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This regional network is further strengthened through the collaboration among Asian countries to further the green agenda and sustainable development conferences such as the Asia Low Emission Development Strategies (LED) Forum, and the ASEAN Initiative on Environmentally Sustainable Cities. v. To create a more diverse and robust financing ecosystem for green ventures, the sukuk market and venture capital industry can play a more active role in supporting this sector. To promote long-term financing, the sukuk market presents an additional avenue to meet market demands. Sukuk which uses a principles-based approach on having real productive underlying assets is an ideal financing solution for green technology projects which have large capital outlays and long gestation periods. Another is the promotion of a vibrant venture capital industry in Malaysia to complement the banking system, as it has the potential to facilitate the development of small and innovative businesses and the commercialisation of intellectual property. I am pleased to inform you that the recommendations made from this conference will be forwarded to the Government in designing a conducive ecosystem that will accelerate Malaysia to the frontier of green technology. It is therefore imperative that recommendations devised are practical, effective and holistic. Conclusion There remain large untapped opportunities in the green technology sector in Malaysia. Swift action is necessary not only to address the growing demand for green technology, but also to address the increasing risks to the environment. | Such financing are also in line with ethical and responsible financing principles, that contribute towards the long-term sustainability of this business. Governments around the world are also playing a critical role in catalysing sustainable development, through policies and regulations that encourage the adoption of green BIS central bankers’ speeches 1 solutions. South Korea, for example, has adopted a shared vision for green growth and established the Green Growth Institute to implement efforts to deal with climate change and resolve environmental and energy issues. The Philippines introduced new legislation on climate change and established a Climate Change Commission to coordinate, monitor and evaluate the government’s actions to mitigate and adapt to the effects of climate change. In Malaysia, sustainability represents one of the key principles underpinning the New Economic Model and has been identified as a Key Strategic Reform Initiative which has led to the establishment of key agencies such as Malaysian Green Technology Corporation (MGTC) and Sustainable Energy Development Authority (SEDA). In the foreseeable future, green technology will be a driver to promote sustainable growth and development. It is in the financial industry’s interest to be involved and engaged in its rapid development. The Government has put in place, the necessary support, incentives and infrastructure. Therefore the banking industry must reciprocate in kind, by allocating more resources and putting in place the required ecosystem to expand financing into this exciting new era of new financing. | 1 |
Speaking of the past, I cannot help remembering that in the early nineties, when I took over as Governor of the National Bank of Romania, a tremendous effort was needed – not only in Romania, but also in the other former communist countries in Central and Eastern Europe – to go from a monobank-type system to a two-tier system. The effort was even bigger in a country like Romania, where – after some attempts to implement reforms in the sixties and seventies – the economic and financial system had become ever more centralised, more Stalinist-like in the final decade of the communist regime. In hindsight, now that things have settled, these changes may seem like a piece of cake, but please try to imagine how difficult it was to take the reins of an institution that had operated in the context of centralised state planning of the entire economic activity. There was no trace of monetary policy and commercial banking operations needed to be separated from central bank operations. The former were taken over by Banca Comercială Română, later part of the Erste Bank group, while monetary policy became the responsibility of the National Bank of Romania. The “parting of the waters” occurred pretty quickly, but the new NBR only accounted for less than 5 percent of the former central bank employees, most of them in cash management and accounting. | I confess that I then felt the need to go to the vault and feel with my own hands the gold bars – Romania’s last tangible reserve in those days (in December 1990, gold reserves stood at 68.7 tonnes, amounting to approximately USD 850 million) – for a boost of confidence that the rather complex economic situation might be successfully tackled. It is hard to believe that this really happened, especially now, when Romania’s international reserves amount to approximately 38 billion euros. I will now move on to less amusing memories of those times. The avatars of economic transition rendered difficult the mission of Romania’s central bank. Monetary policy, a fundamental task of the National Bank of Romania, was facing numerous difficulties and constraints, as the process of lowering inflation was often undermined by the need to pursue conflicting macroeconomic objectives or avert a full-blown banking system crisis. This was because Romania’s path towards a functional market economy was anything but smooth. Quite on the contrary, the process often shifted between step-ups and slowdowns, that is when it did not stall altogether. A major feature of the domestic economy’s reform was the priority given, at the onset of the process, to ensuring the country’s social and political stability. In this context, the preferred choice was a gradual strategy, with reforms spread over many years, so as not to spark major social tensions. | 1 |
Dealers run large securities financing “matched books” in which they borrow cash against securities, lend cash against securities, borrow securities against cash, lend securities against cash and borrow securities against other securities. At first hearing, that sounds like a rather pointless daisy chain. But securities financing markets are important (Chart 4). First, reverse repo transactions (short-term cash loans against high-quality bonds) provide moneylike assets for risk-averse wholesale investors, like money funds and sovereign reserves managers. As Zoltan Poszar has shown, their demand for money, particularly in US dollars, far outstrips traditional supply in the form of insured bank deposits or Treasury bills (Poszar 2014). Securities financing markets fill the gap. Second, acting as prime brokers, dealers finance the long and short positions of leveraged investors such as hedge funds. Third, securities financing markets facilitate the flow of high-quality securities from their underlying beneficial owners, such as pension funds and insurance companies, to banks and dealers which increasingly need to use and reuse them in order to meet regulatory requirements to collateralise their obligations: for example, to other banks and dealers and to central counterparty clearing houses. Securities financing markets may be important but the financial crisis demonstrated that they can also be fragile. Securities thought to be “safe” collateral, such as AAA-rated mortgagebacked securities and peripheral European sovereign bonds, became “risky” collateral. Haircuts on lending against those securities increased (Chart 5). | Given the global dimension of these building blocks, international cooperation and collaboration is significantly vital to advance these important agendas. Regulatory harmonization Commanding the highest level of international cooperation is particularly vital in the implementation of common prudential standards to safeguard the stability of the Islamic financial system. This will contribute towards the harmonization of the regulatory and supervisory framework in Islamic financial systems across borders. Of importance is advancing the international standards and best practices that takes into account the distinct characteristics of Islamic finance. Such prudential regulation that considers the unique mix of risks associated with Shariah-compliant financial business would enhance the effectiveness of the regulatory outcomes intended for Islamic finance. Much progress has already been made by the IFSB in promulgating an extensive set of prudential standards for the Islamic financial services industry since its establishment in 2002. The IFSB has already introduced standards for capital adequacy, risk management, 2 BIS central bankers’ speeches corporate governance and Shariah governance. This important work has been significant in promoting international uniformity of regulatory frameworks and international best practices for the Islamic financial system in different jurisdictions. Its significant progress has benefited from the strong international cooperation and collective support from its member countries and global institutions. Indeed, as an evolving global industry with varying stages of development across borders and various business structures and operating models used in the different markets, this close engagement has also allowed for the attainment of balanced views. | 0 |
More relevant to today’s conference, following the FSB’s recent Plenary meeting in Tokyo we announced that in the next few weeks we will issue a consultative paper on resolution planning and, in particular, on resolution strategies. The paper, drawn up by a subcommittee led by Christine Cumming of the New York Federal Reserve Bank, will cover three areas. The first is Recovery Triggers and Stress Scenarios used in recovery planning. Firms need to ensure that triggers are not linked mechanically to metrics that lag behind their true financial condition – a problem with some previous earlyintervention frameworks. Recovery actions must start sufficiently early. But care must be taken to avoid markets overacting to the fact of such actions being taken. That is not easy. Second, the consultative paper will outline a possible framework for national authorities to use when identifying the critical functions and support services of firms that need to be sustained in distressed conditions. What matters here is focusing on those services that are vital to the economy. The third, and most important, area of consultation is about the development of Resolution Strategies and Operational Resolution Plans. This guidance aims to capture the main issues that authorities should address. | In their article “Inflation forecasts and monetary policy”, Ben Bernanke and Michael Woodford discuss the case of the central bank fully relying on market forecasts for its decision-making. They conclude that relying only on the market inflation forecast the central bank cannot perfectly stabilise inflation on the target. In the economist’s technical jargon, it can be shown that the rational expectations equilibrium under such circumstances does not exist. Although such a statement looks suspicious, there is quite a simple intuition behind it. Let’s assume that the central bank can infer the current state of the economy only from the market forecasts. Then, following the market forecasts, the central bank will clearly settle monetary policy in order to achieve its target. Consequently, at the end of the day inflation will in fact be equal to the target. In the world of rational expectations, the market forecasters immediately accommodate this experience and their next forecasts will already be equal to the target. Facing market forecasts equal to the target, the central bank can infer nothing about the economy’s current state, which is of course inconsistent with the initial supposition that the central bank can infer the information about the economy’s current state from the market forecasts. Put differently, once we admit that expectations are formed rationally, market forecasts cannot be used as pure information about the economy’s current state. Understandably, we live in a world of information asymmetry and the rational expectations theory does not hold in its “strong” version. | 0 |
Second, if enterprises, in their search for the best qualified candidates, go so far as to bid up wages, profits may fall and unemployment edge up. Developments ahead will also depend on how wage-earners react. If the wage share has fallen solely because of a lag in wage formation, both wage shares and unemployment may increase. High income growth and a sharp rise in the number of households laid the basis for a sharp, long-term rise in house prices. It now appears that the housing market is cooling after an almost three-fold rise in prices in real terms in the course of the past 14 years. In some regions, house prices are now approximately unchanged or lower than they were a year ago. House price inflation has been accompanied by strong growth in household debt. Household debt in Norway is now about twice the level of disposable income, making the debt-income ratio higher than ever before. At the same time, saving is declining. This means that in addition to fully financing their housing investments through mortgages, households are also raising loans to finance current consumption. Higher interest rates and falling house prices may lead to slower consumption growth and a gradual increase in saving. Growth outlook and the orientation of fiscal and monetary policy I would like to conclude by commenting on the outlook for growth. Global economic developments are important for economic developments in Norway, and changes in the growth prospects for the world economy may influence our forecasts. | To prevent interbank lending rates from rising too much, a number of central banks have increased their short-term lending to banks. In addition, the Federal Reserve has lowered its key rate by 0.75 percentage point in recent months. A further cut in the key rate in the US is now expected, and the interest rate is also expected to fall in the UK. In the euro area, market participants expect a more stable key rate ahead. But developments are not the same everywhere. The central banks in Sweden, Switzerland, Canada, New Zealand and China have raised their key rates. In Sweden, which has a lower interest rate level than our main trading partners, further interest rate hikes are expected. BIS Review 139/2007 5 The interest rate differential between Norway and other countries can have an impact on the krone exchange rate. In the short term, however, the factors that influence the krone exchange rate vary. High oil prices and krone appreciation appear at times to be related, but there have also been periods when the krone has appreciated while oil prices declined. The krone appreciated when the interest rate differential against other countries was high in 2002, but as interest rates in Norway moved down to the level among our trading partners, the value of the krone fell back. In the past, we have observed that market turbulence has occurred in tandem with a weaker krone. | 1 |
This is particularly due to the profitability given by wide interest rate margins on the domestic market as well as to the fast-paced increase in lending via traditional banking products. Secondly, the overwhelming majority of banks operating in Romania, including those with foreign capital, are legal entities subject to NBR licensing, regulation and prudential supervision. Similarly to foreign bank branches having their main office in other EU Member States, these banks abide by the Basel II prudential and capital adequacy standards. Thirdly, some regulations issued by the National Bank of Romania have often proved more restrictive than the Basel II standards. More specifically, initial capital requirements for licensing a credit institution in Romania are almost twice as much as the minimum level laid down in EU regulations. Moreover, it is worth mentioning that the NBR representatives are part of the competent EU structures involved in the review and improvement of EU regulations governing the financial system architecture. Last but not least, the minimum reserve requirement ratios are still high at 20% on RONdenominated liabilities with maturities of up to 2 years and 40% on foreign currencydenominated liabilities. In addition to their contribution to curbing credit expansion, reserve requirements also play a prudential role in credit institutions maintaining an adequate liquidity level. Finally, let me point out the measures recently taken by the central bank with a view to ensuring sustainable credit growth in the longer-run. These measures are all the more useful amid the persistent turbulences on global financial markets. | 2 BIS Review 144/2010 Finally, Ladies and Gentlemen, given the innovations around mobile banking and its attendant challenges, it is our expectation that this workshop will encourage dialogue between different market players in Zambia and within the region. This Conference provides an opportunity for such dialogue and I am glad that it takes cognizance of a dynamic market environment, paying special attention to innovation that may have significant macroeconomic benefits to all involved. We are therefore keen to draw on the policy debate arising from this Conference to move financial services in Zambia to new frontiers. As Bank of Zambia, we will play a catalytic role and facilitate private sector led developmental initiatives. I thank you. BIS Review 144/2010 3 | 0 |
