when companies fail to disclose their risks adequately. These failures in disclosure have added fuel to the drive to harmonise accounting and disclosure practices worldwide. With reference to the New Accord, many respondents quite correctly noted the need to align the supervisory framework more closely with the converging accounting practices worldwide. | 0 |
On the cusp of the pandemic, inflation expectations had just started to go down as we saw them approaching 4%. The pandemic derailed that trend. Inflation expectations this year have grown drastically to a five-year high. What does that mean in practice? It means that people rush to buy everything before prices grow, and are taking out a lot of loans. And that further fuels demand and inflation. Whereas some central banks can afford to take a wait-and-see stance to adjust to demand — thanks to the consumer behaviour shaped by the expectations that price growth will stop, we cannot afford that policy. Conversely, if we miss the right moment to make a prompt monetary policy response, we will then have to raise the key rate even more. Our own experience and some countries’ history prove that. We are in a situation similar to that in the US and Germany in the 1970s and 1980s. The Bundesbank moved to raise its interest rate right away, but the Federal Reserve maintained its accommodative policy for a long time on expectations that the crisis would pass. As a result, while Germany saw a quick drop in inflation and an economic rebound, the US went into stagflation, and the Fed was forced to conduct an extremely tight policy, the consequences of which were felt for many years. Food prices are soaring on the back of a disappointing harvest, a rise in global food prices and in labour costs in agriculture. | This is because the risk to financial stability can come from many sources other than domestic inflation. In the current crisis, it was the housing bubble and excessive risk-taking by financial institutions that precipitated the crisis in the environment of stable prices. Therefore, to maintain financial stability, attention must be paid to all the key sources of risk and imbalance, other than price stability, that can have systemic implications for the economy’s growth and stability. This is the second lesson. The third lesson relates to the importance of having a robust and resilient financial sector at all times. For emerging markets, this means a strong banking sector. In the current crisis, it is the strength of the banking sector that has enabled the Asian economies to cope more successfully with the impact of the global crisis. These strengths are underpinned by the sector’s strong capital base, its limited exposure to subprime-related and other toxic assets, and its low reliance on external funding. Such strength and qualities are no accident. They are the results of deliberate policies to reform the financial system, strengthen supervision of financial institutions, and revamp financial regulation, risk management, and governance after the Asian financial crisis. The point I want to stress here is that these are the qualities that helped us through the current global financial crisis and they are the qualities that we need to keep. | 0 |
Downside risks to growth include Russia's unjustified war against Ukraine and an increase in broader 2/10 BIS - Central bankers' speeches geopolitical tensions, which could fragment global trade and thus weigh on the euro area economy. Growth could also be slower if the effects of monetary policy are more forceful than projected. Renewed financial market tensions could lead to even tighter financing conditions than anticipated and weaken confidence. Also, weaker growth in the world economy could further dampen economic activity in the euro area. However, growth could be higher than projected if the strong labour market and receding uncertainty mean that people and businesses become more confident and spend more. Upside risks to inflation include potential renewed upward pressures on the costs of energy and food, also related to Russia's war against Ukraine. A lasting rise in inflation expectations above our target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. Recent wage agreements in a number of countries have added to the upside risks to inflation. By contrast, renewed financial market tensions could bring inflation down faster than projected. Weaker demand, for example due to a stronger transmission of monetary policy, would also lead to lower price pressures, especially over the medium term. Moreover, inflation would come down faster if declining energy prices and lower food price increases were to pass through to other goods and services more quickly than currently anticipated. | We have experienced that partial reinvestment now for a few months because it was decided back in March. It has been well-absorbed by markets. We have not observed any disruption. Given the amounts that we are talking about, we have reasons to believe that it should be absorbed also in a smooth manner. But, of course, we will be very attentive. We will look at this process. We will, as I said, always have the means to take action and to use all the tools that we have available if it was needed. You've touched on the problem of the wage increases. At your speech at the European Parliament, you touched on the problem of corporate profits. If you take these both together, how confident are you that the relevant parties actually start to be more moderate on this, in particular as both of them start to criticise that interest rates are already too high? The second question: I'm also a bit puzzled about the real severity and persistency of this core inflation. May I ask you as well, please, to elaborate a little bit more where the Governing Council sees the reason for this really strong persistence? The labour market situation and the employment situation is the good news in Europe, and we have never seen the unemployment rate be so low. Actually in our forecast we see the unemployment rate go from this 6.5% that we have now, to 6.3%. We see the level of unemployment continuing to decline. | 1 |
Non-financial corporations (NFCs) faced this shock from a more favourable financial position than was the case before the global financial crisis. Specifically, in recent years 4 they had lowered their debt levels substantially, to below the European average at end2019, and had higher liquidity buffers. Moreover, the sectoral distribution of activity was more balanced than prior to the previous crisis. However, the information for the first half of the year shows that NFCs have seen their profitability plummet. Their return on assets (ROA) halved, falling from 4% to 2%, and the proportion of NFCs with low profitability increased. Simulations by the Banco de España point to a strong contraction in firms’ profitability in 2020 as a whole, with SMEs trending more unfavourably, especially those in hospitality and leisure, motor vehicles, wholesale and retail trade, and transport and storage. The simulations on firms’ liquidity, on the basis of the aforementioned macroeconomic scenarios and incorporating the impact of the economic policy measures implemented, anticipate that the percentage of firms with liquidity needs in the period spanning the second and fourth quarters of this year will increase as a result of the pandemic by almost 10 pp, to 70%. The information on bank lending shows that firms are resorting to this source of financing to cover a sizeable portion of their liquidity needs. Specifically, the outstanding balance of NFCs’ borrowing from national credit institutions increased at a record-high pace, shifting from an annual contraction of 1.1% in February to an annual expansion of 8.1% in June. | But the growth of financial firms active across different business lines and national boundaries does make designing policies to address systemic risks more challenging. Let me conclude by highlighting some actions we can take to guard against such risk. First, there is scope for more private and public sector cooperation on stress-testing. There is room to develop further our analysis of the combined effects of market and credit risk on the balance sheets of financial firms and at a system-wide level. And it is important that macroeconomic stress scenarios do not blindly extrapolate from the robust economic performance of recent years. The FSA is reviewing stress-testing practices of UK firms as part of a campaign to identify and encourage best practices. Of course each firm needs to tailor its tests to its own business, but I believe that there may also be merit in looking at a common set of plausible scenarios. This would help compare risk profiles and publishing these results could potentially strengthen market discipline. Second, efforts are underway to improve further liquidity risk management. The fundamental reforms to the sterling money market introduced in May should make for greater flexibility in the day-to-day management of sterling liquidity, and help ease potential liquidity bottlenecks in times of stress. 7 These changes build on the lessons of the Federal Reserve’s discount window in US dollars and the ECB’s marginal lending facility in euros. Handling potential liquidity pressures faced by LCFIs operating in multiple countries and currencies continues to be a focus of policy attention. | 0 |
