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But, while significant progress has been made since the end of the recession, there remain a number of headwinds that have offset the improvement in the underlying fundamentals. As a result, we have yet to see any meaningful pickup in the economy’s forward momentum. The most notable recent headwind, of course, has been the large amount of fiscal drag this year from the payroll and income tax increases and the budget sequester. Also noteworthy is the tightening of financial market conditions that has occurred since May. As we move into 2014, the fiscal headwinds should abate somewhat. As that occurs, the improving underlying fundamentals of the economy should begin to dominate, pushing up the overall growth rate. But this is just a forecast, it has not been realized yet. That is one reason why I supported the FOMC’s decision last week to maintain the current pace of our Treasury and mortgagebacked security purchases. In my view, the economy still needs the support of a very accommodative monetary policy. Adjustments to that policy need to be anchored in an assessment of how the economy is actually performing, how financial conditions are evolving, and how this affects the longer-term outlook and the risks around it. Our decisions on how to adjust our policy tools – for example, the pace of asset purchases and forward guidance with respect to the level of short-term rates – must be rooted in the ongoing flow of information that informs our judgments about the prospects for a sustainable recovery. | But data through mid-September generally indicate that the rise in rates has cut into the upward momentum of the housing sector. Currently, improving economic fundamentals versus fiscal drag and somewhat tighter financial conditions are pulling the economy in opposite directions, roughly cancelling each other. The economy continues to grow and payrolls are rising, but there is little evidence of a pickup in the economy’s forward momentum. For example, real GDP growth is still stuck close to the 2.2 percent average annualized growth rate that has prevailed since the beginning of the expansion. But, as the degree of fiscal drag and other headwinds lessen, the tug-of-war should begin to shift in favor of higher growth. Absent additional fiscal restraint, a further tightening of financial conditions, or some adverse external shock, I expect the economy to grow a bit faster in 2014. So, how compelling is this narrative? In big picture terms, it certainly seems quite reasonable to me. However, no forecast is inevitable and there are some reasons to remain wary. In particular, although the fiscal drag will likely lessen in 2014, I expect it will still be significant, and the outcome of the current federal budget and debt ceiling debates may affect this assessment. Moreover, when one drills down and looks at the recent performance and outlook for the economy’s major sectors, additional caution seems warranted. Turning first to the outlook for fiscal policy, there are two points worth making. First, the CBO projects that significant fiscal drag will persist into 2014. | 1 |
House prices, led as usual by London, did not begin to return to their pre-crisis peaks until the end of 2013. Even after the recovery, however, house price growth did not recover to pre- financial crisis rates. From 2014-2019, average house price growth was 5% and the house price to earnings ratio for the UK as a whole did not return to its pre-crisis peak until 2017, despite the slow growth in earnings in the UK recovery. In most areas outside London, the South and East, the ratio is still below its pre-crisis peak. Activity over this period was subdued relative to the period before the financial crisis. Mortgage approvals averaged 61,000 per month. The period between home moves became longer; in 1988, households moved every 10 years on average. 30 years later, in 2017, this extended to every 17 years. 2 See Rachel, L. and Smith, T. (2015) "Secular drivers of the global real interest rate" and Box 6 ("The equilibrium interest rate") in the August 2018 Bank of England Inflation Report for further discussion of this. 3 Real house price growth peaked at over 20% in 2002 to 2003, but prices were still growing at around 9% in 2007 in real terms. Real prices started to contract from 2008, with the largest annual fall being 18% in early 2009. 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 In the years immediately following the financial crisis, households paid down debt. | Policy The FPC introduced its housing measures in 2014 following the evidence from the post-financial crisis recession that aggregate household indebtedness and the prevalence of highly indebted cohorts had amplified the recession and its impact on the financial system. The tools therefore aim to enhance the resilience of the financial system. The measures aim to act as general structural ‘guardrails’ rather than as a countercyclical tool, though the FPC reviews their calibration periodically. Such a review is in train and be completed by the end of this year. As I have set out, since the introduction of the tools the housing market, outside London, has been relatively quiet by UK standards. But, as I have also explained, there are likely to be many factors behind this in addition to the FPC’s housing measures. The Bank has published extensive analysis on the impact of the tools and a forthcoming “Bank Overground” post will examine the extent to which the measures have acted as a constraint on renters entering the housing market. This analysis finds that minimum affordability requirements and lenders’ internal limits on loan-to-values are likely to have been the dominant constraint for most renters. It estimates that only 2% of renters would have 15 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 15 been able to afford the median-priced first-time home in their region had they not been constrained by the affordability test. | 1 |
For the big banks, in particular, it is crucial that a sufficient capital base be laid down as soon as possible, so that losses can be fully absorbed. The SNB welcomes the fact that, in 2010, both big banks already took important first steps in this regard, and we would like to encourage them to keep up the pace of their capital expansion. The capitalisation of most domestically focused banks is good by historical standards. However, a combination of high interest rate risk exposure and strong mortgage lending growth has been reported by a number of banks. In order for these banks to bear the risks in the medium term, it is important to ensure that their capital base is strong enough. I would now like to take a closer look at the situation of the two big banks, before turning my attention to the situation of the domestically focused banks. Situation of big banks Compared to 2009, the two Swiss big banks saw a marked improvement in their profitability and capital situation last year. In 2010, these institutions reported combined net profits of around CHF 13 billion, as opposed to roughly CHF 4 billion in 2009. This positive development was driven by UBS, whose situation improved further over the course of last year. In addition, both UBS and Credit Suisse continued to increase their regulatory capital ratios (ratio of Tier 1 capital to risk-weighted assets), which were already very high by international standards. Moreover, their financial strength ratings also improved. | Thomas J Jordan: Financial Stability Report – potential risks and actions Introductory remarks by Mr Thomas J Jordan, Vice Chairman of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Berne, 16 June 2011. * * * In my introductory remarks today, I would like to present the most important points from our recently published Financial Stability Report, in which we consider potential risks to financial stability and identify where action may be needed. General economic and financial conditions for the Swiss banking sector improved further in 2010. Overall, global economic growth was stronger than expected last year, despite the expiry of fiscal stimuli. In Switzerland, too, economic development was robust and growth was high in an international comparison. Against this background, the profitability and capital situation of both big banks improved further, and remained good for banks with a domestic focus. However, the economic environment remains fragile, and a renewed, sharp deterioration over the next twelve months cannot be ruled out. In the short term, the prevailing uncertainty primarily affects the two big banks, which are still exposed to considerable credit and market risk relative to their loss-absorbing capital. For domestically focused banks, by contrast, the risks are largely of a medium-term nature, and are related to potential adverse developments on the Swiss real estate and mortgage markets. In view of these risks, all Swiss banks should ensure that they have a broad and high-quality base of loss-absorbing capital. | 1 |
An example of a recent early prudential action occurred in June 2007, well before the recent financial turmoil aggravated: the Central Bank established a foreign exposure capital requirement for cross-border positions within international banking groups. In a nutshell, the Brazilian approach insulated its financial institutions from the sort of problems that is affecting counterparties abroad. In fact, it is no coincidence that our financial system has shown resilience and has been largely unaffected during the current financial turmoil. BIS Review 44/2009 1 The overall assessment on the Brazilian regulation framework, which was sometimes criticized on the grounds of excessive carefulness, is currently praised in international forums. For instance, the fact that Brazilian regulators have access to information from the clearing systems of all operations in the financial market is a factor of admiration and reference worldwide. Before closing, let me mention that I strongly welcome the recent enlargement towards emerging economies – including of course Brazil – of the Financial Stability Forum (FSF) and of the Basel Committee on Banking Supervision (BCBS). Emerging economies rapidly increasing weight in the global economy and global finances makes them an integral part of any viable solution to the current problems, as we are witnessing today in regard to their role in the G-20. The enlargement of forums in the area of regulation and financial sector supervision give more legitimacy to the discussion being held, with a view to design a new and more robust regulatory framework. | People in the informal sector and SMEs who hitherto were unable to open savings accounts with banks due to high minimum deposits and service charges should find the “Tusunge” Savings Product attractive. Ladies and Gentlemen, in the face of an ever growing fear of donor fatigue, public deposits and private capital are likely to be the main source of funding for the microfinance industry to achieve the growth required for it to have significant impact on financial inclusion and poverty reduction across the region. Notwithstanding this, allow me now to reflect on some of the key challenges in the financial sector that all of us must strive to address: (i) Increasing access to financial services by the SME’s who form the backbone of the economy. This sector provides employment for many people who cannot be absorbed into formal employment. However, increased access to financial services remains a key challenge to this segment. (ii) Although the Bank of Zambia has licensed 25 Microfinance Institutions, most of them operate along the line of rail providing mainly salary-backed loans. There is need for microfinance institutions to support production by providing finance to agriculture and manufacturing instead of merely providing consumption related salary backed loans. (iii) There is need for all microfinance institutions to utilise the credit reference bureau at all times. A robust credit reporting apparatus will enable the financial sector to share critical customer information that will lead to lowering the credit risk and ultimately lending rates in the financial sector. | 0 |
A crisis of the depth we have now passed through leaves behind feelings of uncertainty regarding the future. Previously-observed relationships have not been able to provide us with the same guidance as before, and moreover it is difficult to know what these deviations from historical patterns will lead to further ahead. The way this situation develops in the future will depend on many different things. If the world economy returns after the recovery to a situation similar to that before the crisis, then countries which have conducted a policy that has helped companies to retain their labour force through the recession will be in a very good position. Companies in these countries will then easily be able to increase production. However, if it turns out that the world demand is for other goods and services than those prior to the crisis, these countries may instead find themselves in a situation where they need to undergo a necessary structural transformation. This could lead to a more protracted period of high unemployment and lower production. In the future, countries like China may account for an increasingly large share of world consumption. If consumption patterns differ in different countries, this could mean that different types of product will be in demand in the future. A deep recession may also affect the internal demand picture within a country permanently, for instance, by individuals changing to more energy-saving and cheaper alternatives. | In order to detect financial tensions as early as possible, we have sought to make our dialogue with member countries more continuous and probing and put more emphasis on the continuous and timely provision of accurate data. We are also concentrating more on policies decided at a regional level, on the regional implications of national economic policies, on banking and financial sector soundness, and on the policies and institutions that sound financial systems require. BIS Review 111/1997 Second, we are doing what we can to help markets function more smoothly. Considerable progress has been made in liberalising current account transactions worldwide so that countries can take advantage of the opportunities offered by the expansion of world trade. Now, we must turn our attention to fostering an orderly liberalization of capital account transactions, so that countries can also reap the benefits of global capital markets, while minimizing their risks. To this end, IMF members have agreed that the Fund’s charter should be amended to make the liberalization of capital movements one of the purposes of the Fund and to extend the Fund’s jurisdiction to capital movements, with appropriate safeguards, including transitional arrangements, to ensure that liberalization is neither premature nor unduly delayed. At the same time, the IMF is actively encouraging all countries to be transparent about their economic performance by improving the dissemination of economic and financial data to the public. Greater transparency will help strengthen market discipline and avoid market surprises that can lead to disruptive market reactions. | 0 |
A broad spectrum of activities could possibly constitute “dealing in securities”: broking in securities, referring customers to open accounts with licensed dealers for the purpose of trading in securities, or providing prospectuses and application forms to prospective customers. As for “investment advice”, our current interpretation accepts that the provision of factual information does not constitute investment advice. What constituted dealing or investment advice used to be fairly clear-cut and well-established. But the breakdown of the securities value chain has blurred the distinctions between fact and investment advice, and between dealing in securities and merely providing information. We therefore need to refine our interpretation of these terms, institute basic safeguards and spell out how to treat new entities. Licensing approach In licensing investment advisers and dealers, our approach is to require persons conducting securities activities in Singapore to possess suitable qualifications, relevant professional experience and good character. This would give comfort to investors that they can expect competent advice and reliable execution from investment advisers and dealers. Our licensing requirements for the new electronic market intermediaries should not be unduly onerous. They will not impose heavy prudential capital requirements. The main focus will be on website disclosure of credentials, physical addresses and other relevant information. In lieu of a corporate track record, licensees need only demonstrate individual qualifications and experience. Bona fide intermediaries who subscribe to the objective of providing financial services of high standard should be pleased to come under our licensing ambit. | Experience in developed economies show that financial services, notably stock trading, can take rapidly to the internet. This should be no surprise. As an Economist online finance survey recently described, financial institutions deal in a product - money - that has long been accepted as “virtual”. Unlike a piece of clothing, account-holders are happy to accept their money represented as figures on an ATM screen, or by a credit or smart card.13 The new financial landscape calls for a tripartite, complementary response from regulators, industry and investors. The MAS as regulator will foster healthy market practices, while maintaining a sound overall investment environment. At the same time, in a democratised environment, investors need to recognise that there is little substitute for self-education, and thereby exercise greater caution in making individual investment decisions. Finally, industry participants need to set high professional standards and observe an exemplary code of conduct, in order to retain their customers and build their reputations which, in the long term, are their most precious assets. 13 “Online finance: a virtual threat”, The Economist, 20-26 May 2000. 7 BIS Review 69/2000 | 1 |
Inflationary expectations of economic agents continue to be within the target range, which is essential under the conditions of the simultaneous presence of the negative output gap and high foreign prices. The Bank of Albania is fully committed for anchored inflationary expectations in compliance with its inflation target and stands ready to accomplish its mandate, by preventing materialisation of constant pressures on inflation. Following discussions, the Supervisory Council concluded that the monetary conditions remain appropriate for meeting the medium-term inflation target and decided to leave the key interest rate unchanged at 5.25%. BIS central bankers’ speeches 3 | On this front, we have seen increased diversity, both in terms of product offerings as well as in the issuers. In the area of product offerings, for example, we have seen an increase in the offering of commodity-related financial products. The Singapore Commodity Exchange launched a Robusta coffee futures contract in April last year. The Singapore Mercantile Exchange launched in August last year also provides a platform for trading a diversified basket of commodities including futures and options contracts on precious metals, agriculture commodities and energy. We have also replicated the success of the real estate investment trusts model for the infrastructure sector, further adding to the diversity of our capital markets. 14. On top of the increased diversity in product offerings, we are also encouraged by the increased diversity of issuers coming to tap into the depth and liquidity of our capital markets. Last year, we saw the first Russian debt issue in the Singapore market when VTB Bank launched its Sing Dollar Eurobond here. This paves the way for other highly rated Russian issuers to access our markets. In the area of Islamic finance, a number of international players have also tapped our markets for their shariah-compliant instruments. They include Saudi Arabia’s Al Rajhi Group1 and Malaysia’s Khazanah Nasional2. In November last year, Sabana also launched the first shariah-compliant Real Estate Investment Trust in Singapore, which is also the world’s largest shariah-compliant REIT. 15. Singapore plays a key role as a gateway to Asia, facilitating capital and investment flows. | 0 |
Ladies and Gentlemen, There is little disagreement about the pertinence of capital flows for macroeconomic outlook and stability. Where my view may depart from that of some critics, is in regards to appropriate policy response, and what objectives the Bank of Thailand can and should pursue. The MPC’s core objective, as instituted by law and in agreement with the government, is to achieve maximum sustainable growth, in the context of stable prices and sound financial system. Under this mandate, capital flows and exchange rate fluctuations are not the targets in and of themselves, but enter the policy calculations through their effects on the overall macroeconomic outlook. The MPC’s recent decisions to keep the policy interest rate unchanged can be rationalized in this light. While all members of the MPC may recognize the risks posed by volatile capital flows, the majority believed that the overall macroeconomic conditions are consistent with the mandate, and no change in policy was warranted. Thus, the current policy framework is sufficiently flexible to allow the Bank of Thailand to address the issue of capital flows. By contrast, if policy interest rate were employed to target capital flows and exchange rate per se, the outcome would likely prove counter-productive in my view. Uncertainty about the effectiveness of such policy use aside, the central bank’s commitment to safeguard the overall macroeconomic stability may also be called into question by the public, with potentially serious consequences. | Ladies and Gentlemen, I believe that a balanced and judicious use of monetary policy tool has and will continue to play a critical role for ensuring long-term macroeconomic and financial stability. As always, the Bank of Thailand will strive to create a stable economic environment in which businesses can prosper on a sustainable basis, so that Thailand will continue to be the destination of choice by long-term investors. Let me close my remark by thanking the Netherlands business community for the substantial contribution to the Thai economy. I hope that the relationship between our two nations will continue to flourish. Thank you. BIS central bankers’ speeches 3 | 1 |
Lending and the building up buffers among both lenders and borrowers then stabilises over time. I would like to emphasise that this is a highly simplified description of financial stability, which to a certain extent disregards the structural aspects of systemic risk such as resilience and risks in financial infrastructure on the one hand, and such factors that trigger financial crises on the other. However, even the simplified picture gives important insights. The new tools being developed and the old tools which can be used for a new purpose are crucial to the success of macroprudential policy. Allow me therefore to discuss macroprudential policy tools and how they are intended to function. Macroprudential policy tools and how they fit in with monetary policy Typical macroprudential policy tools are capital and liquidity requirements chiefly focused on banks and the supply of credit. However, it’s also about measures to limit demand, such as the mortgage cap, or the regulation of exposures and haircuts with the purpose of limiting the contagion risk in the financial infrastructure. The various tools can be divided into static and time-varying tools. Using my simple lending rate formula, I will illustrate how, in different ways, these tools affect lending rates and credit terms. That is, after all, partly their purpose. However, this also has consequences for monetary policy. | It allows a smooth and relatively painless adjustment if the economy looses competitiveness. Summing up, I have discussed selected aspects of the cost-benefit analysis of Poland’s adoption of the euro. Although the costs may seem substantial, one has to bear in mind two things. First, the probability that these costs will have to be incurred is relatively low. Second, their magnitude depends crucially on domestic policy – prudent banking sector supervision, labor market reforms and sound fiscal policies to name a few. In my view, given the evidence that reforms have been halted in many countries after entering the eurozone, these measures should be taken before the euro area accession. Thank you for your attention. References: Borowski J. 2003. “Potential Benefits of Poland’s EMU Accession”, Focus on Transition No. 1. Brzoza-Brzezina, M. 2005. “Lending Booms in the New EU Member States: Will Euro Adoption Matter?”, ECB Working Paper No 543, European Central Bank, Frankfurt. BIS Review 6/2007 3 Brzoza-Brzezina, M. 2006. “The Information Content of the Neutral Rate of Interest: The Case of Poland”, Economics of Transition 14(2), s. 391-412. Csajbók, A., Csermely, A. (ed.) 2002. “Adopting the euro in Hungary: expected benefits, costs and timing”, MNB Occasional Paper 24, National Bank of Hungary DeGrauwe, P. 2003. “The Enlarged Eurozone: Can it Survive?”, Jelle Zijlstra Lecture, NIAS. Demirgüç-Kunt, A., Detragiache, E. 1998. “The Determinants of Banking Crises in Developing and Developed Countries”, IMF Staff Papers, Vol. 45, No. 1, Washington, D.C. Eickmeier, S., Breitung, J. 2005. | 0 |
In view of the medium-term challenges posed by the high debt-to-GDP ratio and the impact of population ageing on public expenditure, the process of redressing fiscal imbalances must be compatible with an increase in the quality of public finances. In this respect, the composition of the income/expenditure adjustment in the necessary mediumterm programme is of utmost importance in order to achieve the objectives set without BANCO DE ESPAÑA 14 TESTIMONY BY THE GOVERNOR OF THE BANCO DE ESPAÑA BEFORE PARLIAMENT IN RELATION TO THE DRAFT STATE AND SOCIAL SECURITY BUDGET FOR 2019 THE QUALITY OF PUBLIC FINANCES CHART 14 TAX STRUCTURE IN SPAIN GENERAL GOVERNMENT INVESTMENT % of GDP % of public expenditure 12 18 10 15 8 12 6 9 4 6 2 3 0 0 100 90 70 75 80 85 90 95 00 05 10 PUBLIC EXPENDITURE IN SPAIN (2017) 80 CONSUMPTION 70 60 CAPITAL 50 40 30 20 LABOUR 10 0 16 2017 GEN. GVT. (% of GDP) GENERAL GOVERNMENT SOCIAL SECURITY GEN. GVT. (% OF TOTAL EXPENDITURE) (right-hand scale) REGIONAL GOVERNMENT LOCAL GOVERNMENT SOURCES: IGAE, INE and Banco de España. hampering economic growth. | a Deviation in the level of cumulative GDP in 5 years, the time considered necessary to reach the new "long term". The two simulations assume a "no-deal" that includes a long-term scenario under WTO rules. FORECASTS FOR THE SPANISH ECONOMY: MAIN RISKS. SURPRISES ON THE DOWNSIDE FOR INFLATION OIL PRICES OVERALL INFLATION 3 CHART 6 % Projections 70 Dollars/barrel Projections 65 2 60 55 1 50 0 45 40 -1 35 -2 2013 2014 2015 2016 LATEST PUBLISHED PROJECTIONS 2017 2018 PROVISIONAL UPDATE 2019 30 2016 2017 2018 2019 ASSUMPTIONS USED IN LATEST PUBLISHED PROJECTIONS UPDATED PROJECTIONS SOURCES: ECB, INE, Reuters and Banco de España. which Spanish general government has been immersed since 2009, as part of the “corrective arm” of the EU’s Stability and Growth Pact. Specifically, the budget deficit is expected to be below 3% of GDP both in 2018 and 2019. 1.3 Main risks and elements of vulnerability The macroeconomic and financial scenario I have just sketched, which prolongs the expansionary phase of the Spanish economy, is, however, subject to certain downside risks. It should also be added that these risks have tended to increase recently and are being reflected in sharper downward revisions of analysts’ opinions on the outlook for the global economy in 2019 (see left-hand panel of Chart 5). | 1 |
John C Williams: Restoring balance Remarks (via videoconference) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at New Jersey City University, 18 February 2022. * * * As prepared for delivery Good morning, everyone. I want to thank Sue Henderson for that kind introduction, and New Jersey City University for hosting today’s discussion. I always enjoy speaking with students, and I look forward to the time—hopefully soon—when we can have these types of events in person. Today, our virtual setting is Jersey City, one of the most diverse cities in the world—and one known for terrific pizza. Now, it’s not my place to get into the debate over who has the best pizza, and I know that people have strong views on that subject. As president of the New York Fed, I proudly represent both sides of the Hudson River, and my job is to make the economy stronger and the financial system more stable for all. Before I move on from the topic of pizza to economics, I should give the standard Fed disclaimer that the views I express today are mine alone. They do not necessarily reflect those of the Federal Open Market Committee—what we call the “FOMC"—or others in the Federal Reserve System. As you well know, the economy—like many facets of our lives—continues to be shaped by the unpredictable nature of the coronavirus. As I’ve said before, the pandemic is first and foremost a health crisis. | Central banks have an operational independence but they do not decide their own mandate. The mandate given to the Eurosystem is clear: our primary objective is price stability. However, our mandate states that we “shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system” x. Careful attention to the dynamics of the indebtedness of households, firms, and financial intermediaries would also be in line with the intellectual tradition of the Eurosystem. Since its inception, the ECB has always given special attention to broad financial aggregates in setting the course of monetary policy. It was emphasised by its monetary pillar and is now emphasised by its monetary analysis. Restricting attention to measures of liquid liabilities such as M3 has probably little justification today in view of the little direct relevance of monetary aggregates for price developments. But the relevance of broader and more varied credit aggregates is beyond question for both price and financial stability concerns. Together with asset prices, they could constitute the base of a revised credit and financial pillar. xi 2.2 The Separation Principle becomes less relevant with a multifaceted monetary policy The link between monetary policy and financial stability raises two questions. First, what are the quantitative effects of monetary policy instruments on financial stability? | 0 |
Technology does not only manifest itself in web and wires, but also in the rarefied area of financial engineering, with advanced mathematical models and complex equations developed to price new derivative products. These have become useful instruments for hedging purposes and for offloading and allocating risks to those who have the appetite and capacity to take them on. 22. But these developments have brought dangers and anxieties as well as benefits and convenience. The Y2K episode – though it was well managed and ultimately uneventful – underlined how dependent we have become on the technology created over the last decade or so, and how irreversible that technology is. More recently, and now that the Y2K anxiety has been overcome, the rapid development of e-banking has underlined other concerns about privacy, security, risk management, customer protection – even about the very nature of banking – in a borderless world. The dangers posed by innovative financial products hardly need to be laboured in a place that has been very much at the brunt of their more destructive forces in recent years. 23. What can a monetary authority do in the face of such difficulties? I have referred already to the drastic measures taken in 1998, and more than enough has been said on that matter elsewhere. In the field of regulation and supervision, we need to ensure that we keep pace with the rapid 5 BIS Review 114/2000 developments going on, so that anxieties about e-money and e-banking – real or imagined – are properly addressed. | In other words, the business ‘creation effect’ stimulated by WTO accession will far outweigh the ‘diversion effect’, under which the pessimists had been predicting that Hong Kong’s trade would gradually dry out and shrivel up. To put a figure on it, our estimates within the HKMA suggest that Hong Kong’s annual GDP growth rate will be boosted by somewhere between half to one per cent through the increase in re-export trade resulting from China’s membership of the WTO. 6. But that is not the end of it. For our less visible trade, in financial, technical and professional services, the outlook is even more promising. These lucrative service industries, which are increasingly taking pride of place in Hong Kong’s economy, will be greatly boosted by business from Chinese enterprises seeking to expand their capabilities and improve their governance to handle increased trade and meet foreign competition. They will also be stimulated by overseas investors who need advice on how to make the best of the opportunities on the Mainland and who find Hong Kong the best place at which to obtain that advice. These trends have been in play for a long time – indeed they reflect Hong Kong’s historic role as a hub of commercial, technological and cultural exchange between China and the rest of the world. But there are clear signs that these mediatory and advisory services are now receiving a boost in anticipation of WTO entry, as companies in the Mainland, in Hong Kong and overseas position themselves for new kinds of commercial relationships. | 1 |
Last year the UK participated in EU-wide tests carried out by the European Insurance and Occupational Pensions Authority (EIOPA), conducted for the first time on a Solvency II basis. This exercise focussed on the overall impact of an adverse market scenario and a low yield scenario. The tests covered 60 groups and 107 companies from across Europe, including the larger UK firms and from some non-EU countries6. In 2015/16 the PRA is currently conducting a stress test on its own authorised General Insurers, covering a range of stresses such as natural catastrophes, terrorism and cyber-attack. Liquidity CRDIV covers liquidity requirements as well as capital requirements. The two are quite different in nature and liquidity is, in my personal view, more controversial. Most firms – including banks – if they fail will actually do so when they run out of cash, before they become insolvent. And banks are structurally vulnerable to a liquidity run because their assets, such as mortgages or company loans, are longer maturity than their liabilities, such as corporate or retail deposits. One reason why liquidity requirements can be more controversial is because of the business impact. Capital, in whatever form – whether equity or bonds that could be converted into equity – is actually a source of funding and sits on the liabilities side of the balance sheet. Capital may be more expensive than debt for tax reasons, but both provide funding to be used. Liquidity requirements usually take the form of a specified minimum holding of liquid assets. | Paul Fisher: The Financial Regulation Reform agenda – what has been achieved and how much is left to do? Speech by Mr Paul Fisher, Executive Director for Supervisory Risk Specialists and Regulatory Operations of the Bank of England and Deputy Head of the Prudential Regulation Authority (PRA), at Richmond, the American International University, London, 30 September 2015. * * * It is now 8 years since the start of the great financial crisis, and 7 years since the collapse of Lehman Brothers and AIG in the United States, followed by the bailing out of HBoS and RBS in the UK. The consequences were not limited to the financial sector – the economic recession that followed in much of the developed world was both deep and prolonged. This naturally created an imperative for changes to the regulation of the financial system to prevent the same thing happening again in future. Since I became Deputy Head of the Prudential Regulation Authority (the PRA) in June 2014, I have been asked a number of times to comment on how far the regulatory reform agenda has advanced. How close are we to ending “too big to fail”? How much more regulatory change can one expect? | 1 |