As we look across the industry, hear the experiences of firms and read the emerging literature, like the recent report by the UK FCA, one can identify factors that are likely to impact, and possibly erode, cultural capital.6 I’ll outline several areas where these dynamics may be at play, including loss of personal interactions, severed networks, uncertainty, and decreased monitoring and oversight. Lack of personal interaction. The first dynamic is lack of personal interaction, which is critical to forming trusting relationships. As trust, a cornerstone of a good culture, is built through frequent interactions and reliable behavior, the lack of personal interaction at the workplace has the potential to weaken trust between colleagues, within teams, and across organizations.7 Trust is a complex human emotion that allows individuals to have faith in colleagues to do the right thing and not cause harm.8 Is it possible to sustain this ‘trust’ in colleagues as frequency of interactions decrease and the format of interactions make personal bonding more challenging? | Who better to speak to us this evening on this topic than Otmar, with his extraordinary talent for communicating with an interested general public? Ladies and gentlemen, please join me in welcoming Otmar Issing with a big round of applause. Page 4/4 | 0 |
Clearing in its simplest and original form simply refers to mechanisms for adding up each member’s claims and liabilities to the other members before settlement so only the net amount is paid or owed. The earliest clearing houses were places where banks literally put the receipts recording their respective claims and liabilities on the table at the end of the day so they could be netted off against each other. Such clearing mechanisms still operate in some payment systems though the most important payment systems that settle the highest value payments nowadays operated by central banks work on a gross basis in real time to reduce risk. (Real-time gross settlement of high value payments allows immediate, final and irrevocable settlement of obligations across central bank accounts.) However, we still talk of payments in a currency ultimately ‘clearing’ across the books of the central bank of that currency, for example as in ‘dollar clearing’ across the books of the New York Fed. Central clearing, however, does not mean the clearing inherent in payment systems but the infrastructure that allows financial market participants to manage the risks they face from their counterparties in financial contracts that can last for months or even decades. | This makes me more confident that job growth in January was temporarily depressed by unusually bad winter weather. Other labor market indicators, such as initial claims for unemployment insurance benefits and the employment components of both manufacturing and nonmanufacturing business surveys have also shown improvement recently. Although there is still uncertainty over the timing and speed of the labor market recovery, I do expect that job growth will increase considerably more rapidly in the coming months. We should welcome this. A substantial pickup is sorely needed. Even if we were to generate growth of 300,000 jobs per month, we would still likely have considerable slack in the labor market at the end of 2012. So, why is the economy finally showing more signs of life? In my view, the improvement reflects three developments. First, household and financial institution balance sheets continue to improve. On the household side, the 2008–09 rise in the saving rate appears to have stabilized in the 5 percent to 6 percent range. Meanwhile, the amount of money they need to service their debt (for mortgages, cars, credit cards, etc.) has fallen sharply to levels that prevailed during the mid-1990s. Debt service has been pushed lower by a combination of debt repayment, refinancing at lower interest rates and debt write-offs. Financial institutions have strengthened their balance sheets by retaining earnings and by issuing equity. As a result, some measures of bank credit are beginning to expand again. Second, monetary policy and fiscal policy have provided support to the recovery. | 0 |
This may seem paradoxical but if people feel they can rely on the central bank, in an economic slowdown it may be possible to ease the monetary stance without triggering higher inflation expectations and bond rates, because everyone counts on policy being tightened before inflation moves up. We have experienced something of this sort in Sweden in the past year. In a system with poor credibility, a monetary easing may be perceived as a sign of a lasting upward shift in inflation. This in turn may generate self-fulfilling expectations, with future problems when efforts are made to control inflation once more. It is understandable that the risk of this is seen as particularly great in economies where inflation has been high for a long time. A more independent central bank is thus in a better position not only to maintain low inflation but also to operate at times with a policy that includes an element of stabilisation (though the problems of fine tuning stabilisation policy should not be underestimated). The German central bank is one example; over a series of decades, economic slowdowns could be parried by lowering the short interest rate fairly rapidly and markedly. It may be in place to point out that credibility and, for that matter, independence can be achieved in various ways. Some countries have recently clarified their regulations so as to BIS Review 32/1997 -7- bring them into line with the arrangement I have just advocated. One example is New Zealand. | 9 31 1 1 99 6 1 4 8 1 69 916 1 6996 &164131 165 931 9961 31131 8 93 64 45 6 31 6 3 1 8 6 9 7 131 631 1 9961 93 8 14I 945 139 1 891 16 31 1 15 9 3 ! &1#62 | 0 |
Working together, the UK authorities’ challenge was to remind financial markets that its sole purpose was as a temporary, short term cash management tool to smooth cashflows, and not in any way intended as a more lasting replacement for gilt issuance as the Government’s primary financing source: something that could 11 All speeches are available online at www.bankofengland.co.uk/news/speeches 11 complicate the execution of monetary policy. Those principles were embodied in a public announcement released on 9 April. In the event, the rapid normalisation of market conditions allowed the Government to announce, and so far meet, sharply higher near-term gilt issuance plans (Chart 14) without any need for recourse to the Ways & Means account. The account remains available for use, if unexpected future cash needs cannot be met by any other market-based means, e.g. because of a renewed period of dysfunction. But in such circumstances, the usage would be short term; and, as soon as possible before the end of the year, the DMO would scale up its market operations to repay the W&M balance. Chart 13: Usage of the Ways & Means account £ bn 25 Chart 14: DMO funding plans compared 2009 2016-2019 average 2020 2020 (DMO announced) £ bn 350 20 300 250 15 200 10 150 100 5 50 0 2006 2008 2010 2012 2014 2016 2018 2020 Source: Bank of England. | Caleb M Fundanga: Innovative financial products on the Zambian market in relation to credit interest rates and the private sector development Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambia International Trade Fair Symposium on “Innovative financial products on the Zambian market in relation to credit interest rates and the private sector development”, Ndola, 30 June 2011. * 1.0 * * Introduction Financial development contributes to economic growth in a very significant way and it has been demonstrated that countries with more developed financial systems tend to grow faster. Therefore, the financial sector is key to economic development and policies aimed at developing the sector would be expected to contribute to economic growth. 2.0 The current financial sector policy environment in Zambia During the 1970s and 1980s Zambia pursued a policy of fixing interest rates for long periods and at relatively low levels, with the ostensible purpose of promoting growth. However, these administrative actions introduced economic distortions into the financial structure of the economy including the following: The hindrance to economic growth arising from the inefficiency in the allocation of resources (with credit controls and distorted price indicators). These controls resulted in both low levels of domestically generated savings and investment, thereby reducing the economy’s growth rates. The financial system remained generally under-developed with inefficient lending patterns that failed to achieve their distributional goals. | 0 |
The main entry on the liability side of the balance sheet is “central bank money”, comprising banknotes, which are supplied on demand, and the reserve accounts of commercial banks and building societies. 2 These are effectively sterling current accounts for the commercial banks – they are among the safest assets a bank can hold and are the ultimate means of payment between banks. In normal circumstances, the main entry on the asset side of the balance sheet is the Bank’s lending to those same commercial banks. 3 In setting monetary policy, our normal objective would be to lend exactly the amount of central bank money demanded, consistent with the MPC’s choice of Bank Rate. Crucially, although the targets for reserves accounts may react to the state of financial stability in the system, the Bank’s choices here are dictated by the stance of monetary policy. In normal times, we ask the banks to choose their own targets for reserve accounts and then lend just enough cash to the system as a whole so that the banks can collectively meet the aggregate of their targets. The commercial banks will then lend to, or borrow from each other in the inter-bank market, to distribute the total amount of cash around the system so that each individual institution can meet its target. Each bank is incentivised to meet its reserves target by the application of penalty rates to those who are – on average over a monthly maintenance period – either excessively short or long. | We can do this either by repo of bonds held on the Bank’s balance sheet or by offering to supply one-week Bank of England bills at Bank Rate. 8 Longer-term repos have a monetary objective in part. It is not necessarily efficient to lend very large amounts of cash every week in short-term repos. It would imply that the market was consistently short of cash in large size on a week-by-week basis, perhaps putting unnecessary strain on the inter-bank lending market and on the Bank’s operations. That strain could, perhaps, cause unwanted volatility in overnight rates. By lending a proportion of the cash for longer term – three months or more – the Bank can ensure that the size of shortterm repo operations are set at an appropriate level. Using longer-term repos to meet financial stability objectives has grown in importance during the financial market crisis. They can provide liquidity support in at least three dimensions: maturity, size and collateral type. The inter-bank market has been quite disrupted at times during the past three years. Counterparty credit concerns have limited unsecured lending, and liquidity was sometimes hoarded. A range of asset managers increased their holdings of cash at increasingly short maturity – ultimately in overnight accounts – concentrated in what they assessed to be the safest banks. | 1 |
Agricultural prices are set in negotiations between the agricultural organisations and the state (...) In these circumstances, it is almost meaningless to talk about the central bank’s special responsibility for inflation.”39 The diminished role of the institution, which persisted well into the 1980s, must be seen in the light of mixed experiences with par policy, ambitious aims of micromanaging the economy, and the conviction that lower unemployment could be achieved by accepting higher inflation.40 At the same time, major imbalances were building up in the economy. Fiscal policy, in conjunction with credit regulation and tight political control of business investment gradually undermined the monetary system as an institution. Later in the 1970s, these problems came to the surface. Growth declined, inflation surged and unemployment rose sharply. I should add that these problems were not confined to Norway. In 1971 the Bretton Woods system collapsed. Two year later the first oil price shock occurred. At the beginning of the 1980s, the problems in the Norwegian economy had reached a pinnacle. In May 1986, the Brundtland government decided to devalue the Norwegian krone by 10 percent. As was usual on such occasions, it was said that this would be the “last time”. Less usual was that it actually was the last time. Gro Harlem Brundtland, Gunnar Berge and Bjørn Skogstad Aamo had come to a decision. Devaluation policy was consigned to the past. | In 2006, the real GDP (at current prices) grew by 12.4 percent and by 4.2 percent (at constant prices). It is expected that strong growth rates will be maintained in the medium term. This will contribute to increasing the production capacity of the national economy and have a positive impact on all its sectors. International credit rating agencies have raised the credit rating of the Kingdom to advanced grades, and commended the efficiency and soundness of the national economy and the economic reform programs. This climate has made domestic and international investors more interested to participate in and benefit from the various investment opportunities in the Saudi economy. The banking system in the Kingdom has exercised a vital role in boosting the national economy. It has made great progress, using the latest technologies and various banking products, under a supervisory system keen to meet domestic requirements and legislation as well as international standards. The contribution of the banking sector to housing finance is expected to increase as soon as the real estate mortgage law is enacted. It is worth mentioning that the size of real estate finance provided by commercial banks reached Rls 13.4 billion at the end of the second quarter BIS Review 14/2007 1 of 2006. SAMA has permitted a number of banks to offer products for real estate financing. Banks are constantly working to develop innovative products to meet the needs of the housing market. | 0 |
Like many other organisations facing major change in its core business, the Fund will need to be sure that everything it values and rewards is tuned to support its new priorities. Conclusion Over the past fifteen years, the Great Inflation that followed the end of the Bretton Woods system has been replaced by the Great Stability. Globalisation has brought great benefits, but it is creating major challenges for policy makers. How will such issues be handled in future? The Fund certainly has the potential to act as an authoritative medium for international monetary collaboration, providing its surveillance activities are re-focused on external stability and the big global issues. The Managing Director’s current reform agenda is on the right lines. But the Fund’s effectiveness in promoting international monetary stability will depend critically on the organisation’s stature as a trusted and respected source of dispassionate analysis and impartial advice. And it will rest above all on the willingness of its members – large as well as small - to use it as their instrument to improve the quality of their own policy making. BIS Review 103/2006 7 Equipping the Fund with its own version of Hawk-Eye will not be enough. In the end it will be down to them – or more accurately, us. | References International Monetary Fund, "The Managing Director’s Report on Implementing the Fund’s MediumTerm Strategy", April 2006, Washington DC, available at http://www.imf.org/external/np/pp/eng/2006/040506.pdf Mervyn King, "Reform of the International Monetary Fund", speech at the Indian Council for Research on International Economic Relations in New Delhi, India, February 2006, available at http://www.bankofengland.co.uk/publications/speeches/2006/speech267.pdf Independent Evaluation Office of the IMF, "An Evaluation of the IMF's Multilateral Surveillance", February 2006, Washington DC, available at http://www.imf.org/external/np/ieo/2006/ms/eng/pdf/report.pdf International Monetary Fund, “World Economic Outlook”, September 2006 and others, available at http://www.imf.org/external/pubs/ft/weo/2006/02/index.htm 8 BIS Review 103/2006 | 1 |