There is consensus among the scientific community that the Iberian Peninsula could be significantly affected by 21 the physical risks associated with climate change and that this impact would be highly uneven across regions. Addressing this challenge calls for the implementation of an ambitious strategy to mitigate and adapt to climate change in Spain, driving a profound structural change in our economic growth model with major implications for practically every sphere of activity. This transformational process will also foreseeably have a very unequal impact on Spain’s different regions, industries, firms and households, and it may affect some more vulnerable households and firms more severely. All economic policies and agents need to contribute very actively to the green transition. Governments in particular have a leading role to play, essentially through green taxation (far less prominent in Spain than in our fellow European countries), the roll-out of compensatory measures to temporarily mitigate the transition costs for the most vulnerable groups, and via public investment and the regulation of economic activity. In particular, the RTRP should act as a key lever for driving public and private investment in Spain in the coming years. Once again, when it comes to addressing the global challenge of climate change, a comprehensive European response would be most effective. This should come through tax coordination and a common European financial instrument that facilitates the investments needed to meet the net zero emission targets and dispel the climate-related risks, regardless of the fiscal space available in each country. | For their part, inflation rates in April 2022 stood at 8.3% and 7.4%, respectively, that is, 6.9 pp and 6.5 pp higher than in early 2021. According to the earliest leading preliminary data available for the euro area, corresponding to May, inflation has risen once again, to 8.1%. Although the Spanish economy saw a gradual recovery over 2021, which extended to early 2022, this recovery is still incomplete and uneven by sector. In early 2021, the primary 1 conditioning factor was the epidemiological developments, as they required maintaining measures to contain the disease. The swift headway made in the vaccination campaign allowed a more buoyant phase to begin in Q2, but this was tempered from mid-2021 by the bottlenecks and higher energy prices, which were compounded towards the end of the year by the spread of the Omicron variant. In the opening weeks of 2022, with this wave of the pandemic subsiding and the first timid signs of relief in the bottlenecks, it appeared that the path to recovery was beginning to clear once and for all. However, the Russian invasion of Ukraine in late February has provided a further negative shock, which I shall refer to later in detail. GDP growth stood at 5.1% in 2021 as a whole, which slowed to 0.3% quarter-on-quarter in 2022 Q1. During this period there was an intense shift in the strength of activity, with the hospitality and leisure sectors becoming more dynamic as headway was made in vaccination. | 1 |
I am most grateful to His Excellency, The President Dr. Ernest Bia-Koroma The Honourable, Vice President Chief Alhaji Sam Sumana The Minister of Finance and Economic Development The Honourable Speaker and Members of Parliament The President of the Bankers’ Association The many Heads of States and Governments, many former Governors, heads of financial institutions, as well as heads of international and regional organisations that have contributed to enhancing the role of the Bank in promoting economic and social progress, in particular, financial stability in Sierra Leone. Their varied contributions are a testimony to the achievements of the Bank and the high esteem it is held today. They also underscore the major reforms that the Bank, supported fully by all the stakeholders, has implemented since 1964, covering operational, financial, and governance matters. I would like to thank members of the Board of Directors, the Deputy Governor, Management and Staff of the Bank for the guidance, support and cooperation throughout 2010. Let me also extend my gratitude to my family and friends for their prayers, continued support and guidance, not forgetting the Fourth Estate for the work they have done in sensitizing the public on the role and policies of the Bank. I thank you for your attention. My very best wishes to you all for a peaceful 2011 and hope that it brings good health and contentment together with prosperity. God bless. 10 BIS central bankers’ speeches | Last, but certainly not least, is the element of trust. In the panic and chaos during crisis situations, feeble coordination and communication arrangements will falter easily. This can 2 BIS central bankers’ speeches occur even with well-established frameworks and dynamic resource persons at hand. Communication failures during Robert Hall’s expedition were not caused by the lack of infrastructure or defined channels for information dissemination. It stemmed from a more fundamental issue. Those involved in the final climb were complete strangers until several weeks before. Unfamiliarity among team members generated communication barriers, distrust and uncertainties. This did not engender efforts to create a robust co-dependency and coordination structure to collectively weather extremities faced on Mount Everest. Strong policy frameworks and institutional arrangements only make interagency coordination and communication feasible. But it is entrenched mutual trust, fostered during stable times, that makes them credible in challenging times. Trust ensures that collaboration arrangements, secured in good times, remain firm and functional in the face of crises. Trust nurtures confidence and enables reliance on the competence of others. Without trust and symbiotic crisis networks within and across agencies, a crisis framework offers little more than false comfort during crises. The Bank’s own experience in the management of crises, as well as global reforms that are taking place in this area, continue to be useful in guiding us as we navigate this increasingly demanding policy domain. We have continued to make important progress. | 0 |
However, such time-varying regulation also contributes to stability by increasing the costs of borrowing when credit growth and other financial variables suggest that systemic risk has increased, and reducing the interest rate margin in financial crisis situations when the buffer can be used. We can illustrate the time-varying part by adding a time index also for the regulation variable ( z ): itlending it t ( zt ) . If time-varying regulation is introduced, the variations of the interest rate margin will be different over time, which can affect the monetary policy transmission mechanism. At the same time, a central bank must, irrespective of macroprudential policy, understand how the financial sector determines various financial prices in order to understand how monetary policy affects the economy through the lending rate. Credit markets are often not entirely homogeneous, but consist of several different segments or sectors. The development within different sectors can vary tremendously. Although many other factors affecting the lending rate and other credit terms are of an aggregate nature, sector-specific factors are often important too. It is therefore important to have a macroprudential policy tool focusing on individual sectors. This is not least important in attempting to reduce the costs of leaning into the wind. | 2 BIS central bankers’ speeches 2007, I took part in a panel debate in Jackson Hole, and indicated then that it is better to attempt to prevent the risk of a financial crisis than to clean up afterwards. The main argument as I see it – now as it was then – is that cleaning up is extremely costly and takes a long time. Experiences in Sweden from the crisis of the 1990s are an example of just how painful it can be. Because, reducing major debts often takes a long time, and during that time possibilities of stimulating demand through monetary policy are limited. It doesn’t matter much if the debts are in the private sector, i.e. among households and companies, or in the public sector. In both cases, a trend build-up of debt in relation to income is always unsustainable in the long term. A question is then how central banks more tangibly can lean against the wind. The policy rate is a tool that can be used. We therefore need to develop the monetary policy framework so that it takes greater account of financial stability. At the same time, financial stability policy is changing, and a new policy area, macroprudential policy, is emerging which also aims to lean against the wind. Hence, we are facing two changes in the areas of responsibility of central banks, both of which create new possibilities to manage the trade-offs between price stability, resource utilisation and financial stability. | 1 |
My main conclusion is that the international monetary system should be seen not as a series of bilateral relationships, but as a multilateral arrangement, albeit one where a small number of the key players can usefully communicate with each other. I believe that we need to rethink the role of the IMF in the international monetary system. I encourage the Fund to articulate a positive vision for the management of the international monetary system in its forthcoming strategic review. I am not convinced that the future of the Fund is primarily as an occasional international lender of last resort for middle-income countries suffering financial crises. At this Conference the emphasis is naturally on ways to promote productivity and enterprise. Monetary stability at home is now widely recognised as a necessary condition for a successful economy. It provides, as I said at last year’s conference, a springboard for enterprise. But international monetary stability is no less important if trade is to prosper. In The Importance of Being Earnest, Cecily is instructed by her tutor, Miss Prism, to read her political economy. But Miss Prism continued, “The chapter on the Fall of the Rupee you may omit. It is somewhat too sensational. Even these metallic problems have their melodramatic side.” What would poor Cecily have made of the recent melodrama surrounding the values of the dollar, the euro and other paper currencies? | Is the dominance of the dollar in world reserves a reflection of historical factors that are less and less relevant today? Or are there fundamental reasons for the world's central banks to continue using one main currency as a source of liquidity? Second, given that each bloc’s policy choices reflect domestic objectives, what could be achieved through international meetings? The starting point is the need to find a common analysis. Domestic policies should at least be based on mutually consistent assumptions. Only when there is agreement on the nature of the risks inherent in current international monetary arrangements will there be the possibility of a cooperative outcome that is an improvement for all, not just for some. Third, how might we arrive at such a common analysis? The G-7 arose out of an earlier episode of concern about exchange rate movements in the 1980s. Most smaller countries can choose their exchange rate regime without worrying about its impact on the rest of the world. But the large countries – especially the three blocs I identified at the outset – cannot ignore their interdependency. That is why it is important to expand the group of countries that discuss these issues beyond the G-7 to include those, such as China and India, whose actions increasingly have global economic consequences. | 1 |