5 But the higher living standards which the division of labour permits require institutions that allow us to exchange what we each produce. Smith described how “in a nation of hunters, if any one has a talent for making bows and arrows better than his neighbours he will at first make presents of them, and in return get presents of their game”. 6 But a man who spends all day making arrows to swap them for meat gives up the chance of hunting himself for the chance of sharing in a larger catch. For the group to specialise, the hunter who turns arrow-maker has to be sure that his partner in trade will deliver the “present” of meat. When the timing of these exchanges is not coincident, there is a need for social institutions to prevent one party reneging on the transaction, and, in particular, for money – an issue that I will return to later. Smith’s second insight was that the social institutions necessary to exploit the full potential of a market economy were not derived from the relentless pursuit of selfinterest, but from the recognition that we all benefit from what he described in Theory of Moral Sentiments as the exercise of “sympathy”. In other words, we step back from our immediate situation and ask: how do my actions affect others? Answering that requires an ability to imagine ourselves in others’ shoes – “sympathy”. That sympathy in the hunter, for example, might mean feeling the pain of a starving arrow-maker. | With respect to money market developments, commercial banks lending rates have been declining but not at the rate as inflation or treasury bill rates. Commercial banks nominal average lending rate declined from 33.9% in December 2005 to 27.6% in December 2006 and stood slightly lower at 27.3% in February 2007. This is still on the high side for most entrepreneurs. However, there are positive indications from commercial banks due to the growing confidence in the economy and lower lending rates are therefore expected given the current environment of low inflation. Mr. Chairman, in the Non-Bank Financial Institutions (NBFIs) sector, institutional growth has continued to be a challenge. The number of NBFIs supervised by the Bank of Zambia has increased in the last 6 years, by 15% from 52 in 2001 when a specialized NBFIs department was established, to 60 today. The establishment of this specialised department was in response to: • 2 the expansion of the NBFIs sector; BIS Review 150/2007 • the increased innovation in the sector; and • the increase in the number of NBFIs supervised by BoZ after amendments to the Banking and Financial Services Act (BFSA) in 2000. The increase in the number of new entrants in the NBFI sector has been due to the stability in the macro-economic environment in general and the financial sector in particular. To illustrate this further the BOZ receives on average about 7 applications per quarter, mainly from bureaux de change. | 0 |
Real convergence encompasses factors such as labor mobility, price and wage flexibility, exposure towards external shocks, industrial structures, and so on. Judged by these factors, convergence among future members of the EMU still has a long BIS Review 102/1997 -3- way to go. This is important because to be successful a European monetary policy depends exactly on these factors. Without a high degree of real convergence, monetary policy is bound to have different effects in different parts of the monetary union. The very idea of a single European monetary policy would thus become unrealistic. The ECB would come under political pressure to accommodate mutually incompatible wishes from different parts of the monetary union. The result could only be a less than optimal monetary policy and rising inflation and interest rates. For EMU to be successful the member states of the EU should therefore make determined efforts to further real convergence. The convergence criteria as laid down in the Maastricht Treaty require member states of the EU to achieve certain goals by spring 1998. Convergence, properly understood, can however never be something that can be pinpointed to a certain point in time, but must be an ongoing process. It does not make sense to require countries to get their fiscal situation under control by a certain date, just to let them go unpunished on a public spending spree shortly afterwards. Prudent fiscal policies should not only be a requirement for becoming, but also for remaining part of the EMU. | Inflation and interest rates should be low and in line with those in the other participating countries. The exchange rate should be stable. Last, but certainly not least, the budget deficit should be under control and the level of official debt sustainable. Over the last five to ten years, most member states of the EU have come a long way towards fulfilling these criteria. Inflation rates are at or close to historical lows in various countries. The same is true for interest rates, where differentials have diminished considerably. Much less successful was the quest for fiscal stability. Budget deficits in most countries are still too high and debt levels have often, instead of falling, risen over the last years. Without any doubt, the pursuit of the convergence criteria with a view to joining the EMU has been instrumental in improving economic policies in various member states of the EU. Who, for instance, would have thought ten years ago that Italy would today post an inflation rate lower than the one in Germany? Yet, despite the progress achieved over the last decade, two problems remain: First, convergence in important areas is still far from being satisfactory. Second, the convergence criteria require the aspiring members of the EMU to achieve certain goals by spring 1998. But what about their future policies? There is a widespread belief in the economics profession that nominal convergence -- as expressed by the convergence criteria -- is less important for a successful monetary union than real convergence. | 1 |
Annual variations in inflation are now substantially smaller than they were in the 1970s and 1980s. Over the past ten years, average inflation has been somewhat lower than, although fairly close to, the target of 2.5 per cent. BIS Review 65/1008 1 Inflation measured by the CPI varies from month to month, primarily as a result of wide fluctuations in electricity prices, but also due to other temporary disturbances. The rise in the CPI-ATE shows inflation adjusted for one-time effects of tax changes and excluding energy products. Inflation, measured this way, has risen since summer 2006. One disadvantage of this indicator is that it does not only exclude the temporary effects on electricity prices of, for example, changes in the weather; it also excludes more persistent developments in energy prices. Energy prices have risen more than other prices for a fairly long period, leading to an average year-on-year rise in the CPI over the past 5-10 years that has been close to ½ per cent higher than the rise in the CPI-ATE. Other available measures of underlying inflation also suggest that inflation has moved up. While the year-on-year rise in the CPI-ATE is now 2.4 per cent, other measures of underlying inflation are above 3 per cent. 2 BIS Review 65/2008 Recently, inflation has been somewhat higher than our projections from last year. Inflation was broadly in line with expectations through 2007. In 2006, inflation was considerably lower than projected at the beginning of the year. | The U.K. Financial Conduct Authority (FCA) has reached an agreement with banks to keep submitting rates until the end of 2021, but beyond that date the existence of LIBOR is not guaranteed.5 The FCA has made it clear that it expects at least some banks to leave the LIBOR panels soon after 2021, making LIBOR even less representative than it is now, and that it would need to judge whether LIBOR was still representative at that stage.6 Headway Is Being Made While the clock is inevitably ticking, progress is being made. In 2017, the ARRC selected SOFR as its preferred alternative to U.S. dollar LIBOR.7 Since April 2018, the New York Fed has produced SOFR every business day. It’s based on an important underlying market with much higher volumes than LIBOR, and is compliant with the Principles for Financial Benchmarks set forth by the International Organization of Securities Commissions (IOSCO).8 The International Swaps and Derivatives Association (ISDA) has led really important work on the development of contingencies for some derivatives products for the scenario where LIBOR ceases to exist.9 A key question is what will happen if the FCA finds LIBOR to no longer be representative. Two large central counterparties have already indicated that they would expect to move the LIBOR trades they clear to SOFR if this occurred. | 0 |
There is also evidence that euro area economic agents are setting greater store by recently observed inflation when determining their inflation expectations and, therefore, their price and wage-setting decisions. The persistence in recent years of very moderate inflation rates might be behind this.6 In this setting, the risks to the euro area growth outlook remain clearly tilted to the downside. They reflect the prolonged presence of protectionist tensions; the uncertainty associated with geopolitical factors (such as Brexit and the political uncertainty in Italy); the doubts over the intensity of the ongoing slowdown in China and the possible repercussions for the global economy as a whole; and the vulnerabilities that some emerging economies, such as Turkey and Argentina, continue to evidence. There are also some structural factors suggesting that a setting of low growth, modest inflation and, consequently, low interest rates might prevail over time. Among the main determinants is population ageing. This is a common trend in the advanced economies whose consequences go far beyond public finances and health systems. Ageing alters economic agents’ patterns of saving, investment and labour supply, and affects the potential growth of economies by reducing the working-age population and its productivity, among other factors. The other major challenge the European economies must face is the lower rate of productivity growth. This is admittedly common to other advanced economies, and is in contrast to the technological progress of recent decades. But we cannot ignore the fact that productivity growth in Europe is far lower than that observed in the United States. | Chart: Distribution of exports – 1835, 1950 and 2016 The oil sector has generated substantial revenues for Norway. And we have extracted large quantities of oil and gas at favourable prices. From the end of the 1990s and up to 2014, the price of North Sea oil rose from about USD 10 to more than USD 100 per barrel. In spite of the fact that oil prices have fallen by about half compared with a few years ago, sales of oil and gas still provide a third of the country’s export revenues. 3/4 BIS central bankers' speeches The substantial profits generated by the petroleum sector have been managed efficiently. Our economy is in good order. Well-functioning institutions and a high degree of trust between the various social groups provided a solid foundation. It was established at an early stage that Norway’s oil and gas reserves belong to the people. The system of taxation and framework conditions for the petroleum industry were designed so that the large profits from this sector would accrue to the state. We have been able to enhance public welfare and prosperity. Chart: From natural resources to financial wealth At the same time, Norway’s subsea petroleum wealth has to a large extent been transformed into foreign financial assets. With the oil fund, not only current but also future generations will benefit from our oil and gas reserves. The capital in the oil fund is more than two and a half times the size of mainland GDP. | 0 |
I would like to make a clear pledge: the Basel III agreement is intended to apply everywhere in a consistent manner, including of course in the United States. Those anywhere who would recommend not transposing Basel 3 would give in to the temptation to forget, ten years after the Great Financial Crisis; they would take the responsibility of increasing financial stability risks, at a time when these risks are already significant. That said, rest assured that we will insist on a fair and reasonable implementation in Europe, taking into account the specificities of the European banking sector in order to avoid undue impact on capital requirements. II. The French economy is resilient, with growth expected at 1.3% this year Despite this darker context, the French economy is resilient, with growth expected at 1.3% this year, three times higher than the German one. This expansion is being sustained by a robust internal demand. Real household income per capita is accelerating sharply (increasing by around 2% in 2019) at its fastest pace since 2007, due to the fiscal stimulus and to a larger extent to the strength of labour income – 1 million jobs have been created over the past four years. Many important reforms have already been adopted. Of course, much remains to be done to tackle structural unemployment, which is still too high. III. Beyond Brexit, building a new European financial architecture Brexit is and remains bad news for everybody but above all for the British economy. | Secondly, Paris is bolstering its position as a European leader in digital innovation. Last year, the ACPR has launched a task-force on artificial intelligence. Paris has also been a pioneer in the development of sustainable finance. The creation of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) by the Banque de France in Paris in December 2017 has been a decisive step forward. In 2 years, this coalition of the willing has increased from 8 founding members to more than 50 members from all 5 continents. ** Let me conclude with an unusual quote for a central banker, a sentence from Hayao Miyazaki in one his animated films: “You cannot change fate. However, you can rise to meet it.”4 This is exactly the state of mind in which we have to be to face the challenges of our disruptive world. We cannot stop the course of phenomemons such as digital transformation or climate change. But we can roll up our sleeves to tackle them – together and across continents. This is the purpose of such a forum today. Thank you for your attention. 1 Rostagno, M., Altavilla, C., Carboni, G., Lemke, W., Motto, R., Saint-Guilhem, A. and Yiangou, J., “A tale of two decades: The ECB’s monetary policy at 20”, 2019, forthcoming. 2 Speech by François Villeroy de Galhau, Governor of the Bank of France, at the Conference of the Chair Bank of France/Paris School of Economics, at the Paris School of Economics, Paris, 24 September 2019. | 1 |
When making decisions we have also had many other kinds of model-based estimates and scenarios to go on than those published. Moreover, from October 1999 until March 2003, our Inflation Report contained boxes in which we published estimates based on a survey of market expectations of the repo rate.5 The estimates were seldom given any great significance in the monetary policy debate, however. So what are the points of attaching greater importance to, and also publishing forecasts based on, other interest rate assumptions than a constant repo rate? There are chiefly two: The first point has to do with comparability and the possibilities to assess our forecasts. As things currently stand the Riksbank’s forecasts can be difficult to compare with others, since other forecasters do not normally base their forecasts on an unchanged policy rate. This risks confusing those that monitor the Riksbank and compare our forecasts with others in, for example, the media. So it is possible that an interest rate assumption that is more consistent with the market's view of how the interest rate will develop could make our communication easier in certain situations. That is especially true of course if there is a large deviation between the assumption of an unchanged repo rate and a more realistic assumption of the rate's path. What is clear in any case is that ex post assessments of forecasts of economic and inflation developments become generally easier if they are based on an assumption that better reflects the interest rate expectations of market players. | One consolation for those who wish for an answer is that they can form an opinion of how the Executive Board develops its view of monetary policy through the Inflation Reports, speeches and the minutes of the monetary policy meetings published. 1. Different measures of inflation Annual percentage change 6 6 5 5 CPI UND1X 4 4 3 3 2 2 1 1 0 0 -1 1993 -1 1995 1997 1999 2001 2003 Sources: Statistics Sweden and the Riksbank 8 BIS Review 11/2005 2. Repo rate decisions and inflation forecasts, 1999-2004 Per cent 0,50 IR01:1 IR02:3 IR03:4 IR04:2 Repo rate change 0,25 0,50 IR00:4 IR02:1 IR99:2 IR00:2 IR01:3 IR04:3 IR04:4 IR01:4 0,25 IR99:4 IR03:3 0,00 0,00 -0,25 IR99:3 IR00:1 IR00:3 IR01:2 IR02:2 IR99:1 IR02:4 IR03:1 IR03:2 -0,25 IR04:1 -0,50 -0,6 -0,50 -0,4 -0,2 0,0 0,2 0,4 0,6 Forecast deviation from inflation target Source: The Riksbank 3. | 1 |
I am simply describing the sort of economic risks which might occur, and which have been identified in the debate about monetary union in the United Kingdom as the potential downside to be set against the potential benefits of nominal exchange rate certainty which I touched upon earlier. You here in Belgium may think that these risks are sometimes exaggerated - you have after all been effectively in de facto monetary union with Germany for some considerable time. But I don’t think one can reasonably argue, certainly in the case of a larger country, that the risks can be ignored. It was against the background of this kind of economic debate that the Chancellor of the Exchequer announced a year ago that the United Kingdom would exercise its opt-out and not participate in the first wave of euro membership. That was a disappointment to some of our European partners. But it was a considerable relief to others, because UK participation from the outset would undoubtedly have complicated the project - not least because of the substantial cyclical divergence between ourselves and the major countries on the Continent. But the Chancellor also made it clear that the present British Government is not opposed to euro membership as a matter of principle; it will make its decision on pragmatic grounds - the test being whether membership would be in our economic interests; and it would BIS Review 88/1998 -4- submit that decision to Parliament and to the British people in a referendum. | What then can the United Kingdom bring, initially as an ‘out’, or ‘pre-in’, to the European party, in terms of contributing to the euro’s success? There are, I think, two things in particular. First, we can continue to pursue macro-economic - both monetary and fiscal discipline alongside the euro-area countries. The Government is committed to that course as a matter of national economic self-interest, but it reflects the same philosophy as that which underlies the Maastricht Treaty. One of its very first acts in Government, for example, was to give operational independence for the conduct of monetary policy to the Bank of England, and we have been set the objective of delivering, consistently, underlying retail price inflation of 2½%. That objective appears to be compatible with the ECB’s target for the European Harmonised Index of Consumer Prices of less than 2% - in fact while we are, on the most recent data, precisely on track in terms of our own target measure, our inflation rate in terms of the harmonised index is down to 1.3%. And on the fiscal side the Government has committed itself both to maintaining the debt to GDP ratio at a stable and prudent level over the economic cycle and to the “golden rule” (under which public sector borrowing is limited to the financing of investment). These fiscal rules, too, are broadly consistent with those established for euro-member countries under the Stability and Growth Pact, and will ensure that we continue to comply with the Maastricht Treaty fiscal criteria. | 1 |
Among other things, the increased focus in the New Accord on internal ratings and risk-adjusted pricing might encourage a more sensible approach to the setting of margins on syndicated loans. I know that many banks in Hong Kong think that margins are now too low to fully compensate for expected loss, the cost of capital and operational costs. However, more rational pricing policies are currently hindered by the lack of consistency among banks on how they price risk and allocate capital. The New Accord should go some way to correct this. Under the internal ratings based (IRB) approach, banks will be required to use internal ratings as a factor in the pricing of credit risk. Progress on the New Accord As part of the process of creating incentives for better risk management, the Basel Committee is now engaged in a more general effort to recalibrate the New Accord to adjust the amount of capital charge under each of the main approaches. The aim of the revised set of proposals is that, on average, the total amount of capital required under the standardised approach to cover both credit and operational risk should be the same as that required under the current Accord to cover credit risk only. Modest capital relief would be available to those banks that move to the foundation IRB approach, with still more relief for those which opt for the advanced IRB approach. These, and other revised proposals of the Basel Committee, seem to have got the New Accord back on track. | The recent experience of the credit derivatives market shows that ambiguities can arise even in standardised documentation, and the sponsors and users of the documentation need to be alert to this and make changes where necessary. The link with operational risk But the bottom line is that standardisation will reduce the risk that something goes wrong with the documentation. This feeds in turn into reduced legal risk, which is included within the definition of operational risk adopted by the Basel Committee. This defines operational risk as “the risk of loss resulting from inadequate or failed internal processes, people or systems or from external events”. This definition focuses on the causes of operational risk - internal processes, people, systems or external events. Operational risk losses can be further classified into various “event types” and assigned to each of a bank’s major business lines. By classifying losses in this way, banks are better placed to identify appropriate risk controls and to assess the impact of these. In its draft paper on Sound Practices for the Management and Supervision of Operational Risk, the Basel Committee has identified seven main loss event types for operational risk. These include losses related to “execution, delivery and process management” within which resides documentation risk. Why has the Basel Committee decided to focus on operational risk? The answer lies in the growing diversity and complexity of banking operations arising from well-known phenomena such as globalisation, the growing sophistication of financial technology and outsourcing. | 1 |
Hence, the new job opportunities which the pro-poor growth should create should harness these labour services in full in self-employment and in wage employment. Successful poverty alleviation should focus equally on both these types of labour engagement. When the poor are to be provided with self-employment opportunities, they should have access to land, credit, infrastructure, technology and productive inputs so as to keep their labour services continuously and gainfully employed 7 . Similarly, when the poor are to secure wage employments, both industrial and agro-based enterprises should be promoted in rural as well as urban centres. Any concentration of such enterprises in urban areas would result in an undesirable migration of the poor to urban centres and an uneven development across different regions of a country 8 . The pro-poor growth strategy in Sri Lanka, as has been the case in other countries pursuing this strategy, has placed heavy emphasis on developing the rural agricultural sector 9 . The reasoning behind this policy would have been the belief that agriculture is the main stay in the economy and the development of labour intensive agriculture as against capital intensive industry would enable the rural population to increase their income levels. However, this rural bias in growth strategy poses several problems for the sustainability of the policy. First, the policy is urban-neutral and, hence, if the incomes of the urban sector do not increase correspondingly, the rural folk would find it difficult to market their products. | To prevent farmers from resorting to out-selling for short-term price benefits, buyers on many occasions agreed to raise the contract price to assure them an uninterrupted supply line. However, it is encouraging to note that the established farmers could not be lured by these temporary gains and preferred to enjoy long-run relationships with buyers. 10 BIS Review 22/2008 credit and continuous government patronage to cross the poverty line and join the mainstream of the economy, the Central Bank’s Isuru Project, coupled with the forward sale contract system, has been able to establish a more effective poverty alleviation system through the market mechanism. The success of the Isuru Project in this respect is due to the following features unique to the project: • Selection of beneficiaries was free from political or other elitist interference and done by the beneficiaries themselves through a self selection process. Hence, undeserving elements were kept out of the project activities. • Interest rates were deliberately set above the normal market rates so as to compel the borrowers to reckon the cost of funds in their project planning and avoid the misuse of funds. • Lending was done on easy terms and procedures similar to the systems followed by informal money lenders. The objective was to eliminate money lenders competitively by providing a better service at a lower rate. • Thrift and savings preceded lending to inculcate proper conservation habits among beneficiaries. | 1 |
The creativity that was suppressed during the time when standard of living, work, education, housing and travel depended on the grace or wrath of the Communist party has now been released to create new ideas. For each part of the GDP that has declined, another part has grown, for each old, heavy industry that has closed its doors, a dozen new, small businesses have started up. Let me give some examples: in 1991 the private sector accounted for 10 per cent of GDP in Estonia, today it accounts for 80 per cent. Manufacturing, which stood for 47 per cent of GDP in the Czech Republic in 1992, now accounts for 42 per cent, while services have increased their share from 44 to 54 per cent. In addition, the development of eastern Europe has proved that wise economic policy and improved institutions have a real importance in liberating human creativity. This is actually more important than the Communist inheritance and the pre-war traditions that some analysts said would predetermine the countries' economies in the new capitalist era. Few believed, for instance, that "agrarian" Poland would grow much more quickly during the 1990s than the former GDR, which boasted of its old industrial traditions during the Communist days, but thanks to Poland's more efficient economic policy, this is exactly what has happened. Unfortunately this dynamism of creative destruction and renewal does not show very clearly in the figures for GDP per capita. | Eva Srejber: A reunited Europe – the roles played by Sweden and the Riksbank Speech by Ms Eva Srejber, Second Deputy Governor of Sveriges Riksbank, to the Baltik Financial Network, Stockholm, 13 February 2002. * * * Thank you for inviting me here to speak of and discuss this important subject with such a knowledgeable public. The enlargement will change Europe and Sweden and will also affect the Riksbank. For those of us in western Europe, this is an important opportunity to regain the right geographical, economic and historical perspectives. We talk about "eastern Europe", despite the fact that Prague and Ljubljana lie west of Stockholm, we forget that Riga and Tallinn are actually closer to Stockholm than Gothenburg. We often still have a mental curtain where the iron curtain once prevailed. Now this division will soon be at an end. A hundred million Europeans, who lived under a totalitarian Communist dictatorship for half a century, can now finally return to a single European community. The political dimension is undoubtedly the most important. The new community confirms democracy and thereby guarantees peace and stability throughout Europe, which will in turn provide a good foundation for growth and development. Today I intend to say a few words about an important facet of the EU enlargement, namely the economic consequences, which will affect the work of the Riksbank more directly. | 1 |
Some of the shortlisted solutions are really interesting: an online do-it-yourself platform for small and medium enterprises to assess their environmental impact easily and affordably; an AI platform matching institutional investors with a range of social and environmental business opportunities; and an API-based modelling engine that utilises existing climate-related data (e.g. weather pattern predictions, sea level, etc.) to facilitate investment decisions. BUILDING KNOWLEDGE AND CAPABILITIES IN SUSTAINABLE FINANCE The fourth thrust of our Action Plan is to build knowledge and capabilities in sustainable finance. We are encouraging financial institutions in Singapore to grow their sustainable finance teams here. Global banks and asset managers like ING, Standard Chartered and Aberdeen Standard Investments have dedicated Asia-Pacific sustainable finance teams based in Singapore. Deutsche Bank has recently located its Asia-Pacific ESG Head in Singapore; Fidelity Global’s Head of Stewardship and Sustainable Investing is also based here. We are seeking to anchor centres of excellence, think tanks and research networks. MAS is bringing together experts in our universities and financial institutions to undertake sustainability research tailored for Asia’s needs. https://www.mas.gov.sg/news/speeches/2020/harnessing-the-power-of-finance-for-a-sustainable-future 10/13 14/10/2020 “Harnessing the Power of Finance for a Sustainable Future”- Keynote Speech by Mr Ravi Menon, Managing Director, MAS, at the Finan… Today, I am pleased to announce the launch of the Singapore Green Finance Centre— a collaboration between Singapore Management University (SMU) and Imperial College Business School (Imperial). The Centre will conduct rigorous research tailored to the Asian context, synergising SMU’s strength in financial economics and Imperial’s forte in climate finance. | The Centre will also groom a pipeline of talent in green finance across the career spectrum— from the undergraduate to the executive education levels. The Centre has strong support from our financial industry, which will play a key role in steering the Centre’s focus towards market-oriented outputs. I would like to thank the founding partners— Bank of China Limited, BNP Paribas, Fullerton Fund Management, Goldman Sachs, HSBC, Schroders, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, and UBS AG. MAS will continue to promote a vibrant green finance research and talent development ecosystem. We will look to anchor more centres of excellence with different strengths and focus areas — to provide a diversified pool of research and talent in green finance. CONCLUSION People across the world – and in Singapore – are increasingly concerned about climate change and environmental degradation. And they want to do something about it. Climate change is becoming a rallying cry to inspire people to step up to a higher cause, to take collective action for the common good of our planet. The looming climate crisis poses not just an existential challenge to be overcome but also an economic opportunity to be seized. The coming revolution in sustainability has the potential to remake the world, cleaner and greener, creating new value and new jobs. Let us harness the power of finance to help create such a world, and a sustainable future. | 1 |
I have outlined the key role of authorities in ensuring the stability of money, through issuing and ensuring confidence in central bank money (from monetary policy through to making it hard to counterfeit), and regulating banks to ensure commercial bank money is stable and convertible on demand. Oversight of payment systems transferring this money ensures they are resilient and can be used with confidence. But the changing nature of money causes us to pause and consider the importance and implications of money which extend much further than a simple exchange of value or financial transaction, and the policy implications are much greater than the specific mission of a central bank. In short, money has social, and not just financial functions. Who should be responsible for the integrity and security of the digital payments architecture? Digital currencies will create not just a novel form of money, but also a new payment infrastructure, which while likely bringing benefits to payment efficiency, raises questions around transparency and how resilience and consumer protection will be ensured. Central banks might be involved in this infrastructure too, but where might the role of the central bank start, and stop? Privacy and data protection issues are also a key question. Digital currencies, depending on their design, could provide considerable information on how people spend their money, and we cannot compromise on the protection of our privacy. Private firms might seek to use these data, with appropriate user consent, to offer improved services, but we’ve seen widespread mis-use of data in the past. | Rather, the New York Fed's actions have consistently been directed at securing its objectives as lender. As any lender in our position would do, the New York Fed has put into place a loan agreement that contains covenants designed to help ensure ultimate repayment of the loan – but these creditor's rights do not create an ability to manage AIG. Responsibility for AIG's day-to-day affairs continues to rest with AIG's chief executive officer, Edward Liddy, under the oversight of AIG's board of directors. Mr. Liddy, who has only become involved with AIG in a public-spirited attempt to resolve its troubled affairs, has BIS Review 35/2009 1 made strides in dealing with AIG's opaque corporate structure, lack of centralized controls and complex risk exposures, but much remains to be done. In light of the inherent conflicts that would arise from either the U.S. government or the Federal Reserve exerting ownership control over the world's largest insurer, the Federal Reserve, with the support of the Treasury Department, directed in the loan agreement that an approximately 77.9 percent equity interest in AIG be issued to an independent trust established for the sole benefit of the United States Treasury. The trust, which now holds that controlling equity interest, is overseen by three independent trustees who are of the highest integrity and who have considerable experience leading major companies. | 0 |