• The stock exchanges of Singapore, Malaysia and Thailand have linked up through a common trading platform, the ASEAN Trading Link. This platform provides investors a single entry-point access to the three largest equity markets in ASEAN. There is still some way to go to achieve seamless participation across the region’s financial markets. But these initiatives are a good start. OTC derivatives infrastructure Second, OTC derivatives infrastructure. Earlier, I spoke of global regulatory reforms driving a revolution in the derivatives market. This has brought about new market infrastructure developments, and Singapore has made significant strides in two key areas. The first area is clearing. • SGX AsiaClear, Asia’s first OTC clearing facility, was established as early as 2006. • As counterparty to both buyers and sellers, AsiaClear mitigates counterparty credit risk in OTC transactions. • AsiaClear’s value to the trading community extends to record and statement services, position netting, and cost savings for customers posting margins. • Today, SGX AsiaClear is the region’s leading multi-asset OTC clearing house, with volumes exceeding 300 billion US dollars to-date. The second area is trade reporting. • Just in December 2012, the Depository Trust & Clearing Corporation’s (DTCC) Global Trade Repository established its Asia-Pacific global data centre in Singapore. • The Singapore location is part of its global trio of data centres, designed to support DTCC’s global trade repository services around the clock. • DTCC’s initiative will fill a key post-trade market infrastructure gap in Singapore and the Asia Pacific region. | • Singapore’s total market capitalisation has grown by over 150% in the last decade, to 270 billion US dollars in 2011. We are the fourth largest foreign exchange trading centre in the world. • FX and FX derivatives turnover in Singapore has more than tripled in the last decade, with an average daily traded volume of about 360 billion US dollars. We are Asia’s leading commodity derivatives trading hub. • Most of the major global banks have their regional hubs in Singapore. • According to some estimates, Singapore accounts for more than half of Asia’s OTC commodity derivatives trades. To succeed in the new financial landscape, Singapore must comprehensively support Asia’s long-term financing needs. Let me highlight two strategic areas where we will harness our diverse financial ecosystem: debt capital market and infrastructure financing. Debt capital market In a world of deleveraging and higher regulatory constraints on banks, it is now more urgent than ever to develop strong capital markets to complement bank lending and help to provide a better match for longer term funding requirements. 4 BIS central bankers’ speeches The fundamentals for a strong debt capital market are in place. • The Singapore bond market is fully accessible to all issuers and investors globally with no capital controls, hedging restrictions, or withholding taxes. • There is diversity of issuers – financial institutions, corporations and government agencies. • There is variety in instruments issued, including structured and securitised debt. | 1 |
The latter refer rather to the impact on financial and real assets of the regulatory, fiscal and technological changes that could take place in the transition towards a more sustainable economy. It is fair to say that, at this stage, both regulators and financial sector participants have relatively little knowledge about their exposure to these risks. However, the large number of public and private sector initiatives in place is likely to accelerate this learning process in the near term. For instance, as a member of the Network for Greening the Financial System (NGFS), which comprises more than 50 central banks around the world, the Banco de España is actively contributing to raising awareness in the industry about climate-related risks, increasing data availability and developing the necessary analytical tools for a rigorous 9 assessment of the impact that these risks could have, not only on the Spanish financial sector as a whole, but also on the solvency of individual entities. Insofar as these risks are properly accounted for, not only the financial sector will be in a better position to cope with the consequences of climate change but, through the proper pricing of these risks, it will help to efficiently channel the resources needed to make the economy more sustainable. - ESG principles: governance and legal risks I would like to conclude this broad description of the risks to global finance stability with some words on the risks related to governance failures. | The rankings are based on nominations submitted by large and small communities from around the world that take into account indicators developed by the forum. The award goes to communities or regions with a documented strategy for creating a local prosperity and inclusion using broadband and information technology to attract leading-edge businesses, stimulate job creation, build skills, generate economic growth, and improve the delivery of government services. 5 European Commission. 2007. Report from the Commission - Convergence Report 2007 on Malta, COM(2007) 258 final, p.7. BIS Review 14/2008 3 generate more value. The ongoing improvement in the quality of the infrastructure and other facilities available to investors has induced many foreign investors to locate, or expand existing operations, in Malta and thus take advantage of market access and cost-saving opportunities created by Malta’s status, first as an EU Member State and eventually also as a euro area member. This is reflected in the FDI figures when expressed in terms of additions to the capital stock in any one year. Since 2003, for example, the ratio of FDI inflows to gross capital formation was on average 83%, compared to 14% in the EU25. In manufacturing alone, since the first year of EU membership a total of 127 new projects or expansions with foreign participation have been approved, with an estimated potential value equivalent to 1% of nominal GDP. 6 The role of the Central Bank of Malta The Central Bank of Malta has been present at every stage of Malta’s journey to the euro. | 0 |
BIS Review 141/2007 3 The way in which central banks conduct monetary policy has also had an important impact on the increasing attention central banks give to financial stability. As you know, it has become best practice for central banks to conduct monetary policy with the aim to achieve a more or less clearly defined inflation target. 11 In the process, monetary policy has become closely linked to price stability, defined by a given headline or core inflation measure. To prevent too narrow a focus and to avoid having to ignore relevant developments outside the immediate realm of inflation measured by CPI or core inflation measures, focusing on financial stability potentially constitutes an important additional leg for monetary policy to stand on. Obviously this is a vast and complicated subject. I have no doubt that much research will be devoted to the question of the role of financial stability in formulating monetary policy in the years to come. 12 In the banking industry, the consolidation process of recent years has produced some very large and often highly complex financial institutions with truly global reach. They are often “systemically relevant”. In other words, problems at one of these institutions can potentially have a detrimental impact on the entire financial system which, in turn, could cause great economic dislocation. As a consequence, these institutions are deemed by many to be “too big to fail”. In essence, the market assumes that such institutions would likely be bailed out in the event of a severe crisis. | 20 Sorting out these unusual risk premia effects is crucial for conducting appropriate monetary policy and for communicating the monetary policy stance to the public and to market participants. 18 John B. Taylor, 1993, “Discretion versus Policy Rules in Practice”, Carnegie Rochester Conference Series on Public Policy 39, December, 195-214. 19 For a discussion of various types of the Taylor rule see Athanasios Orphanides, 2007, “Taylor Rules”, Finance and Economics Discussion Series 18. Federal Reserve Board. 20 Taylor, 1993, p. 198. 6 BIS Review 141/2007 3. Conclusion Let me conclude by reiterating that much of the central banks' motivation for their involvement in financial stability is rooted in their role as providers of liquidity in general, and of emergency liquidity in particular. At the same time, it has to be recognized that central banks have a very limited arsenal of instruments to deal with crises situations. A change in the level of official target interest rate is in many ways a crude instrument that, in my view, is best deployed with a firm focus on trying to keep the economy where our statutory mandate tells us to keep it. This does not, of course, preclude a change in interest rates in the event of a crisis, but only to the extent that the risks from the crisis to the economy justify a change in policy. The current market turmoil is providing countless lessons to the industry as well as to the official sector. | 1 |
These examples illustrate the significant scope for the banking industry to organise itself more effectively to weigh, expand, and ultimately galvanise action in response to emerging issues that concern our economy and society. There are other matters as well. Education in long-term financial planning among Malaysians, the impact of financial technology, expanded inclusion to financial services, income and productivity gaps, and labour market developments, are just some of the issues where banks ought to be much more active participants in the policy dialogue and debate. 3/6 BIS central bankers' speeches The Financial Markets Committee stands out as a forum that serves as a focal point for industry and external stakeholders on recent measures taken in the domestic financial markets. Likewise, similar initiatives can be mobilised to provide a more organised stage for the banking industry to lend its voice on a range of issues and contribute to more informed public opinion. It is time for the industry to be active stakeholders, rather than just passive participants. A World of Contrasts: Long-Term Interests Versus Myopic Gains Extending the theme of contrasts further, regulatory measures introduced in the past year have been the subject of much scrutiny. In many quarters, regulation is still widely perceived as an unnecessary constraint on markets. In reality, it is a means to safeguard longer-term public wellbeing against parochial interests. The intention behind regulatory measures may at times appear contrary to popular wisdom. Nonetheless, viewed through a broader lens, this is motivated by policymakers’ duty to preserve macroeconomic and financial stability. | Importantly, the merger will further strengthen the alignment of strategies and priorities for the development of Malaysia’s payment systems. It is also expected to significantly reduce the time to market for delivering improvements. As a shared utility, PayNet will operate with a public interest objective to support and develop safe, reliable and efficient payment systems in Malaysia. PayNet will provide the necessary common infrastructure, and the banks will compete on providing financial products and services. In the long run, we should expect that the merged entity should venture abroad and strike foreign alliances to further expand network and reach. Over the next 12 months, PayNet will move forward with plans to develop and implement a Realtime Retail Payments Platform (RPP) that will facilitate interoperable mobile payments. A central feature of the RPP is the national addressing database that will allow payments to be made conveniently through the use of mobile phone numbers and National Registration Identity Card (NRIC) numbers, instead of referencing bank account numbers. In line with principles of fair and open access, the RPP will be open to both banks and eligible non-bank payment service providers. Besides making the technology roadmap for the RPP publicly available, PayNet will actively engage with the banking industry, FinTech community and other relevant stakeholders in the development of the RPP. PayNet will also direct its focus to promoting MyDebit, which is the domestic debit card network, as a low-cost alternative to displace the use of cash. | 0 |
For this reason, it is in my opinion important that a review is made of the total complex of regulations governing the functioning of the housing market, in order to allow it to function better. From the Riksbank’s point of view, a higher potential growth means that demand in Sweden can be higher at the same time as price stability can be maintained. The credit granting process If the housing market can become more flexible, it will enable new construction where housing is most needed. These new investments will need to be financed. It is therefore important to be aware of the professionalisation of the credit granting process that has occurred within the financial institutions following the bank crisis. This is reinforced by the new capital adequacy rules that are being worked out. The modern credit granting process focuses more on the individual borrower’s cash flows. This individualisation means that the interest paid will to a greater extent reflect the market’s valuation of the profitability of the individual object, e.g. a particular property. Does the banks’ setting of interest rates vary between different borrowers and credit objects? How is credit granted today? How do the banks assess a loan application? I shall not explain these processes in detail, but outline the most important elements. Credit granting is part of the banks’ core business. It involves mediating savings to borrowers. As managers of our savings, the banks have always needed to be able to assess, measure and manage the risks inherent in these operations. | The banks’ credit assessment procedure is not a static process. The major Swedish banks currently have well-functioning organisations, methods and systems for assessing loans and managing credit risk. Developments in financial theory and rapid advances in IT over the past decade have created new and improved conditions in this field, and the banks have made good use of this. As a borrower it is important to be aware that the individualisation in the modern credit granting process has also been taken up in the shaping of the new capital adequacy rules, where it will be possible to price loans more fairly. Why do we have capital adequacy rules? As the banks play such a central role in the payment system, and the costs of disturbances in the system and in the credit market would be very large and have to be borne not only by the borrowers and lenders, but by society as a whole, the banks have long been subject to scrutiny and oversight with regard to their risk-taking. Since 1988 we have had an international agreement, the Basel Accord on capital adequacy rules. This involves, in simple terms, regulations as to how much capital a bank must hold with regard to different borrower groups for each hundred krona it lends out. It is much more costly for the banks to finance themselves by holding their own capital than through borrowing, just as for other companies. | 1 |