At the same time, the Bank of Russia still lacks the mandate for supervision over bank holding companies and, in a wider sense, over financial groups made up of non-state pension funds, insurance companies, and the so-called parallel banks – which have the same owners. The lack of supervision over such associations, together with the lack of their responsibility to comply with prudential standards, is behind the current concealing of problems, which gives rise to an incentive for their owners to structure associations of finance companies, in an arrangement allowing them to escape compliance with required ratios, internal control or risk management requirements. The Bank of Russia believes it is time to do away with the unequal regulatory field that is subject to an association’s organisational structure. As a result, it would make no difference to owners of financial institutions, whether their financial institution’s parent company is under Bank of Russia supervision or whether a holding’s parent company is established by the owners. BIS central bankers’ speeches 9 Our position is that financial groups should have regulatory standards and requirements to enable control of risk and capital management systems, as well as requirements for business reputation of a parent organisation’s Board members and executives. There are good reasons to enable the central bank to take corrective actions against a parent organisation or participants in financial groups if they violate regulations. | And, we work with area schools to improve students’ understanding of monetary policy, the Fed and economics. It is also important to me that I visit different parts of our District on a regular basis and talk directly with the people who live and work here. For example, last fall I visited Western New York and saw the many positive changes helping to revitalize what has been a slow growing economy for some time. Earlier this year, I met with companies on a visit to Brooklyn and observed some of the new hi-tech jobs that are being brought to the City – a good precursor to today’s presentation. While in Brooklyn, I also visited Brownsville, a neighborhood which underscores the reality of the challenges that many face and the fact that the economy is not improving for everyone. Later this year, I have similar trips planned to Puerto Rico, the Bronx and Albany. Obtaining on-the-ground intelligence is valuable and helps shape my view of the region, the economy and my outlook on policy. As you may know, the District we cover is quite diverse. It is not just a single regional economy, but rather many different local economies. Let me talk a bit about how the different parts of our region have been doing. Regional economic conditions Since our last briefing in November, the economic recovery has been variable across the region – strong in some places but weaker in others. Let me begin with the area that has struggled the most. | 0 |
In the words of the authors: “This evidence, together with recent experience during the financial crisis, leads us to conclude that there is a pressing need to reassess the relationship of finance and real growth in modern economic systems. More finance is definitely not always better.” Last month, the IMF released a paper that essentially reaches the same conclusions. It identifies Ireland, Japan and the US as countries that have “too much finance” for their own good. In Malaysia, the Financial Sector Blueprint clearly recognises the role of the financial system in serving the real economy. The economy is not subservient to the needs of the financial sector. 6 BIS central bankers’ speeches Regional cooperation The final thing I wish to mention with respect to reaping the benefits and mitigating the risks of financial globalisation is regional cooperation. During the Asian Financial Crisis, we found out that contagion can occur when our neighbours experience difficulties, even if our financial systems are not closely linked. More recently, the European countries, even those that are not in the euro area, have found themselves in a similar position. The key factor is whether a country’s financial system is linked to the global financial system. Herding behaviour and generalisation among international investors and lenders will make the crisis in one country transcend borders and also affect neighbouring countries. | The banks restraint over crediting is a result of several factors. One is the economic crisis in the Euro area, the deceleration of our economy last year, the banks prudency, the rise of the bad placements. Another very important factor is the condition in the parent banks of some of the owners of our banks, you know that they mainly come from the Euro area, some of them have serious problems in their own countries and they face with serious challenges, although their banks in Macedonia have extremely good quality and they are in good condition, since the strategy is developed at the level of the group, the problems in the parent bank prevail so they can have conservative strategy also in our country. This exactly was the reason that caused panic in the public, that some banks have problems in their main offices. Has the situation been stabilized a little in this regard? The situation here is mainly stable. Although there are occasional rumors in the public, the data do not mirror that, and we did not have registered, in any moment, that the deposits plunged with the banks the main offices of which are facing with problems. The deposits, generally, were increasing during all these past several years. | 0 |
Firstly, the euro exchange rate and long-term interest rate will play an important role in shaping monetary conditions within the euro area, together with the level of short-term interest rates that will be steered by the ESCB. Secondly, although the degree of openness of the euro area will be much lower than is currently the case for any EU Member State, with “foreign” trade representing roughly 9% of GDP for the EU as a whole, the area will remain totally open to foreign capital flows. In that regard, I would like to stress that current holdings of French and German securities by non-residents, including cross-holdings, amount to 1,200 billion dollars. This highlights the importance of keeping a high level of confidence in the euro. Thirdly, in spite of the fact that the ESCB will inherit credibility from the participating national central banks, the ECB will have no track record of its own in targeting money or inflation. It will thus have to build up its reputation and pay due attention to those indicators that reflect most directly the level of confidence placed by investors in the euro. Of course, as underlined above, the external value of the euro will not have the status of an intermediate objective and the ECB’s strategy will not be based on exchange rate targeting.6 However, any depreciating trend of the euro would feed domestic inflation through a rise in import prices and, by undermining investors’ confidence, would contribute to the building of risk premia into the euro yield curve. | Since joining the EU and until 2018, Romania had accessed more than 21 billion EUR as EU funds that contributed to development and bridged the gap of convergence with developed economies in the EU. 1/2 BIS central bankers' speeches NBR’s recent research on the impact of EU funds on Romanian economy shows that an increase by 1 percentage point of GDP in structural and cohesion funds has a short term effect of up to 0.7 percentage points on economic growth and a medium-term effect of up to 3 percentage points1. Thus, significant efforts should be made to guarantee that Romania improves the efficiency of EU funds absorption. In order to achieve that, Romania needs sound policies oriented towards macroeconomic balance and safeguarding financial stability. Foreign direct investments are also essential for economic growth. The picture here is mixed. During the second half of the year 2018 and in 2019, persistent pressures on global economic growth and subsequent downward revisions of expected growth rate impacted the investments and the reallocation of capital. Constant trade tensions, terrorism and geopolitical uncertainties are causing a slowdown in economies across the world. At the same time, new technologies have disrupted global value chains and the classic employment model, while new climate change related risks have emerged in the financial sector. On the other part, investing in companies with strong environmental, social and governance (ESG) policies, in green bonds and in new technologies supporting the digital economy, will contribute to achieving the Paris Agreement objectives and a sustainable development. | 0 |