If one adds the insurance sector, that number is closer to 14 percent. That percentage has increased significantly since 1990 from a total of 10% of GDP or less than 7% for the banking sector only. Importantly, this does not take into account the many economic activities which are directly linked and in many cases dependent on a vibrant financial sector. In terms of employment, the financial and insurance sectors together employ approximately 185’000 people or 6% of total Swiss employment. The total federal and local tax contribution of the Swiss banking sector amounts to an estimated CHF 13 billion or 13% of total tax revenues. A mere perfunctory consideration of these figures should suffice to underline the importance of defending and maintaining Switzerland’s status as a leading global financial center. In a 1974 study, Charles Kindleberger traced the history of financial centers in Western countries. What is striking about Professor Kindleberger’s historical findings is that nothing should ever be taken for granted. Not unlike tides, cities and countries as international financial centers rise and fall. For the most part, this rise and fall seems to reflect dynamic criteria such as transportation infrastructure, political stability and regulatory patterns.1 Since the 1970s, the competition amongst international financial centers has of course become genuinely global with diverse places such as Luxembourg, Singapore, Hong Kong, Dubai and, most recently, Shanghai joining the race. Switzerland has good reasons to be confident about its ability to defend its status. Most importantly, it sets out from a position of strength. | News conference Zurich, 17 December 2020 Fritz Zurbrügg Introductory remarks by Fritz Zurbrügg In my remarks today, I will begin with the developments in the Swiss banking sector environment. I will then provide an assessment of the current situation at the two globally active big banks, Credit Suisse and UBS, as well as at the domestically focused banks. Finally, I will talk about the impact the coronavirus pandemic is having on the use of cash. Banking sector environment Economic conditions for the Swiss banking sector continue to be difficult. As already mentioned by my colleague Thomas Jordan, while global GDP has recovered somewhat since the downturn in the second quarter, in most countries economic activity remains well below its year-back level. As a result, credit risks in particular have increased worldwide, with ratings of corporate bonds deteriorating significantly over the course of the year. In comparison with the real economy, the situation on the global financial markets has eased considerably more since the spring. Risk premia on corporate bonds rose markedly after the outbreak of the pandemic, but have since largely declined again. Stock prices have also recovered from their downturn in February and March. The steep recession has thus far had very little impact on the Swiss credit and real estate markets. Lending volume in the mortgage market and prices in the residential real estate market continued to rise in the second and third quarters of 2020. Furthermore, the number of bankruptcies and value adjustments on existing loans has remained low. | 0 |
Gent Sejko: Albanian economic progress in 2018 and banking industry challenges for 2019 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the year-end function organised by the Albanian Association of Banks, Tirana, 13 December 2018. * * * Honourable AAB Chairman, Your Excellency, Minister of Finance and Economy, Dear senior representatives and colleagues from the banking system in Albania, Ladies and gentlemen, It is a special pleasure for me to participate and address this year-end function organised by the Albanian Association of Banks. In my brief address, I would like to bring to your attention some highlights of 2018, regarding the contribution of the banking sector and the financial system, as well as some milestones set for 2019. Let me first focus on the overall performance of the Albanian economy. The overall performance of the Albanian economy in 2018 was positive. Economic recovery is tangible across all of its dimensions. The pace of growth picked up, employment increased, internal and external balances were strengthened, while the main indicators of the banking sector’s soundness have been improving. It is encouraging to see that the sources of economic growth are both increasing and well diversified. From the aggregate demand perspective, growth in the exports of goods and services and in the domestic consumption and investments continued to underpin economic growth. In the meantime, from a sectorial perspective, economic activity expanded, reflecting a more notable contribution from output in the industry sector and the services sector. | The direct role pertains to the further development of the banking market and products – in line with the best international experiences. Likewise, insistent work on further reducing the level of non-performing loans should not be neglected, and should be considered by all of us as a key factor for further strengthening financial stability in Albania and providing an impetus to the economy. On the other hand, the indirect role consists in the cooperation that you may offer to many structural reforms across all the sectors of the economy and in all the dimensions of the business setting. Your expertise is not insignificant. It must assume an authoritative place in the economic debate. Third, while acclaiming the cooperation between the Bank of Albania and the Albanian Association of Banks and commercial banks in educational activities, I would also like to iterate the importance of financial education and financial inclusion. As financial services and products develop and become more complicated, financial education helps users to understand and use them; it also helps preventing financial crisis and contributes to the financial stability and economic growth of a country. We need to continue to be key promoters in designing and implementing financial education programmes. Financial education is an investment in the future and it should be an integral part of our agendas, engaging more intensively in the implementation of alternative and innovative methods for enhancing financial education among the public. | 1 |
The subprime problem was primarily a US problem, but since the loans had been sold to others outside the United States the turmoil had a global effect right from the start. Since no one really knew where the losses would turn up, a situation quickly arose in which banks and other financial institutions became cautious about lending money to each other. They began to hoard liquidity to meet their own obligations and to deal with any speculations that they were affected by the subprime problems. As a result the conditions for interbank lending deteriorated, causing market interest rates to soar. In this situation several central banks chose to act by injecting liquidity into the interbank market. This intervention achieved the desired effect in part, but did not eliminate the mutual distrust among banks. Northern Rock, one of the first casualties of the crisis, became well aware of this situation in September last year when it could no longer find private financing. It turned instead to the Bank of England – and as we all know, the story ended when, following a complicated process, the British government nationalised Northern Rock. The turbulence deepens Now the turmoil was not just related to the US subprime market. More and more assets and markets became affected when even borrowers with better credit ratings were hit. Nor were the problems just a matter of inadequate creditworthiness of US borrowers any more, as the ability of European borrowers to pay now came into question. | An important similarity with the other measure, however, is that the liquidity that was injected via Kaupthing into the system also comes back to the Riksbank in the form of deposits from the bank(s) that have excess liquidity. In this way this measure does not have any direct monetary policy effects either. The common denominator for everything the Riksbank has done to date is that all measures are aimed at strengthening liquidity conditions within the Swedish financial system. Unlike many other countries, thus far it has not been necessary for the Swedish authorities to provide the banks with any form of capital support from the government. This point is also important. However, it remains to be seen whether the Riksbank and other authorities have done enough. How the situation develops in the future is essentially a question of what happens outside of Sweden. Nevertheless, the Swedish authorities are prepared to take those measures that are necessary to ensure financial stability. For the Riksbank, this means that we will continue to provide the banks with the liquidity required for the financial system to function. Let me now proceed to discuss paths out of the crisis. Paths out of the crisis We are now in the middle of the most serious financial turmoil that the world has seen in a very long time. It is difficult to anticipate how the situation will develop in the future, which means that it is also difficult to talk about paths out of the crisis. | 1 |
The economic growth rate of Albania has been throughout this period higher than the one of other Southeastern European countries or even the one of the countries being recently members of the European Union. The activity conducted by the Albanian economy, as a relatively open economy, was fuelled by the invigoration on a world-wide scale of the economic activity throughout 2004. A slow but a safe growth of the European economy experienced over 2004 has been a positive factor for the Albanian economy, fostering the demand for our exports and sustaining the rise of remittances inflow in foreign currency from emigrants. The average inflation rate of the euro area has been around 2.4 percent over this year, without exerting any influence on the rise of the imported inflation rate in Albania. Simultaneously, the impact of shocks on the world economy during 2004 resulted to be smoother in the Albanian economy. Oil price rise in the international market was amortised partially due to Lek appreciation and partially due to the rising competitiveness and the emerging of a certain flexibility of demand for this product. The impact of oil price rise on the inflation rate in the country has been restricted. Also, its impact on the Albanian economy, though hard to be measured, is believed to have been rather a smooth one according to the estimations on the performance of the most exposed sectors to oil price, the transport and industry. Exchange rates have been fluctuating over 2004. | Yiu-kwan Choi: Launch of the CMU Bond Price Bulletin Remarks by Mr Yiu-kwan Choi, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Signing Ceremony for the Launch of CMU Bond Price Bulletin, Hong Kong, 9 January 2006. * * * It gives me great pleasure to welcome you all to this signing ceremony for the launch of the CMU Bond Price Bulletin. We are pleased to see the launch of the Bulletin. This, we believe, will be a useful tool to help promote the retail bond market in Hong Kong. As you know, financial infrastructure development has always been a priority item on the HKMA's policy agenda. A robust financial infrastructure is important in maintaining the stability and integrity of the monetary and financial systems and in strengthening Hong Kong's status as an international financial centre. Over the years, we are proud that, with the support of banks and other financial institutions, the HKMA has built a sophisticated financial infrastructure that meets the best international standards. Having said that, we are conscious that there is always scope to further strengthen our financial infrastructure to take account of the latest technology and market developments. It was precisely for this reason that the HKMA conducted a comprehensive review last year on financial infrastructure development in Hong Kong. The launch of the Bulletin is one of the recommendations arising from this review. The objective is to provide retail investors with convenient on-line access to information on bond products and bond prices. | 0 |
These figures are similar to those presented in previous years, reflecting that the Board has not changed its view on the medium-term productive capacity of the Chilean economy. However, we cannot ignore the fact that, because in recent years the growth rates of investment and productivity have been below their trend levels, short-term productive capacity has suffered. Actually, the Board estimates that the potential growth of the economy is now around 2.5%, a little short of previous estimates. Adjustments to the monetary policy making process Another area where we are making progress is in the transparency and communication of our monetary policy decisions. The Bank conducts its monetary policy in an inflation targeting framework, which, to function correctly needs to properly communicate its actions and the reasons behind them, as well as a good diagnosis of the evolution of the economy, locally and internationally. The adoption of these decisions and their communication are structured around the Monetary Policy Meetings and the Monetary Policy Report, whose organization, priority, content and dissemination are currently based on procedures and standards that were mostly established in the first half of the 2000s. After a thorough internal assessment based on accumulated experience and international best practices, the Bank Board has decided to make some modifications to its monetary policy decision-making and communication process. Essentially, the number of Monetary Policy Meetings (MPM) is reduced from twelve to eight per year, to align them with the most common practice among the central banks of low-inflation countries (figure 14). | (2) The Norges Bank announced in May 2017 that it will increase the frequency of its meetings from six to eight per year beginning in 2018. Source: Central Bank of Chile based on information from the respective central banks. Table 4 Adjustments to monetary policy process Current Official MPM* communication Brief summary of economic scenario Official MPM communication (end of each MPM) (end of each MPM) Monetary policy decision New Main economic background developments Monetary policy decision and explanation Voting outcome Background minutes (1 day before MPM) MPM charts (1 day after MPM) Review of evolution of local and world economy MPM minutes based on public information known since previous MPM (11 bank working days later) Main charts presented by the staff to the Board at MPM MPM minutes Voting outcome (11 bank working days later) Options presented by Research Division Summary of discussion MPM transcript Detail of opinions of each Board member and the MPM transcript Finance Minister (10 years later) (reserved) Main charts presented by the staff to the Board at MPM Review of evolution of local and world economy based on public information known since previous MPM Options examined by the Board Arguments for and against monetary policy options considered Detail of opinions of each Board member and the Finance Minister *MPM = monetary policy meeting. Source: Central Bank of Chile. 21 | 1 |
The government’s aim is not to depress property prices but to promote a stable and 6 / 11 BIS central bankers' speeches sustainable market. The government does not have a target rate of increase for property prices nor can it manage the cycle too tightly. But the government does have a role to help ensure that price movements are broadly consistent with economic fundamentals. In an economy that is growing in nominal terms at 3-5%, it is not sustainable to have property prices increasing at double-digits. The government will continue to monitor the property market closely and stands ready to help ensure a healthy and sustainable market. MAS’ FINANCIAL OPERATIONS Let me now move on to MAS’ financial operations. I will start with: how MAS has been accumulating Official Foreign Reserves (OFR); and why MAS decided to transfer part of its OFR to the Government; before touching on MAS’ financial performance and return of profit to Government. MAS has been steadily accumulating OFR, especially since the Global Financial Crisis. Most of the period since the Global Financial Crisis was characterised by extremely loose monetary policies in the advanced economies, with interest rates near zero and massive expansion of central banks’ balance sheets. This led to a surfeit of liquidity in the global financial system and large capital flows to many emerging market economies. As an economy with very sound fundamentals, Singapore naturally attracted quite a large portion of these capital flows, which exerted sustained and large appreciating pressures on our exchange rate. | Thank you. BIS Review 19/2010 3 | 0 |
Consumers get lower prices and new product varieties, and, over time, benefit from the spur to innovate and higher productivity. Some workers, however, lose their jobs and the dignity of work, or see their “factor prices” – in plain English, wages – equalised downwards. Such dynamics have been recognised by trade theory for over 75 years. xvi And they are felt by those at either end of the great convergence. Survey evidence shows that 70% of Chinese workers believe that trade creates jobs and increases wages, equivocal. xvii US households think the opposite, and UK public opinion is xviii People’s attitudes towards trade shocks are being hardened by the effects of accelerating technological innovation. As my colleague Andy Haldane has explained, up to 15 million of the current jobs in Britain could be automated over time. xix The fundamental challenge is that, alongside its great benefits, every technological revolution mercilessly destroys jobs and livelihoods – and therefore identities – well before the new ones emerge. This was true of the eclipse of agriculture and cottage industry by the industrial revolution, the displacement of manufacturing by the service economy, and now the hollowing out of many of those middle-class services jobs through machine learning and global sourcing. The combination of open markets and technology means that returns in a globalised world amplifies the rewards of the superstar and the lucky. Now may be the time of the famous or fortunate, but what of the frustrated and frightened? | I say this in my capacity as a totally independent central banker: the new government in France is taking reforms very seriously and is acting with impressive speed. France is now a reliable economic partner of Europe and Germany. Second, it would be ridiculous to reduce the debate to the old caricature that contrasts "German rules” with “French expenditure". To my mind, it is out of the question to implement a “transfer union”, which would only benefit certain countries, or to introduce Eurobonds, which would amount to collectivising debts. Need I remind that France too is a net contributor to the European budget, or to financing for Greece? But I am convinced that risk sharing between 1/3 BIS central bankers' speeches countries can – and should – go hand-in-hand with risk reduction mechanisms. It is wrong to draw a distinction between solidarity and responsibility: in reality, they are complementary. For crisis prevention to be credible, it must also have the instruments needed to cushion the effects of substantial shocks that may arise regardless. As for the third cliché, let’s stop pitting the "French vision” against “German pragmatism". In order to reform the euro area, we must be practical and take real needs, and particularly those of businesses and entrepreneurs, as our starting point – as I aim to do in the second part of my speech. | 0 |
Stefan Ingves: Cash management - an important social issue Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the first meeting at the Sveriges Riksbank of the cash management advisory board, Stockholm, 26 April 2006. * * * I would like to welcome you all to the first meeting of the new cash management advisory board. All of you sitting at this table are in some way concerned with cash management in the economy: banks, cash-in-transit companies, representatives of the retail trade, trade unions and authorities such as Finansinspektionen (the Swedish Financial Supervisory Authority), the police and the Swedish Work Environment Agency. My hope is that the advisory board will function as a forum for identifying and discussing issues in the field of cash management. The idea is that we should meet once or twice a year, and I look forward to fruitful discussions. Before opening the debate, I would like to mention two questions that I believe can form a starting point for our discussions: • The process of change undergone by cash management in recent years and the new structure for cash management that the Riksbank is establishing together with the banks. • The social problem comprised by the many and increasingly violent robberies of cash transports. Towards a more expedient structure for cash management One of the Riksbank’s tasks is to promote a safe and efficient payment system, and we are responsible for issuing banknotes and coins. | Going forward, each country needs to be analyzed more as individual stories. Ladies and gentlemen, Emerging market countries are at a critical juncture. Much has been accomplished, and much potential remains. This is the key transition point. How successfully a nation manages this transition will depend primarily on domestic factors. Specifically, its ability to instigate structural change and implement institutional reforms. I believe that big strides can be achieved if we can push through our individual glass ceilings. But I am also realistic that realizing this potential and coordinating societies on the good outcome will be enormously challenging. To move forward, there needs to be a collective change of attitudes and mindsets – particularly towards things like corruption, good governance, and consideration for the public good. Here there is good news and bad news. On the positive side, mindsets and attitudes are things within our control. The bad news is that changing attitudes and mindsets is perhaps one of the most difficult things to do. As Leo Tolstoy once wrote “Everyone thinks of changing the world, but no one thinks of changing himself.” For many of you here who will go on to serve in public policy, I urge you to embrace this challenge and give you my wholehearted support. Today is a legacy of the past, but history is not destiny. You can make a difference and we need more people who devote themselves to do so. Thank you very much for your attention. 4 BIS central bankers’ speeches | 0 |
Change in consumption relative to income among mortgagors with different mortgage loan to income ratios between 2007 (a)(b)(c) and 2009 Total credit to UK real economy (a) Lending to UK real economy from UK MFIs (b) Percentage changes on a year earlier Percentage point change in consumption to income ratio 0 20 Nominal GDP growth rate -5 15 -10 10 -15 5 -20 0 -25 -5 2000 00 02 04 06 08 10 12 14 0 to 1 1 to 2 2 to 3 3 to 4 ≥4 16 Mortgage LTI ratio Sources: Bank of England, Office for National Statistics and Bank calculations. (a) Twelve-month growth rate of nominal credit. Credit is defined here as debt claims on the UK private non-financial sector. This includes all liabilities of the household and notfor-profit sector and private non-financial corporations’ (PNFCs) loans and debt securities excluding derivatives, direct investment loans and loans secured on dwellings. (b) Sterling M4 lending by UK MFIs to the household sector and PNFCs. Data cover loans and MFIs’ holdings of securities. Seasonally adjusted. Sources: Living Costs and Food (LCF) Survey, ONS and Bank calculations. (a) Change in average non-housing consumption as a share of average post-tax income (net of mortgage interest payments) among households in each mortgage LTI category between 2007 and 2009. | Even after those losses, the system would have a capital base more than twice as strong as it had before the financial crisis (Chart 19). Losses on consumer debt were an important driver of the test results. 20% of their consumer loans went bad in the test, costing them £ and adding to mortgage losses of £ (Chart 20). Very sharp falls in used car prices would result in only small losses for the banking system. Banks haven’t been the major players in this arena. Even allowing for the loans they’ve made to car finance companies as th well as to car buyers, their exposures to the car market are just 1/5 of their credit card and personal loan books. Having reviewed their practices, we know the banks’ PCP deals tend to have a cushion between expected used car values and the final balloon payment. Even a 30% fall in used car prices, with all PCP contract cars handed back at the end of their term, would leave them with a loss of just £ Because they need to pass rigorous stress tests, the wider economy is being protected from the rapid growth of consumer debt. But it’s important that this defence line keeps pace with the risks. Lower interest income on their loans, more interest free balance transfers and less capital allocated to consumer debt, may mean banks may have become, at the margin, a little weaker. | 1 |
This would be translated into a need for more qualitative foreign direct investments, which in turn, would contribute to a steady growth of exports. To this end, taking advantage of the global environment, which is constantly searching for new markets, I would suggest a more qualitative national marketing strategy. This strategy should highlight professionally and contemporarily, all the recent incentives and the multiple opportunities Albania provides. Also, I think it is just the time to integrate even the joint regional projects into our long-term development plans. Road infrastructure, energy, communication, tourism and other areas are still underdeveloped in regional level. Therefore, I assess that regional projects of strategic nature raise the interest of domestic and foreign investors. If taken separately the economies of the region are relatively small, but altogether they form an attractive market, with more investment opportunities. In recent years, it is noticed that the penetration of foreign investments in our region is relatively small and mainly, it reflects the privatization process of important public properties. The same thing has occurred to the Albanian economy. More concretely, during 2000 – 2006, the overall foreign direct investments, according to the balance of payments statistics, are estimated to about USD 1.45 billion, about 3.5 percent of GDP realised over the same period. If we would identify the reasons why FDIs inflows are so modest, we might mention the complex problems characterising our region, while different reasons that reduce the absorbing capability of our economy exist even in the national plan. | During two latest years, commercial banks have better met the increasing demand for ALL loans, which at end of 2006 constituted 29 percent of the loans portfolio, thus evidencing a moderate extension of its share. 6 BIS Review 80/2007 Corporate credit constitutes the main share of banks’ portfolio, amounting to 66.5 percent of the total at end 2006. In annual terms, corporate credit increased by 52 percent. The credit distribution structure by use has tended to be more uniform in comparison with the previous year. Most of corporate loans (34.5 percent) have been used for purchasing machinery and equipment, while 23.2 percent of corporate loans portfolio has been used for financing investments in activity area expansion. In 2006 the household credit was 7 percent of GDP, or 33.5 percent of the total loans portfolio. More than half of loans to households (59.3 percent) have been extended for financing real estate purchases, while the financing of consumer goods purchases has also increased. The ratio of consumer loans to total household portfolio is 27.3 percent, from 20 percent in the previous year. In particular, consumer loans increased obviously during the summer holidays and during the end-year celebrations. Concerning lending to specific sectors, it should be underlined that trade remains the sector mostly credited by the banking system, by 22.4 percent of the loans portfolio. The growth rate of credit to construction has been inhibited during 2006. This sector presented temporary improvement signs during the summer, then turned back to the downward trend. | 1 |
The US Federal Reserve has been most prominent in this connection, conducting a far-reaching review of its operational framework. In this connection, I am of the opinion that the ECB should launch a similar exercise. Among other factors, it should reflect on a clarification of our quantitative price stability objective, in order to align it with the specific definitions of other developed countries’ central banks and provide for better communication and anchoring of agents’ expectations.10 The latest Annual Report of the Banco de España, to which I referred earlier, analyses the most favourable and least favourable aspects of several possible strategic options in this area. 9 See P. Lane (2019), “Policy and Below-Target Inflation”, address delivered at the Bank of Finland on 2 July 2019. See Chapter 3, “Monetary policy design in the medium and long term”, in the Annual Report 2018, Banco de España. 10 10/16 The contribution of non-monetary economic policies is pivotal That said, the participation of non-monetary economic policies is essential for shoring up the recovery, entrenching higher growth rates and, thereby, smoothing convergence by inflation towards its medium-term reference. The need to create a fiscal stabilisation instrument in the euro area Recent experience has highlighted the difficulty of achieving a more appropriate macroeconomic policy mix for the euro area as a whole under the current framework of rules and institutions in which European fiscal policy operates. In the euro area each country decides its fiscal policy. | It is also necessary to take into account the relevance of employment and productivity developments when determining the sustainability of the pension system and, therefore, of the general government balance sheet. This is why it is so important that pension system reform should take place at the same time as structural reforms are adopted to improve the economy’s employment and productivity performance. It is also necessary to be aware that these variables themselves depend on the characteristics of the pension system, which should be geared towards fostering labour participation and worker productivity. We need to remember, moreover, that demographic developments, the ultimate reason for reforming the pension system, will also have effects in many other areas of economic activity over the coming decades, such as long-term growth, the configuration of the labour market, inflation, demand policy transmission and tax revenues.13 That is one more reason why it is necessary for pension system reform to be accompanied by structural reforms in other areas. The pension system reform should be intended to be long-lasting, since it will affect the economic decisions of all the citizens of many generations in relation to consumption, investment, labour supply and savings. Accordingly, it would be highly desirable for the reform to enjoy a broad consensus and to produce stable and transparent rules. 3.5 Next Generation EU As I indicated earlier, one recent highly significant development was the approval by the European Council in July of the European recovery programmes. | 0 |
And, as U.S. Attorney for the Southern District of New York Preet Bharara has observed, if you spend your time thinking about how close to the line you can get, it is inevitable that you will at some point cross that line. No one gets the arbitrage right 100 percent of the time.2 When you make that mistake, you will not only have a bad culture, but you will also have to deal with Preet Bharara’s office. 2/6 BIS central bankers' speeches Therefore, what’s needed is a better culture. Culture can help to fill in the spaces between and beyond rules. Culture also shapes our attitude toward rules. A strong, ethical culture is one in which individuals within an organization demonstrate to each other a commitment to certain first principles. These principles must align with both the private purpose of the organization and the public rules governing its operations. Of course, it is possible for principles to conflict. When that occurs, determining the right course will be difficult. But, the more you wrestle with that conflict, the better you will become at resolving ethical quandaries. Aristotle called this aspect of ethics “habit,” but I prefer to think of it as ethical muscle memory. The more practice you have in thinking about it, the better you will be at determining what is right. Bankers will be more likely to think about what is right, as opposed to what is merely legal, the more often they observe their colleagues doing the same. | Second, banking does not have its own ethics—nor should it have its own ethics. The qualities that you value in other aspects of your life should be the same qualities you apply at work and encourage in your colleagues. Third, candid assessment is critical to improving culture. I invite you to think in particular about the incentives and norms of behavior within your organizations. Do they support or impair the qualities and principles that guide you and that your firm espouses? Before expanding on those points, let me explain why I believe that reforming culture is important, 1/6 BIS central bankers' speeches and justifies the time and effort of not only of today’s program, but of the ongoing work at your institutions and collectively across the industry. The manipulations of LIBOR and foreign exchange rates prompted the New York Fed’s work on culture. Of course, widespread misconduct did not originate with either episode. The timing, however, was significant. Despite the near-death experience of the financial crisis, new rules and regulations, and―in some cases―large fines and penalties, the LIBOR and FX events made clear that serious ethical and behavioral problems had persisted in the industry. I was particularly struck by how the manipulation of foreign exchange rates occurred even after the LIBOR fixing was widely known. The appropriate lessons from the LIBOR scandal did not seem to have been learned. That was both surprising and profoundly disappointing to me. The LIBOR and FX collusions were not occasional atonalities in an otherwise harmonious financial system. | 1 |