Table 1: Current estimate of the UK PMRR based on feedback to the Discussion Paper Estimate £ PMRR base 120 – 160 PMRR buffer 30 – 90 TOTAL PMRR 150 - 250 I should stress that there is no mechanical link between this figure and the quantity of gilts that the MPC will need to sell during QT: it does not for example mean that gilt sales must stop when reserves levels hit the PMRR. As I will come on to describe, the whole point of the balance sheet framework that we are proposing is that it will allow the size of the balance sheet to be determined independently from the quantity and composition of QE and QT. Adding back the current level of banknotes and other non-reserves liabilities to the PMRR, and assuming nothing else changes, suggests that a steady-state balance sheet after QT of £ (12-18% of GDP) would be needed to deliver the Bank’s monetary policy and financial stability policy objectives. That’s materially higher than pre-crisis levels. But it’s roughly half where we are today (Chart 10), and narrower than we’ve previously indicated, reflecting the more detailed information available from the Discussion Paper feedback.18 As one cross-check, the required reduction in reserves to get to the PMRR is proportionally similar to that estimated for the United States by the Federal Reserve19. 16 https://www.federalreserve.gov/data/sfos/files/senior-financial-officer-survey-201809.pdf and https://www.federalreserve.gov/data/sfos/files/senior-financial-officer-survey-201902.pdf 17 No attempt is made to estimate any potential future rate of return effect. | We think we have an approach that can meet that challenge – but we need to keep testing that, with your help. The Bank of England balance sheet: theory and practice To develop these points, let me start with some basics. The Bank of England’s balance sheet is special for one key reason – and that’s the nature of our liabilities. Central bank money – whether banknotes or central bank ‘reserves’ (deposits held with us by financial institutions) – provides the ultimate means of settlement for all sterling payments in the economy. And that gives our balance sheet a central role in supporting monetary and financial stability: - It supports financial stability by providing the reserves banks need to make payments to each other and help insure against bank runs;8 and - It underpins monetary stability because the interest rate we pay on reserves – known as Bank Rate – influences interest rates throughout the economy; and we can use reserves to conduct less conventional monetary policy, include asset purchases and term lending. This last point has of course been the primary driver of our balance sheet expansion over the past decade. | 1 |
In an open economy, domestic demand changes can easily be satisfied through increased imports. As a consequence, domestic inflation may become less sensitive to the domestic output gap and more sensitive to global tensions on production capacities. 2 2 Notably put forward by Laurence Ball. BIS Review 103/2007 Finally, it is possible that (due to immigration and structural reforms) labour supply has become more elastic in many countries, and, as a consequence the cyclicality of wages (and prices) has been reduced. 3 Flatter Phillips curves may be a mixed blessing for Central Banks. In such circumstances, looking at actual and projected inflation may not be sufficient to detect incipient imbalances between supply and demand. In other words, inflation becomes less informative about the output gap. There is a risk, then, that imbalances are allowed to build up to a point where a stronger reaction may become necessary. To prevent that risk, Central Banks may want to look at information coming from a broader set of indicators, chosen because of their ability to detect, at an earlier stage, potential inflationary pressures. Obviously, monetary and credit aggregates for instance are good candidates for such a job. What role for money in monetary policy? As you may know, this is precisely what is done in the context of the Eurosystem’s two-pillar monetary policy strategy which assigns an important role to money. This structure is based on a particular premise and has one important implication. | Let me share with you my views on how the globalisation of financial markets and the concomitant emergence of a new monetary order have changed the playing field for international business, and on what roles you, the private sector, and we, the central banks, are now called to play. What is the new international monetary order? The globalisation of finance has led to important changes in the ways monetary authorities implement their policies. Over the last decades we have witnessed the reorganisation of the world monetary order, with choices polarised around two extremes: at one extreme the flexible exchange rate regimes such as the ones in the USA, the UK and in Switzerland, and at the other extreme very fixed regimes, such as the monetary union chosen by the countries belonging to the euro area. Pegs still exist, especially in Asia, but they are less numerous than in the past. Let me talk first about how different national monetary choices meet the challenges of financial globalisation. We have left behind us a time where international monetary relationships, based on the Bretton Woods system of fixed exchange rates, gave us a nice feeling of order and security. The keepers of that order were central banks, and their main job was to maintain the exchange rates for their currencies within a narrow band. International businesses, for their part, were free to plan ahead, unaware of nasty surprises emanating from sudden currency exchange disorders. And yet this world of apparent security collapsed. | 0 |
So far as I can see, nothing much was done, internationally. We now have another chance. A new round of work is now underway in the BCBS to identify impediments or complications arising from national insolvency laws, resolution regimes, or supervisory practices. I would be amazed if that group does not identify some material issues, for the reasons I have discussed. If so, they should not be dismissed by the Top Brass, left to worry only middle-ranking technocrats, as seems to have happened nearly twenty years ago. Perhaps most important, in April, the Financial Stability Forum (now renamed the Financial Stability Board) issued Principles for Cross-Border Co-operation on Crisis Management. But what really matters is that they were endorsed by the G20 Heads of Government at their subsequent Summit. Which means that there is political endorsement for national authorities to dilute their narrow attachment to local interests, recognising that in globalised markets their interests will often best be served through co-operative solutions. Either that, or the structure of international banking may have to change. Given the starting point, the Principles are demanding. For each of the most important global banks, the aim is that home and host authorities (regulators and central banks) should work together to identify obstacles to effective management of crises. To that end, home authorities are charged with ensuring that firms are capable of supplying the information needed to manage a crisis. | But, of course, it would also entail lower risk for bank equity and bond investors, and surely it is risk-adjusted returns that matter. And it would also deliver lower risk to society more generally, which matters hugely. To be clear, we want banks and the financial sector more generally to thrive. The institution I come from believes in a market economy, in capitalism. The financial sector has played an enormous role in the development of modern economies. But a regime in which banks can thrive standing on your own feet would be a better market – for all of us. BIS Review 83/2009 9 | 1 |
Lim Hng Kiang: Towards a new era of growing connectivity between Asia and the Middle East Opening address by Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy Chairman of the Monetary Authority of Singapore, at the 2nd World Islamic Banking Conference: Asia Summit 2011, Singapore, 8 June 2011. * * * Your Excellencies, distinguished guests, ladies and gentlemen, Introduction 1. I am honoured to be invited to deliver the opening address at the 2nd World Islamic Banking Conference: Asia Summit (WIBC Asia). I would like to extend a warm welcome to our overseas guests, especially our distinguished speakers who will be sharing their insights during this conference. Growing connectivity between Asia and the Middle East 2. Despite the recent spate of shocks, the world economy has been resilient with growth projected to moderate slightly to 4.5%1, compared to 5.8% last year. Downside risks such as high energy and commodity prices, the European debt crises, geopolitical tensions in the Middle East and North Africa (MENA) and the Japan tragedy have not substantially derailed the economic momentum. 3. Asia is expected to remain the main locomotive driving economic growth. The International Monetary Fund (IMF) projects Asia’s growth to reach almost 7% this year, led mainly by China at 9.6% and India at 8.2%. Asia has been, and will still be the key engine for global trade. In 2009, the region accounted for 35% of world exports, up sharply from 25% a decade earlier2. | Seeing the large gap between the demand and supply of infrastructure investment, the ADB and Islamic Development Bank (IDB) have jointly set up a $ Islamic Infrastructure Fund in 2009. Several ASEAN countries such as Malaysia and Indonesia have also outlined plans to tap global Islamic funding for their infrastructure projects. 8. Thirdly, given the many ambitious initiatives and plans in the GCC for new industrial developments and infrastructure projects, the Middle East remains a high-potential market for Asian companies. ASEAN-based companies should therefore invest more time and resources to evaluate these opportunities and assess the risks, so as to help fill this demand. In Singapore, International Enterprise Singapore and the Singapore Business Federation (SBF) have been playing a vital role in helping our local companies to understand and differentiate Middle East markets better and to expand their regional footprint. 9. Lastly, many leading Middle East financial institutions have established a presence in Singapore to offer financial services such as wholesale banking, treasury services, trade finance, and wealth management. These institutions play an important bridging role by guiding companies in the region to expand into the Middle East and vice versa. Bank Muscat, the largest bank in Oman, is the latest player to set up in Singapore. Sustaining the growth of Islamic finance 10. As investors and businesses in the Middle East and Asia seek a wider range and diversity of financing options from banks and capital markets, Islamic finance will have to respond to meet their rising needs. | 1 |
What the world will look like in 2050 will be partly shaped by the future of Europe; and the future of Europe depends on the decisions we take now. Of course, we always face the risk of failure when conducting far-reaching reforms. Yet we cannot afford another missed opportunity and we have to act swiftly without losing a longer term view. For the Euro area, for its citizens, 2016–2017 is the decisive time to act. 4 4 Interview of Robert Mundell by Laura Wallace, « Ahead of his time », Finance and Development, IMF, September 2006, vol 43, n° 3. BIS central bankers’ speeches BIS central bankers’ speeches 5 | That is, not to introduce large changes in the aggregate amount of capital currently held in the banking system while at the same time to provide tangible incentives for banks to adopt the most advanced and sophisticated approaches to capital adequacy. As we near completion of the New Accord, I am reminded that the tremendous progress we have made is a reflection of the steadfast commitment that so many have put forth to see the revision process through to its completion. The success of the New Accord will be directly attributable to the enormous support and assistance provided by both bankers and supervisors. Yet a Chinese proverb reminds us that, "On a journey of one hundred miles, ninety is but halfway." I suppose the last miles of any marathon are the toughest to finish. The wisdom of that proverb is borne out by the critical nature of the tasks ahead of us to complete, and then to implement, the new capital framework. Adopting the New Accord will be a challenging but also an exciting undertaking for us all. The potential benefits are many - including improving the management of risk, enhancing transparency and promoting greater financial stability. In short, this new framework will make all of us - bankers, supervisors and others - better at what we do. Thank you very much. | 0 |
What is the purpose of getting a monthly 2% efficiency gain in some production process if monthly prices change more than 20%? The same principle applies if monthly inflation is more than 4% as it was in Croatia (on average) in the two decades preceding independence. Throughout that period GDP was either stagnant or falling.3 GDP started to increase only in 1994, after prices were successfully stabilized. The costs of inflation are relatively well analysed in the literature, so there is no need to analyse them any further, but let me reiterate that it is important that the incentives in a country help people produce new wealth and not put their efforts into redistributing it. Inflation favors predation over production. The second important function of the central bank is a stable financial or, more narrowly, banking system. But, banking crises have affected a large number of countries and almost none of the transition economies escaped them (Frydl, 1999). A lot of transition economies passed through two banking 3 The dramatic fall in GDP in Croatia in the early nineties cannot be attributed to inflation alone. It was not even the main contributor. The disintegration of former Yugoslavia, war and transition were taking place at the same time. 5 BIS Review 43/2000 crises: the first was the crisis of the old banks with their legacy (dubious assets) from the previous economic system. | Negative interest has led to a decline in interest rates on the money and capital markets, which has been quite substantial in some cases. Mortgage rates have only dropped slightly, however. Fritz Zurbrügg and Andréa Maechler will discuss interest rate developments in more detail later. After the discontinuation of the minimum exchange rate, the Swiss franc appreciated significantly in trade-weighted terms. This was partly due to the fact that the euro had reached a low point in early 2015 in the context of the Greek crisis. Our expansionary monetary policy has since helped to weaken the Swiss franc. Since January 2015, the franc has offset about half of the effective appreciation. It nevertheless remains significantly overvalued. Monetary policy outlook Ladies and gentlemen, let me summarise my main points. Our monetary policy is based on two key elements – the negative interest rate and our willingness to intervene in the foreign exchange market. Unlike during the period when the minimum exchange rate was in force, we now decide on a case-by-case basis when – and on what scale – we will intervene. Our monetary policy aims to have a stabilising effect on the price level and to support the economy. The negative interest rate and our willingness to intervene make the Swiss franc less attractive and thereby help to achieve these goals. The persistently low interest rate environment presents a challenge for savers and investors. However, it is important to emphasise that negative interest is an absolutely essential instrument at this point in time. | 0 |