“The Great Demographic Reversal ," Economic Affairs, 40, 436-445. Goodridge, P. and J. Haskel (2022). “Accounting for the slowdown in UK innovation and productivity,” Working Papers 022, The Productivity Institute. Gordon, R. J. (2012). "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds ," NBER Working Papers 18315, National Bureau of Economic Research, Inc. Gopinath, G., S. Kalemli-Ozcan, L. Karabarbounis, and C. Villegas-Sanchez (2017). “Capital Allocation and Productivity in South Europe ,” Quarterly Journal of Economics, 132, 1915– 1967. Gutierrez, G. and T. Philippon (2017). “Investmentless Growth: An Empirical Investigation ,” Brookings Papers on Economic Activity, 48, 89–190. Gutierrez, G. and S. Piton (2020). “Revisiting the Global Decline of the (Non-Housing) Labour Share ,” American Economic Review: Insights, 2(3), 321-338. Hamilton, J. D., E. S. Harris, J. Hatzius, and K. D. West (2016). “The Equilibrium Real Funds Rate: Past, Present, and Future ," IMF Economic Review, 64, 660-707. Haskel, J., and S. Westlake (2018). Capitalism without Capital: The Rise of the Intangible Economy. Princeton University Press. Haskel, J. and S. Westlake (2022). “Restarting the Future. How to Fix the Intangible Economy ,” Princeton University Press, Princeton (2022). Holston, K., T. Laubach, and J. C. Williams (2017). “Measuring the natural rate of interest: International trends and determinants," Journal of International Economics, 108, 59-75. Jordà, O., M. Schularick, and A. M. Taylor (2017). “Macrofinancial History and the New Business Cycle Facts,” NBER Macroeconomics Annual, 31(1), 213–263. Laubach, T., and J. C. Williams (2003). | In this way inflation expectations were adjusted in advance to an anticipated pattern of economic policy reactions, whereby high price and wage increases were accepted or accommodated by devaluing the krona. As a result, strong inflationary mechanisms were built into the economy. As we have seen in recent years, once such mechanisms have been established, they are difficult to change. 3. Monetary policy’s rule system Experience has shown that more is needed than proud declarations from political decision-makers that they will safeguard a stable value of money and are not prepared to adapt policy to excessively high wage increases. We heard plenty of that in the 1980s. One way of enhancing credibility that has been found to work well and is supported by economic theory is for the democratically elected body to delegate monetary policy to a central bank with a clear, specified obligation to safeguard the value of money. The central bank is given full control over the instruments, principally the short interest rate, for fulfilling the stipulated objective. This arrangement limits both the room for short-run attempts to boost employment and the risk of inflationary mechanisms taking root in the economy. That also lessens the risk of a repetition of what happened in the early 1990s when the inflation bubble burst and unemployment rose. Credibility provides greater manoeuvrability It may be worth underscoring that a system where price stability is credibly delegated to the central bank can confer greater freedom of action in economic policy. | 0 |
So it might not have taken us much further forward in terms of clear guidance or greater legal certainty. I’m sure you will be revisiting these issues tomorrow afternoon, in your session covering legal systems. So, I won’t labour my point much further. But there is a vulnerability here which I think we would do well to try to understand better. We’ve got to enhance confidence that contracts straddling the two sectors can be relied upon to produce expected outcomes in a timely way and even in adverse conditions. Risk transfer My second observation relates to risk transfer more specifically. Alan Greenspan made the observation that the successes of the banking system in diversifying risk have increased its ability to withstand significant shocks in recent years, including the Asia crisis, Russia, LTCM, 9/11 to say nothing of Enron, the IT boom and bust, and the telecom write offs. A lot of people agree with him. So the development of markets for the transfer of credit risk is of real value. It allows institutions that are best placed to originate a loan to do so, without necessarily requiring them to continue to bear the risk. Having a market to transfer risk allows institutions to diversify their exposures across different sectors and regions. And of course it generates price information that would not otherwise be available. That means credit exposures can be marked to market in a way that had not previously been possible. But it raises other questions. | Andrew Large: Convergence in insurance and banking - some financial stability issues Speech by Sir Andrew Large, Deputy Governor of the Bank of England, at a conference in the Mandarin Oriental Hotel, London, 12 June 2003. * * * Introduction In getting together my remarks, I found myself wondering why you asked me, a central banker and former investment banker, to address this illustrious gathering of the insurance industry. What is it that makes central banks so interested in insurance? Central banks typically have two major preoccupations. Monetary stability and financial stability. Clearly those of us with an eye on the macro economic drivers which impact monetary stability cannot fail to have taken an interest in the volatility of equity markets. And that volatility has real implications for the life assurance world. Secondly, the way catastrophe and other cover can be extended in a world where terrorism is a fact of life has its own significance for the workings of the real economy. But it’s from the point of view of financial stability that I’d particularly like to develop some thoughts this morning. After all financial stability is about identifying and countering risks and threats which could ultimately impact confidence in the banking or wider financial system. | 1 |
Core inflation will hover around 3 percent throughout the same horizon (figure 7). 4 BIS central bankers’ speeches The current account deficit of the balance of payments is forecast to stand at 3.6 percent of GDP in 2014, up a little from 2013, but below the December estimate. Behind it is the expected decline in the copper price this year, which more than offsets the lower growth foreseen in domestic demand and imports. This implies that, measured at trend prices, the deficit will narrow further, approaching 3 percent of GDP. As for GDP, the rate of total investment will go slightly above 23 percent in nominal terms (somewhat more than 25 percent in real terms), while national savings should amount to 19.5 percent (table 2). Aside from the already discussed trajectories foreseen for domestic growth and the world economy, this forecast uses as a working assumption that nominal wages will be adjusted in line with productivity and the inflation target. It also uses as a methodological assumption that the real exchange rate will remain stable, considering that it is now inside the range believed to be consistent with its long-term fundamentals. Finally, the baseline scenario uses as a working methodological assumption that the MPR will follow a trend comparable with the one that can be derived by the prices of financial assets prevailing at the statistical closing of this Report (figure 8). | The convergence of metal prices toward their production costs has been somewhat faster than thought a year ago. In the case of copper, the price forecast for 2014 in this Report has been lowered by more than 10 percent in one year. Other demand components, such as consumption, have posted a more gradual deceleration, in line with still favorable, yet moderating, fundamentals. International financial conditions have also been normalizing, which, while positive over the medium to long term, has caused increased volatility, higher risk premiums and capital outflows in emerging markets, together with a widespread depreciation of currencies vis a vis the U.S. dollar. BIS central bankers’ speeches 1 In Chile, contrasting with past episodes, the financial effects have been bounded. The risk premium, for instance, is the same or slightly higher than previous values. Unlike other emerging economies, Chile has seen a drop in interest rates in the recent past, and the Central Bank has not intervened in the forex market by selling reserves as have other countries. Nonetheless, consistently with our macroeconomic policy regime, we have seen a substantial impact on the exchange rate. Actually, the Chilean peso depreciation is in the upper half of the group of emerging economies (figure 1). The real exchange rate has also depreciated significantly and is above its averages for the last fifteen and twenty years (figure 2). | 1 |
Indeed, policymakers regularly used to attempt to manipulate the yield curve in the Sixties and Seventies, for instance the Federal Reserve’s “Operation Twist” (though in that case the impact of the purchases on the money supply was sterilised). But in practice it probably makes sense to rely on a short interest rate as the primary instrument of monetary policy for three reasons. First, while the evidence that asset purchases do have the effect expected on asset prices is compelling, there is a wealth of evidence regarding the monetary transmission mechanism from movements in short-term policy rates. Central banks, moreover, have considerable experience in the operation of policy through short interest rates. Given that the impact of changes in a short-term policy rate is both more certain and better understood, it makes more sense to put the most weight on that instrument rather than asset purchases (Brainard, 1967). Second, and related to the above argument concerning the relative uncertainty of a short interest rate and asset purchases as monetary policy instruments, there are reasons to think 7 There is a substantial related literature attempting to uncover the effects of changes in debt maturity structure on relative yields. These studies have generally struggled to identify well-defined effects from variations in the supplies of debt of different maturities. Though the variations in asset quantities may be quite substantial, they usually take place slowly, necessitating controlling for a wide range of other factors affecting relative yields. | We also believe that central banks and supervisors must play their part as, in the long run, climate stability is one of the main determinants of financial stability, which is their mandate. This is a shared conviction. At the One Planet Summit in Paris in December 2017, the Banque de France, with the support of other central banks and supervisors, launched the Network for Greening the Financial System (NGFS), which now comprises some 30 central banks, supervisors and international organisations, including four Asian members, and will certainly attract more in the coming years. *** Let me now conclude by quoting Nassim Nicholas Taleb, the famous author of The Black Swan. He once wrote that uncertainties can be like the wind which “extinguishes a candle and energises fire”, and added the following: “You want to use them, not hide from them. You want to be the fire and wish for the wind”. My wish is that the ongoing uncertainties will become the wind that deepens our bilateral and multilateral cooperation. On that hopeful note, I wish you a very Happy New Year and for the time being an inspiring and fruitful conference. 3/3 BIS central bankers' speeches | 0 |