Obviously the changes in the Bank’s remit announced in May 1997 by the incoming Labour Government, and largely enshrined in the 1998 Bank of England Act, were profound ones. The arrival of monetary independence meant that the work of the MPC – of which I am one of the nine members – has scarcely been out of the news. Less obtrusively, the departure of banking supervision to the new FSA meant the end of one substantial – though actually comparatively recently acquired – function; and the shift of debt management to the DMO brought to an end another, much older one. So does the “new” Bank have a new relationship with the financial services sector? Let me first say that, though the Bank has been through a period of profound change, its core purposes remain the same. One is obviously to promote monetary stability; and there our role is now much more substantial and overt. But the Bank has two more core purposes, and both relate directly to the financial services sector. 1 BIS Review 43/1999 The first is to promote the overall stability of the UK financial system. This role is not new, though it has recently been set out explicitly in the Memorandum of Understanding between the Bank, HMT and the FSA. Broadly, promoting systemic stability means working to ensure that the financial system continues to perform its key roles in support of the wider economy – settling transactions, providing liquidity and allocating savings. | Similarly, in other markets, London’s dominance in foreign exchange trading, OTC derivatives, fund management and bond origination means that London is the financial centre for euro wholesale financial services. Even in the area of payment systems the UK accounts for a significant proportion of the euro payments flowing through TARGET, even though for us the euro is a foreign currency. But these are just the immediate, first round effects of the euro. The more substantial challenges are posed by the more uncertain outlook as to just how the euro markets will develop in the medium term. So I want now just to say a little about how the euro markets may develop over the next ten to fifteen years. One thing to keep in mind here is that some of what may happen, though driven by events in the EU, will reflect factors beside the single currency. I think we may well see more privatisation, greater reliance on private provision of pensions, and other structural reforms. If we do, it will significantly affect European, and hence, euro financial markets. But such trends have their roots in the more general process of creating a single market, rather than EMU itself. Considerable progress towards a single EU market for financial services had been made long before the euro. A considerable number of directives are already in place, perhaps most significantly the Investment Services Directive, which was implemented in 1996 and gave regulated firms and exchanges from one Member State a ‘passport’ to do business in another Member State. | 1 |
Friedman (1957) as well as Modigliani and Brumberg (1954)). In other words, their consumption level would remain more or less steady throughout. In reality, income at certain stages of life does not suffice to cover this hypothetical consumption level. This is true mostly in younger years and in old age. Taking out a loan enables a household to overcome financial bottlenecks in certain phases of life and to make use of their income at a time when they derive the greatest benefit from it. Page 4/16 diversification of investment risk. For society as a whole, it means that accrued savings are made widely available and thus put to better use. Let me give you an example. An entrepreneur is faced with the question of what use to make of his assets. There is no major purchase to be made at the moment. Neither is there a profitable project at his own company in the pipeline. Do you remember our university graduate with her brilliant idea for a product? The entrepreneur could lend her some of his assets against interest and so generate a return. 7 By extending a loan to the young graduate, he is also diversifying his investments. As the proverb has it, he is not putting all his eggs in one basket. Overall, we can conclude that an effective credit system represents an essential basis for a thriving economy. It allows borrowers to put their income to the best-possible use over time. | Interest rate tool 2 Within this framework, it shall have the following tasks: … e. It shall contribute to the stability of the financial system. 22 1 November 2017 Collegium generale | Fritz Zurbrügg | © Swiss National Bank Should the interest rate tool be used to curb excesses on the credit market? Tinbergen rule: 1 target = 1 instrument Unwelcome strong side-effects Excesses only in certain segments 1 The National Bank shall pursue a monetary policy serving the interests of the country as a whole. It shall ensure Price stability. In so doing, it shall take due account of economic developments. Interest rate tool 2 Within this framework, it shall have the following tasks: … d. It shall contribute to the Stability of the financial system. 23 1 November 2017 Collegium generale | Fritz Zurbrügg | © Swiss National Bank Macroprudential instruments as a target-oriented alternative to the interest rate tool Tinbergen rule: 1 target = 1 instrument Unwelcome strong side-effects Excesses only in certain segments Article 5: Tasks 1 The National Bank shall pursue a monetary policy serving the interests of the country as a whole. It shall ensure Price stability. In so doing, it shall take due account of economic developments. Interest rate tool Macroprudential instruments 2 Within this framework, it shall have the following tasks: … d. It shall contribute to the Stability of the financial system. | 1 |
The FATF is a 26 member intergovernmental, policymaking body that was established in 1989 to guide the implementation of anti money laundering measures in the aftermath of the 1988 UN Drugs Convention. Its membership includes the major financial centres of Europe, North America and Asia. The FATF has come up with 40 recommendations which member countries are expected to adopt. These are designed for universal application and cover the criminal justice system and law enforcement, the financial system; it’s regulation and international cooperation. • Second, the Basel Committee of Banking Supervision. The main thrust of regulatory response to money laundering has been to stop dirty money from entering the banking system and to make sure that it is traceable when it occurs. The Basel Committee, a grouping of the worlds leading bank supervisors has so far come up with three guidelines for banks in combating money laundering, namely: ‘The Prevention of Criminal Use of the Banking System for the purpose of Money Laundering’ (1988), the ‘Core Principles of Effective Banking Supervision’ (1997), and the ‘Customer due diligence for banks’ (2001). • Third, the Wolfsberg Principles. The Wolfberg Principles came into force in 2000 and are an industry response to the threat of money laundering. They are an agreement among eleven major international private banks (which account for at least a third of the world private banking funds) to guide the conduct of international private banking. | Essentially, the Principles seek to control money laundering by cutting across the multiplicity of jurisdictional issues and addressing the serious reputation damage they were suffering in the media because of money laundering. Ladies and Gentlemen, allow me now to discuss our local initiatives/responses to money laundering. Admittedly, there has been little activity in the areas of prevention of money laundering in Zambia, until quite recently. This exposed the country to the activities of money launderers because they always seek to operate in countries where there are lax controls. However, the major initiatives in the fight against money laundering, locally, have included: • Enactment of the Prohibition and Prevention of Money Laundering Act. The Government of Zambia responded to the increase in drug trafficking and money laundering by passing the Prohibition and Prevention of Money Laundering Act in 2001. The Act provides for the disclosure of information by supervisory authorities and of regulated institutions if suspected of money laundering activities. The Act also provides for the forfeiture of property belonging to persons connected to money laundering offences as well as for the prosecution of persons connected to or charged with money laundering offences. The Money Laundering Act places certain obligations on the Bank of Zambia as the supervisory authority. One of these is the issuance of regulations to commercial banks as and when necessary in order to prevent money laundering. • Regulatory responses. | 1 |
There was thus no scope for stabilising monetary and fiscal policies. Since then the pendulum has swung back a little with the neo-Keynesianism, which has reintroduced some of the elements of the classical Keynesian analysis. Due to different reasons it can take time before the economy returns to its long run equilibrium after a shock. Monopolistic competition and sticky wages are a few examples. The participants’ expectations can play a major role according to these theories. Monetary and fiscal policy can therefore be used to stabilise the economy. Macroeconomic analysis is often carried out with the aid of general equilibrium models (DSGE models, Dynamic Stochastic General Equilibrium). 5 The Riksbank, like a number of other central banks, uses one of these models for forecasts and simulations. The Riksbank’s model is called Ramses (Riksbank’s aggregate macromodel for studies of the economy in Sweden). In Ramses, goods and labour markets are assumed to be in monopolistic competition and wages and prices are sticky. However, the Ramses model analysis is only part of the forecasting process, which is also based on other statistical analyses and of course assessments. In the short term, that is to say the current quarter and one quarter ahead – what is usually called “now-casting” – we use different statistical models and indicators to make an assessment of the current situation. This analysis strives for the best possible accuracy in the forecasts and is often only vaguely anchored in economic theory. | Also, it should be sought to enhance work-life balance, to promote the birth rate and to tailor migratory flows to the demand for specific professionals and job profiles. Finally, as I said regarding the minimum wage, the measures aimed at protecting the lowest incomes should be designed in such a way as not to diminish employability. Meanwhile, the factor productivity growth rate of the Spanish economy continues to be low (see Chart 15). The modest growth of productivity has been associated with a lower rate of growth of firms’ average productivity in Spain than in other European countries, and with an allocation of resources to less productive firms during the past expansion. Addressing these problems requires an improved business competition framework. Regarding this last matter, over the last decade much of the loss in competitiveness – measured in terms of relative unit labour cost indicators – accumulated during the expansionary phase relative to the euro area as a whole (see Chart 16) has been recovered. This improvement is mainly explained by the improved labour productivity associated with severe job destruction during the crisis and by wage moderation, while the correction associated with profit margins has been less important. This fact, which at first may have been associated with the need for firms to improve their financial position, may now be evidencing a certain lack of business competition in some sectors, the persistence of which may hinder the proper allocation of resources, incentives and innovative capacity and, in general, the well-being of consumers. | 0 |
32 Đ Đ I wish you a fruitful general assembly and annual meeting in Singapore. Thank you. [1] The IMF’s 2019 global growth forecast was lowered to 3.2%, as cited in the World Economic Outlook, July 2019. [2] IMF World Economic Outlook, July 2019 [3] The world’s best performing developing economies are defined as those that have averaged at least 3.5% annual per capita GDP growth over 50 years or 5% annual growth over 20 years, as cited in the McKinsey Global Institute Study on Outperformers Maintaining ASEAN Countries’ Exceptional Growth Report in 2018. [4] Population projections from the UN. The relative market size of ASEAN is cited by the US-ASEAN Business Council in its growth projections for ASEAN in 2050. [5] DBS Bank and the UN Environment, Green Finance Opportunities in ASEAN 2017 [6] ASEAN Green / Social / Sustainability Bonds / Sukuk for October 2019 [7] GCIO Sustainability Reporting in ASEAN Research Report 2018 [8] Nasdaq and Celent July 2018, Global C-Suite Study on Capital Markets Infrastructure Technology [9] Global private equity valuations has grown more than 700% since 2002 in 2017, outpacing public equity market valuations, McKinsey Global Private Markets Review 2019, Private markets come of age. [10] CFA Institute Nov 2018, Capital Formation: The Evolving Role of Public and Private Markets [11] Wall Street Journal Jan 2018, Fewer Listed Companies: Is That Good or Bad for Stock Markets? | 8 Đ Đ These factors underpin the promising economic prospects in ASEAN, with the corresponding need for regional enterprises to raise capital to support their growth. 9 Đ Đ Looking ahead, these are opportunities to be harnessed both within ASEAN and globally, and exchanges as well as clearing houses need to innovate and remain relevant to all stakeholders.Đ I will now speak about three key trends, the opportunities they present, and what MAS is doing to support the Singapore financial services industry in these areas. Trend 1: Catalysing Sustainable Finance for Growth 10 Đ Đ The first trend is growth in sustainable finance. This is increasingly an area of both concern as well as interest to financial players, especially millennial investors. 11 Đ Đ The estimated financing needs to support the greening of Asian economies are high. China has estimated that it will require $ billion of investments annually to achieve its green policy goals under its 13th Five Year Plan while ASEAN will need an estimated $ billion in green investments annually through 2030 [5] . 12 Đ Đ Sustainable finance is still at a nascent stage but we are seeing increasing focus from financial institutions to develop new environmental, social and governance (“ESG”)-related products. Similarly, with increased investor demand and awareness for sustainable financial products, exchanges like yourselves can look to expand and support product owerings that will meet the needs of socially and environmentally conscious enterprises and investors.Đ 13 Đ Đ One such area of growth is in green bonds. | 1 |
Let us assume that the oil price temporarily increased by NOK 10 per barrel, or a little less than USD 1.50 per barrel. This is a small change in oil prices, well within normal variations from one year to the next. Central government revenues - and thus the budget surplus - would then increase by about NOK 8 billion the first year and NOK 10-11 billion the following year, which is equivalent to nearly 1% of Norway’s annual GDP. If the higher revenues are used in the economy through higher expenditure or reduced taxes in the central government budget, aggregate domestic demand will be affected. Higher expenditure requires an increase in the public sector’s use of real resources, primarily labour. One per cent of GDP is then a substantial figure. If the increase in oil revenues is used domestically in this way, it would correspond to nearly half of the annual growth in the mainland economy in a normal year. If the private sector of the economy is also expanding, and the economy is already close to capacity limits, this policy will swiftly lead to strong pressures on resources in the economy. This will result in a rise in wages and prices. This policy would also lead to unstable conditions in the foreign exchange market. | Growth in number of hours worked 1981–2001 Per cent 3 3 Trend 2 2 Actual 1 1 0 0 -1 -1 -2 -2 -3 -3 -4 -4 -5 -5 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 Sources: Statistics Sweden and the Riksbank Fig. 7. Population growth in age group 20–64, 1969–2050, forecast from 2002 1,2 Per cent 1,2 1,0 1,0 0,8 0,8 0,6 0,6 0,4 0,4 0,2 0,2 0,0 0,0 -0,2 -0,2 -0,4 -0,4 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: Statistics Sweden BIS Review 16/2003 9 Fig. 8. Number of employed and average working hours, adjusted for sick leave Per cent 2 2 1 1 0 0 -1 -1 -2 -2 Employed -3 -3 Average working hours -4 -4 -5 -5 -6 -6 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 Sources: Statistics Sweden and the Riksbank Fig. 9. | 0 |
But before the minutes are published it is the majority line that applies when we Executive Board members make speeches outside of the Riksbank. After that we members are each free to describe our personal differences of opinion regarding the interest rate decision. Constant assessment means that we are always prepared for change Let me round off. Today I have talked about the major changes in recent years in the way we produce material used as a base for our interest rate decisions. Some of these have come about because the methods of making forecasts in general have developed, something that also affects other central banks. Other changes have been shaped by the specific conditions that apply in Sweden. The Riksbank’s independent position makes demands on us to be open and clear, what economists usually term transparency. The Riksbank’s decision to begin publishing its own forecasts for the repo rate is a step in the work on increasing transparency and further improving our analysis. 10 The new assumption for the repo rate has led to the Executive Board becoming more involved in the forecasting process. We are constantly evaluating our forecasts to see how successful they are at capturing developments. This also means we are constantly striving to improve our ways of working. If we make any major changes that have significance for our forecasts we will of course let you know. | As many as 14 banks have already joined the system, and 114 more have applied. Our estimates suggest that early next year, 250 banks will have joined the system. At the later stages, only small banks with a basic licence, which need more time to introduce changes, will join. According to our estimates, the introduction of the Faster Payments System will reduce fees for retail remittances more than 2-3-fold. We are currently working to further develop the system and ensure payments for goods and services via the Faster Payments System. Firstly, this will support the trend toward the rise in cashless payments, given that FPS fares for trade and service companies will be lower than those for merchant acquiring services. You may remember that this topic is currently very acute. Last year, we also introduced remote biometric identification for financial services provision. Biometrics is currently collected in branches of 146 banks; by the end of the year, these will be collected in all banks with a universal licence in accordance with regulatory documents. In the near future, biometrics will also be collected in multifunctional centres and used to provide not only financial services, but also other public services in digital format. Given these factors, we expect that the use of biometrics will expand considerably next year. Last year, we launched Masterchain, a blockchain-based project elaborated in association with FinTech Association and market participants; this is an advanced transaction record system. Together with Rosreestr, we have already implemented a masterchain-enabled electronic mortgage project. | 0 |
The forward effective krone exchange rate two years ahead is close to the average level of the effective exchange rate during the 1990s. Nordic countries – institutional differences EU membership Monetary policy regime Sweden Yes Inflation target of 2 per cent (+/- 1 percentage points) Denmark Yes ERM II Finland Yes Member of EMU Iceland Norway No (EEA agreement) No (EEA agreement) Inflation target of 2½ per cent Inflation target of 2½ per cent SG 240802 2 BIS Review 47/2002 Sector composition of NOREX exchanges. June 2002 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0% Stockholm Industrials and materials Financial services Copenhagen IT/Telecom Energy Oslo Consumer goods and services Other SG 240802 Government net cash flow from the petroleum sector and total capital in the Government Petroleum Fund. Per cent of GDP 120 120 90 Total capital (end of year) 90 Net cash flow 60 60 30 30 0 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Source: Ministry of Finance. RNB 02 SG 240802 BIS Review 47/2002 3 GDP Mainland-Norway and employment. | Rates are considerably lower in Sweden (4.25), Denmark (3.50) and Finland (3.25). Wage developments over the last few years can contribute to explaining the differences. In Norway wage growth has been high over the last five years, reflecting a tight labour market. Looking at data for wage growth from the OECD, the ranking of interest rate levels in the Nordic region corresponds to the ranking of average wage growth since 1998. The Norwegian krone has appreciated by around 15 per cent since mid-2000. Seen over a longer period, the krone has been rather stable. The present level is only around 6 per cent stronger than in 1990. Over this longer period, other Nordic currencies have shown larger fluctuations. Over the last two years, the appreciation of the Norwegian krone has been driven by the wide and increased interest rate differential between Norway and other countries. The interest rate differential reflects high growth in wages and aggregate demand in Norway. There is thus a clear link between cost pressures in the Norwegian economy and the exchange rate. The link works through interest rate expectations driving the krone upwards. The appreciation of the krone has a dampening effect on inflation. At the same time, profitability in the internationally exposed sector is under pressure both due to higher wage costs and the appreciation of the krone. But the krone can move in both directions. It will not appreciate indefinitely. If the krone follows the path of the forward rate, it will depreciate in the years ahead. | 1 |
These conditions are shaped by developments in the economic program as well as the public debt stock, risk premium, expectations, foreign developments and the behavior of market players in the short-term; while the determining factors in the long-term can be listed as structural reforms and their effects on productivity, net external debt position of the country, 2 18 Alesina, A. ve Perotti, R. (1996), “Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects”, NBER Working Paper, No. 5730. BIS Review 36/2005 cyclical movements in the economy and economic fundamentals such as inflation and growth. To recap, the exchange rate level is not a cause, but an outcome in the floating exchange rate regime. In this framework, the Central Bank operates in the foreign exchange market in two ways. Firstly, it holds foreign exchange buying auctions in order to carry out reserve accumulation. The external debt payment schedule of the public sector and plans for the liquidation of Foreign Exchange Deposit Accounts with Credit Letters in the long-term also increase the importance of the level of the Bank’s foreign exchange reserves under the floating exchange rate regime. Therefore, the Bank holds foreign exchange buying auctions in order to increase the reserves at their disposal at times when the foreign exchange supply gradually increases above foreign exchange demand due to the rise in reverse currency substitution tendency and capital inflow. | In an attempt to maintain growth in the traditional industries, economic policy responded with a series of devaluations. Each devaluation was invariably said to be the final one but the cycle of rising wage BIS Review 129/1999 2 costs and a devaluation was still repeated again and again. The aim of compensating for the lack of change in Sweden’s corporate sector, which stemmed from the 1960s, simply did not work. If anything, the devaluations meant that the problems persisted and were accentuated. With the lack of investment in new products and the dependence on an increasingly outmoded structure of production, the entire nation’s material standard had to be adjusted. For many years, growth in Sweden was weaker than in the world around us. This example shows how a “new economy” at that time posed problems for the Swedish economy rather than opportunities. The lack of change, because wage formation did not function properly, resulted in an economy that was weaker and more susceptible to inflation. The period clearly illustrates how globalisation, increased competition and new technology can lead to lower growth and higher inflation if changes are not made sufficiently quickly. If the economy is under pressure from strong competition as well as poorly functioning wage formation, economic renewal may lag behind. It is therefore gratifying that the labour market organisations seem to be increasingly in favour of the inflation target policy. | 0 |
Page 6 That remains my absolute priority – and influences how I see the prospect for both Bank Rate and the Bank’s balance sheet, as I will discuss in a moment. Drivers of the economic outlook But before doing so, allow me to review the three main drivers of the MPC’s economic outlook, as embodied in its recent forecast: international energy and good prices; domestic business and labour market conditions; and the outlook for monetary policy. International energy and goods prices The MPC’s most recent inflation forecast does not make for pretty reading. Inflation is projected to reach double digits towards the end of this year, a significant overshoot of the 2% inflation target. The bulk of this overshoot is accounted for by developments in international goods and energy prices. Bottlenecks in international markets, stemming from a pandemic-induced combination of changes in the global pattern of consumer spending and disruptions to global supply chains, have driven up the price of tradable goods, for which the UK is essentially a price taker. Belying tentative signs these bottlenecks were easing towards the end of last year, the new Covid wave in China and Russia’s invasion of Ukraine have exacerbated supply disruptions, prolonging the inflationary impulse. Chart 3: CPI inflation and CPI inflation excluding energy (a) (a)Energy prices include fuels and lubricants, electricity, gas and other fuels. | Their prospects are being enhanced by the trend in consumer choice towards healthier, Eco-friendly and "social goods". "Social buyers" who are keen to buy goods and services from social enterprises are emerging as a new force. In conclusion, a concerted effort is needed to establish policies and systems to support the growth of the emerging social enterprise sector in Sri Lanka. I hope today’s deliberations will deliver outcomes which will 3 assist social entrepreneurs to lead social change by stimulating economic growth, innovation and the development of social capital. Social enterprises have an important role to play in Sri Lanka meeting the SDGs. Thank you. 4 | 0 |
Despite that initial investor reaction, however, Deutsche was able to keep market access and to successfully issue further capital instruments in the months thereafter. The theme we have encountered in these examples is that many of the decisions taken during times of extreme pressure seem to be affected by (apparent) considerations outside of the immediate financial contract – at least, rejecting options which were perceived to be acceptable when the original contract was struck. Or that the financial consequences of particular decisions were more adverse for the decision maker (or more generally the markets) than anticipated. In that sense they are classic examples of time inconsistency. We have tried to illustrate how acting narrowly rationally when it is perceived to be outside the realm of “what is normally done”, can carry massive risks. The problem that this creates is that when we are dealing with tail events and disaster insurance, it is hard to determine ex ante what such insurance contracts (or options delivering insurance) are worth. How should investors and regulators evaluate these contracts? If the reputation and signalling implications of exercising are too damaging in case of extreme stress, it would be naive to attribute full value to them when determining the risk profile and hence the appropriate capital buffer. It is also worrying from a financial stability perspective if these considerations force possible systemic implications to be more extreme rather than less. Stress tests and contract design considerations So what have we learned? | Given the wide array of market participants, the program’s broad reach was necessary to effectively support the entire market. Let me turn to the program’s achievements. By providing liquidity and a backstop to limit losses to investors, the TALF contributed importantly to the revival of securitized credit markets. Secondary spreads narrowed significantly, and volatility moderated. Moreover, the improvements in the secondary market helped re-start the new-issue market. Issuance of non-mortgage asset-backed securities jumped to $ billion in the first three months of TALF lending in 2009, after having slowed to less than $ billion per month in late 2008. During those initial months that the TALF was in operation, about half of the issuance in the market was financed by the facility, with this degree of support then gradually declining as market function improved. 3 While each of the Federal Reserve’s liquidity facilities was ultimately aimed at encouraging the flow of credit to the economy, the TALF may be distinctive in offering a more direct impact to the consumer. In fact, nearly all of the auto lenders supported by the TALF reported that the facility enabled them to offer more credit to consumers at lower rates. Lenders attributed this impact to the program’s success in re-opening the securitization channel through which roughly half of consumer loans are financed. The TALF also facilitated the first issuance of commercial mortgage-backed securities since mid-2008, which provided an important benchmark for pricing and helped establish the higher credit standards now seen in the market. | 0 |
• What about the more difficult question of whether monetary policy should be used to lean against the wind. The answer is a more obfuscating “that depends.” Specifically, it depends on the efficiency and efficacy of the macroprudential tools and institutional framework available, a point eloquently made by my colleague Don Kohn recently (Kohn 2015). • Take the extreme case in which there are no macroprudential tools. In such circumstances monetary policy may be the only means of tackling system-wide financial risks, but it would come at the cost of significant effects on the real economy – precisely because monetary policy “gets in all the cracks.” For example, some empirical work by former Deputy Governor Charlie Bean suggests that setting Bank Rate around 200 basis points higher than it was over the over the period 2003–2006 would have reduced the growth in the ratio of household debt to GDP by just 2 percentage points from 2003–2007 at a cost of GDP growth over this period being 2.6 percentage points lower (Bean et al 2010). • By contrast, the targeted nature of the tools available to the Financial Policy Committee under the current institutional framework in the UK makes them a natural first line of defence for dealing with build-ups in financial system vulnerability while minimising the knock-on effects to the rest of the economy – as was recognised in the financial stability knockout built into the MPC’s forward guidance. | Attempts to attenuate the financial stability risks from this broad property price boom with targeted macroprudential measures resulted in a large number of measures being applied, even including LTV restrictions on stand-alone car parking spaces, to which the boom had spread. • If loose monetary policy can lead to a build up of financial stability risks, then the converse must also be true – tighter monetary policy can be used as a means of reducing financial stability risks. Most empirical estimates show that a temporary tightening of monetary policy can be expected to reduce real debt levels – and BIS central bankers’ speeches 1 hence the probability of crisis – by discouraging households and firms from increasing leverage in the medium term, even if the transmission (through reduced aggregate demand and a higher interest burden) involves a short-run move in the opposite direction (for example, Goodhart and Hofman (2008)). • This was recognised in the design of the UK Monetary Policy Committee’s 2013 guidance that it intended to maintain a highly accommodative stance of monetary policy until economic slack had been substantially reduced. Recognising the financial stability risks that could emanate from a commitment to maintain low interest rates, the MPC set a “knockout” whereby their guidance would cease to hold if the Financial Policy Committee judged that the stance of monetary policy poses a significant threat to financial stability that could not be contained by the combination of macro and micro prudential policy tools available. | 1 |