facilitate us to trade our bonds in their Similarly, a mechanism to disseminate system in the future. Such an initiative secondary market information on debt will increase the efficiency and instruments will also be established effectiveness of settlement for investors through the proposed e-trading and increase the pool of savings platform and the clearing house. Hence, available for investment in domestic we will have a new set of operational securities. processes for government securities in the secondary market as well, in the near There will be a new Public Debt Act. A term. team of professionals is consolidating all the statutes relating to debt The Treasury is already in the process of management and a separate Debt studying the possibility of implementing Management Unit is being set up at the liability management for US dollar as Ministry of Finance. well as Rupee denominated borrowings. The Central Bank will work closely with This, in our view, is a positive the Treasury in this process. | But regulation is there to serve the British public, and that should guide us as we aim to strike the right balance in this important set of reforms. Chart A: Comparison of MA and FS for different asset classes as at YE20 Source: MA Asset & Liability Data submissions by firms as at YE20. The chart on the left is ranked by spread in bps (lowest to highest); the chart on the right is ranked by MA as a percentage (%) of spread (lowest to highest). Assets classified as ‘quasi government’ and ‘other’ have been excluded as these contain derivative exposures which distort the comparison. Asset classes – agricultural mortgages and sale and leaseback - where firms have reported limited holdings are also excluded. 1. Like other bits of financial regulation, Solvency II was imported into the UK upon Brexit – parts of it into legislation which is the domain of government and Parliament, and parts of it into the regulator’s rulebook. Because of this structure the review is led by HM Treasury on behalf of government but with strong involvement from the PRA. 2. In more technical terms: the MA reduces firms’ exposure to interest rate and reinvestment risk. It also allows a buy-andhold investment strategy which enables a firm to access the liquidity premium which has historically been observed in spreads on fixed interest assets. 3. Estimate based on regulatory data on annuity contracts collected by the PRA. | 0 |
Luis M Linde: Macro vulnerabilities, regulatory reforms and financial stability issues Speech by Mr Luis M Linde, Governor of the Bank of Spain, at the International Institute of Finance (IIF) Spring Membership Meeting, Madrid, 25 May 2016. * * * I would like to thank Tim Adams, President and Chief Executive Officer of the International Institute of Finance, for his kind invitation to participate in your Annual Spring meeting. In my speech I will try to cover three topics: macro developments and challenges both in the international context and in the euro area; the stance of monetary policy in different areas; and regulatory changes. The international context Today, the recovery of the world economy remains disappointingly uneven and weak. Global GDP growth in 2015 was 3.1 %, the lowest figure since 2009, and projections by most of the international institutions have been revised downwards again. In spite of that, financial markets have experienced a favourable trend in recent months. The more accommodative tone of monetary policy in most of the world, some macroeconomic data that, although not too buoyant, moved away expectations of a new recession and, in a number of cases, corporate profits, better than expected, helped reverse the worrying trends that markets showed at the beginning of the year. However, serious risks remain. Many developed economies have recovered the level of activity prior to the crisis, but their growth rates have been low by historical standards. | And last, but not least, the leverage ratio could also play an additional role in mitigating bank’s and supervisor’s model risk and measurement error, providing a backstop to riskbased capital measures. Indeed, it could also play a role by itself by constraining leverage in the banking system. But a really crucial challenge is good calibration. Furthermore, there are difficult questions to be addressed regarding impact assessments: What is the meaning of “significant” when referring to the increase of the capital requirements? What is the best approach to capture outlier banks which are making savings through the use of aggressive modelling techniques? Is the impact going to be measured by categories of banks with similar profiles and business models? In this sense, in order to ensure that the analysis is based on the best quality data, the engagement of the industry is crucial, both through sharing its views by responding to consultation processes, and also by contributing with the best quality data to the quantitative impact study being conducted by the Basel Committee. To conclude, it is essential that the final design of the whole framework is consistent and that any potential interactions between different measures are properly evaluated. To conclude, I will say that it will be possible to design a framework that keeps the incentives for sound risk management and that eliminates unwarranted differences in risk weighted assets among banks, while avoiding any significant increase in the capital requirements for the global banking system. Thank you very much for your attention. | 1 |
In June 2014 monetary policy in the euro area embarked on a phase of renewed expansion, aimed both at enhancing monetary policy transmission, in a context of continued bank deleveraging, and increasing policy accommodation in view of persistently weak inflation. Having limited room for manoeuvre on the main refinancing rate, the ECB initiated a series of new unconventional measures. These consisted of our targeted longer-term refinancing operations 2/6 BIS central bankers' speeches (TLTROs), our asset purchase programme for public and private sector securities (APP), and our policy of charging a zero interest rate on main refinancing operations and a negative rate on excess reserves. As the floor of our monetary policy corridor – which by then had become the key instrument steering monetary conditions in the money market – was reduced to negative levels, other short to medium-term market yields dipped below the zero line as well. Given the novelty, scope and size of the measures taken, and given their potential interaction with other public policies, communication of these measures proved to be much more difficult than before the crisis, when we only had to explain how changes in the main policy interest rates affect the economy and ultimately the price level. Likewise, holding the ECB accountable for its monetary policy has also become more difficult. Let me illustrate this difficulty by considering how observers have been using Taylor rules to compare our policy interest rates with rule-based benchmarks. | In a Taylor rule, such benchmarks are pinned down mainly by the deviation of inflation from target and by a measure of economic slack. On this basis, observers held central banks accountable for monetary policy decisions, as the relation between policy objective and instrument is transparent and not equivocal. In a nutshell, empirical regularities lay the ground for a prescriptive monetary policy rule – even though oversimplified – against which central bank actions can be evaluated. In crisis times, it turned out to be nearly impossible to track the monetary policy stance using a Taylor rule. First, with the interest rate having ceased to be the main instrument, incorporating balance sheet measures into the rule is not straightforward at all.. Second, as the transmission of policy interest rates to the economy has been impaired, their comparison with Taylor rule benchmarks has become much less informative. Third, in view of persistently weak and low inflation and a high degree of economic slack, Taylor rules might well prescribe the setting of interest rates below their effective lower bound, wrongly indicating a tight policy stance, as the easing effects of unconventional measures cannot be accounted for. Developing other comparatively simple monitoring tools has not been possible. Overall, the ability of observers to use policy rules to hold the ECB accountable has been severely hindered. How can we then be sure that the measures taken fall within the ECB’s narrowly defined price stability mandate? | 1 |
This is partly due to globalisation, not least financial globalisation. It affects the scope of countries and thereby of central banks to conduct their own economic policy based on national prerequisites. Sweden is a small, open economy with a large financial sector. The room for manoeuvre in economic policy regarding both monetary policy and financial stability is, in my opinion, much less than it was for, say, 15–20 years ago. According to the textbooks, with a floating exchange rate, we should be able to conduct an independent monetary policy. And we can, but to what extent? Today’s low inflation is, for example, very much a global phenomenon. Stability in the financial system is also affected by financial globalisation. As a consequence of the ever-stronger links between different countries’ financial systems, regulatory frameworks are also increasingly often formulated outside national borders. The strengthening of global financial regulatory frameworks is, of course, also a result of the financial crisis which broke out in 2008 – and the after-effects of which the global economy is still struggling with. I would, however, like to stress that in Sweden we coped relatively well with the financial crisis and its aftermath. We had robust frameworks and the power to act, as regards both fiscal policy and monetary policy. We also had enough flexibility to be able to cope with the Swedish banking system’s need for liquidity and assist other countries in our vicinity in order to help stabilise the financial system. Economic development in Sweden has been favourable in many ways. | At the Riksbank, we consider there to be a risk of overconfidence in the market taking its responsibility for cash supply, both now and in the future. In our consultation response, we therefore propose that the market’s responsibility for giving customers access to a payment account and related cash services be regulated more clearly; or that the law include an option for the state to intervene if the market fails, regarding both cash and electronic payments. Despite everything, there is still a long time to go before Sweden becomes a cashless society. There is still SEK 73 billion in circulation in the form of 317 million banknotes and 1.9 billion coins – a significant sum of money. The Swedish payment system RIX will change But the Riksbank’s role as regards payments is not just limited to ensuring the availability of cash. The Riksbank’s system for payments between banks and a number of other financial institutions – the RIX system – is the hub of the Swedish payment system. All payment transactions between banks, clearing organisations and the National Debt Office pass through RIX. 4 This makes it an important part of the Swedish financial infrastructure with a daily turnover of about SEK 450 billion divided among over 15,000 payments. The development of payment services makes adjustments of the RIX system necessary. An example is the development of payments in real time using, for example, the Swish mobile phone app. | 1 |
11 (b) Crisis-related scarring There is plenty of evidence to suggest that financial crises can have a permanent, or certainly persistent, scarring effect on output and productivity in economies. 12 This time’s crisis, the largest in at least a generation, is unlikely to buck that historical trend. There are several channels through which financial crises might permanently damage corporate sector productivity. First, a collapse in credit availability is likely to constrict the financing of both new and existing companies and hence constrain their investment plans. It may hit particularly hard young companies, without access to alternative sources of finance, for whom productivity growth is often fastest. Empirical evidence from the 8 For example, Feldstein (2016), Baily and Montalbano (2016). Bean (2016) discusses the potential mechanisms for the underestimation of GDP. 10 Syverson (2016), Byrne et al (2016). 11 Syverson (2016). 12 For example, Reinhart and Rogoff (2009), Oulton and Sebastiá-Barriel (2013). 9 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 crisis suggests these channels were potent, in the UK and internationally. 13 As credit conditions have eased recently, however, this has become a less compelling explanation for persisting productivity problems. A second financial channel through which the crisis may have affected firms’ investment is asset prices. Specifically, many small firms are reliant on property collateral to back their loans. A fall in property prices tightens their collateral constraint and credit conditions. | 39 All speeches are available online at www.bankofengland.co.uk/speeches 39 Dabla-Norris, E, S, Guo, V, Haksar, M, Kim, K, Kochhar, K, Wiseman and A, Zdzienicka (2015), ‘The new normal: a sectoral-level perspective on productivity trends in advanced economies’, IMF Staff Discussion Note,SDN/15/03. Disney, R, Jin, W and Miller, H (2013), ‘The productivity puzzles’, IFS Green Budget. Edgerton, J (2012), ‘Credit supply and business investment during the great recession: Evidence from public records of equipment financing’, mimeo, Federal Reserve Board. Feenstra, R, Inklaar, R and Timmer, M (2015), ‘The Next Generation of the Penn World Table’, American Economic Review, Vol 105(10), p.3150-3182, available for download at www.ggdc.net/pwt. Feldstein, M (2016), ‘Remarks at the Brookings Institution conference on productivity’, 8 September, available at https://www.brookings.edu/wp-content/uploads/2016/08/feldstein-remarks.pdf. Foda, K (2016), ‘The productivity slump; a summary of the evidence’, Global Economy and Development at Brookings Brief. Franklin, J, Rostom, R and Thwaites, G (2015), ‘The banks that said no: banking relationships, credit supply and productivity in the United Kingdom’, Bank of England Staff Working Paper No 557. Furman, J and Orszag, P (2015), ‘A Firm-Level Perspective on the Role of Rents in the Rise in Inequality’, Presentation at “A Just Society” Centennial Event in Honor of Joseph Stiglitz. Gopinath, G, Kalemli-Ozcan, S, Karabarbounis, L Villegas-Sanchez, C (2015), ‘Capital Allocation and Productivity in South Europe’, NBER Working Paper No. 21453. Gordon, R (2012), ‘Is the US economic growth over? Faltering innovation confronts the six headwinds’, NBER Working Paper No. 18315, available at http://www.nber.org/papers/w18315. | 1 |
Theoretical models, as captivating intellectual efforts as they are, need a reality check from time to time. The signs are here for us all to see. In another fascinating Disney movie, “Tangled”, princess Rapunzel follow the signs she spots in the sky to beat its fears and escape from its ivory tower. I think we should do the same. Outside central banks, the greatest danger is populism. 7 The fact that in so many developed countries the cumulated wage gap has not been closed not only subdues inflation, but it also fuels dissatisfaction of voters giving rise to populism. Inside central banks, the greatest danger is dogmatism. We need to fight both with common sense, with more data-dependent policies, and with a deeper understanding of the factors influencing consumer choices and society as a whole. i Voinea, Liviu, 2018, Explaining the post-crisis Philips curve: Cumulated wage matters for inflation, No. | Our approach is closer to Duesenberry (1952), who introduced relative income instead of the rate of change of income as the explanation of the differences in saving at the same level of income. He referred to the influence of past living standard on current consumption. Saving depends, he wrote, on the level of current income relative to higher incomes in previous years. However, he stopped short of calling a wage gap or of considering the influence his consumption and saving theory may have on inflation. What matters most for consumption during and after a crisis is not the unit change of income, the savings for retirement, or the future income. A recession is a game – changer. A global financial crisis is a global game-changer. In a recession, the transitory component of income becomes negative not only for one person or for a small group, but for the national or global economy. This makes it very difficult to predict future income. When nothing is steady anymore, the only valid reference remains the past income. In a crisis, the reference is not ahead of us, but rather it is in the past. Retirement savings and linear employment prospects are uncertain. People relate to their peak gains in the not so distant past rather than to uncertain future gains. Consumption does not depend only on current income and future expectations, but also on past income. Stock is more relevant than flow, because people have a strong reference which is their previous income levels. | 1 |