(2) Daniel K. Tarullo, member of the FED Board of Governors finds the reasons in replacing the basic regulatory framework established after the Great Depression 1929–1933, which mostly limited the commercial banks to traditional lending activities, with the regulatory framework that in the 1970s started to install deep changes in the organization and BIS Review 90/2010 1 regulation of the financial markets, culminating with the adoption of the Gramm-Leach-Bliley bill in 1999. He says that “with the innovations, the traditional commercial banking business model was put under strong pressure on both sides: on the liability side in the balance sheet of the banks in the form of more attractive savings instruments, such as the funds for investing on the money market, and on the assets side, with the growth of public companies and international competition”. Until the end of the century the restriction cluster on the commercial banks from the great depression era was replaced with a regulatory setting in which they could operate on a national level, to involve in a much broader set of activities and to practically join with every kind of financial companies. Tarullo says, that is how the highly complex financial holding companies were started... the independent investment banks grew in a group of big, complex and highly indebted companies... the financial engineering was quickly changing the character of the entire financial services sector. Securitization and accompanying instruments united the capital markets and traditional lending activities, fueling the growth of the so-called shadow banking system. | Last year alone, oil revenues in the Gulf Cooperation Council countries were estimated to be about $ billion.3 Mainland China has been one of their favourite investment destinations given its strong economic growth and emerging market opportunities. 9. On the other side, Mainland China is facing huge funding needs for infrastructure development projects. As China’s global financial centre, Hong Kong is an important conduit for Mainland companies to access the international markets and the preferred offshore capital raising centre for Mainland issuers over the past decade. This is apparent from the fact that over half of our stock market capitalisation is Mainland-related and from the high participation of Mainland entities in our dim sum bond market. 10. Against this backdrop, we believe Hong Kong is well-placed to meet the strong investment demand from the Middle East and other parts of the world for Mainland-related Islamic financial products. At the same time, Hong Kong can also provide an ideal platform for issuers from the Mainland and other parts of Asia to issue Islamic financial instruments for satisfying their funding needs. Bringing Islamic capital markets to the mainstream 11. Addressing one of the key issues to be discussed today, Hong Kong’s involvement in Islamic finance will also help to bring Islamic capital markets to the mainstream in two ways: provide a level playing field and encourage market participation in Islamic finance. 12. To bring Islamic financial products to the mainstream, a key task would be to level the playing field with their conventional counterparts. | 0 |
Figure 4 CPI inflation (*) (annual change, percent) CPIEFE inflation (*) (annual change, percent) 10 10 10 10 8 8 8 8 6 6 6 6 4 4 4 4 2 2 2 2 0 0 0 0 -2 -2 -2 -2 -4 -4 -4 -4 07 08 09 10 11 12 13 14 15 Dec.2012 Report 07 08 09 10 11 12 13 14 15 Mar.2013 Report (*) Gray area, as from the first quarter of 2013, shows forecast. Sources: Central Bank of Chile and National Statistics Institute (INE). BIS central bankers’ speeches 9 Figure 5 MPR and expectations (percent) 9 8 7 6 5 4 3 2 1 0 9 8 7 6 5 4 3 2 1 0 07 08 09 MPR 10 11 13 12 FBS, March 2013.Q2 14 15 EES, March 2013 Source: Central Bank of Chile. | Chile) 1.8 1.4 -0.6 9.3 7.9 4.2 4.5 2.3 -0.5 1.9 7.7 5.6 3.5 2.8 2.2 -0.6 2.0 7.8 4.9 3.8 2.8 1.9 -0.3 0.5 8.0 6.6 4.3 3.3 1.9 -0.4 1.1 8.1 6.3 4.3 3.3 2.3 1.2 0.9 8.2 6.4 4.7 3.7 2.5 1.3 1.3 8.2 6.4 4.7 3.7 LME copper price $ Brent oil price $ 400 111 361 112 361 112 (levels) 340 350 105 108 350 100 340 101 Terms of trade -0.6 -5.0 -4.1 1.3 -1,6 (annual change, percent) -0,8 -0.4 (e) Estimate. (f) Forecast. Sources: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts, IMF and statistics bureaus of respective countries. | 1 |
Taking into account the capital conservation buffer and the surcharge for systemically important financial institutions, the Basel 3 minimum comes to around 10% for the largest banks. BIS central bankers’ speeches 5 That is on a risk-weighted basis. Policymakers need to be confident, therefore, that the risk-weights are determined robustly. Leaving banks completely free to choose risk-weights, using internal models, is not safe. It effectively allows banks to determine their own regulatory capital requirements, which hardly fits with society’s purpose in regulating banking in the first place. That being so, the introduction of mandated floors on risk-weights should be debated in Basel. They are already being introduced in the US. That would be one concrete step to contain the risks from complexity in the current Capital Accord. The planned Basel leverage limit should be viewed in the same light. This is not to say that it would be sensible to rely entirely on a simple regulatory constraint. History teaches us that they do not work on their own – just remember the 1980s’ Latin American and East European debt crisis, which left much of the Western banking system perilously close to bankruptcy, notwithstanding the leverage limits applied in the US and elsewhere. On its own, a simple leverage limit incentivises banks to increase the riskiness of asset portfolios. | For example, as a matter of simple arithmetic, the first round effect of higher capital requirements is probably to depress the headline return on equity. It has seemed to me quite likely that that will prompt shareholders to demand a larger share of the cake, with a smaller share going to managers. There have already been signs of this happening. This might help temper the gains available to managers in buoyant credit conditions, and so reduce the incentive to shield their eyes from the risks. But, most important of course, higher equity capital requirements provide a bigger buffer against losses – the increase is, perhaps, about an order of magnitude (around 1% of risk-weighted assets to around 10%), all things taken into account. 8 7 See, for example, Kent and Debelle (1999), “Trends in the Australian Banking System: Implication for Financial Stability and Monetary Policy”. 8 Basel 2 in effect required a minimum equity capital ratio of 2 percent. Under Basel 3 almost all regulatory deductions from capital come out of core tier 1 capital (ie equity) rather than being split equally across tier 1 and tier 2 capital or taken from total capital. Also, some risk-weights are increased, for example on counterparty credit risk exposures. Together those changes mean that the old Basel 2 core tier 1 minimum risk-weighted asset ratio is equivalent to around 1% on a Basel 3 basis. | 1 |
The complication is that while most financial crises have been preceded by a credit boom, not all credit booms have been followed by a financial crisis. In fact, a credit boom has been followed by a financial crisis in only about 30 percent of the cases.6 Consequently, there are good booms, which don’t end in a crisis, and bad booms, or “booms gone wrong” that do end in a crisis. Given that credit booms often accommodate the real and pressing needs of a growing economy, simply preventing credit booms, if that were even possible, could have the effect of choking off desirable growth and thus be more costly for society over the longer run. Nevertheless, it is difficult a priori to distinguish good and bad booms, and, furthermore, to determine the mechanisms that generate crises when the economy has become vulnerable to one, that is, when the economy has high debt, a weakening macroeconomy, and other such elements. Even so, as previous studies have indicated, debt growth shifts the conditional distribution of economic outcomes to put more weight on events in which debtors must 5 See Borio, Drehmann, and Tstsaronis (2011), Schularick and Taylor (2012), and Reinhart and Rogoff (2011). 6 See Dell’Ariccia, Igan, Laeven, and Tong (2015), and Gorton and Ordonez (2015). BIS central bankers’ speeches 3 unexpectedly cut back their spending plans to repay debt, a vulnerability that is not present in the absence of debt. | For Thailand, the share of exports to CLMV countries to total exports volumes has risen steadily to be over 10 percent surpassing our exports to 27 euro-zone countries combined. This reaffirms the shared benefits from trade and investment connectivity. Owing largely to complementarities in various dimensions among CLMVT economies, the integration should continue to further strengthen in the future. Expanding trade and investment has been accompanied and supported by development of domestic service industries and enhanced connectivity in the service sector. A case in point is the burgeoning growth of the airline industry, both low cost and full service. Over the past few years, any frequent traveler would easily notice a marked increase in a number of flights within the region, particularly those operated by low-cost airlines. Prices have been much more affordable, attracting travelers who otherwise would not travel by planes. The development does not only benefit the airline industry itself, but also unlocks potentials of many other industries and serves the citizens of CLMVT. More seamless travel promotes the tourism industry, reduces logistic costs, and overcomes obstacles to transportation, thus allowing closer people-to-people connectivity and opening up opportunities for people to realize their fullest potentials. Ladies and Gentlemen, Improved airline service and connectivity might only be one aspect of enhanced regional connectivity. Nevertheless, it serves us well as a model to develop other domestic service industries and to promote regional connectivity in the service sector. | 0 |