We would have done this earlier, but first it was necessary to complete the process of registering the manor house and the land it stands on. It is worth noting under cost efficiencies that Eesti Pank has added technical support for the Fiscal Council to its list of responsibilities together with the macroprudential supervision and increased requirements for compiling financial statistics. Despite this, the number of people employed at the bank is roughly the same as a year ago, and Eesti Pank remains the smallest central bank by staff size in the European Union. Eesti Pank’s operating expenses fell last year to 17 million euros from the 17.4 million of a year before. Although the central bank’s duty is to keep inflation low and not to chase every possible source of higher revenues, it is good to be able to note that we ended last year comfortably in profit. 4 BIS central bankers’ speeches Conclusion In conclusion I would like to emphasise again that it is important for stable development in Estonia and for improved public well-being that we remain ready to adapt to a changing economic climate, to react rationally to changes, and yet to maintain the conservative stance on monetary issues that has served us well so far. Thank you for your attention. BIS central bankers’ speeches 5 | The increasing cross-border trade and investment call for broadening cross-border players. As a result, the Bank of Thailand, together with other central banks in the region are working towards establishing a cross-border banking network through the so-called Qualified ASEAN Bank or QAB framework, which will facilitate qualified banks in ASEAN to increase their presence in another country. The expansion of banking presence through this framework will help increase coverage and service efficiency that are needed for economic integration. The Bank of Thailand is in the process of negotiating bilateral QAB frameworks with Myanmar, Indonesia, Malaysia and the Philippines. Turning to the capital market, Thailand is also playing a proactive role to connect capital markets in the GMS by allowing foreign entities – government and private – to raise funds in Thailand. Last year, the Lao PDR launched 11-billion-baht issue (or about $ million) of baht-denominated bonds, which were well-received by the investors. In addition, Thailand has allowed firms from the GMS to be listed on the Thai Stock Exchange with a view to providing global investors with a wider coverage of investment products. Therefore, this will offer firms from the GMS with wider coverage of fund raising. *** On the choice of financial services: In June 2014, the World Bank’s Global Findex estimates that over three-quarters of adults in CLMV countries still do not have access to financial services5. There is room for improvement and we are fortunate to live in an era where technological advancement can do wonders to mankind. | 0 |
And any shocks that affect inflation in the near-term should have no impact on inflation expectations further out, because people believe we will take whatever action is needed to return inflation to target. And by this measure, the current policy framework seems to be highly credible. There are those who claim that the MPC has never really been tested. In fact, the UK economy has been hit by a number of quite severe shocks over the past five or six years. International financial markets were convulsed by the Asian financial crisis in 1997, the Russian debt default and LTCM crisis in 1998, the 9/11 terrorist attacks, the Enron and WorldCom scandals in 2001/2 which dented confidence in corporate governance. Around the same time, we also saw the bursting of the dot.com bubble and a slowdown in world activity. In the past decades, shocks like this would almost certainly have destabilised UK economic activity and inflation. That, after all, is what happened in the 1970s, when the price of oil quadrupled, and then again in 1979 when it more than doubled. Since the late 90s however, medium-term inflation expectations - both as measured by surveys and as implied by financial asset prices - have barely budged. Even this year, when oil prices rose by over 70% to their peak in late October before falling back, and other producer input prices, including metals, have surged ahead, both surveys and financial asset prices show inflation expectations fluctuating around the MPCs inflation target, within a very narrow range. | Although developments in Iceland showed many of the same characteristics as those in some of the other Nordic Countries during the post-liberalisation rapid expansion, such as credit expansion, current account deficit, exchange rate depreciation and so on, Iceland escaped the difficulties suffered by banking systems in some of the other countries. Icelandic bank credit grew very rapidly in the late 1990’s and into the year 2000 and a sizable portion of the credit expansion was financed with credit from abroad. The capital adequacy ratios of banks fell for a while but nevertheless remained comfortably above the minimum required and internationally recognised levels. The year 2001 also turned out to be quite favourable for the banks, a development which continued by and large into the current year. Consequently, the capital position of the banks has improved and all the major banking institutions have relatively strong capital adequacy ratios at present. Loan losses have increased, as was to be expected in the wake of the credit expansion, but nowhere on the scale experienced in some of the other Nordic Countries a decade ago and very much less than they did during the downturn in the Icelandic economy around and after 1990. The conclusion to be drawn is, therefore, that the Icelandic banking system weathered the relatively turbulent post-liberalization boom period of 2000 and 2001 pretty well and is well poised to meet new challenges, including continued rationalisation and intensified competition from foreign banking institutions. In the most recent decades, the Icelandic economy has also seen structural shifts. | 0 |
Recently, signs of weakness have been observed in the US, but a favourable international environment in 2007 can be expected in view of the unchanged vitality of the Asian economy and the recovery of growth in Europe. In addition to the favourable impetus from the global economy, our exports also benefited from special conditions on the foreign exchange market. The introduction of the euro resulted in a stabilisation of the European monetary scene, and the Swiss franc was sheltered from the speculative disruptions that we have experienced in the past. Nowadays our currency is far less volatile that in the 1990s, and this is certainly beneficial for foreign trade. Moreover, although the dollar has lost ground over recent years, the euro has regained a level comparable to that of 1999. Since Swiss inflation was distinctly lower than that of our main trading partners, the real exchange rate index weighted by our exports to 24 countries has declined by almost 10% over the five last years. The competitive position of our exporters has improved accordingly. Nevertheless, it would be precipitate to think that the Swiss franc was likely to continue weakening. In many respects, the current situation is paradoxical in view of the fact that currencies from countries where inflation is lowest – the Swiss franc and the Japanese yen – have lost ground to currencies from countries with a less favourable price outlook. | This was the best result since 2000. While enjoying the benefits of healthy demand in both foreign and domestic markets, it was also able to take advantage of the increased flexibility of local production attributable to the fact that the labour market had been opened up to nationals of neighbouring countries – without threatening domestic employment. In the course of the past twelve months, almost 60,000 new jobs have been created – a figure unmatched since 2001 – while the number of jobless has dropped by 22,000. Restructuring efforts on the part of the corporates, advances in productivity and the increased flexibility in the employment market have created an environment that allows more vigorous growth. Thus, the difficult path of reform and of opening up has yielded its first successes. It is advisable that we continue following this path in order to ensure a sustained and durable increase in our productive potential. This will help us to place our social security institutions on a sound financial basis again and confront the challenges posed by the aging of our population. Continuing the normalisation of monetary policy Within this context of an improved economic situation, the SNB last year continued the policy of gradually normalising the interest rates that it has been pursuing since June 2004. | 1 |
Research done here at the New York Fed documents this for the nation and New York.1 The preponderance of transformational “new job” creation may have reflected the fact that the recessions of 1990–91 and 2001 were relatively shallow. In addition, employers may be more likely to use recessions as an opportunity to make their operations more efficient. For example, employers are less likely to use temporary layoffs when they reduce staff during downturns and more likely to use temporary service agencies or outsource part of their operations when they need to expand. So far, the current recession does not follow the pattern of the last two downturns. In New York and New Jersey as well as the nation, job creation during the recovery has been fairly evenly balanced between new jobs and old jobs – instead of heavily weighted toward new jobs as in the past two recessions. If this pattern holds, the recovery process could have a higher share of unemployed workers returning to jobs similar to those they left during the downturn. That could be promising for the adjustment process when the recovery gathers strength. There is some variation within the region, though, and the areas with a higher preponderance of new jobs are undergoing more rapid transformations that could position them well for growth going forward. As a result, these areas could face a particularly strong need to retrain and educate their workers. | William C Dudley: Job creation in the region Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Quarterly Regional Economic Press Briefing, New York, 12 August 2011. * * * Good morning and welcome once again to the New York Fed’s Quarterly Regional Economic Press Briefing. I am pleased to have this opportunity to talk with the journalists covering our region – and through you, to the people in our District. This morning I will focus on regional economic conditions, with particular attention to job creation trends in the Second Federal Reserve District, which covers New York State; northern New Jersey; Fairfield County, Connecticut; Puerto Rico; and the U.S. Virgin Islands. Following my remarks, my colleagues will provide more details. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. National economic conditions The statement issued by the FOMC earlier this week presents a sober assessment of the state of the U.S. economy. Economic growth so far in 2011 has been quite a bit slower than we expected earlier in the year. While jobs growth picked up early in the year, in the last few months conditions in the labor market have deteriorated again and the unemployment rate edged up. Household spending has flattened out, and the housing sector is depressed. | 1 |
Society expects higher standards, and the PRA supports the FCA in upholding these standards as part of the global effort to restore trust between financial institutions, regulators and – most importantly – the public. Three things strike me as important as part of this effort and I pick these three because they are close to my role and that of the PRA and the wider Bank of England. First, the Fair and Effective Markets Review under my colleague Minouche Shafik, with Martin and Charles Roxburgh, is vitally important to establish the better standards that society reasonably expects. Second, we need better international coordination among authorities to enable conduct risks to be dealt with effectively, but also in ways that do not threaten safety and soundness. That is a high priority. And third, to support credit and borrowing in the economy, and thus growth, we must all work to ensure that people feel confident to use banks and thus overcome the legacy of mistrust from revealed misconduct. The fourth issue on which I want to comment concerns incentives. These lie at the heart of good pro-active supervision, getting the incentives right. Unfortunately, we see areas where that has not happened. I want to cover two of those. The first is remuneration. Once again there is a lot being said on this subject. My view has not changed. | The people of this country are actually willing to put aside some of their earnings into safe and viable investments. However, safety and viability is only assured with professional investment management which can be offered by people like yourselves. Ladies and Gentlemen, in March 2008, the Lusaka Stock Exchange in partnership with the Bank of Zambia and the Bond Exchange of South Africa conducted a training and consultative workshop to enhance the Zambian bond market. Among the outcomes of this workshop was that one of the modes of collecting funds from the so called “small investors” in the economy is through Collective Investment Schemes. Collective investment schemes can be beneficial to small investors who may not have enough money to carry out a diversification and proper allocation of their assets. Small investor can benefit from diversification techniques usually available only to wealthy investors. With these few benefits in mind, I wish to earnestly appeal to you and other collective investment scheme providers that as you go about doing your business think innovatively about ways you can capture Zambia’s many small investors. Think about how you can provide them with an opportunity to invest in a broad range of assets at affordable cost. I have little doubt in my mind that as you take up this challenge, you will be able to create financial stability by being a good investment manager to this segment of investors. | 0 |
Encik Adnan Zaylani Mohamad Zahid: The ASEAN insurance industry - current state Keynote address by Mr Encik Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 21st ASEAN Insurance Regulators’ Meeting, 44th ASEAN Insurance Council and 3rd ASEAN Insurance Summit, Kuala Lumpur, 28 November 2018. * * * Bank Negara Malaysia is honoured to host the 21st ASEAN Insurance Regulators’ Meeting and the 44th ASEAN Insurance Council Meeting again after eleven years. It is also our privilege to be part of the 3rd ASEAN Insurance Summit. I trust that the exchange of ideas and knowledge during these events will further strengthen the long tradition of close cooperation among ASEAN insurance regulators and industry players, interventions, and initiatives to build resiliency and liquidity for our market. Introduction Since its formation in 1967, ASEAN has achieved significant strides in advancing regional economic and financial cooperation and integration. This has contributed to sustained social development and stability that we see in the region over the last five decades. Economic improvement has seen member states grow at an average rate of over 5.3% and expanded over 100-fold, supported by significant intra-regional trade. In 2017, the ten-member states recorded a combined gross domestic product of close to USD3 trillion. Together, the regional bloc is currently the sixth-largest economy in the world and by 2020 is forecasted to become the fifthlargest economy after the United States of America, China, Japan and Germany. | As regulators, we have to be cognisant of these risks. It remains an ongoing challenge to balance policy trade-offs and to preserve the best interest of the general public at large. Second, foreign insurers also tend to mainly target the more profitable market segments. Using their international brand recognition, they are able to capture these markets easily. Such segments include the higher net worth individuals, and large and multinational corporates. The insurance needs of the lower income segment and small and medium enterprises are then left underserved. Third, many of the global players operating in ASEAN today continues to operate as foreign players and act as conduits to their head offices. Invested capital could be hedged back to their home countries. Annual profits and fees received are repatriated. This in turn has resulted in, among others, persistent outflow of funds to the home countries. This practice has continued to put pressure on the host country’s balance of payments. Foreign players should do more to invest in the host country and truly make the host country their home country as well. On another front, efforts should concurrently be directed towards strengthening the underwriting and retention capacity of the regional insurance and reinsurance markets. What about the domestic players? Having benefitted from the partnership with their foreign counterparts, domestic and home-grown insurers in ASEAN also need to do more to serve the protection and financial needs in their countries and the region. | 1 |
Moreover, the problems with complex risk management are exacerbated in that perhaps the most important component available to an individual is human capital, with all the forms of risk connected with its management and yield. In addition, households encounter complicated decisions in other aspects of life, of which some have to do with insurance products. As I just said, the financial system has already changed spectacularly and become increasingly sophisticated. But it will not stop there. It may therefore be asked whether banks and other financial institutions will become increasingly consumer oriented in the future, instead of the current focus on products. One advocate of such a development is Robert Merton, a Harvard professor who predicts that financial institutions will split into one group that produces business services and another that is 16 close to consumers and mainly distributes financial services. Banks today often perform both these functions. Merton considers that in such a new consumer-oriented financial system, help is needed to construct well though-out, tailor-made plans for the life cycle that allow for all the potential risks. One type of risk that needs to be considered is stock market fluctuations. Central matters here are, of course, investment horizons, how buying and selling is arranged and the degree of diversification across companies and geographical regions. Another parameter is, as indicated, the life cycle; the possibility of saving for the long run is restricted by how much capital is likely to be needed in the nearer future. | Over 60% of respondents thought that the balance of MPC communication was “about right”, although around 20% felt that too much commentary was devoted to the central view of prospects rather than to the balance of risks. Given the emphasis which the MPC places on the fan chart as a means of conveying information about forecasts, it is striking that there is a demand for even more information about the risks surrounding the central projection rather than the central projection itself. There is, perhaps, a lesson here in the need to redress the balance of discussion in the Inflation Report towards the risks and away from the central projection. The view of respondents – largely City economists – in this respect seems to me entirely rational, but in marked contrast to the pressure on us from the press. Some of the words of respondents to the survey convey the flavour of their views. Several commented on the benefits of more information about the range of views on the Committee. For example, “MPC members could do more speeches, interviews and meetings to explain their individual views on the macroeconomic outlook”. And “the key difficulty in framing the communications is that they are clearly meant to convey the views of a group of people rather than one individual. | 0 |
The job the FPC has been given in the aftermath is to avoid another avoidable disaster. And real progress has been made. Through new capital requirements the banking system now has the resilience to absorb even a repeat of the 2008 recession, without causing serious economic damage. And with the help of this work, we can stay agile as debt evolves so we can ensure the resilience of the system keeps pace with the underlying vulnerability in the economy. That’s not to say we will be slaves to any particular approach. No single model can capture everything. The point is that we have a benchmark for our assessment, ensuring continuity and discipline in our approach. To that benchmark, we can apply judgements. 12 All speeches are available online at www.bankofengland.co.uk/news/speeches 12 A pocket of risk In that regard, we’re watching closely what’s happening in corporate debt. Although, as we’ve seen, the aggregate picture looks fairly benign, a more concerning development hides underneath. We have just been through a period of rapid growth of one type of corporate lending: leveraged lending. | This working group will draw up proposals and the associated legal adjustments for implementing the recommendations in the Federal Council’s ‘too big to fail’ evaluation report. Alongside these regulatory initiatives, the SNB still considers it necessary that the big banks increase transparency with regard to RWA. FINMA has now called on these banks to disclose the differences between calculations using the model-based and standardised approaches. Such enhanced transparency is necessary to restore the credibility of modelbased RWA and to strengthen market discipline. The SNB continues to hold the view that risk-weighted capital requirements – including a floor for model-based RWA – and leverage ratio requirements should complement each other. Risk-weighted requirements should guide economic decisions at the margin, while the leverage ratio should serve as a backstop. Yet, until the measures to resolve the RWA problem take effect, it is prudent to give a greater weighting to the leverage ratio when assessing the big banks’ resilience. Indeed, analysts increasingly pay attention to the leverage ratio when assessing and comparing banks. Domestically focused commercial banks Increased mortgage exposure, capital situation stable I would now like to turn to the domestically focused commercial banks. In 2014, these banks further increased their exposure to the Swiss mortgage and residential real estate markets. While the share of new loans with high loan-to-income ratios – a measure of affordability risk – remained persistently high, mortgage lending growth and the share of new mortgage loans with a high loan-to-value ratio decreased. Hence, the increase in exposure was lower than in previous years. | 0 |
Whereas the value of the UK 5 Foreign reserves held by EME central banks as a whole are about 60% (close to $ trillion) higher than needed for conventional precautionary reasons to cover short-term external debt. 6 Morgan Stanley, "Sovereign Wealth Funds and Bond and Equity Prices", 31 May 2007. 7 That said, the assets held by sovereign wealth funds are highly concentrated, with around 70% of total assets held by the five largest funds. So the largest sovereign wealth funds could have an impact on some markets especially smaller ones such as other EMEs. 8 Also, a number of central banks from countries with large current account deficits have been willing throughout the current liquidity crisis to lend to international banks, including UK ones, at longer, three-to-twelve month, maturities. BIS Review 31/2008 3 market for public debt securities is only 3.3% of the global market, UK equities account for 7½% of the value of global equities. The rapid growth in sovereign wealth funds is also a fillip for London as a leading international financial centre. SWFs and transparency The main doubts concern their objectives and how far their investments will be driven only by financial returns. Public sector owners might have other objectives including national political interests, such as, accessing military technology, controlling strategic resources or markets, and influencing public opinion. 9 There are often complaints that sovereign wealth funds lack transparency. Decoded, this is a request for reassurance about their investment policies. | In particular, interest rates on safe assets fell since the build up in foreign assets were invested mainly in government bonds. 14 That both discouraged saving and boosted asset prices. In order to maintain their traditional returns, the private sector sought higher yielding strategies and were too ready to 11 IMF (2007) ‘Exchange rates and the adjustment of external imbalances’ IMF WEO April, Chapter 3. 12 Bernanke, B (2007) "Global Imbalances: Recent Developments and Prospects", speech delivered for the Bundesbank Lecture, Berlin, and Bernanke, B (2005) "The Global Savings Glut and the U.S. Current Account Deficit", speech delivered for the Sandridge Lecture at the Virginia Association of Economists. 13 A fall in desired investment (investment ‘strike’) in some countries also contributed to the decline in global real interest rates. For example, investment-GDP ratios fell sharply in the Newly Industrialised Countries in the wake of the east Asian crisis a decade ago. 14 For example FE Warnock and VC Warnock (2006) (‘International Capital Flows and US interest rates’, NBER Working Paper, 12560) estimate that foreign official flows reduced US 10-year Treasury nominal yields by about 100 basis points lower than otherwise in the year to June 2005. BIS Review 31/2008 5 believe that these could be attained through new products without running bigger risks. We are now dealing with the consequences of that mistake. | 1 |
Given the inflation target, we will be mindful of the effects of higher interest rates on the krone exchange rate when inflation is low. Nonetheless, the interest rate path published in Monetary Policy Report 1/07 was higher than in Inflation Report 3/06. The reason for this is that the prospect of stronger-than-expected growth in both Norway and among our trading partners pointed to a higher interest rate path. On balance, this had a greater impact on the interest rate path than a stronger krone. Over time, however, the nominal exchange rate is not the main force. The most important influence on competitiveness in Norwegian business and industry and the purchasing power of the Norwegian krone is changes in the real exchange rate. The real exchange rate can be measured in a number of ways, for example by consumer prices or labour costs in Norway relative to our trading partners measured in a common currency. The real exchange rate has fluctuated widely over time and has deviated over longer periods considerably from the average level since 1970. The real exchange rate has nonetheless shown a tendency to revert to this level. Over time, the exchange rate acts as a buffer in the global economy. When economic activity is high in one country, an appreciation of the country’s exchange rate will have a dampening effect. Conversely, when there is a need to stimulate the economy, a weaker exchange rate will boost growth. | China has a high rate of savings, healthy external position, an inherent competitive mass manufacturing advantage and a large educated workforce to sustain its long-term potential economic growth. Importantly, the narrative of the global future of China cannot be explained in isolation – it is part of a broader account of the growing importance and greater integration of Asia, and the stronger interlinkages with other emerging economies in the global economic landscape. China and the region are becoming more than just global exporters. The increased efforts are seen in the steps to develop more extensive investment and financial linkages in the region as well as the rest of the world through key strategic initiatives such as the One Belt One Road initiative, the Asian Infrastructure Investment Bank and the New Development Bank. Reflecting its expanding role in the global economy and the international financial BIS central bankers’ speeches 1 system, the renminbi will assume greater strategic importance in facilitating the development of these new investment and financial linkages, including meeting the greater demand for infrastructure spending. This is also reinforced by the transition of Asia from a global producer to a global consumer thus becoming an important driver of growth in the world economy. The rise of the renminbi is often associated with expectations of rapid capital account liberalisation. In this regard, the historical experience of the major currencies over the recent fifty years holds important lessons for the renminbi. | 0 |
This fact alone suggests that something will have to give eventually, and this raises the interesting question of how these imbalances have persisted on a path that seems unsustainable with so little evidence of rising risk premia. Part of the answer seems to lie in the fact that these capital inflows into the United States, however, are not solely the result of the decisions of private actors, but reflect official intervention by countries with exchange rate regimes tied to the dollar, including those in Asia and the major oil exporters. Research at the Federal Reserve and outside suggests the scale of foreign official accumulation of U.S. assets has put downward pressure on U.S. interest rates, with estimates of the effect ranging from small to quite significant. If this is right, the apparent reduction in real rates is less likely to signal concern over expectations of future growth and future returns on investment, and is more likely to signal the special consequences of these exchange rate arrangements and their effects on private behavior, as well as the increase in international capital mobility. What then can we say about the implications of the pattern of imbalances we see today? 2 BIS Review 3/2006 The trajectory of the U.S. current account deficit has led most observers to conclude the U.S. external imbalance is unsustainably large and will have to come down over time. | The size and durability of the imbalances that characterize the world economy today reflect a myriad of different forces: from differences in actual and potential growth rates, the degree of openness of financial and product markets, the type of exchange rate regime in place, the borrowing requirements of the sovereign, the degree of financial market development, the extent of the official safety nets, to differences in attitudes toward risk and expectations about the future. The interactions of these forces are complex and vary over time. And this limits our capacity to judge the sustainable level of imbalances. On its face, the increase in the size of the U.S. current account deficit suggests that the United States has been the principal beneficiary of the increased availability of global savings and the greater apparent willingness of the world’s savers to invest outside their home countries. At the same time, however, it is not difficult to see that if the deficit continues to run at a level close to 7 percent of GDP—and most forecasts assume it will for some time—the net international investment position of the United States will deteriorate sharply, U.S. net obligations to the rest of the world will rise to a very substantial share of GDP, and a growing share of U.S. income will have to go to service those obligations. | 1 |
Consequently, when decisions on the use of petroleum revenues are taken, weight must not only be given to long-term considerations and the distribution of wealth across generations, but also to developments in the real exchange rate and the competitiveness of the exposed sector over the short and medium term. Thank you for your attention. 2 See e.g. J. D. Sachs and A. M. Warner (2001)”The curse of natural resources” in European Economic Review 45, – 838. 3 See Akram, Farooq Q. (2003): “Reell likevektsvalutakurs for Norge” (Real equilibrium exchange rate for Norway), in Norsk Økonomisk Tidsskrift 118, pp 89-112. pp 827 | While this theory too may be somewhat true, it would certainly not provide too much comfort to the person who is suffering from inequality and poverty, if he/she were to find out that such a policy was being followed. That is why it is vital that the current Sri Lankan policy which is a pro-active one to consciously support the trickle down of economic benefits quickly, should be implemented fast, since it will surely help to reduce the social tension that would otherwise build up. Mr. Chairman, notwithstanding all our current efforts, we still have to accept that significant disparities remain despite the remarkable achievements that we have made so far. Hence, the challenge before policymakers is to continue to find ways to minimize disparities in wealth distribution without disturbing the overall efficiency in resource utilization or retarding the growth momentum. This is not a simple task, but is surely possible to do so. However, the common syndrome of this country is that many begin by saying: “we can’t”, or “we are too small” or “we are not in a position to do that” or some other negative claim. We have to, as a matter of urgency get out of that negative mentality. As we know, the Sri Lankan Government has embarked on the pro-poor pro-growth policy with a focus on balanced regional development. | 0 |
For mortgages that are part of securitizations, the legal obstacles to loan modification that preserve value are substantial. Meanwhile, mortgage servicers lack the systems, processes, governance, resources and incentives to deal effectively with a large volume of delinquent borrowers – who often suffer poor customer treatment at a time of personal distress.8 The result is inefficiently low levels of mortgage modification, too few “short sales”9 by mutual agreement between distressed borrowers and lenders, and too much reliance on the foreclosure process. This process also has many legal impediments and has become even more inefficient as the volume of loans in the pipeline increases. One consequence has been lengthening delays in completing foreclosures – including unavoidable foreclosures. These delays have increased the economic damage caused by foreclosure and reduced recovery rates. The damage caused by inefficient foreclosures is worth emphasizing. It is not just the direct loss of value in terms of deterioration of homes that are ultimately foreclosed. In addition, as I have personally witnessed in my outreach visits across the New York Fed’s District, foreclosures impose significant costs on families, surrounding neighborhoods and communities. Unmaintained homes facing foreclosure drag down the value of nearby homes. Also, property taxes on non-foreclosed homes often go up due to a declining tax base and this puts additional downward pressure on housing prices. Foreclosures also undercut housing demand. Households that go through foreclosure need to repair their credit records and to accumulate new downpayments. | Ravi Menon: Introducing Mark Carney Introductory remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the 2014 Monetary Authority of Singapore Lecture, Singapore, 17 November 2014. * * * Mr Mark Carney, Governor, Bank of England, Deputy Prime Minister and Chairman, MAS, Tharman Shanmugaratnam, Ambassadors, distinguished guests, friends and colleagues, good morning, Welcome to the eighth MAS Lecture. First held in 2000, the MAS Lecture has over the years featured several eminent members of the international financial community who have offered their perspectives on important economic and financial issues. Today, Mark Carney joins that distinguished band of leaders in finance, and it is my pleasure to introduce him. Carney has the rare distinction of serving as governor for not just one central bank but two: • From 2008 to 2013, Carney was Governor of the Bank of Canada, playing a major role in helping Canada avoid the worst effects of the Global Financial Crisis. • And since the middle of last year, he has been Governor of the Bank of England, the first time that a non-Briton has taken the helm of that hallowed institution in its 320-year history. • Perhaps the transition was made easier by the fact that the appointments of both the Governor of the Bank of England and that of the Bank of Canada are made in the name of the Queen. | 0 |