However, we must emphasize that the Republic of Macedonia is finally back on the right track: back to the main mega-trends of the most developed part of human civilization, to the building and practicing of a functional market economy; to the competition on the open international market; to the dominance of the individualism as opposed to the general and omnipresent collectivization; to the painstaking establishment of institutions responsible to the people; to the difficult road of providing the rule of law. And have we learned the lessons? • that we should stay away from the revolutionary methods which suddenly stop it all and start building it all over; BIS Review 100/2006 3 • that there is no efficient system in which ownership and rights deriving from it are not known; • that there is no efficient system which denies the differences in the capabilities, dividing the social wealth on the basis of their harsh negation; • that there is no sustainable economic growth by continuously spending more than we earn; • that there is no strong economy without developed institutions and judicial system. Ladies and Gentlemen, The Central Bank completely distinguishes between the principles of the previous and of today's system in creation. Therefore, today it is a successful and modern institution, with a satisfactory trend of development of its institutional capacity. | It turned out to be "everybody's and nobody's" but de facto it belonged to those with the largest political power. In line with those principles of the system, credit plans directed the reserve money issuance, rather than it to be determined by economic fundamentals: economic growth, internal and external balances, supply and demand, real market values. Printing of money was also dictated by the debtors, which did not repay the credits, but issued bills of exchange which at the end were borne by the reserve money issuance, then the extremely soft budget constraints, direct lending to whole economic sectors, and even certain companies, from the reserve money issuance, at interest rates significantly below the inflation rate. Instead of the debtors, often their creditors went bankrupt, with the intention to preserve social rest, or to postpone social unrest. Therefore, the end of 1980s and the beginning of 1990s, followed by the development since then until present day, have been years of Schumpeter's destruction, positive destruction - regardless of our dissatisfaction with the slow pace of the reforms and jeopardized social security, which, I would agree, did not have to erode to such an extent, before the new solutions started to give better results. | 1 |
Norman T L Chan: Symposium on Financial Stability – opening remarks Opening remarks by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the HKMA Financial Stability Symposium, Hong Kong, 30 May 2013. * * * Good Morning Ladies and Gentlemen, 1. Welcome to the HKMA Financial Stability Symposium. The Symposium marks the 20th Anniversary of the HKMA, which is a very young central banking institution comparing with its peers. It is very timely and appropriate for the HKMA to convene this Symposium on Financial Stability because Hong Kong, like many of our Asian neighbours, have learnt from our own bitter experience in the few years after 1997 just how painful and devastating financial crisis can become. So it is clearly our common wish to do what we can to reduce the risks of financial crisis recurring or at least mitigate the damage that it can cause to the financial system and the economy when it occurs. 2. In this connection, it may perhaps be useful to look back and observe how the mainstream thinking on financial stability have changed or evolved since the time when the HKMA was set up in 1993. I would list a couple of key issues below: (i) there was the belief that financial crises would only occur in the developing economies because they had weak financial institutions and poor regulatory regimes. Advanced economies would be immune as they had mature financial institutions and robust regulatory systems. | I am sure there will be very interesting and fruitful exchange of views and ideas on the major financial stability issues, including those that I have mentioned earlier. Once again, thank you all for being with us today. BIS central bankers’ speeches 1 | 1 |
We need to better understand the degree to which any changes in the nature of liquidity reflect the evolving structure of financial markets, changes in regulatory policy or other factors. With respect to regulatory policy, an important objective should be to achieve the best balance between the benefits of increased safety and soundness versus any costs imposed by these regulatory changes on market function and liquidity. In my remarks today, I will focus on market liquidity rather than funding liquidity, although I recognize that the two are related in important ways. I will examine market liquidity in two important fixed-income markets – the U.S. Treasury market and the U.S. corporate bond market. The Treasury and corporate bond markets provide a useful contrast in evaluating liquidity conditions as they differ with respect to the homogeneity of their securities, how their securities are traded and how regulatory changes may have affected the incentives of dealers to make markets in these securities. BIS central bankers’ speeches 1 The Treasury market is much more homogeneous and the average size of each issue is much larger. Trading volume and average trade sizes are much larger, and much of the trading activity for interdealer on-the-run securities is conducted electronically through the use of central limit order books (CLOB). In contrast, the corporate bond market is much more heterogeneous; there are many more distinct bonds available; and bond sizes are much smaller. As a result, corporate bond trading is fragmented across a large number of distinct outstanding bonds. | The contention is that higher liquidity costs and more frequent illiquidity events will, over time, drive up the borrowing costs of households, businesses and the U.S. government; and that this is a substantial, largely unintended cost imposed by tougher regulation. Thus, the argument concludes, the regulatory burden should be rolled back. This is a noteworthy assertion and would have significant implications for regulatory policy if it were correct. However, as I will lay out in my remarks, I don’t think the hypothesis is wellsupported by the available evidence. First, the evidence to date that liquidity has diminished markedly is, at best, mixed. Second, even if one were to interpret the evidence as indicating that liquidity has been reduced, it is not clear whether regulation is the primary driver, as other changes have played important roles as well. Moreover, even if higher capital and new liquidity requirements were found to result in greater transaction costs, these costs would need to be assessed against the benefits of having a more robust and resilient financial system and a reduced risk of financial crises in the future. That said, more work should be undertaken to fully assess this issue. There is much that is still unknown. The available market liquidity data primarily focus on the inter-dealer markets and thus do not shed light on possible liquidity changes between dealers and customers. In addition, the financial system is adjusting in complex ways in reaction to regulatory, technological and other changes. | 1 |
The Riksbank’s balance sheet SEK billion 900 900 Assets 800 Liabilities Equity 700 800 700 Other Foreign exchange reserve 600 500 600 Foreign exchange loans 400 400 300 Assets 200 100 Gold 500 Foreign exchange reserve Liabilities Equity Banknotes and coins 0 August 2008 Government bonds Certificates and fine tuning 300 200 100 Gold Banknotes and coins 0 September 2016 Source: The Riksbank The Riksbank purchases government bonds to support the upturn in inflation ... To begin with, I would like to remind you that the aim of the Riksbank’s operations is not to make a profit and deliver dividends to the government. Our task is to maintain price stability, and bond purchases are one component of the expansionary monetary policy we are conducting in order to safeguard the credibility of the inflation target. The Riksbank started purchasing government bonds in February 2015. At that time, inflation had been low for a long time, long-term inflation expectations had fallen to a record-low level and a period of falling oil prices risked pushing down inflation expectations even further (see Chart 2). In this situation, the Riksbank needed to safeguard continued confidence in its ability and willingness to stabilise inflation around the inflation target. As we know, a credible inflation target lays the foundation for efficient price-setting and wage formation and hence promotes good growth in the economy. | This raises the question of the sustainability of this debt, and of the impact of an upward shock to interest rates or a downward shock to activity, especially in an increasingly uncertain macroeconomic context (trade tensions, Italian budget, Brexit, yellow vests). Given the situation, it was essential to avoid an infinite debt spiral. In December 2017, the Haut Conseil de Stabilité Financière, under the chairmanship of Minister Bruno Le Maire, thus decided to lower to 5% of their equity the ceiling of the main banks’ exposures to the most indebted large companies. It also decided to raise the countercyclical capital buffer of French banks, by 0.25% in June 2018 and again by 0.25% in March 2020. This countercyclical buffer, expressed as a percentage of core equity and applied to French exposures, aims at enabling banks to build up a capital reserve to maintain their supply of credit in the event of a turnaround in the financial cycle, the buffer then being immediately released. However, these binding instruments apply only to banks, while non-bank intermediation is playing an increasing role in financing the economy. According to the ECB, the loans and deposits of investment funds have risen threefold since 2011. Macroprudential policy thus needs to be adjusted to better take account of this new dimension. The HCSF is firmly committed to this goal. Its powers enable it to intervene outside the banking sector and it has started designing stress tests that cover all sectors. B. | 0 |
These are probably the most important services for the majority of customers. Several banks also offer trading in shares and fund units on the Internet. The product range and user-friendliness can be expected to increase in the period ahead. I’m sure discussions during this conference will give you an indication of future product developments. 9 BIS Review 78/2000 Nordic countries rank at the top globally in terms of access to the Internet. Nordic banks thus have a unique opportunity to serve a substantial share of customers via the Internet. This also has relevance to cross-border integration. Banks that focus on Internet distribution are perhaps particularly interested in markets where there are many Internet users. Although estimates vary, it is safe to say that the Internet will significantly reduce the banks’ variable costs. However, substantial IT investments may be necessary to keep pace with technological and market developments. In isolation, this may contribute to increasing banks’ fixed costs. As a result, the competitive environment may change. There is a danger of over-investment. Sunk costs account for a large share of overall costs. This may lead to marginal pricing as the fight for volume intensifies. This could have a negative effect on bank profitability. Many Nordic banks have a smaller customer base for distributing fixed costs than large foreign competitors. As mentioned, some banks have tried to compensate by entering into cooperation agreements. However, it might be difficult to reduce total costs without a substantial reduction in the costs of more traditional distribution. | We have a long history of working together and reaching remarkable useful consensus on critical issues when it matters most, this time will be no different. Honourable Ministers and Governors I am sure we have all had a very hectic day on discussing all these issues and look forward to a very relaxed evening. For those that have not had time to look around this beautiful and historic city I implore you to find time to explore our beautiful beaches and various historic sites. BIS Review 115/2010 1 I wish you fruitful deliberations and hope that Freetown would forever be remembered as the venue where key decisions affecting the African continent would be made. I thank you. 2 BIS Review 115/2010 | 0 |
In this regard, the Bank of Thailand meets with external auditors at the beginning of each year, in order to exchange views on common areas of concerns and to gain greater insights on the planned audit scope for the coming year, for example, the quality of risk management, the reliability of assigned collateral and foreclosure values. In addition to ongoing meetings with external auditors, there are periodic discussions at the agency level between the Bank of Thailand and the accountancy bodies. Regularly, the Bank of Thailand seeks comments from the Institute of Certifed Accountants and Auditors of Thailand prior to the issuance of new regulations. Likewise, the Bank of Thailand’s supervisors are regularly invited to be a member of the auditing standard committee whose responsibilities involve the development and improvement of Thai auditing standards. In summary, the Bank of Thailand has signifcantly benefited from the increasing coordination between supervisors and external auditors. Despite these benefts, there are several challenges ahead in our relationship with external auditors that merits careful deliberation. First, supervisors should be sensitive to the independence of the external auditors, particularly when the auditors provide various types of consulting services to the bank, which often times may be far more lucrative than external auditing fees. In Thailand, the Ministry of Commerce released a ministerial regulation in 1991 to prohibit external auditors from providing auditing services to any entities where their independence cannot be maintained. However, this regulation still leaves the assessment of independence to the external auditors themselves. | Philipp Hildebrand: Setting the course for the Swiss economy – challenges for the Swiss financial centre and outlook for the future Summary of a speech by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, to the Zürcher Volkswirtschaftliche Gesellschaft, Zurich, 17 May 2010. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * The Swiss banks face two major challenges. First, sooner or later, they will have to carry out their core business – asset management for foreign customers – in a tax-conform environment. Second, the big banks will be required to operate under more stringent regulatory requirements. These challenges are likely to lead to structural changes in the financial centre. How are such changes likely to affect the Swiss economy? An empirical analysis shows that, although the financial centre plays an important role in the Swiss economy, it also entails considerable risks. In the case of cross-border asset management, the relationship between the risk to the economy and the income earned is acceptable. However, this is hardly the case for the banks’ own trading activities. Consequently, current regulatory efforts could not only improve the stability of the financial sector, but also increase both the profitability of banks and the benefit which the Swiss economy derives from the financial sector over the long-term period. | 0 |