While growth in both the Asian and Latin American emerging economies remains below par, the latest indicators show that the United States and the United Kingdom appear to have picked up speed, following the weak first-quarter results this year. Economic recovery is also holding up in the euro area. GDP grew by 0.4% in the first quarter of this year and, on the latest preliminary estimate released last Friday, by 0.3% in the second quarter. For the year as a whole, projections envisage figures of around 1.5%, considerably up on end-2014 estimates. Private consumption continues to be the driving force here, while the contribution of private investment remains moderate. BIS central bankers’ speeches 1 Turning to inflation, both actual and projected euro area rates have now turned around from the declining trajectory marking their path throughout 2014, but inflation is still some way off the ECB’s reference level of 2% for the euro area. The favourable performance of euro area economic activity and prices is underpinned by certain external factors, such as the pick-up in the global economy and lower oil prices, but also by other factors whose origin lies in the economic policy decisions adopted by the national governments and the European authorities. These include most notably the reforms undertaken in different countries and the more neutral stance of fiscal policies. | In any event, mention should be made of the contribution of monetary policy and the significance of the decision adopted in January this year to enlarge the securities purchase programme with the inclusion of government debt securities. Since then, we have witnessed not only further monetary easing and the depreciation of the euro, but also a more uniform transmission of expansionary impulses to the various countries in the area and, in particular, to those such as Spain which were comparatively more affected by the fragmentation of European financial markets. The latest monetary policy measures have translated into a significant improvement in the Spanish economy’s financing conditions. This improvement is visible not only in the lower cost of new funds, but also in a progressive – but slow – normalisation of credit in Spain. Aggregate balances continue to post negative rates of change, reflecting the headway in the deleveraging of our households and firms; however, these rates are increasingly less negative and are compatible with the growth of new financing flows. Performance of and outlook for the Spanish economy On preliminary estimates in late July, the Spanish economy is expected to have grown by 1% in the second quarter of this year. This growth rate highlights the dynamism of the current recovery phase, now under way for two years. Recent indicators suggest this expansionary trajectory will hold in the second half of the year. | 1 |
10 BIS Review 67/2009 Figure 17: Risk Premium Developments 5 Year CDS Spreads (29.06.2007=1) 41 900 36 31 700 Brazil 26 600 S. Africa 21 500 Hungary 16 400 S. Korea 11 300 6 200 1 06 07 10 07 EMBI+ Turkey EMBI+ 800 Turkey 02 08 06 08 10 08 100 12 03 06 07 02 09 06 07 09 07 12 07 03 08 06 08 09 08 12 03 08 09 Source: Bloomberg. In the first quarter of 2009, the Turkish lira did not widely differentiate from the currencies of other developing countries in terms of changes in value. Having said that, the relatively low level of volatility in the Turkish lira – one of the currencies with the highest volatility historically and susceptibility to the global risk appetite – became more evident in 2009, the year during which the distinctive characteristics of the countries came to the forefront (Figure 18). | Trade deficit in the second quarter was 20% higher compared to a year earlier. Our exports shrank by about 2.8% year-on-year for this period, a reflection of reduced exporting of energy, which is a volatile component in exports. Despite this development, the core basis of exports continues to maintain more sustainable growth rates. On the other hand, imports continued their annual growth, albeit at a lower rate compared to the first quarter of the year. Aggregate demand performance triggered economic activity growth but was inadequate to fully utilise Albania’s output capacities. Developments in the labour market seem sluggish and do not have premises for emergence of stable inflationary pressures. Signals from economic information are confirmed also by the monetary indicator analysis. In June, annual growth of M3 aggregate was 11.8%, around average rates of the past 12 months. Our assessments show that the expansion of monetary supply is in line with the performance of the economy’s demand for monetary assets. In June and throughout the second quarter, the public sector demand for funding was high, in line with the intensity of the fiscal activity during that period of the year. Furthermore, the private sector demand for funding continued to be moderate. Lending to private sector posted annual growth of 11.6% in June, in line with the second quarter’s performance. Financial markets are characterised by a serene environment with contained risk premia. Interbank market experienced increased trade volume; interest rates were close to the key rate and had low volatility. | 0 |
New risk management and insurance major As the industry seeks out profitable growth and new horizons, it is critical that the right talent and skills are available to support this. In the face of new and emerging risks, as insurance roles evolve and become more complex, different and deeper skillsets will be essential. Skillsets will also need to be widened as technology and financial services converge. To this end, I am glad to announce that the Nanyang Technological University will be launching the Risk Management and Insurance major next year. BIS central bankers’ speeches 5 Beginning in August 2016, this new Insurance major will be structured as a major specialisation under the NTU Business Degree. It is expected to produce 50 new graduates every year starting from 2018, providing a strong and sustainable talent pipeline to support industry growth. Alongside a robust curriculum, the students will get to build up their research, analytical and modelling capabilities, through working on research projects like the Nat Cat DAX and Cyber Risk Test-bed. Conclusion Insurance will continue to increase its relevance in an uncertain world. In these times of new risks, capital and technology, it is not sufficient to rely on a red ocean strategy. We need to open new horizons, and open them together. MAS will be a partner of the Singapore insurance industry as you forge a blue ocean strategy, manage risks and capitalise on the opportunities in the new reality. | The same applies to all types of foreign exchanges - for instance, when SIDA exchanges kronor for foreign currency to provide foreign aid, when the pension funds buy foreign shares, when we buy foreign insurance policies and when the mortgage institutes borrow abroad. I believe it is important to be aware of how the risk distribution between the banks functions. Transactions on the foreign exchange market do not need to be speculative at all, even if they do not have any direct link to payments for trade, investment or aid between countries. It is not possible to take the total of all crossborder payments for goods and services and say that all other foreign exchange deals are unnecessary. Finally, allow me to comment on the proposal of a Tobin tax. Taxes on financial transactions have already been tested in a number of countries, including Sweden. At the end of the 1980s, we had a 2 BIS Review 27/2001 securities transaction tax here. The result was that the turnover declined severely. Trade in securities fell by around 80 per cent. Part of this trade was moved abroad and some ceased altogether. Nor did the securities transaction tax manage to prevent the 1990s crisis. A Tobin tax would be difficult to apply, as it assumes that all countries support it. This is unlikely, as the countries that did not apply the tax would benefit, in that a large part of financial activity would move there. | 0 |
The measure failed to deter capital inflows, which managed to find ways of circumventing the restriction. Despite higher required reserves, commercial banks’ foreigncurrency-denominated liabilities advanced EUR 4.8 billion in 2006, then EUR 7.8 billion in 2007 and a further EUR 5.8 billion in 2008. Nearly 75 percent of the increase in foreign banks’ liabilities during 2005–2008 occurred after required reserves had been raised to 40 percent. Chart 7 Required reserve ratio percent percent 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 foreign currency Dec.08 Aug.08 Apr.08 Dec.07 Aug.07 Apr.07 Dec.06 Aug.06 Apr.06 Dec.05 Aug.05 Apr.05 Dec.04 domestic currency Source: National Bank of Romania The constraint deriving from the large capital inflows was severe enough for the NBR to opt for maintaining a managed float regime of the domestic currency. This led to criticism by some analysts who claimed that the inflation targeting strategy adopted in 2005 involved the free float of the domestic currency in order to avoid potentially conflicting targets. The NBR explained that it would not target a particular exchange rate, but rather seek to deter its movements towards unsustainable levels. | The issue was not capital raising as in the SCAP, but instead how fast should they continue to build their capital. What’s prudent? This translated into an evaluation about the amount of capital that they could prudently pay out via dividends and/or share buybacks. Fourth, with respect to the distribution requests, we were not calculating the amount of capital that the banks can distribute. Instead, we were making an “up” or “down” decision per their requests. Either we “objected” or we “did not object.” We want banks to have good capital planning processes and make intelligent decisions with respect to capital. We don’t want to determine their capital actions or what their distributions should be. They need to be able to do this. Fifth, with respect to disclosure, this decision was left to individual firms. In some cases, banks disclosed whether we objected or not to their plans for distributions, while in other cases they simply announced their intention with regard to future capital distributions. So what have been the lessons from our stress test exercises? One key issue during the financial crisis was the unwillingness of banks to proactively raise capital so they would be better prepared to withstand a “bad state of the world” scenario should that transpire. Banks didn’t want to do this for two reasons. First, capital raises might signal that they were, in fact, weak. Second, the capital raises would be dilutive. | 0 |