With regard to the specific topic of my lecture this evening, I expect the GIC to demonstrate leadership in the coming months to help shape an agreement with the governments of the most important mature countries on a set of guidelines for SWFs that will hopefully help to address the challenges I discussed this evening. To summarise, SWFs have become an important source of capital flowing from the periphery to the core of today’s global economy. As such, they can play a constructive role in mature markets. At the same time, SWFs pose a challenge to the international community. The challenge is to preclude an outcome where the activities of SWFs trigger policy responses in mature markets that ultimately lead us down the path of financial protectionism. It is in the interest of mature markets and developing countries alike to avoid such an outcome. A set of guidelines addressing the threat of politically driven investment decisions and resurging state involvement in the global economy represent the best currently available option to respond to the challenge of SWFs. Let me close with a broader Swiss perspective. Switzerland has in absolute terms the sixth largest current account surplus in the world. Last year, foreign investments by Swiss companies and Swiss individuals generated net income receipts equivalent to 12 per cent of our GDP, or approximately CHF 60 billion. In other words, we are experts at making profitable cross-border investments. This means that we have as strong an incentive as virtually any country in keeping global financial markets open. | The South East Asian countries saw an increase in savings and a fall in investment in the wake of the Asian financial crisis. 2 Since then, these countries have generally continued to pursue a macroeconomic policy mix in support of an export-led growth strategy which sustains these savings-investment patterns. Meanwhile, in the oil exporting countries, export revenues have been boosted by the increase in the price of oil since 2000. You can see this in slide 4. Since domestic investments in these countries have not increased at the same pace, the result has been a rise in net savings in the oil exporting countries. The two surplus regions have one thing in common. In both cases, foreign assets are accumulated almost entirely by the official sector. In the oil exporting countries, oil revenues primarily accrue to governments. Higher oil revenues therefore translate into higher government budget surpluses. In South East Asia, where the currencies shadow the dollar, foreign assets are accumulated primarily by the central banks in the form of official foreign exchange reserve accumulation. Slide 5 shows that the global macroeconomic imbalances have led to a rapid accumulation of global official foreign exchange reserves. 3 Let me now leave you with five stylized facts about SWFs. First, as I already pointed out, SWFs are not a new phenomenon. With its Caisse des Dépots et Consignations, France set up a SWF in 1816. 4 Slide 6 shows the year of establishment of each of the 14 largest SWFs currently in operation. | 1 |
However, to meet the requirements applicable from the beginning of 2020 – i.e. after the phase-in period – action will need to be taken. This is particularly the case as regards meeting the leverage ratio requirements, but also as regards gone-concern instruments. The latter are used to recapitalise a bank in the event of imminent insolvency without recourse to government support. This is achieved by writing off designated debt instruments or converting them into equity. In addition to the reforms at national level, reforms are also underway on the Basel Committee on Banking Supervision’s international capital framework. It is likely that riskweighted assets will increase as a result of these international reforms. This expected increase has, as far as possible, been factored into the calibration of the revised Swiss ‘too big to fail’ regulations. All of these reforms – especially the higher leverage ratio requirements – will result in a further strengthening of the Swiss big banks’ resilience. In light of the fact that, in an international comparison, these two institutions are particularly large relative to the economy, this strengthening is necessary for two reasons. First, the big banks’ loss potential relative to their capitalisation is substantial. Given their significance to the Swiss economy, it is important that the big banks remain adequately capitalised, even in the event of such losses occurring. Second, while leverage ratios at both Swiss big banks have improved by international standards, they are still below the average for large globally active banks. The SNB welcomes and supports these reforms. | We will continue to be actively involved in the finalisation of the international reforms. The combined package of national and international reforms represents a decisive step in the process of resolving the ‘too big to fail’ issue in Switzerland. BIS central bankers’ speeches 1 Domestically focused banks: adequate resilience, despite substantial increase in mortgage exposure This brings me to the domestically focused banks. For these banks, whose activity centres on Swiss lending and deposit-taking business, I would like to highlight three developments. First, these banks’ risk exposure to the Swiss mortgage and residential real estate markets rose markedly in 2015, with their mortgage lending volume growing at a similarly robust pace as in the previous year. In addition, they further increased their affordability risk and interest rate risk exposure from maturity transformation, against a background of slightly higher imbalances on the mortgage and residential real estate markets. Second, in 2015, these banks’ interest rate margins stabilised at a low level, after having fallen steadily and significantly since the start of the low interest rate period at end-2008. This stabilisation is remarkable, given that pressure on interest rate margins continued last year. Swiss money and capital market rates fell once again in 2015. At the same time, the interest paid by banks on customer deposits remained largely unchanged. Thus, the difference between these two interest rates – the liability margin – narrowed further. | 1 |
Anita Angelovska Bezhoska: Welcoming remarks - Vienna Initiative Full Forum Welcoming remarks by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of North Macedonia, for the Vienna Initiative Full Forum, Skopje, 22-24 March 2023. *** Your excellences ambassadors, minister of finance, dear governors, chair of the Vienna initiative, distinguished representatives of European and International institutions Dear Ladies and Gentlemen, It is my great honor and pleasure to welcome you at the Annual Full Forum meeting of the Vienna Initiative. As Helen Keller said - "Alone we can do so little, together we can do so much." This saying lies in the essence of the Vienna Initiative – partnership among international institutions, public and private stakeholders whose common objective is safeguarding financial stability of CESEE region. Established at the height of the GFC to prevent nation-based uncoordinated policies that could led to systemic banking crisis, we have come a long way, expanding activities and fostering financial stability in the region. This initiative is particularly relevant for countries that still do not belong to the European Union family, do not have access to EU backstop facilities and as such are even more vulnerable to exogenous shocks. Collaboration and coordination is key in times of crisis. Unfortunately, in the last three years we are in the mode of "Perpetual crisis". Severe global shocks of unprecedented nature are hitting the world economy and unfolding into the "great return" of inflation and cost of living crisis. | Current developments pose one of the greatest stress tests to the globalization that in the last 4 decades through trade, financial and technological integration, brought many benefits, including marked decline in global inflation. The costs of de-globalized world can be severe - lower efficiency, higher costs and stronger and more persistent inflationary effects. Against this background, central banks need to be more humble. They cannot prevent the first-round effects of many of these shocks, but containing second round effects and anchoring inflation expectations has to be their focal point. This context prompted central banks to embark on the most synchronized and rapid monetary tightening in the last 50 years3. As interest rates hikes are taking hold, with easing supply pressures and stabilizing commodities prices, forecasts indicate that inflation will soften this year, both in advanced and developing economies. And indeed we already see signs of slowdown, but it is too early to claim victory over inflation. Core inflation in many countries remains persistent, with tight labor markets keeping pressures on wages. Nominal wage growth in the region last year was the highest following the GFCat 8.6% notably exceeding productivity gains (2.3%) thus contributing to rise in core inflation, which reached 7.4%. If this wide wage-productivity gap persists it can slow down inflation stabilization process and require longer ad stronger monetary policy reaction. | 1 |
This would be bad for financial stability. The general view has now shifted and speaks clearly in favour of countries implementing an explicit deposit guarantee system, inscribed in legislation with all its terms and conditions. Such a system should focus on the small depositor. A major reason for such systems, apart from the aspect of protecting the small depositor, is that they greatly facilitate the resolution of problem bank situations and they may even prevent problems from occurring. In a situation where depositors hear negative rumours about their bank, guaranteed deposits might make them less inclined to “make a run on the bank” - to withdraw their cash and thus exacerbate the bank’s problems. A further major reason for introducing explicit guarantee systems is that experience from many banking crises has shown that the authorities feel obliged to reimburse depositors anyway, for political reasons. This is often done in an unpredictable and sometimes unfair manner favouring certain segments of the population. The cost of such implicit deposit protection is often higher than that of explicit guarantees. A guarantee system makes it easier for the authorities to close problem banks. Where such a system is lacking, the authorities tend to delay the unpleasant decision of closing a bank since they are afraid of the negative repercussions on depositors and other counterparties. But such supervisory forbearance only leads to growing problems and costs. It will always be difficult to close banks, but with a deposit guarantee at least the issue of the depositors is partly solved. | Of course, attention will have to be paid to these aspects in terms of the implementation of the new framework as well. C.3 Responses to further integration Let me talk next about the challenges caused by the third development, progressing financial integration. I will first discuss some of the relevant European issues and then turn to global issues. EU/euro area issues In the EU there is first of all the challenge of increasing the efficiency of the complex regulatory process to meet the pace of innovation sustained by the markets and to increase regulatory convergence across countries in order to support integration and reduce the burden on financial institutions operating in several countries. The so-called Lamfalussy procedure - where some experience has already been gained in securities supervision - will seek to do precisely this, and will also improve the state of affairs in banking and insurance supervision. The deepening market integration experienced in the EU has given rise to the need for enhanced supervisory cooperation and common financial stability surveillance. As regards pure, micro-level supervisory cooperation, cooperation is being gradually stepped up through the “Lamfalussy procedure” and the establishment of the so-called level three committees, where supervisors exchange views - the primary aim being to achieve a consistent implementation of the existing legal framework. We need adequate cooperation between central banks and supervisory authorities as well as a safeguard in relation to crisis prevention. | 0 |
This also applies to Rogaland. In recent year, non-residential investment has accounted for more than a third of total investment in services and distributive trades. The large investments in this sector in the latter half of the 1990s has led to a high non-residential vacancy rate. Statistics Norway’s new price index for non-residential commercial property shows that in Norway as a whole, prices peaked in the first half of 2001 and have since fallen by over 9 per cent up to the first half of 2003. This situation is likely to curb overall investment growth in the years ahead. In 2004, many companies will probably realise the gains provided by the efficiency measures that have been implemented. Continued brisk growth in household demand is expected to boost investment activity in 2005 and 2006. Petroleum investment will also increase as a result of the Orme Lange project. This is also the case for Rogaland. Our regional network reports that demand is on the increase, the market outlook for the next six months is favourable and corporate profitability has improved considerably. The economic upturn is primarily being reinforced and driven by stronger household demand, although without any substantial increase in investment or employment. The upturn has both broadened out and gained momentum in the past months. All sectors report stable or increasing demand and sales. The market outlook for the next six months in this county is very positive. Optimism does not translate into a stronger willingness to invest, however. | Norwegian households generally finance their mortgages at an interest rate that follows the short-term money market rate. Floating interest rates tend to vary widely over time. The interest rate level is very low at present, and long-term investments cannot rely on this interest rate spanning the life of a housing loan. According to money market expectations, the interest rate will eventually stabilise around 5½ per cent. This is consistent with an inflation target of 2½ per cent and a long-term real interest rate in line with the level abroad. This interest rate, with a mark-up for banks’ margins, provides a more realistic expression of the interest rate level that will apply over the loan’s life than the floating interest rate prevailing today. It may prove to be particularly challenging for borrowers to assess their debt-servicing capacity over time in a period when the interest rate is abnormally low. Such a low interest rate also places particular demands on banks in assessing the creditworthiness of borrowers. But experience has shown that the underlying cause of loan defaults can be overly optimistic assessments on the part of both the lender and borrower. House prices and developments in household credit influence consumption and housing investment. We seek to take account of these indirect effects in interest-rate setting. Household debt has increased sharply over the past decade. | 1 |
We have recently seen how badly lax lending and improper credit risk management can end in developed countries. In the case of converging economies, which are generally more financially vulnerable than fully-fledged market economies, it is all the more important to closely monitor risks to the financial system, enhance cooperation between financial institutions and supervisory authorities, and impose prudential constraints on lending. * The ideas that I have summarized so far were expressed in the papers prepared and presented by economists from academia, central banks, and international financial institutions. We have also heard important voices of top commercial bank executives and central bank governors during the panel that has just ended. Household credit, and mortgages in particular, will remain an important source of revenues and profits for commercial banks. At the same time central bankers and banking sector supervisors will likely watch credit developments very closely to make sure that best lending practices are in place. In closing, I would again like to thank you all for attending the conference. I would like to thank the organizing committee and the NBP staff for their excellent work. I hope to meet you again at another conference organized by the National Bank of Poland. Thank you. 4 BIS Review 137/2007 | John C Williams: Inflation targeting - securing the anchor Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Bank of England Research Workshop on "The Future of Inflation Targeting", London, 9 January 2020. * * * As prepared for delivery Introduction Good afternoon, and happy new year. Monetary policy frameworks are complex, technical, and rarely make it into the public consciousness. But they are of vital importance to economic prosperity. And as we stand on the brink of a new decade, it is critically important that we understand how the frameworks central banks choose influence economic outcomes, both today and in the future. When Andy Haldane invited me to be on the panel, he posed the provocative question: What will monetary policy frameworks look like 30 years from now? As a policymaker, I try to avoid making predictions for the future. But given that I will assuredly be an ex-central banker in the year 2050, I think I’m safe to have free rein! That said, I should still give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System. In my remarks today, I’ll discuss how the monetary policy landscape has evolved, and what that means for inflation targeting in 2020, 2050, and beyond. | 0 |
I will mention three of these challenges. BIS central bankers’ speeches 1 2. But challenges remain to be addressed. 2.1. The challenge for each individual euro country: achieving strong fiscal consolidation while ensuring long-term growth The first challenge is the seeming dilemma between fiscal consolidation and long-term growth. One thing is very clear: this crisis is fundamentally a sovereign debt crisis; hence the priority in order to exit it once and for all must be a return to a sustainable fiscal path. In fact, an impressive effort has already been made. The Portuguese deficit shrank from around 10% in 2009 to around 6% last year. The Italian deficit has been reined in from 5.4% in 2009 to 3.9% in 2011, and Italy actually ran a primary surplus of 1% last year, which is very rare among developed economies. The French deficit has been cut from 7.5% in 2009 to 5.3% in 2011. If we look at the aggregate picture for the euro area, we see that it is the economic zone that has tackled fiscal consolidation with the greatest intensity and the best results. According to the IMF (January 2012 fiscal monitor), after peaking at 6.5% of GDP in 2009, the public deficit in the euro area started to decline in 2010 and stood at around 4% by the end of 2011 (down by 40%). Over the same period, the US deficit was reduced from 13% to 9.5% (down by 27%) and the UK deficit from 10.4% to 8.6% (down by 17%). | Europe also needs to solve its supply constraints and challenges, and this refers to two structural policies: first, energy transition, starting with the revision of the too volatile pricing of electricity; second, better training and employability of the labour force. We cannot remain in many European countries including France with so severe labour shortages while still being above 7% unemployment. Page 3 sur 3 * As a conclusion, let me quote a famous Franco-Czech writer, Milan Kundera: “The novelist teaches the reader to comprehend the world as a question. […] In a world built on sacrosanct certainties the novel is dead”. For us central bankers, only one thing is certain, but it is key: we will do everything in our power to fulfil our price stability mandate. And like in good novels, we will bring it through many uncertainties to a successful end. Thank you for your attention. References i François Villeroy de Galhau, Monetary Policy Post-Pandemic: Balancing between Science and Art, Predictability and Reactivity, Speech, 27 August 2022. ii In a letter to Frederick II, King of Prussia, on April 6, 1767. iii Blanchard, Panel discussion, presented at “Monetary Policy: A Journey from Theory to Practice. An ECB colloquium held in honor of Otmar Issing, March 2006. | 0 |
Moreover, while there is no long-run trade-off between unemployment, or output, and inflation, both formal evidence and common sense observation on wage and price rigidities attest to the existence of such a trade-off in the short run. In the long run, however, monetary policy’s impact is only on inflation; potential output primarily is determined by advances in technology, growth in human and physical capital and other real resources. Because of the uncertainty about the timing and significance of short-term monetary policy effects on economic activity, as well as all other uncertainties concerning the economy, there are always differences of view about the speed with which policy should be adjusted, and on the balance of risks in dealing with ongoing economic developments. These conflicts become more marked when an economy confronts supply shocks that drive up prices BIS Review 17/1997 -3- sharply and suddenly -- such as the two oil shocks of the 1970s. In those circumstances, from my perspective, the appropriate course, consistent with maintaining longer term price stability, should be to bring inflation down somewhat gradually, as the economy adjusts to the shift in relative prices. As I see it, monetary policy must be formulated cautiously, and cannot ignore business cycle developments. In establishing price stability as the primary goal of monetary policy, therefore, it is best to recognize that monetary policy does affect output in the short run. | We are witnessing the emergence of a fully-fledged and constantly evolving digital ecosystem. Faced with the competitive threat from innovative newcomers, traditional players can respond using different strategies: establishing partnerships, acquiring fintechs or competing for new markets and activities. 2. The second element is stability. Although banking and financial innovations can stimulate growth in the financial system and foster economic expansion, we know BIS central bankers’ speeches 1 only too well that they can also be a source of instability, as evidenced by the subprime crisis. Digital innovations actually expose the financial system to new forms of risk. First of all, the digitalisation of financial services presents a new issue for central banks as they perform their task of ensuring safe financial transactions (payment, delivery and settlement). In particular, the significant growth of decentralised trading systems, driven for example by blockchain technology, could change the conditions in which central banks perform their duties. The transition to cyberspace has also left finance exposed to the increased threat of cybercrime. Lastly, the rise of digital innovation could also provide an opportunity for criminals to develop new methods of laundering money and financing terrorism. In this context, the new players in this digital era must also be fully subject to all anti-money laundering and counter-terrorist financing regulations. 3. The third element needed in order to reconcile innovation and stability and construct our “possible trinity” for digital finance is regulation. | 0 |
This has partially been driven by the introduction of the risk margin under Solvency II but also by an increasingly competitive marketplace. Indeed, in feedback to the Discussion Paper (DP2/22)[4] we issued in April, firms generally told us they see the continued use of high levels of longevity reinsurance over the long-term as an inherent part of their new business strategy, even after substantial cuts to the risk margin. The PRA is therefore considering how well the resulting risks are managed and mitigated, including risks on recapture. A recapture event requires the insurer to reassume the transferred risk on reinsurer default or if Page 4 legal conditions are breached[5]. Recapture thus necessitates taking control of any collateral assets and separately, putting aside sufficient capital to back the reassumed risk. Firms may argue that they could reinsure the risk to a different reinsurer but with a market dominated by a small number of counterparties whose financial position may be positively correlated, this assumption may be unrealistic. Beyond the risk to individual firms, there is the potential for systemic risk to arise where a large proportion of the UK insurance and pension[6] industry’s exposure to longevity risk is ceded to a small number of reinsurers. Funded reinsurance The second development in the annuities market is an emerging appetite for funded reinsurance. In its most extreme form, this is a fully funded transaction that involves the insurer paying a single, upfront premium which will be invested by the reinsurer to make the annuity payments. | The Matching Adjustment allows insurance companies to recognise as capital up-front a part of the income they expect to earn on their assets in the future, as long as they can show that the cashflows they expect to receive from those assets closely match the payments they have undertaken to make to their policyholders. 10. This would be the case if insurers were to agree to reinsurance contracts with collaterals such as asset backed securities and collateralised loan obligations, non-GBP illiquid assets and FX exposure. 11. McKinsey’s Private Markets Annual Review | McKinsey , Exhibit 4. 12. As a reminder, firms must comply with the PRA’s Restriction of Business rules and ensure that it does not carry on any commercial business other than insurance business and activities directly arising from that business. 13. SS3/17 'Solvency II: Illiquid unrated assets' 14. Four Rs: Creating the conditions for long-term sustainable growth in the life annuity sector – speech by Charlotte Gerken 15. Solvency II | Eiopa 16. SS1/20 Solvency II: Prudent Person Principle Annex | 1 |
In addition, this strategy will not suffice to disentangle the financing of the economy from the status of its sovereign. For that, we need a pan-euro area safe asset. I have set out a number of reasons why a euro-based safe asset is desirable. Several operational proposals have been suggested in the literature.8 Most of them, such as the one for sovereign bond backed securities (SBBS),9 which have been subject to a thorough analysis by the European Systemic Risk Board, entail the creation of a synthetic bond backed by national sovereign bonds. This proposal emphasises that, through diversification, it will be possible to provide a senior tranche with lower risk than German debt. An alternative option is E-bonds,10 which would be single tranche bonds issued by the ESM or any euro area body with the capacity to issue bonds, backed by loans to all euro area sovereigns. I think we need further reflection on the properties of these proposals and the constraints and incentives involved. Let me point out three conditions that any of the proposals must fulfil in order to improve the current framework. First, they should have the potential to generate a sufficient amount of safe assets at the European level. They cannot simply involve a swap of one form of safety for another, as that would not solve the shortage of safe assets. Second, they should preserve liquidity in the markets for national sovereign securities. This would allow the market to price idiosyncratic risks correctly and help treasuries to meet own funding needs. | Inflation will reach its low point in the third quarter of 2015, at –1.2%. For the subsequent period, the new inflation forecast is slightly higher than in March due to the rise in oil prices. The short and medium-term forecast is up slightly, by 0.1 percentage points to –1.0% for 2015 and to –0.4% for 2016. The forecast continues to indicate that inflation will move back into positive territory at the beginning of 2017; there will be a slight slowdown in the rate of increase as the year progresses. The inflation forecast for 2017 is down by 0.1 percentage points, to 0.3%. The conditional forecast assumes that the three-month Libor will remain at –0.75% over the entire forecast horizon, and that the Swiss franc will weaken. Global economic outlook As our inflation forecast is heavily influenced by economic developments abroad, let me now present our assessment of the global economy. Global economic growth was weaker than expected in the first quarter of 2015, and this development had a detrimental impact on world trade. In the US, GDP declined slightly, partly due to special factors. Moreover, the strong US dollar weighed on exports. In the euro area, however, the economy continued to pick up, supported by persistent euro weakness and improved lending conditions. In contrast to the previous quarter, all of the large member states contributed to growth. Italy reported GDP growth for the first time since entering a multi-year recession. In Japan, too, the economy gained momentum. | 0 |
Another window on the UK’s productivity gaps is provided, not by looking at the stock of human capital (such as in management or boards), but at the flow of these skills between companies as workers move jobs. So 38 Watts (2003), Haldane (2009), Ferguson (2018). 12 All speeches are available online at www.bankofengland.co.uk/speeches 12 the theory goes, the larger those worker flows – so-called labour market “churn” – the greater ought to be the transfer of knowledge and skills and the faster the pace of technological diffusion. Chart 20 plots a measure of labour market churn in the UK, with the US as a point of comparison. Two points stand out. Labour market churn rates are systematically higher in the US than in the UK, by a factor of around 2. 39 This is likely to have contributed to slower rates of technological diffusion in the UK than US. It is also consistent with the UK’s significant productivity gap with the US. A second observation is that turnover in the UK labour market has been running well below its historic levels for much of the past decade. This probably reflects the impact of heightened job insecurity on people’s willingness to move firm in the aftermath of the crisis. One of the adverse side-effects has been a slowing in the flow of knowledge and ideas between firms, potentially gumming up the technology-transfer process. | 2 BIS central bankers’ speeches We are committed to jointly resolving any outstanding issues, if any, for the purpose of advancing Islamic finance activities in both countries. We hope significant deals could be initiated following today’s event to facilitate cross-border flow of funds between both countries and regions, with the Malaysian delegation ready to share their experiences and expertise in this area. For example, Malaysian players can partner with the UK players to structure a syndicated Islamic financing facility or joint lead-arrange a sukuk issuance for any of the identified UK regeneration projects. Both London and Kuala Lumpur can succeed and prosper as leading global financial centres in Islamic finance. We are open to challenges and new ideas and look forward to working together with TheCityUK through a strengthened partnership to achieve these objectives in the years to come. A UK-Malaysia Working Group may provide that strategic platform to holding continuous dialogues for this purpose. With this, I wish the Forum an engaging and fruitful discussion. Thank you BIS central bankers’ speeches 3 | 0 |
13 -20 -10 0 Figure 3 Activity indicators (index, December 2019=100, deseasonalized series) 110 Manufacturing output (1) Retail sales (2) 110 110 110 100 100 100 100 90 90 90 90 80 80 80 80 70 12.19 Dec.19 70 03.20 Mar.20 China 70 06.20 12.19 Dec.19 U.S. Eurozone Japan (1) Real series. (2) Nominal series. 03.20 Mar.20 U.K. 06.20 Jun.20 70 Sources: Bloomberg and Eurostat. Figure 4 GDP - selected economies (quarterly change of deseasonalized series, percent) 20 First quarter Second quarter 20 Comulative first half Source: Bloomberg. | Our rules and treatment are fair to all genuine investors. Any incentives 1/6 BIS central bankers' speeches granted to both foreign and domestic investors are subject to stringent performance requirements. This ensures adequate safeguards for the goals of the incentives and underscores our fair treatment to all. This would also create a relationship built on the principle of mutual reinforcement, beneficial to both Malaysia and its partners. A growing economy which parallel global development and growth. The Malaysian economy has always been very well run. It has bright growth prospects, in the immediate future and in the longer term. We have been one of the fastest growing economy in the last decade. Our economic growth has consistently outpaced global growth since the TransAtlantic Financial Crisis. Comparing average growth rates since then, Malaysia’s growth rate has been 170 basis points higher than the global economy, growing faster by 38% to be exact. In the region, we are among the fastest-growing middle-income economy. I am quite confident that this trend is set to continue as we move forward. In the first quarter of the year, Malaysia grew by 5.6%, surpassing market expectations. Growth has been lifted by the stronger domestic demand with additional impetus from exports. Our export performance is generating greater positive spillovers to the domestic economy. Judging by these, the economy is poised to register stronger growth in 2017. Many factors account for the sustained economic performance. A key reason is our economic diversification. | 0 |
In this context, one possibility would be for the central bank to not only to determine the policy rate but also to determine the time-varying regulation, while the implementation of non-time variable regulation would be the responsibility of the supervisory authority. Does it make sense to merge the central bank with the supervisory agency? Obviously, the financial-stability analysis, and to some extent also the monetary-policy analysis, must be informed by the micro-prudential analysis, and vice versa. Countries have chosen different approaches to this, often based on country-specific characteristics such as legislation or even tradition. I am open and do not believe in a one-size-fits-all solution. The important aspects are that you ensure an open exchange of information and close cooperation between the functions, as well as adequate resources. On governance we must also take into account what is called “political economics”. The most efficient theoretical solution may not be achieved if it contradicts interests of power and influence. How should we structure the decision-making process in order to take account of the nexus between monetary policy and financial stability? Central banks have adopted different approaches: Some have a separate Board for monetary policy, others also have a separate Board for financial stability. Most central banks have the same Board for both, but may have separate Deputy Governors responsible for each of the two strands. What matters, as I see it, is that “the buck stops somewhere”. | Prasarn Trairatvorakul: Economic and financial cooperation between China and Thailand Opening remarks by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Luncheon to inaugurate the Bank of Thailand Beijing Representative Office, Beijing, 6 April 2012. * * * Your Royal Highness (Princess Maha Chakri Sirindhorn), Your Excellencies, Distinguished Guests, Ladies and Gentlemen, The Bank of Thailand is humbly grateful to Your Royal Highness Princess Maha Chakri Sirindhorn for graciously presiding over this Luncheon to inaugurate the Bank of Thailand Beijing Representative Office. The Bank of Thailand is privileged and honoured to celebrate this auspicious occasion at the Residence of the Ambassador of Thailand here in Beijing among a group of honored guests who have been part of the long-standing Sino-Thai relations. Today’s event provides a unique opportunity to celebrate not only the present achievements, but also to pay tribute to history of the friendship between China and Thailand that has spanned over 700 glorious years since the Tang Dynasty and the Sukhothai Era. Our cooperation first began in the form of trade, which remains to this day the strongest tie between our two nations. Along with the flows of trade from China came the cultural heritage, which is why our cultural linkage is deeply rooted – in all aspects of the arts, culture and cuisine. Your Royal Highness, Ladies and Gentlemen, The long-standing relations between our two economies have provided a solid foundation that shaped our modern economic and financial relationships. | 0 |