On this occasion, I would therefore like to announce the following measures which we have instructed financial institutions to take, to further strengthen safeguards against financial scams. First, financial institutions are required to migrate from SMS One Time Passwords (OTP) to more secure forms of authentication for online activities or transactions relating to account opening, fund transfers and payments, as well as changes to personal information and account settings. The major banks have already started this process of migrating to more secure forms of authentication; Second, financial institutions will further tighten fraud detection rules and triggers for blocking suspected scam transactions. Customers will be immediately alerted when any such activity involving their banking accounts is detected. As an additional measure, financial institutions will block such transactions, and customers will be asked to confirm that such transactions are genuine before they are unblocked; Third, a cooling-off period will be observed for the first-time enrolment of online banking services or secure devices. During this time, no online banking activity is allowed to be conducted; Fourth, customers will be restricted to one mobile or secure device for the authentication of online banking transactions; and Fifth, financial institutions will be required to set up dedicated hotlines for customers to report financial scam incidents. Financial institutions have been directed to be more responsive to scam reports lodged by customers. Financial institutions have also been directed to facilitate efforts to recover and protect stolen funds, including to work with relevant agencies to prevent further losses. | Within the ECB Governing Council, around Mario Draghi, we take very seriously the task entrusted to us by the European Treaties of maintaining price stability, meaning medium-term inflation of close to but below 2%. Our monetary policy has safeguarded the euro area against the threat of deflation in recent times, and is achieving tangible progress towards our inflation target: inflation rose to 0.5% in October and should exceed 1% in early 2017. It is supporting demand while narrowing the output gap, which has been reduced from -2.4% in 2014 to -1.0% in 2016 according to European Commission estimatesii. The Eurosystem has already Page 3 sur 8 provided ample liquidity to the European economy: our holdings under the expanded asset purchase programme amounted to nearly EUR 1,400 bn in October 2016. We can take stock of this progress, while remaining alert to the latest financial developments and their mixed economic effects: the rise in the equity market but also in the long term interest rates; the appreciation of the dollar but quasi-stability of the global euro exchange rate; and the increase in inflation expectations. We should be both confident in our progress, and vigilant with respect to our environment. Until March, we will go on implementing exactly what we said we would: our clear success today in purchasing a volume of EUR 80 bn of assets per month, including corporate bonds, is the best guarantee of our credibility tomorrow. | 0 |
Meetings held last summer with the banks’ leaders revealed, among other things, that some of them were making vigorous attempts to attract foreign investors, those with retail deposit collection in foreign branches were aiming to transfer the deposits held in those branches to subsidiaries within a few months, and some were even considering moving their headquarters out of Iceland which the Central Bank did not object to. As pressures in the global liquidity markets intensified, much like banks in other parts of the world, the Icelandic banks turned to the Central Bank for funding, as many banks abroad have done. The Central Bank of Iceland expanded its liquidity facilities, as did its foreign counterparts. Iceland’s banks obtained funding both from their own Central Bank and, through their foreign subsidiaries, from the European Central Bank (ECB), from which they sought liquidity in euros. As other banks, they became heavily dependent on ready access to liquidity facilities. However, the Central Bank of Iceland could not provide liquidity in currencies other than the Icelandic króna, and until recently most other central banks only provided loans in their own currency. All over the globe, central banks and other authorities fought to rescue banks and other financial companies, resorting to increasingly unconventional measures in the process. In spite of these attempts, financial companies of all sizes have gone bankrupt, while others have been rescued – at least temporarily – through massive government assistance or guarantees. | It is not the MPC’s job to control house prices, any more than it is our job to control share prices or the exchange rate; but just as we would not ignore the wider economic effects of a high exchange rate or a boom in the stock market, so we cannot, and do not, ignore the influence of soaring house prices on consumer spending and hence on the overall pressure of demand. Much attention has been paid to the historically high level of house prices relative to earnings, and what this might mean for the future path of house prices. A less discussed question - of more interest to you - is how much influence the current strength of the housing market is having on household spending; and what impact a weakening in the housing market might have on consumers. 2 BIS Review 41/2004 Healthy as household spending has been in the last few years, there has not a consumer boom on anything like the scale of the late 80s, when house prices last took off. Since early 1998, house prices have risen sharply relative to incomes; but household spending has only grown broadly in line with incomes. A buoyant housing market may still have had some influence on spending; and spending and house prices may have been influenced by some of the same factors. But spending and house prices do not seem to have moved together as closely as they have done in the past. | 0 |
Moreover, some of the transitory effects entail a risk of higher inflation, if anything, during 1999; tax cuts and lower interest rates leave households with more money to spend and the same applies to cheaper oil. But underlying inflation also shows signs of being weaker than expected even though economic activity seems to be relatively strong and in line with the paths we have counted on for some time, with a further increase driven by domestic demand and supported by strong activity in Europe. The better picture of prices comes from a variety of factors. The rate of wage increases is likely to be somewhat more advantageous than we counted on earlier, even though we have consistently been cautiously optimistic in this respect. Of greater importance is productivity, where good growth in recent years has helped to brighten prospects. Somewhat lower import prices together with a slightly stronger exchange rate also contribute. Work on our next Inflation Report is nearing completion. There are several indications that in the two years horizon that is relevant for monetary policy, CPI inflation may be somewhat below our target. The picture of underlying inflation is much the same. Neither are these positive inflation prospects modified by the various risks that lie ahead. In a perspective that extends to the middle of 2000 the element of uncertainty is obviously high; if anything, however, the main risk seems to be that international activity will be marginally weaker and inflation accordingly somewhat lower. This is a pleasant situation to be in. | * * * BIS Review 47/1998 -8- GDP growth 1980-1997 Index: 1980=100, seasonally adjusted 135 135 Trend: 1993-97 130 130 125 125 Trend: 1985-90 120 120 115 115 110 110 105 105 100 100 95 95 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 Sources: Ecowin and the Riksbank Budgetbalance: Sweden and EU-average Per cent of GDP, 1998-1999 forecast by NI and OECD 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 Sweden EU-average 90 91 92 93 94 95 96 97 98 99 Sources: OECD and National institute of Economic Research (NI) BIS Review 47/1998 -9- Wage curve: Sweden and EU area Wage/employee, annual percentage change, 1998-1999 forecast by OECD 14 14 12 12 Sweden 10 10 8 8 6 6 EU- area 4 4 2 2 0 0 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Source: OECD Inflationexpectations of labour market organisations Per cent 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 Jan-95 Feb-96 Nov-97 Feb-98 94 95 96 97 98 99 May-98 00 01 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 02 03 Sources: Statistics Sweden and Prospera Research AB BIS Review 47/1998 - 10 - Market and administered price components of the CPI Annual percentage change 5.0 5.0 4.0 4.0 Administered prices 3.0 3.0 CPI 2.0 2.0 1.0 1.0 Market prices 0.0 0.0 95 96 97 98 -1.0 -1.0 Sources: Statistics Sweden and the Riksbank Krona exchange rate with US dollar and German mark 8.5 8.3 8.1 7.9 7.7 7.5 7.3 7.1 6.9 6.7 6.5 jan-95 5.6 SEK/USD (left scale) 5.4 5.2 SEK/DEM (right scale) 5.0 4.8 4.6 4.4 4.2 4.0 jul-95 jan-96 jul-96 jan-97 jul-97 jan-98 Source: The Riksbank BIS Review 47/1998 - 11 - CPI and underlying rates of inflation Percentage 12-month change 12 12 CPI 10 10 8 8 UNDINH 6 6 UND1 4 4 2 2 0 0 90 91 92 93 94 95 96 97 98 Sources: Statistics Sweden and The Riksbanken Average of CPI forecasts of external observers Annual change, per cent 2.5 2.5 Forecast for 1999 2.0 2.0 Forecast for 1998 1.5 1.5 1.0 1.0 0.5 0.5 Outcome for 1997 0.0 Aug-97 0.0 Oct-97 Dec-97 Feb-98 Apr-98 Jun-98 Note. | 1 |
During the previous year, this appreciation was 2.8 percent. The lek-foreign currency interest rate spread, though downward during three latest years, continued to be at positive levels. Economic developments during 2006 have sustained a stable domestic currency. The lek’s appreciating pressures have been concentrated mainly on July-August and December. Besides the seasonal entry of foreign currency, which is the main factor of the lek’s appreciation over this period, the key interest rate increase has also been reflected in the market. The high foreign currency supply over this period has been absorbed partly by the Bank of Albania’s interventions, in respect of the target on the rise of net international reserve and in compliance with the country’s overall macroeconomic program. 7. Monetary policy instruments Fixed-price one-week repurchase agreement is the main instrument employed during 2006. According to the liquidity situation, the Bank of Albania has switched from repurchase agreements to reverse agreements, while the maturity term has changed from weekly to quarterly. This spectre of movements has been imposed by seasonal factors, by the budget behaviour and by the need to reveal certain monetary policy signals. To meet longer-term needs of the market for liquidity during the four last months of 2006, four Treasury bill outright purchase transactions were carried out, at a total nominal value of ALL 3.2 billion. | Thus, payments enabled by new providers have just started to take off, but it looks promising to become a new normal as they are expected to improve the user experience. How fast this segment of the financial system in the EU is developing can be witnessed by the approximately 300 new providers operating by midSeptember this year, which is just two years since the application of the new regulation-relevant regulatory technical standards under the PSD2 (Open Banking Report, 20212). Most of the companies that offer these innovative services are fintechs, but open banking also 3 1/3 BIS central bankers' speeches offers a possibility for traditional banks. In fact the survey conducted by Accenture3 finds that three quarters (75%) of the banks see payments modernization as being driven by changes in the national payments infrastructure and regulation, which include improving bank-to-bank payments systems, new industry standards and open banking. The rapid move to digital payments has put additional pressure on banks, with three-quarters (75%) of bank executives saying that the pandemic has increased the urgency of their plans to modernize payment systems. Pressures are felt by the central banks as well. In response to changes in consumer payments preferences, the need to further increase efficiency of payments, as well as the disruption caused by COVID-19, the interest in central bank digital currency (CBDC) has also increased. In fact, last year was the launch of the first “live” digital currency in the Bahamas. | 0 |
My comments will focus on three aspects of monetary policymaking: the institutional design of the central bank; the monetary policy strategy; and the operational framework used to implement policy decisions. The objective of monetary policy - price stability Monetary policy is not omnipotent. Unfortunately, in the past, this was not always recognised in the design of central bank mandates. Central banks were often charged with meeting several, potentially conflicting, objectives, some of which were simply unattainable using monetary policy alone. Unsurprisingly, the resulting inadequately designed institutional frameworks led to poor overall economic outcomes. Today, with the regrettable experience of high and rising inflation in the 1970s in mind, the capabilities and limitations of monetary policy are better - although still not universally - understood. A broad consensus now exists that the maintenance of price stability is the appropriate objective of monetary policy. This consensus is rooted in the belief that monetary policy makes its best 1 BIS Review 44/2000 contribution to overall economic welfare by maintaining price stability - and thereby allowing the relative price mechanism to work more efficiently. It goes without saying that this is a consensus with which I fully concur. The institutional framework for the single monetary policy described in the Maastricht Treaty reflects this economic consensus. Of course, the Treaty was written with the experience of European and other central banks in mind. First and foremost, the Treaty clarifies the objective of the ECB. | We acknowledge that this can make our strategy more difficult to understand, especially at the outset. Sometimes the strategy is accused of lacking clarity on the grounds that the two-pillar approach is rather complicated and therefore unclear. However, alternative strategies would only achieve clarity in a superficial sense. Rather than being simple, they may actually be simplistic - and therefore misleading. Drawing together these arguments, let me emphasise that a monetary policy strategy should not be seen as a machine that mechanically delivers policy decisions. There must be room for a diversity of views, for deliberation and for judgement in the Governing Council’s discussion. Monetary BIS Review 44/2000 4 policymaking cannot be reduced to a reaction to a single figure, be it monetary growth or an inflation projection taken from a model or a group of experts. Nor can monetary policy be formulated on the basis of a single chart, however colourful. The ECB’s strategy provides scope for extensive debate and the exercise of informed judgement, both of which are essential to policymaking. Taking an eclectic, more diversified approach to inform policy judgements - as is implicit in the two-pillar approach - is likely to lead to a better understanding of the economy, to produce better policy advice, allow better policy discussions and therefore reduce the risk of policy errors. This robust approach to monetary policymaking is at the heart of the ECB’s strategy. | 1 |
Employment has continued to grow and total hours worked exceed pre-pandemic levels. At the same time, the average number of hours worked remains somewhat below its pre-pandemic level and its recovery has stalled since mid-2022. As the energy crisis fades, governments should roll back the related support measures promptly and in a concerted manner to avoid driving up medium-term inflationary pressures, which would call for a stronger monetary policy response. Fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. Policies to enhance the euro area's supply capacity, especially in the energy sector, can also help reduce price pressures in the medium term. In this regard, we welcome the publication of the European Commission's legislative proposals for the reform of the EU's economic governance framework, which should be concluded soon. Inflation According to Eurostat's flash estimate, inflation was 7.0 per cent in April, after having dropped from 8.5 per cent in February to 6.9 per cent in March. While base effects led to some increase in energy price inflation, from -0.9 per cent in March to 2.5 per cent in April, the rate stands far below those recorded after the start of Russia's war against Ukraine. Food price inflation remains elevated, however, standing at 13.6 per cent in April, after 15.5 per cent in March. Price pressures remain strong. Inflation excluding energy and food was 5.6 per cent in April, having edged down slightly compared with March to return to its February level. | Non-energy industrial goods inflation fell to 6.2 per cent in April, from 6.6 per cent in March, when it declined for the first time in several months. But services inflation increased to 5.2 per cent in April, from 5.1 per cent in March. Inflation is still being pushed up by the gradual pass-through of past energy cost increases and supply bottlenecks. In services, especially, it is still being pushed higher also by pent-up demand from the reopening of the economy and by rising wages. The information available up to March suggests that indicators of underlying inflation remain high. Wage pressures have strengthened further as employees, in a context of a robust labour market, recoup some of the purchasing power they have lost as a result of high inflation. Moreover, in some sectors firms have been able to increase their profit margins on the back of mismatches between supply and demand and the uncertainty created by high and volatile inflation. Although most measures of longer-term inflation expectations currently stand at around two per cent, some indicators have edged up and warrant continued monitoring. Risk assessment Renewed financial market tensions, if persistent, would pose a downside risk to the outlook for growth as they could tighten broader credit conditions more strongly than 2/4 BIS - Central bankers' speeches expected and dampen confidence. Russia's war against Ukraine also continues to be a significant downside risk to the economy. | 1 |