At its meeting in June, the MPC voted to increase the stock of asset purchases by a further £ billion, to £ billion, with the programme expected to be completed around the turn of the year. 19 IMF (2020). 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 Through these policies, the Bank of England’s balance sheet has so far expanded by close to £ billion, with a further £ billion expected during the remainder of this year due to additional asset purchases and TFSME drawings.20 This would take the Bank’s balance sheet to around 45% of (2019) UK GDP by the year-end, more than double its previous high-water mark (Chart 16). It would take the Bank’s balance sheet to almost double its highest-ever previous level relative to the Government’s net debt stock (Chart 17). Chart 16: Bank of England balance sheet relative to GDP Per cent 50 Banknote convertibility to gold reinstated Banknote convertibility to gold suspended South Sea bubble Amalgamation of Treasury and Bank note issues Covid-19 crisis Failure of Lehman Brothers 45 40 35 30 25 WW1 WW2 20 15 10 5 0 1700 1750 1800 1850 1900 1950 2000 Sources: Bank of England (available here), ONS and Bank calculations. Notes: Chart from Hauser (2020) but updated to reflect most recent MPC announcement of further asset purchases and TFSME. | GDP over 2020 held fixed at end-2019 level to prevent fall in output leading to denominator effect. Dotted line extends series to mid-2020, assuming completion of current asset purchase programme and further TFSME drawings. These figures reflect the June MPC minutes, which noted that lending under TFSME “was likely to exceed £ billion over the coming year.” For simplicity we assume the TFSME reaches £ at end-2020. 20 19 All speeches are available online at www.bankofengland.co.uk/speeches 19 Chart 17: Bank of England balance sheet relative to government net debt Per cent 60 Banknote convertibility to gold reinstated Banknote convertibility to gold suspended South Sea bubble Amalgamation of Treasury and Bank note issues Covid-19 crisis 50 Failure of Lehman Brothers 40 WW1 WW2 30 20 10 0 1700 1750 1800 1850 1900 1950 2000 Sources: Bank of England (available here), OBR, ONS and Bank calculations. Note: Debt figures calculated on a fiscal year end basis. Red diamond shows end-2020 Bank of England balance sheet (consistent with Chart 14), relative to OBR projection for government net debt (excluding public sector banks) for FY 2020/21. These balance sheet actions by central banks globally have had their intended effect, improving financial and credit conditions to support households and businesses (Chart 18). Despite being tighter than at the start of the year, financial conditions have loosened significantly since mid-March. | 1 |
The concept of macro-prudential supervision is new and is often interpreted very differently by different people, depending on their background. An important task for the ESRB will therefore be to make this concept more precise. What should a macro-prudential mandate look like? How should we define macro-prudential tools? What institutions should use the different tools, and how should these be held responsible for using (or not using) them? These are important questions that are being discussed in many countries, not only in Europe. One important instrument that has been discussed widely in the Basel framework is 6 BIS central bankers’ speeches the countercyclical capital buffer. This instrument has clear cross-border effects and we should, in the ESRB, be able to discuss the principles for setting these buffers. – to gain credibility As the ESRB does not have any binding powers, it needs to earn credibility if the principle of “comply or explain” is to work in practice. As I see it, this can be done in three ways. Firstly, the ESRB’s risk assessments and recommendations to act upon them need to be of high quality and to be presented in a timely manner. In doing this, the ESRB should take advantage of its unique composition of representatives from the EU institutions, as well as national central banks and financial supervisory authorities. This institutional set-up gives the ESRB a great opportunity to gather relevant information from all key players in the EU financial system. | This gives the central banks a strong role. Figure 7 Voting rights of the General Board 4 BIS central bankers’ speeches Obviously, this requires efficient preparations for meetings. A Steering Committee with 14 members has therefore been established with the purpose of guiding the work to be presented to the General Board. The majority of the Steering Committee members represent the EU institutions and in addition there are four elected members from the national central banks. Two advisory committees have also been set up – the Advisory Technical Committee, chaired by Stefan Ingves of the Riksbank and the Advisory Scientific Committee chaired by Professor Martin Hellwig of the Max Planck Institute. The Advisory Technical Committee (ATC) mirrors the composition of the General Board with 62 members. The Advisory Scientific Committee (ASC) is smaller, consisting of only 15 academics and the chair of the ATC. I have been a member of the ESRB and the ATC at its first meetings Box 1 Steering Committee Members ESRB Chair (ECB President) and first Vice-Chair ECB Vice-President Governors of 4 Central Banks European Commission representative Chairpersons of the three ESAs President of the EFC ATC Chair ASC Chair The ESRB General Board held its inaugural meeting in January and has since met three times. It will meet again in December. The meetings were prepared by the Secretariat, the Steering Committee and the Advisory Technical Committee. | 1 |
Another aspect that needs to be mentioned is being paranoid about the worst that could happen. This is sometimes referred to as productive paranoia. Central bankers need to excel as risk managers – knowing what could go wrong and prepare for the worst that is yet to come. In part it involves building the buffers to prepare for the unexpected events before they happen. When I am asked the question about how we are going to manage ‘the lift off’ – the normalisation of interest rate by the Federal Reserve in the United States – my response is that it is not what we will do now but what we have done before it happens that will see us through this period. It is not only the buffers that have been built but also the capability that has been developed that will better allow us to intermediate and thus absorb the shock. This will enable us to withstand the volatile financial flows that are already occurring in anticipation of this eventuality. Sometimes there are also Black Swan events. These are defined as those developments that have a low probability of happening and that is difficult to predict and anticipate. Being paranoid and building the resilience against such shocks will contain its damaging effects. Therefore continuous rigour needs to be applied all the time, during the good times and the challenging times. Vigilance, detecting developments that could signal danger, early recognition of risks are all important. | Ásgeir Jónsson: Address – 60th Annual Meeting of the Central Bank of Iceland Address by Mr Ásgeir Jónsson, Governor of the Central Bank of Iceland, at the 60th Annual Meeting of the Central Bank of Iceland, Reykjavík, 7 April 2021. * * * Madame Prime Minister, Chair of the Supervisory Board, honoured guests: This year, 2021, can be called the Triple Crown of anniversary years for the Central Bank of Iceland. In 2021 we commemorate three earlier milestones in the Bank’s history – 1961, 1981, and 2001. The Central Bank became an independent institution in 1961 – and on this day, in fact: 7 April. So we are celebrating the Bank’s 60th anniversary today. Until 1961, central banking activities in Iceland had been in the hands of two commercial banks: first Íslandsbanki and then Landsbanki Íslands. The establishment of the Central Bank was an element in the broad economic reforms introduced in the early years of the so-called Viðreisn government coalition – reforms that released Iceland from capital controls, goods rationing, and repeated currency exchange rate adjustments. But 60 years is not an advanced age if we consider that Iceland became a sovereign country 103 years ago. With the grant of sovereignty in 1918, the Icelandic króna became an independent currency. It was not until 43 years later that a separate central bank was tasked with the conduct of monetary policy. It should come as a surprise to no one that economic policy was fairly unsuccessful over that time. | 0 |