Mr George talks about monetary policy in the United Kingdom: The Economic Prospect Text of the Chancellor’s Lecture delivered by the Governor of the Bank of England, Mr E A J George, at Hertfordshire University on 18/02/99. As you would expect of a central banker I will talk about monetary policy – under the title of “The Economic Prospect”. I will begin by explaining what it is that we are trying to do through monetary policy; then I’ll describe how we’ve been doing, where we are now, and where we might be headed. What we are trying to do So let me begin with what it is that we are trying to do. In one sense that’s very easy to explain these days. The previous Conservative Government had already in 1992 defined the objective of monetary policy in terms of a target rate for retail price inflation. The new Labour Government, immediately on assuming office, similarly defined the objective in terms of an inflation target, but went an important step further. As soon as Gordon Brown became Chancellor of the Exchequer, in May 1997, he announced that he would no longer exercise his powers to set short-term interest rates, which is the heart of monetary policy, but instead he would set the inflation target, and delegate the achievement of that target to a new Monetary Policy Committee to be established in the Bank of England. | The exchange rate has, in fact, tended gradually to soften since last spring when the decision to go ahead with the euro was finally confirmed; but increasingly since the autumn the internationally-exposed sectors of the economy have been dealt a further massive blow as a result of global economic turbulence. This started, in fact, with the financial disturbances in Asia in the latter half of 1997, but even as late as the beginning of last summer it seemed as if it might have only limited impact on the overall world economy. The IMF, for example, was then still projecting 3-3¾% world growth in 1998 and 1999 respectively, which was certainly a setback compared with their forecast of over 4% just six months before, but it was hardly catastrophic. Since last summer it has become increasingly clear that things are likely to be significantly worse than that. The financial collapse in Russia, deepening recession in Japan, the long battle – then sudden defeat – in Brazil 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, though I am now hopeful that we will be able to stop the financial rot. | 1 |
Mr George offers an overview of the UK economy Speech by the Governor of the Bank of England, Mr E A J George, at a dinner hosted by Birmingham City 2000 in Birmingham, England, on 18 May 1999. Thank you, Mr Chairman. I am delighted to have been invited to speak at this Birmingham City 2000 Dinner on the evening before the first ever meeting of the Court of Directors of the Bank of England at one of our Regional Agencies. We have decided to hold Court meetings periodically outside London for two reasons. First, we want to emphasise that we are the central bank for the whole of the United Kingdom and that we are very sensitive to that responsibility. Secondly, we want to draw attention to the existence of our twelve existing regional agencies (and, as we announced on Monday, we will shortly be opening a further agency in Northern Ireland) and to the important role which they play in informing the monetary policy process in particular of real-world conditions on the ground in industry and commerce in every part of the United Kingdom. Our Agent here in the West Midlands, John Beverly, is well known to many of you. He will be moving on, to the South West, in the autumn to be replaced by another John! John Bartlett who is at present a Deputy Chief Cashier. | We are concerned – as you are – with the health of every sector of the economy, we fully appreciate the interdependence of the different sectors, and we well understand the part that greater real exchange rate stability can play in promoting more balanced economic growth. But the harsh reality is that we could only seek to achieve a particular exchange rate in order to protect the internationally exposed sectors at the risk of destabilising the economy as a whole, and there would – as we have recently seen – be no assurance even so that we would be successful in achieving and maintaining a particular exchange rate. We do, as I say, take full account of the impact of world demand and of the exchange rate on the likely path of inflation, and, to the extent that these influences are exerting a disinflationary effect, interest rates are lower than would otherwise be the case. That was the reality behind the statement made after our last MPC meeting that if the BIS Review 56/1999 4 exchange rate does not decline from its present high level, as we assume that it will, at least in line with interest rate differentials, then, depending on other developments in the economy, there might need to be further easing of interest rates to keep inflation on track. I stand by that today. But let me be quite clear. This does not mean that we have any particular target for the exchange rate. | 1 |
Advantage should be taken of these initiatives to adopt specific and ambitious measures that entail deep-seated changes in the functioning of our labour market. We stand at a pivotal juncture for our future, a point at which it is vital to radically change certain things so that Spain may continue to converge on the core European countries. Some of these reforms may require sacrifices, and it would therefore be best to have as broad a consensus as possible. The effective adoption of these reforms is crucial for the economy in general, but particularly so for the financial system. And if anything has been highlighted by the current global crisis, it is the close relationship between economic growth and the strength of the banking system. Two years on from the onset of the turmoil in summer 2007, most Spanish credit institutions continue to show considerable soundness. Unlike in many other countries, this has meant that practically no public aid has had to be used to bail out banks, which has prevented adding a further burden to the problems stemming from the recession. But the relationship between the economy and the financial system also works in the opposite direction and, evidently, if the necessary measures for reactivating employment growth within a reasonable time frame are not adopted, bad debts will continue to mount and there will be more financial institutions facing difficulty in providing the financing needed for economic recovery. That our banking system has proven reasonably resilient during the international financial crisis is due to various factors. | The Official Credit Institute’s programmes, aimed at smoothing small and medium-sized companies’ access to credit, have attempted to correct this market failing. Further work along these lines should be pursued, improving where possible the workings of these programmes and increasing their volume if necessary. Yet I must urge credit institutions to be responsible, as I have on previous occasions. Evidently, at a time such as the present, they must be particularly careful and, naturally, not 2 BIS Review 27/2010 extend credit to companies that are not solvent; but nor must they forget that should they fail to lend but a single euro to companies that are solvent, they will only be making things difficult for themselves. Another example of progress in financial reform backed by broad Parliamentary consensus has been the approval of legislation whose aim is to restructure the financial system at the least cost to taxpayers and in the shortest time possible, observing the constitutional distribution of powers, so that all institutions in the system are in a position to provide credit to households and firms when the recovery arrives. | 1 |
The press has continued to wage a governance campaign, especially with respect to anti-corruption matters. Some general remarks The governance debate is a difficult one, not least because of the imprecision of the concept and its multi-dimensionality. This opens room for a range of interpretations and the inclusion of diverse elements, rendering the basis of discussion somewhat fragile. There is also a measure of ambivalence regarding its practical application and suspicion in some case of the motives underlying the significance attached to it by the donor community. Its link with poverty reduction is not uncontested, and questions also arise as to whether it is not really the Washington Consensus and structural adjustment in new clothing. In the African context, there is admission of mis-governance in many areas of state management. In particular, corruption and impunity in public administration, conduct of elections, financial management and judicial processes, are bemoaned on a wide scale. Serious observers agree that there is a need to correct the institutional arrangements that create an avenue for some of the negatives observed in the governance of many countries. This admission notwithstanding, questions continue to be raised as to whether the range of measures subsumed in the governance package is appropriate to correcting these deficiencies. The emphasis, it is believed in some quarters, should be on capacity building and helping countries to pursue home-grown development programmes. While admittedly there is a capacity building element in the governance package, the relevance of some specifics is brought into question. | As the major development finance institution in the world, and a dominant influence in thinking on BIS Review 109/2007 3 economic development, its ideas soon permeated not only the international financial institutions (IFIs) but the aid community generally. The precise link forged between good governance and economic development is the raison d’etre of the central place accorded good governance in current international development discourse. Various formulations of this relationship have been propounded. Doorknobs for instance justify good governance, namely the fight against corruption, nepotism, bureaucracy and mismanagement, and the promotion of transparency, accountability and proper procedures, as ensuring the effective utilisation of aid for the achievement of poverty reduction. Other writers variously state that good governance is a pre-requisite for sustainable development in Africa. They stress the importance for growth and development of a predictable regulatory framework, efficiency and transparency in public administration and an independent judiciary. Others remark on the pressures arising from globalisation and the competition for aid and investment as major driving forces for good governance; and the comparative attractiveness to investors of a corrupt-free country, with sound policies and well-managed administrative and judicial systems. The link between good governance and development is however not universally accepted and its implications are not always viewed positively. It has been argued that the link between governance and poverty reduction is at best tenuous. While in some areas empirical evidence tends to suggest that good governance leads to positive growth outcomes, other evidence suggests that this may not be so. | 1 |
Muhammad bin Ibrahim: Of directors and supply of talent Remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Launch of FIDE Forum Directors Register “Of Directors and Supply of Talent”, Kuala Lumpur, 1 April 2016. * * * Today marks an important step forward for board talent management among financial institutions in Malaysia. The Directors Register will be launched this morning to address the financial sector’s need for a reliable supply of qualified individuals to meet the growing demand for high-calibre directors. Financial institutions play a critical role in the economy, intermediating funds to support the real economy. Because of the criticality of the role, financial institutions must be led by directors who possess the necessary skills, experience and integrity to spearhead financial institutions in a competent and effective manner. Identifying, developing and retaining directors of high calibre are no easy task. We need to design a solution to achieve it. The Directors Register is therefore a timely initiative as this acts as a solution to expand the pool of potential directors for boards of financial institutions. Demand imperatives Being a director of a financial institution is highly demanding. The last financial crisis has shown the failure of board oversight in managing the affairs of financial institutions. Unbridled risks-taking, misaligned, incentives structures and failures in overall governance were just a few of the shortcomings that almost brought the global financial system to a standstill. | We must push for building a forward-looking approach of the impacts of climate risks through the development of comprehensive climate stress tests. Third, green finance should mature and upgrade its professional standards. Financing needs for energy transition are huge; in Europe alone, it is estimated that an additional EUR 177 billion per year will be necessary over the period 2021-2030 to reach the EU’s energy and climate objectives for 2030. i The European Green Bond Standard proposed by the TEG should ultimately help to further develop the green bond market and channel more investments towards green projects. Let me add that France has strengthened its role as leader in green finance. Last week, Paris Financial Centre players have committed themselves to adopt a carbon exit strategy by mid-2020. ** To conclude, let me quote John F. Kennedy: “the New Frontier of which I speak is not a set of promises – it is a set of challenges. […] I believe the times demand new invention, innovation, imagination, decision. I am asking each of you to be pioneers on that New Frontier.ii” Today, almost 60 years later, we face other challenges. But let us keep the same energy. Let us not think that the battles have already been lost. Let us break limits and invent new practices taking into account both digitalisation and climate change. Thank you for your attention. | 0 |
But in another sense one can say that this is not the case, if the Riksbank – as an independent central bank – says that the purchases are made for monetary policy purposes. Monetary financing does not entail the purchases themselves. Under certain circumstances, purchases of government bonds can be monetary financing, but under other circumstances they are not. This is what makes it difficult to define the concept. It is important to understand that the Riksbank's government bond purchases do not mean that the state's costs of issuing bonds disappear. If the Riksbank purchases some of the government bond stock, then part of the state’s debt will be financed by private agents and another part by the Riksbank with central bank reserves. The state costs of the private part of the debt is the yield on the government bonds. The cost for the part the Riksbank has purchased is different however, and not as obvious. The state’s interest payments on the government bonds purchases by the Riksbank fall to the Riksbank. But the Riksbank is a public authority whose income and expenditure is a part of the state's total budget constraint. The interest the state pays to the Riksbank in other words falls to the state itself, the net cost to the state is therefore zero. However, the Riksbank pays interest – that is, the policy rate – on the central bank reserves that have financed the government bond purchases. | Andrew Bailey: Meeting varied people Speech by Mr Andrew Bailey, Governor of the Bank of England, at Diversity in Market Intelligence: Launching our Meeting Varied People Initiative, 21 April 2021. * * * Thank you Andrea for that introduction, and thank you to everyone for joining us today. People often talk about diversity in terms of the makeup of their own workforces – and for a public institution like the Bank, it is vital we reflect the whole society we serve. This includes both identity and cognitive diversity, which are equally important. 1 I often say I don’t want to work in a place that is full of people like me.2 I want the Bank to have an inclusive and open culture where people speak up, ensuring we make better decisions by mitigating the risks of groupthink and myopia. Over recent years, a number of my colleagues at the Bank have also emphasised the importance of diversity and inclusion, both for us as an employer, and as a wider public good for the financial sector. 3 We have made significant progress internally: for example, launched our Out & Proud Action Plan in September 2020, and continue to sponsor the ‘Women in Finance’ Charter. 4 But there is always more to be done, which is why for example we recently initiated a review, led by our Court of Directors, on ethnic diversity and inclusion. I know that many of you are doing similar work within your firms. | 0 |
Chart 2 The interest rate differential is still wide, however, as can be seen in Chart 2, particularly the long-term differential, which has only narrowed by 1 percentage 5 point (and much less, if adjustments are made for CDS spreads). It would therefore have been imprudent to lower the SRR to zero now, and furthermore, there is limited experience of the impact of adjustments in capital flow management tools of this type. However, this does not change the fact that the objective is to keep the SRR at zero whenever possible. We have said that this tool should be our third line of defence, after conventional economic policy (including intervention in the foreign exchange market) and conventional macroprudential tools. This is not to say that the SRR is some sort of emergency device, as distressed economies hardly need worry about excessive voluntary capital inflows. The capital flow management tool, or CFM, is not a capital control in the sense that it restricts or halts certain capital flows explicitly, as was the case during the tenure of the comphrehensive capital controls on outflows. It changes the incentives for inflows — the shorter the investment horizon, the stronger the impact. But this brings some costs with it, in terms of Iceland’s image and the effectiveness of its markets, and it would be better to do without the SRR if possible. This prioritisation of policy tools is consistent with the position taken by the International Monetary Fund (IMF). | This also means that the equilibrium exchange rate of the króna has probably fallen in the recent past, which in turn may partially explain the recent depreciation of the króna. The deterioration in external conditions is not good news, of course, but we must place it in the context of the substantial improvement that has taken place in recent years. On the whole, however, this turning point is positive in a number of ways. The growth rate of the past few years was unsustainable, and it tested the capacity limits of the domestic economy. According to the Central Bank forecast published yesterday, the landing will be a soft one. GDP growth will measure 2.6% over the next three years, close to the average level that will allow the economy to grow without importing labour. The positive output gap will narrow gradually and close by the end of the forecast horizon, which is in 2021. There will be virtually full employment for the entire period, and purchasing power will continue to rise. Inflation will rise above the target in 2019 but then remain close to the target for the rest of the forecast horizon, partly because the forecast assumes that interest rates will rise when inflation does. Some observers might say that this is too good to be true. It could turn out that way, of course, but that would be because known or unknown risks not included in the forecast had materialised. There are so many things that could happen in this regard. | 1 |
The joke in the American camp at the beginning of the 1980s was that macro is just bad micro, meaning that the models had become dominated by the idea that agents make optimal economic decisions over infinite horizons into the future and that markets therefore tend to be selfequilibrating towards a single steady state. Central banks’ standard models – DGSE [Dynamic General Stochastic Equilibrium] models – have been transformed in many ways, but the 1980s view has still not fully disappeared. This has to change. Economic agents clearly have finite horizons, which impact on their consumption decisions. People do not optimise and plan their lives up to their death. Nor does the financial sector play as important a part in models as it should. The possibility of multiple equilibria has also to be introduced; there are fallacies of composition, there are coordination failures. All these elements have to become part and parcel of macroeconomics; macroeconomics is not just the aggregation of individual decisions by optimising agents, we should not just assume everything moves towards a general equilibrium of competitive markets. The absolute minimum that has to happen is to rid macroeconomics of the imperialism of a certain type of microeconomic foundations; a new core model for macroeconomics has to emerge. If agents act in different ways, we also have to address the question of income distribution. And fortunately there are already models, so-called HANK models, Heterogeneous Agents New Keynesian models, that consider this. | The growing complexity of market-based finance and the change in the financial system will make it difficult for central banks to go back completely to the old, comfortable, traditional approach of having very lean balance sheets and just targeting the overnight money market rate. The set of instruments will have to be broadened. Several have been used during the crisis, some of them just for very stressful periods of course, but they are now part of the toolkit. Do you think what you’re saying is shared by other people on the Governing Council? I wouldn’t speculate on that. This view is developing in academia everywhere and has been discussed extensively in [the Kansas City Federal Reserve’s flagship conference in] Jackson Hole in 2016, for instance. So it’s part of the ongoing discussion at the interface between academia and central banking. Do you think the ECB has done enough to justify the impact of its policies on inequality? If we were to do quantitative easing (QE) again, would helicopter money be a better option? Helicopter money has never been a policy option. We are attentive to the question of inequality. I spoke in August last year to the European Economic Association about inequality and monetary policy, and since then further work has been done in the ECB to expand on what I said. | 1 |
The low net debt of the Treasury, courtesy of a responsible fiscal policy, has allowed for this gradual adjustment without major surprises. However, there are limits and the debt has been increasing. In this context, I am particularly concerned that the accumulation of commitments could end up straining our public finances. In the case of monetary policy, the limit comes from credibility. There is an explicit objective—the inflation target—and a market that monitors on a daily basis to see whether our monetary policy conduct is consistent with achieving that objective. For as long as the market remains confident in the Bank’s capacity and, above all, on its commitment to take inflation to 3% in the two-year horizon, an expansionary monetary policy will be successful. The minute we lose that confidence, we will fail. That is why we are adamant about our concern with inflation expectations, insisting that we will do whatever it takes for it to stand at 3% over the forecast horizon. The good news is that we have succeeded: despite inflation’s high volatility, due mainly to the sharp variations in the exchange rate, expectations two years out have remained at 3%. This encourages us to keep our guard up and not to neglect what has been achieved or try to extract from monetary policy more than it can deliver. The second challenge is that experience suggests that our first line of action to deal with the cycle is monetary policy. | To this end, the Bank of Albania will continue to work diligently for: the prudent regulation and supervision of the banking activity; the financial market and payment system development; the promotion of the financial stability of the country, as well as for bolstering the financial education and inclusion of the public. Although the challenges facing ahead are not few and far in between, I am convinced that the banking industry will continue to remain a trusted partner to Albanian enterprises and households. In conclusion, I would like to stress out that the Bank of Albania supports and encourages the structural reforms. This agenda of reforms has now found a stable anchor in the process of negotiations undertaken in the framework of the European Union membership. The continuous investment on reforms, which boost and encourage the macroeconomic stability of the country, the improvement of the business climate, the increase of efficiency and competitiveness, the improvement of human and institutional capacities, as well as the comprehensive development of infrastructure, is the one and only path toward a faster economic and social progress. 2/2 BIS - Central bankers' speeches | 0 |
London’s position has developed gradually and the statistics rarely separate the group of wholesale financial markets and supporting legal, accounting and other services that make London special from a broader group including retail banking and insurance and business services. But there is some evidence that all three factors are at work. The story seems clearest with the specific factors of production. The cost of commercial property in London, for example, has grown rapidly. According to Jones Lang Lasalle Research, in the City average capital values are over $ per sq.m, above both Paris and New York. And the costs in the West End, the main home of the new hedge fund industry, are almost twice as high. There is no doubt that the success of London’s financial centre is helping to fuel demand for office space from Canary Wharf to Mayfair. And of course it is not just commercial property in London that has been booming. House price inflation in London has outstripped the rest of the UK (Chart 1), and in Kensington and Chelsea average house prices have risen by almost 40% since the start of 2005, compared with 20% for Greater London as a whole. ECA International published a survey comparing average monthly rents for a 70-square metre unfurnished flat in the largest cities and showed London over € 2,100, compared with New York around € 1,750 and Paris below € 1,500. | Gent Sejko: Ninth and tenth review of the arrangement with the IMF concluded Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference with the IMF mission and the Minister of Finance, Tirana, 24 January 2017. * * * On the completion of the ninth and tenth review of the Arrangement with the IMF The beginning of 2017 coincides with the conclusion of Albania’s arrangement with the IMF. This Arrangement has guided our development policies over the past three years, and has been a roadmap for our structural reforms agenda in the long term. Against this backdrop, the last review of the Arrangement not only provides for a comprehensive assessment on the achievement of its objectives, but also helps in identifying challenges to the country’s development and contributes to discussions on the policies that need to be designed and implemented for supporting the development. Let me now outline the opinion of the Bank of Albania on this review. The Arrangement with the IMF was signed amid an external economic and financial environment surrounded by uncertainties, and in response to deepening internal development challenges. Economic growth was on the downtrend, public debt and nonperforming loans were set on the uptrend, and uncertainties in the Albanian economy and financial markets were relatively high. | 0 |
This will be a key development in our thinking about Op Res (including third party risk management) as a whole. It will also inform the evolving cross-sectoral and international debate on the topic. 4. Conclusion As I outlined at the start of my remarks, firms are on a journey to achieve the level of operational resilience set out in the policy we published as final just over a year ago. A positive start has been made on this journey, and I want to thank you all again for the open and direct engagement we have enjoyed along the way. It will be important to build on this as firms tackle the next legs of the journey. In line with my remarks today, there are clear developments needed before the deadline for meeting the policy outcomes by end March 2025 at the latest. You can expect the PRA to continue to work with firms along the way both directly though firm specific supervisory dialogue but also through industry wide events like this. We will also be 5/6 BIS central bankers' speeches continuing to evolve our own supervisory and policy approach to ensure it supports this industrywide effort. I would like to thank you for your time today and I look forward to ongoing engagement with you all, including through the discussion to come, as we collectively move this work forward. I would like to thank Helen Stone and Harry Grantham-Hill for their invaluable help in preparing these remarks. | And second, because prudential supervision was not sufficiently active in detecting and preventing this type of instrument. None of these elements has been present in the Spanish banking system, which explains why Spanish banks have no exposure to these vehicles. Spanish banks have obtained sufficient profits pursuing their traditional and typically retail activity, meaning they have had no great interest in developing either the structures or products that are at the root of the current problems. The Banco de España has been categorical regarding its requirement that these vehicles be consolidated for accounting and capital purposes. Today, following the application of International Financial Reporting Standards in 2005, this requirement to consolidate conduits and SIVs is now very clear. But even before the IFRSs came into force, Spanish banks had no incentive to develop these off-balance sheet vehicles, because the Banco de España always analysed the risks assumed by banks from a consolidated perspective. Fourth lesson: on the procyclicality of banking regulation The fourth lesson to be drawn from the turbulence is related to the debate that has reopened on international markets about the way in which financial regulation should address so-called procyclicality. In particular, concern has been raised about Basel II and international accounting standards. We should perhaps begin by acknowledging that financial market participants themselves behave in a procyclical way, as they tend at favourable times in the cycle to forget about the consequences of an excessive build-up in risks. | 0 |
One explanation is that holding cash is associated with cost and inconvenience and there is therefore a willingness to accept a certain cost to avoid doing so. But an e-krona would change the prerequisites. In contrast to physical cash, the e-krona would not require agents to invest in ways of storing, transporting and insuring. This means that the lower bound for the policy rate would increase, probably to zero, that is, where it was previously assumed to be. In this sense, the e-krona could restrict monetary policy and make it less effective. The situation would be entirely different if the e-krona was to be interest-bearing. The zero bound would then no longer constitute a restriction as the yield of the ekrona itself could be negative. Furthermore, if physical cash were to be entirely phased out, the policy rate could instead be taken much further into negative territory than today. 26 Potentially, therefore, monetary policy would become more effective, even though it would probably be met by significant resistance from economic agents. This resistance is already substantial to what are currently more modest negative interest rate levels. But with an interest-bearing e-krona, we would also be in a completely different world. The interest rate on the e-krona, for example, would become a new regular monetary policy instrument. Potentially, therefore, it would involve a change on many different levels. However, with the current legislation, it is not clear whether it is even possible for the Riksbank to introduce an interest-bearing ekrona. | Re-establishing it may require a prolonged and costly process, which should also be taken into account. It is such fears that largely explain the policy conducted by the Riksbank in recent years. Does a policy that “leans against the wind” require there to be confidence in the inflation target? It is probably possible to construct theoretical and quantified examples in which the recession that is prevented or mitigated by “leaning against the wind” is sufficiently long and deep for it to be worth taking the cost of losing, and having to re-establish, confidence in the inflation target. But in practice, it is very difficult to imagine how a central bank, seeing that confidence in the inflation target is being eroded, could stick to a tighter policy and risk inflation expectations staying permanently low in order to perhaps prevent a financial crisis sometime in the future. I am not saying that this is a reason to never conduct a policy that “leans against the wind”. On the contrary, I am personally in favour of the idea as such, and can well imagine formally integrating such a policy into the monetary policy set-up, in the way it has been done in Norway. But one can argue a policy that “leans against the wind” is in practice a “fair-weather” policy – windy but sunny, in other words. Only as long as confidence in the inflation target is intact, there is scope to use monetary policy to counteract financial imbalances. | 1 |
Diverse new sources of growth have now emerged across ASEAN, with the economies now moving beyond their traditional reliance on manufactured exports to expanding the production of resource-based products, and increasingly to the services sector and thus providing greater flexibility to respond to shifts in external demand. There has also been a rebalancing of the sources of growth between domestic and external demand. The role of private consumption has strengthened in the ASEAN economies. ASEAN now possesses a burgeoning consumer market that is valued at more than USD 330 billion. With high savings rate continuing to prevail, there is potential for this trend to be sustained. Consumption demand has also been supported by rising incomes, with GDP per capita having increased to over USD 1,500 compared to USD 1,157 in 2000. In the long-term, these trends are expected to be reinforced by the positive demographic structure in the ASEAN region. ASEAN’s population is not only large but also young with 55% at less than 30 years old and becoming increasingly urbanized. There is also greater involvement of the private sector in the economy following the period of adjustment post-crisis. Private investment which was initially slow to adjust has now shown prospects for a stronger recovery. The potential for greater investment is driven by the rising infrastructure requirements throughout the region that is estimated at USD 160 billion for the period 2006-2010. There has also been growing interest in resource-based industries. | This has not only enhanced the range of business opportunities for the financial institutions but also their potential to expand beyond domestic borders and building further on regional linkages. Increased Asian regional complementarities Post-crisis, ASEAN has further increased intra-regional trade and investment linkages within ASEAN and with the other major economies in the region. Intra-Asian trade now accounts for more than half of the total trade of the region. The emergence of China and India has created new export markets for ASEAN, thus diversifying the ASEAN export market from over-concentration in the traditional markets. ASEAN is among the few regions to have a significant and growing trade surplus with China, reaching about USD 20 billion in 2005. Meanwhile, the total trade between the ASEAN-5 and India has expanded by more than tenfold from only USD 2 billion in 1990 to USD 21 billion in 2005. 2 BIS Review 46/2007 In investment activities, Japanese investors have had an early presence in most of the ASEAN economies. This has generally reflected the diverse comparative advantage of ASEAN economies that range from labour cost advantages to natural resources and the increasingly more deregulated and liberalised regimes. Foreign investors have also leveraged their supply chain networks on the ASEAN platform to take advantage of this diverse comparative advantage. Even within ASEAN, there has been an increasing trend of outward direct investment especially by Malaysia and Singapore, being undertaken to leverage on regional growth opportunities. | 1 |
For example, for the euro area, see Gambetti and Musso (2017), “The macro eco nomic impact o f the ECB’s expanded asset purchase pro gramme (APP)”, ECB Working Paper No 2075. Fo r the United States, see Weale and Wieladek (2016), “What are the macro eco no mic effects o f asset purchases?”, Journal of Monetary Economics (79): 81-93. And lastly, fo r the United Kingdo m, see Kapetanio s et al. (2012), “Assessing the eco no my-wide effects o f quantitative easing”, The Economic Journal, Vo l. 122, pp. 316-347. 7 Co stain, Nuño and Thomas (2022), “The term structure o f interest rates in a hetero geneo us mo netary union”, Working Paper No 2223, Banco de España. 4 over time and across asset classes -, it played an additional role to reduce fragmentation within the euro area and thus ensure a smooth transmission of the single monetary policy. Let me now turn to the TLTROs. In 2014 the ECB launched TLTROs. Unlike the (non-targeted) longer-term refinancing operations (LTROs) that preceded them, these ECB loans were specifically targeted at encouraging euro area banks to expand their lending to households and firms. Provided they met certain lending targets, banks received TLTRO loans under very advantageous conditions. 8 In this respect, TLTROs are complementary to asset purchases. While asset purchases aim to reduce the funding costs of those agents (such as sovereign and large corporate issuers) that fund themselves through bonds, TLTROs are intended to increase households’ and (smaller) firms’ access to bank credit. | In this respect, given the high level of debt, an increase in interest rates may have a significant impact on interest expenditure, although this effect would take some time to become manifest, since the lengthy average term of maturity means that the pass-through of changes in interest rates to the cost of refinancing debt comes about gradually. This situation means we must continue to rationalise public spending and make it more efficient, prioritising those items that have a greater potential for improving productivity and long-term growth. During the crisis, spending on public investment has halved, standing significantly below the average level for the euro area, and most likely even below – though this is not an easy calculation to make – the level needed to cover the depreciation of the existing stock of public capital. Turning to revenues, consideration should be given to reviewing the composition of taxes which, once the desired level of public spending has been set, may enable the necessary takings to be raised in the most stable and efficient way possible. Compared with the European Union average, it is a fact that Spain stands out for the relatively low weight of its tax revenue as a proportion of GDP, this being attributable, in the comparison within the euro area, to the low relative weight of indirect taxation, particularly in the areas of environmental taxes and excise duties. | 0 |
The future output sub-index of the global composite PMI recorded 67.1 in May, signalling strong expansion going forward. Asian businesses expect to share in the global recovery in the second half of the year. The corresponding reading for the Asia ex-Japan economies 4 stood at 60.3 in May, well above last year’s average of 53.2. The expected strengthening in momentum is due to two main factors: substantial policy stimulus in the US and brisk deployment of vaccines in the US and Europe. The strength of the rebound in the advanced economies should in turn provide a powerful tailwind for Asian economies, particularly those that are more actively engaged in global supply chains. Overall, the global economy is expected to expand by 5.8% 5 in 2021, after last year’s 3.0% contraction. 1/9 BIS central bankers' speeches The global economy has probably already regained its pre-pandemic level of output. In fact, the global economy could potentially surprise on the upside. One, vaccination rates are rising in many advanced economies, allowing them to re-open earlier and more fully. Some of them may effectively suppress domestic transmission by the end of Q3 2021. Two, even if there are mobility restrictions on account of new outbreaks of the virus, businesses and households have become better at adapting to such restrictions. A review of the evidence by MAS 6 has found that economic activity has become less responsive to movement restrictions over time. | This is an area where active choices must be made. We look at the choice of external asset managers as an investment decision. Since 1998, we have invested through 319 different external active equity managers. To retain their mandates, they must show over time that they can identify profitable investments. They must also take responsible investment into account. The fund’s size and breadth enable us to follow up the external asset managers systematically over time. Internally, we employ portfolio managers who perform their own analyses and monitor the external asset managers’ portfolios. All aspects of the activities of these managers are evaluated to ensure that they meet our requirements and expectations. Chart: Net relative return. External asset managers We get back much more from external asset managers than we have paid for their services. In the period to 2019, cumulative excess return after costs associated with external mandates has 4/5 BIS central bankers' speeches been NOK 48 billion. The results have exceeded expectations. At the same time, these investments spread the fund’s risk across more markets. External asset managers also help the fund to steer clear of problematic business models and companies and sectors with weak ownership structures. It would have been difficult to achieve without local knowledge. The Executive Board intends to raise the limit for the external management mandates to 5 percent of the fund next year. Conclusion The fund has become larger than anyone could have imagined only a few years ago. | 0 |
A signalling channel may also have been at work as we had communicated our intention to follow a clear sequence in the process of policy normalisation: to end net asset purchases before raising interest rates. However, empirical evidence suggests that the effects of the signalling channel tend to materialise predominantly at shorter maturities, with limited impact at longer maturities. See Altavilla et al. (2015), “Asset purchase programmes and financial markets: lessons from the euro area”, Working Paper Series, No 1864, ECB, November. 21. Andrade et al. (2016, op. cit. ); and Krishnamurthy, A. and Vissing-Jorgensen, A. (2011, op. cit.). 22. Albertazzi, U. et al. (2021), “Portfolio rebalancing and the transmission of large-scale asset purchase programs: Evidence from the Euro area”, Journal of Financial Intermediation, Vol. 48, October; Altavilla et al., op. cit; and Andrade et al. (2016, op. cit.). 23. Portfolio rebalancing can also be thought of in the context of the “risk-taking channel” of monetary policy, which suggests that a long period of very accommodative monetary policy causes investors to increase risk-taking. See Borio, C. and Zhu, H. (2012), “Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?”, Journal of Financial Stability, Vol. 8, No 4, pp. 236-251; and Adrian, T. and Shin, H. S. (2010), “Liquidity and leverage,” Journal of Financial Intermediation, Vol. 19, No 3, pp. 418–437. 24. Guimaraes, B. (2011), "Sovereign Default: Which Shocks Matter? ", Review of Economic Dynamics, Vol. | We hope to conclude this review by the end of the year. One important element in our discussion is the amount of central bank reserves required to effectively steer short-term interest rates in either a floor or a corridor system. This amount informs our decisionmaking as to when balance sheet normalisation might need to be halted. Structural and regulatory changes have made estimating the demand for reserves more challenging than before the global financial crisis. [5] However, our current estimates suggest that the amount of central bank reserves currently held by the banking sector exceeds, by a significant margin, the level necessary to steer short-term market rates close to our key policy rate even under a floor system. This implies that the current size of our balance sheet is larger than necessary to effectively implement our monetary policy stance. As such, maintaining a large bond portfolio absorbs valuable policy space that may be needed if policy rates were to become constrained again by the effective lower bound. Shrinking the balance sheet, to the extent possible, is therefore both prudent and efficient. Mitigating negative side effects of a large balance sheet The second reason for reducing the APP portfolio is related to the side effects of running a large balance sheet. It is well documented that bond purchases can cause asset price valuations in financial and real estate markets to diverge from their economic fundamentals, thus raising both financial stability risks and wealth inequality. [6] Maintaining too large a balance sheet may also have undesirable side effects. | 1 |
John C Williams: If we fail to prepare, we prepare to fail Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Council on Foreign Relations, New York City, 6 June 2019. * * * As prepared for delivery Note: These remarks are based on those delivered at the 9th High-Level Conference on the International Monetary System on May 14, 2019. Introduction Thank you for that kind introduction and for the opportunity to speak again at the Council on Foreign Relations. I’m going to keep my remarks brief so that there’s plenty of time for Steve to grill me on interest rates, followed by some thoughtful questions from the audience. With the mention of interest rates, it’s time I remind everyone that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System. John Maynard Keynes is credited with saying, “When the facts change, I change my mind. What do you do, sir?” The economic era we’ve experienced for the last 11 years has been defined by the Great Recession. There’s the world before, and the world after, the subprime mortgage crisis, the collapse of Lehman Brothers, and the ensuing financial crisis. The Road to Recovery Governments and central banks have spent the intervening years working to get their economies growing, create jobs, and put regulation in place to prevent another such catastrophe. | In OECD countries, population growth averaged over 1 percent back in the 1950s and 1960s, but it is now running at half a percent per year, and is expected to gradually fall before dipping into negative figures by 2070.1 Slowing birth rates mean fewer consumers and fewer workers. People planning on longer retirements will tend to save more. And while this is undoubtedly good news in many respects, an abundance in the supply of savings also has a big effect on the global economic picture. When it comes to productivity, there has also been a stark step-down in growth. Rapid changes in the kinds of technology we use in our daily lives—robotic vacuum cleaners, self-driving cars, and facial recognition technology in our phones—may make this seem counterintuitive or plain wrong.2 But the data are clear. In OECD economies, growth in labor productivity—the amount produced per worker hour—has averaged a little over 1 percent per year since 2005, about half the pace seen over the prior decade. Falling R-star So what does all this mean for the future? Two things: First, slower population and productivity growth translate directly into slower trend economic growth. Second, an abundance of savings, and a decline in demand for savings resulting from slower trend growth, together lead to lower interest rates. All of these factors combined have contributed to dramatic declines in the longer-term neutral rate of interest, or rstar. While a central bank like the Fed sets short-term interest rates, r-star is a result of longer-term economic factors. | 1 |
This is, in my view, the best way to allow banks to play their full role in the economy and ensure a fair deal for businesses and consumers. Recently, we have signed an MOU with the Competition and Consumer Protection Commission aimed at enhancing the competition arrangements in the banking sector. We hope to strengthen capacity to tackle anti-competitive behaviour in the sector. I would therefore, like to encourage you to start viewing these areas as an intricate part of your overall business strategies in order to enable us as an industry to consolidate the gains so far achieved. Ladies and gentlemen, let me acknowledge the commitments that the Bankers Association has made in the revised Code of Banking Practice relating to the provision of “No Frills Account” to certain segments of our population. As the central bank we will be interested to receive information on how you are performing in this important area for financial inclusion. On our part, we have issued a “Practice Note” to assist commercial banks overcome some of the Know Your Customer challenges faced with when dealing with some segments of our society. Chairperson, let me conclude by reiterating the important role that a healthy and stable financial system plays in an economy. This objective cannot be achieved by the Bank of Zambia alone but through collective efforts including the Government and yourselves. My expectations are that although the role of Chairperson has changed, the Association will remain true and steadfast to its values and objectives. | Given the improved economic performance, it has become necessary to re-align and configure our currency in line with macroeconomic fundamentals. The currency rebasing exercise will have implications on businesses in the economy including changes to accounting software, tax aspects, ATMs, cash registers, etc. The success of the currency rebasing exercise will largely depend on our partnership with the commercial banks. Ladies and gentlemen, as you will note all these measures are aimed at improving efficiency conduct of business in our economy and commercial banks have a very crucial role to play in all these. The expectation is that all of you represented here will support the central bank to ensure that collectively, we build a financial sector that is modern and responsive to the needs of our economy. Chairperson, as a central bank, we will continue to foster an environment where dialogue between all key stakeholders can be promoted both at individual bank level as well as at Industry level. Despite the policy changes embarked on, there remains a lot to be done in the areas of financial inclusion, financial education and consumer protection in the banking 2 BIS central bankers’ speeches industry. In this regard, the Bank of Zambia has developed branchless banking frameworks and a national strategy for financial education in partnership with other stakeholders. As a regulator, we are committed to ensure an open and competitive banking environment. | 1 |
But clearly, banks are exposed to more than just credit and market risk. Operational risk also is a growing concern for the banking industry. The looming issue of Year 2000 remediation is just one example. With the continuing diversification of banking, the fast pace of financial innovation and the growing concentration of crucial payments, settlements and custody businesses, the importance of operational risk is rising, especially at many larger institutions. These institutions find that the probability of a financial loss resulting from a breakdown in internal controls or systems is greater than ever. As banks expand into new lines of business, such as electronic banking, this trend is likely to continue. For instance, consider the risk of a breach in electronic security controls that leads to unauthorized access to confidential customer information. Should this breach be severe and pervasive, it could lead to considerable legal and reputational problems for a bank. Further, the overall rapid pace of technological change in this area means there is a substantial risk of obsolescence. These are just some of the risks that banks must manage, and clearly the list I have set forth is not exhaustive. In particular, consider banks in emerging market countries that are subject to a unique set of risks as a result of the financing and investment cycles in their countries. Those banks that fund their domestic assets with foreign currencies may be particularly susceptible to liquidity risk when sharp fluctuations in exchange rates and market turbulence make it difficult to retain sources of financing. | Inevitably, this aspect takes on greater importance. For one reason, supervisors expect banks to operate above minimum regulatory capital ratios included in the Basle Accord – and prudent assessments can help to inform by how much. For another, supervisors seek to intervene early enough to prevent capital from falling below prudent levels – and bank assessments can provide another useful tool in identifying key issues before they become major problems. With these thoughts in mind, supervisors are tackling the challenge of developing a more systematic approach to the review of capital adequacy. Supervisors also are discussing ways to enhance market-based discipline. Most agree there should be a greater role for private-sector monitoring of banks. Of course, there already exists a fair amount of market-based monitoring; however, the collection and use of these kinds of information usually are not systematic or complete. The first goal is to improve information available to the market. With enhanced risk disclosure, supervisors will be more able to rely on the opinion of market investors. These opinions are reflected quickly in the price of bank debt and share prices, and the ease with which banks can access capital. By relying more on these market signals, supervisors will be better able to identify and address waning capital levels at problem institutions. To the extent banks develop disciplined internal approaches to evaluating capital adequacy and capital plans, and enhance disclosures, supervisors will be able to place greater reliance on all three pillars and meet the challenges of a more complex financial marketplace. | 1 |
On the contrary, our responsibility, after the crisis we have experienced, is to better protect the rights of policyholders, and by that I mean all policyholders. The sole purpose of this measure is to enable us to protect French savers in the event of serious and exceptional threats to financial stability. If ever it were needed, we would be sure to use it appropriately and in the collective interest. II. Second major challenge for the insurance sector: the complete overhaul of the regulatory framework The Solvency 2 Directive came into force in the European Union on 1 January this year after 10 years of difficult negotiations. Despite what critics say, this overhaul of the regulatory framework was necessary. The previous framework, which dated back to the 1970s, was no longer adequate. It did not take into account the true nature of risks: capital requirements, for example, were independent of asset allocation. The new supervisory framework now includes requirements relating to governance, cooperation between European supervisors in the same group, reporting and transparency vis-à-vis the market. The principles of Solvency 2 are not perfect but they do represent genuine progress: investment freedom in return for compliance with the "prudent person" principle, joint valuation of insurance assets and liabilities, and the taking into account of "long-term guarantees" to mitigate the effects of financial market volatility on capital. That said, there are a number of developments that would be desirable. | Page 1 sur 7 8th International Insurance Conference: “Towards the insurance of tomorrow” – Paris, 14 October 2016 Speech by François Villeroy de Galhau, Chairman of the Autorité de Contrôle Prudentiel et de Résolution and Governor of the Banque de France Ladies and gentlemen, I am very happy to be here today for this 8th International Insurance Conference - the first to be organised under the aegis of the French Insurance Federation - and I would particularly like to extend my regards to the federation’s Chairman, Bernard Spitz, as well as to its vice-chairmen. Although I have met you all several times in the past year, this is the first time I have participated in an event in my capacity as Chairman of the ACPR, the Autorité de Contrôle Prudentiel et de Résolution. Rest assured that at the ACPR, I indeed we - regard the insurance sector as every bit as important as the banking sector. With a total of 826 licensed firms in France in 2015, oversight of the insurance sector is a vital part of our mission to safeguard financial stability – which, alongside monetary strategy and the provision of services to the economy, forms part of my threefold mandate as Governor of the Banque de France. Page 2 sur 7 As supervisors, we are concerned on a daily basis with the theme of this conference: the insurance industry of tomorrow. Indeed, given the speed at which things are evolving, tomorrow’s insurance landscape is already very much present today. | 1 |
With that said, here in the U.S., the Enhanced Prudential Standards (EPS) are at the core of strengthening both U.S. firms and the U.S. operations of foreign firms and ensure a level playing field for all firms doing business in the U.S. With the final rules published earlier this year, firms have begun the work necessary to implement changes to meet the expectations set out in the new rules. Not surprisingly, we are seeing a number of challenges faced by FBOs (foreign banking organizations) in meeting the expectations of the EPS, among these challenges are: 1. Head Office Engagement: While U.S. management is clearly on the hook to develop and implement necessary changes, some firms are struggling to get the appropriate level of engagement with head office, including getting sufficient recognition of the breadth and scope of the changes necessary to meet the new standards. Importantly, the impact goes both ways: there are also implications for head office in the new standards, including requirements to demonstrate firm-wide capital and liquidity stress testing capabilities. Further, the governance requirements, including for many firms the requirement to form a U.S. risk committee, have implications for firm-wide governance that need to be assessed and understood at the group level. Beyond these requirements, the U.S. operations will – in all cases – require additional budget and resources to meet the expectations, as well as the timeline for implementation. All of the necessary changes for FBOs require close coordination between head office and the U.S. operations. | We have been hearing some of this, but more specific examples and solid data is needed to be in a position to address the issues. Remaining issues on my insomnia list Turning now to the issues that still keep me awake at night, I will highlight three of these today: (1) AML/BSA (yet again); (2) information technology; and (3) communication and coordination. 4 BIS central bankers’ speeches 1. AML/BSA The world of AML/BSA keeps growing. What started out decades ago as a US-centric emphasis on hindering drug trafficking has transformed into a global framework that addresses a range of criminal activity, anti-terrorism, arms proliferation, and tax avoidance. As I know you are aware, the bar keeps rising, as well as the stakes. This past year has seen – again – significant public enforcement actions, some together with huge fines. | 1 |
In 1970, a German mark cost about 2 kroner. In 1986/87, it cost about 4 kroner. The exchange rate remained relatively stable in the following years. On the other hand, prices rose twice as quickly in as in Germany from 1970 to 1986. However, prices and the exchange rate were stable in relation to Germany from the end of the 1980s until the German mark ceased to be a currency. A measure of the real exchange rate is the trade-weighted exchange rate index (TWI) in relation to price developments in Norway relative to trading partners. The real krone exchange rate has fluctuated around a long-term average level over the past 30 years. When the krone deviates from the average long-term level, it tends to return to it relatively quickly. Inflation differentials between Norway and other countries have gradually been offset by changes in the krone exchange rate. This relationship has been robust even in the face of significant changes in economic policy. However, the economic policy reform in spring 2001, with the introduction of a new fiscal rule and inflation target, may still have an impact on how quickly prices stabilise in the years ahead. Increased spending of petroleum revenues or expectations of increased use of petroleum revenues can lead to an appreciation of the krone. Increased use of petroleum revenues over the central government budget implies higher demand. | We would then have had to reduce the interest rate sharply this summer. This would have amplified the pressures in the Norwegian economy, which are so clearly reflected in wage developments and household credit demand. It is more than likely that this would have required substantial increases in the interest rate in a year to eighteen months. Strict inflation targeting of this type would thus have resulted in more pronounced fluctuations in the interest rate and in aggregate demand and production. Information obtained via the regional network established last autumn was used when preparing the October Inflation Report. We will have six rounds of talks each year with business and community representatives concerning financial developments in their enterprises and industries. There will be a total of about 200 visits in each round. We have divided the country into 7 regions and established links with regional research institutions in six of them. These institutions will hold meetings with the representatives on behalf of Norges Bank. The private service sector is by far the largest in the Central Norway region, accounting for over 40 percent of total employment in the region. The private service and retail sales sectors together account for over half of the number employed, while a good tenth are employed in manufacturing. The share of manufacturing industry that is exposed to international competition in Trøndelag is relatively limited. Companies in the Central Norway region report small changes in prices and costs, except for export companies. | 1 |
Hanson, Samuel G., Anil K. Kashyap, and Jeremy C. Stein. 2011. “A Macroprudential Approach to Financial Regulation.” Journal of Economic Perspectives, 25(1): 3–28. IMF (2013), “Key aspects of macroprudential policy”. King, M. A. (2013), “A Governor looks back – and forward”: http://www.bankofengland.co.uk/publications/Documents/speeches/2013/speech670.pdf. Kydland and Prescott (1977), “Rules rather than discretion: the inconsistency of optimal plans”, Journal of Political Economy, 85 (3) pages 473–492. Minsky, H (1986): “Stabilising an Unstable Economy”, Yale University Press. Morris S and Shin, H-S (2008) “Financial regulation in a system context”, Brookings Papers on Economic Activity. Reinhart, C and Rogoff, K (2008): “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises”, NBER Working Paper 13882. Stein (2013), “Overheating in Credit Markets: Origins, Measurement, and Policy Responses” http://www.federalreserve.gov/newsevents/speech/stein20130207a.htm. Taylor, J (1993): “Discretion versus policy rules in practice”, Carnegie-Rochester Conference Series on Public Policy, no 39, pp 195–214. Tinbergen, J (1952): “On the Theory of Economic Policy”, North-Holland Pub Co, 2nd edition. BIS central bankers’ speeches 9 | But, notwithstanding the current difficulties, I am convinced that the best prospect for a relatively happy ending is for all of us to persist in our attempts to achieve the macroeconomic stability and supply-side flexibility which I identified as our common goal at the outset of my remarks. I am very happy now to take your questions. 4 BIS Review 47/2001 | 0 |
For that, structural reforms are necessary – at national and European level. At the same time, structural problems are making monetary policy less effective in the euro area. In this context, it seems very odd to me that politicians are now criticising the European Central Bank. This endangers our independence and undermines trust. I would like to see a political class that has the courage to lead public opinion. Politicians who have the confidence to explain to voters that a fully fledged European monetary union is not without an alternative, but that it is worthwhile – even if it’s proving difficult to get there. But once the idea and the reality of the euro are back in harmony, then Eurosceptic voices will not find many listeners. I am convinced of this. BIS central bankers’ speeches 5 | In many respects, the financial sector in Malaysia has progressed ahead of current developments. A set of governance principles and rules were introduced in the early part of this recent decade. This included the parameters for sound practices with respect to risk-aligned compensations – an issue that has been a focus of the current global regulatory reforms. This was followed closely by the implementation of an improved risk-based supervisory approach which places board and senior management oversight at the centre of an effective control environment within financial institutions. A more rigorous process for assessing individuals nominated to assume the roles of director, chairman and chief executive of financial institutions have also been introduced. As part of the efforts to bring about behavioural and cultural changes to strengthen the governance practices in the financial industry, FIDE was developed and introduced in 2008. We have been encouraged by the resulting improvements observed in governance and risk management practices among financial institutions in Malaysia. Our supervisory oversight has shown that directors have exercised a more active role in ensuring effective alignment and implementation of risk policies, business strategy and capital management. The quality of engagement between boards and management has also improved substantially in particular, on major strategic decisions and risk developments. Our supervisory engagements with boards have also benefited from the issues raised on areas of concern and material developments. There has also been increased efforts to strengthen the mix of skills, experience and expertise of the Board composition to improve the overall effectiveness of boards. | 0 |
But it is a vital part of that transformation, and I am pleased that this conference is giving it the consideration it deserves. Thank you for your attention. 1 4 P. Asdrubali, B. E. Sorensen and O. Yosha, “Channels of interstate risk sharing: United States 1963–1990”, Quarterly Journal of Economics, vol. 111, 1996, Oxford University Press. BIS central bankers’ speeches | When debt approaches an unsustainable level, investors will demand higher compensation for new loans and interest rates on loans will rise, hence the snowball effect. (See Chart: Fiscal deficit and Public debt.) Large deficits have a direct impact on sovereign debt. From 2007 to 2010, fiscal deficits in euro area countries rose from 0.6 per cent of GDP to 6.6 per cent. In the same period, public debt rose from 66 per cent of GDP to 85 per cent, and there are prospects that debt will approach 100 per cent of GDP in the next few years. Fiscal deficits in the UK and the US will reach 11–12 per cent this year and public debt is rising rapidly to high levels. In order to rein in this development, fiscal tightening must be implemented and government budgets must be brought into surplus. This can be particularly costly in downturns. Several European countries have recently announced tax increases and cuts in expenditure. This typically involves raising the retirement age, broad-based wage reductions and lower welfare spending. These sharp measures may well boost growth capacity in these countries in the long term, but in the short run they will result in lower demand for goods and services and probably lower activity. Since several countries are tightening fiscal policy at the same time, export markets may also shrink. However, reduced fiscal deficits will hopefully restore confidence in economic policy so that growth in household and corporate consumption and investment resumes. (See Chart: Sweden and Finland in the 1990s.) | 0 |
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