So gilt price movements necessarily all wash out once the public accounts are compiled on a consistent basis, at least so long as the assets are retained within the public sector 3 . We do not, however, expect to retain all the purchased assets in the Asset Purchase Facility to maturity. At some stage, as the recovery proceeds, the Monetary Policy Committee will need gradually to remove the large monetary stimulus that we have imparted to the economy, otherwise we will be in danger of overshooting our 2% inflation target. That monetary tightening will take the form of some combination of a higher level of Bank Rate and asset sales from the Asset Purchase Facility to the private sector. The process of selling off the gilts can then be expected to push gilt yields back up towards where they would have been in the absence of the Quantitative Easing programme. When the Asset Purchase Facility is finally run down, won’t the closing accounts tell us about the benefits or costs of the programme? The answer to this is: No. The first point to make is that the aim of Quantitative Easing and the Asset Purchase Facility is to help the Monetary Policy Committee achieve its macroeconomic objective, namely hitting the Government’s inflation target without generating undue volatility in output. The accounts of the Asset Purchase Facility are not designed to address these overall macroeconomic costs or benefits, which instead requires an assessment of the impact of Quantitative Easing on demand and inflation. | Lastly, it must be borne in mind that the short and medium-term challenges posed by the recent period of extraordinary crises do not make tackling the banking sector’s structural challenges – such as those linked to the management of climate-related risks, digitalisation and growing competition from technology firms – any less urgent. Thank you. 10 | 0 |
That still leaves us with quite enough to worry about - and who ever met a central banker - or a sailor - who didn’t worry about what was coming next - it would be a contradiction in terms. The immediate challenge is to cope with the imbalances within and between the industrial countries, and we have more work to do to improve our defences against volatile international capital flows more generally. But for the time being, the rate of world output growth, which had fallen to only about 2% in 1998, about half its long-term trend rate, and which was widely expected to fall further, is now expected to bounce back to around trend over the next couple of years. And whereas, a year ago, many industrial countries were still in the process of easing monetary policy, to offset the impact on world demand of the interruption of the flow of credit and investment to emerging market countries and transition economies, we have recently seen a quite widespread increase in interest rates, designed to moderate the pace of domestic demand growth. And rising interest rates - I need not remind you - are a reflection of a strengthening economy. Against this backdrop of strong economic growth and official tightening, it is not surprising that bond markets in most developed economies have responded with higher yields over the last 12 months. | Mr George paints a broadbrush picture of challenges and change for the markets as the year unfolds Speech by the Rt Hon Eddie George, Governor of the Bank of England, to the Euromoney International Bond Congress at the QEII Conference Centre in London on 16 February 2000. * * * It’s a pleasure, as always, to have been invited to bring proceedings at this great annual event to a close. You seem to go from strength to strength - from what I hear your sixth Congress has been as lively and interesting as its predecessors. Lively and interesting are pretty good words to describe the last twelve months in the markets too. When we were together here last year there were still plenty of clouds around. The emerging markets in Asia were still only in the early stages of patchy recovery. Russia was still fragile and there were real fears of another round of financial upset in Latin America, particularly Brazil. In the industrial countries, too, the prospects were for slow growth - some were even still forecasting recession. I concluded that we’d all need strong nerves in the year ahead. Well, by and large we kept our nerve, and the skies have brightened over the past year as the clouds of financial instability and global economic slowdown dispersed. The focus now is not on how we keep the ship afloat but how we keep her on a steadier course - which, if you’re a sailor is a comparative luxury. | 1 |
Moreover, although nominal interest rates may be at very low levels, if inflation continues falling, real interest rates will trend upwards, contributing to reducing consumption and investment. Secondly, in economies posting a high level of public or private debt, or both, very high or rising real interest rates may exacerbate the difficulties of bringing about a reduction in household, corporate and public-sector debt, the reason being that the stock of debt, though it holds constant in nominal terms, will rise in real terms. The macro adjustment of a highly indebted economy in an environment of very low inflation or, indeed, deflation, thus becomes difficult and complex. And, thirdly, in relation to financial stability, the events we have seen in recent years indicate that asset price bubbles and the misallocation of financial resources may coexist alongside low inflation. If the situation of low inflation extends over time and draws close to deflation, we will arrive at very low or even negative interest rates, and that will entail additional risks for institutional investors, for the allocation of resources and for the sound functioning of the financial system. This was what we experienced in the euro area in the second half of last year. What role can monetary policy play in such a scenario? In September 2014, the ECB decided to expand the tools available to monetary policy by adding a private asset purchase programme followed, in January this year, by public-sector and public debt purchases. | Also, as supervisors, we should move to develop models that envisage macroeconomic effects in the face of different ecological transition scenarios. The aim hereby is to become familiar with the potential impacts of climate change on specific economic sectors, industries and even firms, and on more aggregate variables, such as growth and inflation. Naturally, the implementation of many of these initiatives requires considerable international coordination. Hence the importance of our active participation in the NGFS, the supervisors’ and central bank network I mentioned earlier, set up in early 2018. In the short time since its creation, the NGFS has managed to bring together more than 30 central banks and supervisory authorities. The aims of this network include analysis of supervisory practices, of macroeconomic and financial risks, and the means for smoothing financing for the transition to a sustainable economy. Undeniably, the implementation of all these aspects with some degree of harmonisation will be a difficult task. But you will agree with me that we are all facing a fundamental challenge and that, as such, we must spare no effort. Allow me to refer briefly also to the role financial markets can play in this process of ecological transition. In capital markets we have seen some positive discrimination in the valuation of firms with a lower degree of exposure to climate change, albeit limitedly so. Logically, and as in the case of banks, the markets should act as a catalyst for change 4/5 towards certain sustainable activities, while discouraging investment in particularly polluting industries. | 0 |
But there is a clear difference between the path of adjustment desired by the surplus countries, which are faced with the need for a longer-term structural shift away from reliance on exports, and the path of adjustment preferred by the deficit countries, which are under greater near-term pressure to reduce the burden of debt in both private and public sectors. Tensions between the two groups were evident at last week’s IMF meetings in Washington where all the talk was of currency conflicts. Such conflicts are, however, symptoms of a deeper disagreement on the appropriate time path of real adjustment. Since surpluses and deficits must add to zero for the world as a whole, differences between these desired ex ante adjustment paths are reconciled ex post by changes in the level of world output. And the risk is that unless agreement on a common path of adjustment is reached, conflicting policies will result in an undesirably low level of world output, with all countries worse off as a result. The international monetary system today has become distorted. The major surplus and deficit countries are pursuing economic strategies that are in direct conflict. And there are 2 BIS Review 136/2010 some innocent victims. Those emerging market economies which have adopted floating currencies are now suffering from the attempts of other countries to hold down their exchange rates, and are experiencing uncomfortable rates of capital inflows and currency appreciation. So there is more to this issue than a bilateral conflict between China and the United States. | Mervyn King: Changes in the UK economy and the role the Bank of England can play in supporting them Speech by Mr Mervyn King, Governor of the Bank of England, at the Black Country Chamber of Commerce, West Midlands, 19 October 2010. * * * Ladies and Gentlemen, It is good to be back in the heart of Britain – in the Black Country – because the Bank of England has strong connections with the area. Both I and Deputy Governor Paul Tucker hail from Wolverhampton. And I am delighted that all nine members of the Bank’s Monetary Policy Committee are in the West Midlands this week on an MPC road-show to see for themselves the state of business in the region. The Black Country is the home of the original Industrial Revolution. Too often those historic events are painted as just that – past glories of little relevance today. But there is no better place to see evidence of how the British economy can adapt than in the Black Country. Indeed, one example can be found behind this building. Dudley Canal No. 1 was part of a network of canals, central to the Industrial Revolution, along which the products made here – especially iron and steel – were transported throughout the country. At its peak, there were 5,000 miles of canals in Britain. Of course, the importance of canals as the arteries of industry later declined and by the late 1960s only 2,775 miles were navigable. | 1 |
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