Caleb M Fundanga: The global economic crisis – Zambia’s strategy to maintain stability Remarks by Mr Caleb M Fundanga, Governor of the Bank of Zambia, at the 4th Eastern and Southern African Management Institute (ESAMI) Summer School Event, Arusha, 29–30 November 2009. * I. * * Introduction It is a great honour and privilege to be invited by ESAMI to discuss Zambia’s experiences in the global economic crisis and the strategies that have been chosen to deal with its effects and to bring economic recovery. In discussing this topic, I will begin by highlighting the effects of the crisis on the Zambian economy. I will also highlight the strategies used to maintain stability, indicate the current state of the economy, the challenges and then conclude. II. Origins of the crisis As you may already be aware, the beginning of the global economic crisis has been traced to the collapse of the sub-prime mortgage market which started between 2002 and 2006. This was when lending to the household sector in the United States of America (USA) was growing at a rate far beyond that of the broader economy (i.e. growth in GDP). The rising delinquencies in the subprime mortgage market triggered turbulences in the subprime mortgage-backed securities market leading to a financial crisis in October 2008, first, in the USA, and which later quickly spread to financial institutions in Europe. | Conclusion The Bank of Zambia and the Government will continue with efforts to deal with challenges from the global economic and financial crisis, which still remain significant and continue to threaten macroeconomic stability and the long term growth path of the economy. In this regard, focus will be on attainment of the following objectives: • Maintaining macroeconomic stability; • Maintaining fiscal prudence to ensure that it does not become the source of instability; • Increasing or consolidating public and private sector investment in infrastructure that builds the long term productive capacity of the economy and helps to diversify the economic base; • Improving the business climate by lowering the cost of doing business; and • Harnessing regional markets as an alternative source of demand for exports as well as source of supply for goods and services, including energy. 6 BIS Review 161/2009 | 1 |
These were, namely: the appreciation of the euro; higher oil, commodity and food prices;, worsening confidence and tighter financing conditions, prompted by the financial strains; and, of course, the effects of the above-mentioned weakening in the US economy. In Europe, this made for a slowdown in the pace of activity in the second half of the year, although euro area growth remained more robust than in the United States. The resilience shown by the euro area has led analysts to project growth for the coming quarters that will be slacker but not far off potential, albeit with a similar measure of uncertainty to that expressed in the case of the US economy. Turning to prices in the euro area, the rate of inflation stood at 3.5% in March 2008. This worrying figure reflects the strong short-term upward pressures stemming from energy and food price rises in recent months. Foreseeably, although inflation may hold at a rate of over 2% for a number of months more, it should begin to move back to this level in the second half of 2008. That said, considerable upside risks remain, linked essentially to the possibility of second-round effects emerging in wage- and price-setting. The Spanish economy ended the year 2007 with a GDP growth rate (of around 3.5%) that we might qualify as robust. But it began to show signs of undergoing a change in cycle, following an upturn that had lasted for more than ten years. Into 2008, the information available confirms this perception of the domestic macroeconomic situation. | These have increased its growth potential and provided it with elements of flexibility that leave it better placed to face any shocks that may arise. Acting along these lines have been Spanish euro area membership, notable population dynamism and the investment drive made in recent years, which have equipped the Spanish economy with sound foundations to maintain sustained growth in the medium term. Undoubtedly, though, the external turbulence that arose during 2007 may detract from the effectiveness of this flexibility. One possible source of risks is lower growth of the world economy, either because certain economies – particularly the United States – may contract more than expected, or because the loss of dynamism may spread more intensely to other areas. This would hinder the buffer role that external demand should play in the context of slowing domestic demand. Another series of potential risks are those that would arise from any prolongation of the financing difficulties in international markets generated by the turmoil. Let me go more deeply into this second area, as I believe it is of particular relevance for this Meeting. Much has been written and said in recent months on the origins and propagation of the turbulence. I shall therefore focus here on the consequences of this episode for the Spanish financial system, a matter on which there has also been no shortage of comment, though not perhaps always well-founded. | 1 |
One trend in the market environment that we must track concerns the increasing harmonisation in accounting rules and practices internationally. The IIF has quite correctly noted the need to align the supervisory framework more closely with the emerging framework for harmonised accounting guidelines. A greater “meeting of the minds” is warranted especially now that the New Basel Accord includes explicit disclosure requirements intended to promote greater insight into a bank’s risk profile. Yet as the Institute’s comment letter reminds us, there are also other areas of the New Accord, such as its treatment of provisions and the valuation of financial instruments, where supervisors and accounting professionals should continue to work toward convergence. We think that In order to contribute to financial stability, accounting standards should be consistent with sound risk management and control practices in banks and should facilitate market discipline. The Committee has, therefore, attached great importance to taking an active role in the international debates on accounting and to promoting the supervisory perspective on key accounting issues. The Committee has consulted extensively with representatives of the accounting profession and this dialogue will continue. I should add that we are interested in pursuing new opportunities for discussion on issues of mutual concern with accounting-standard-setting bodies and private sector accounting professionals. In this respect, we very much welcome your initiative to enhance this important dialogue. Recognition of diversification An area of change that capital rules must mirror is the constantly evolving state of the art in risk management. | The seller will be obliged to make the investor — the so-called investor who is just an individual — acquainted with these documents. No less important is the law the Speaker has spoken about, setting forth the rules for selling investment financial products. This is where the Federal Antimonopoly Service could step in and make the difference. Misselling should be punishable. We are working on this draft law jointly with the Finance Ministry, and hopefully the Federation Council will in turn assist in passing it as soon as possible. A number of regulations may even need tightening there. Apart from this future law, it is our responsibility to protect investors from product offerings or financial instruments whose risks they are unable to evaluate, from products they may buy at banks on the assumption that they are buying a sort of bank deposit. That is, it turns out that people do not realise that they become retail investors when they buy these products and assume some risks. As I see it, urgent action is needed to rectify this situation. This is what we propose. The decision we are bringing up for discussion today has taken us quite some time to formulate given all the compromise solutions 3/4 BIS central bankers' speeches we had to consider. We propose that direct restrictions be imposed on the sale to non-qualified investors of structured financial products, that is, products with leverage and those with a forex component in an asset base. | 0 |
Few doubt that there are challenges to defining and calibrating the indicators used to determine when capital buffers should be triggered, and by how much. However, to quote Borio, “while calibration is 17 Assenmacher-Wesche and Gerlach (2010). 18 Hott and Monnin (2008). 19 For examples of models which illustrate downward spirals, please refer to Markus Brunnermeier and Lasse Pedersen (2009), Stephen Morris and Hyun Song Shin (2004). BIS central bankers’ speeches 5 not straightforward, the difficulties can be overstated”.20 To support his claim, Borio notes that traditional monetary policy also confronts such challenges when interest rates are set on the basis of indicators, such as output gaps or natural interest rates which are unobservable and difficult to measure accurately. It is however commonly accepted that central banks have, to a large extent, surmounted these difficulties. Of course, countercyclical buffers cannot be implemented without inflicting some costs to the economy, but the trade-off involved seems significantly more favourable than is the case with “leaning against the wind” policies. A 2011 study by the Bank of International Settlements estimates that, by reducing the probability of a severe crisis, the benefit of countercyclical buffers is on average 10 times higher than their costs in terms of real output growth per year. V. The Swiss case Every central bank in the world faces its versions of the challenges I have mentioned. The Swiss National Bank is no exception. | 133–153, February. Rajan, Raguhuram G. 2005. Has financial development made the world riskier? NBER Working Papers. No. 11728. National Bureau of Economics Research, Inc. Taylor, John B. 1993. Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public Policy 39, pp. 195–214. 12 BIS central bankers’ speeches Taylor, John B. 2009. The financial crisis and the policy responses: an empirical analysis of what went wrong. NBER Working Paper 14631, National Bureau of Economic Research, Cambridge, MA, January 2009. BIS central bankers’ speeches 13 | 1 |
At the same time, the rise in inflation is expected to be moderate, but this requires among other things a gradual increase in the interest rate. A look further back… It is now almost one and a half decades since we in Sweden were forced to abandon the fixed exchange rate. This was the starting point for the changeover in economic policy that led to both monetary policy and fiscal policy taking on different roles than they had in the 1970s and 1980s. Fiscal policy had previously often been overly expansionary and contributed to excessively high inflation. It was now given the main task of ensuring that public finances developed in a way that was sustainable in the long term. Monetary policy, on the other hand, was no longer tied to defending the exchange rate in that the krona was allowed to float. Its main task was instead to more directly maintain inflation at a low and stable level, by using interest rate changes to affect demand in the economy. The new regime has lived up to expectations (Figure 1). Following the initial deep crisis, inflation has been much lower and fluctuated less than in the 1970s and 1980s. At the same time, growth in the economy has been higher and more stable than before. Real wages have also developed favourably. In many respects, developments in Sweden are good also from an international perspective, and this was certainly not the case during the 1970s and 1980s. | These forecasts are, of course, uncertain and developments in recent years in particular have shown that events occur from time to time that are difficult to predict. It is therefore necessary to assume that inflation will during certain periods deviate from the target and sometimes deviate substantially. The important thing in the long term is not the temporary fluctuations in inflation, but that expectations are anchored around the inflation target. The inflation target can then fulfil its important function as nominal target when prices and wages are set and investment decisions are made. And in this respect we appear to have succeeded well (Figure 7). Let me in this context also briefly mention how we make our forecasts. Previously we made forecasts on the basis that the repo rate - our policy rate - would remain constant during the forecast period. If inflation was expected to be lower than two per cent, this was a signal that the interest rate needed to be cut, and if it was expected to be higher, the rate needed to be raised. However, the assumption that the repo rate would remain entirely unchanged over a long period of time is fairly unrealistic. Many times – for instance when everyone is expecting a long period of interest rate increases or interest rate cuts – this assumption of a constant repo rate makes it difficult for us to make reasonable forecasts. Now our forecasts are instead based on an assumption that the repo rate will develop in line with market expectations. | 1 |
This is also being driven by the growing demand for finance by both public and private investors in this sector. In the recent past for instance, a private leasing company received structured finance of $ million (or approximately K38 billion at today’s exchange rate) while the Development Bank of Zambia also issued a corporate bond of K68 billion (which is just under $ Increased participation in both the money and capital markets by non-bank financial institutions with proposals for issuance of other corporate bonds are also under current consideration. Mr Chairman, some of the key sectors with potential investment include agriculture, mining, manufacturing, tourism and energy. Mr. Chairman, given all these developments which I have cited, one can tell that there are enormous possibilities for the financial sector in Zambia. In this regard, our expectation, at the Bank of Zambia, is that the financial sector should take a leading role in facilitating further developments in the areas which I have discussed. However, during our interactions, key players in the financial sector have informed us that they have a limited capacity to provide the required services in this regard. This forum has therefore been organized and arranged by the Bank of Zambia to bring together Zambian financial sector players and international financial players who have an interest to see that Zambia takes its rightful place in the world economy. | BIS Review 150/2007 1 The financial sector weaknesses are being addressed through a public and private sector partnership. The implementation structure is chaired by the Secretary to the Treasury at Ministry of Finance and National Planning with the secretariat function responsible for the coordination of activities based at the Bank of Zambia. Mr Chairman, the goal of the FSDP is to have a financial system that is stable and marketbased in order to support efficient resource mobilization necessary for economic diversification and sustainable growth. A number of reforms have already been undertaken under this plan. For instance, a Credit Reference Bureau has been established and we expect it to be operational in the coming year. In addition, studies have also been taken to comprehend the constraints to broader access financial services. One of the outputs of the FSDP has been a market knowledge study called Finscope Zambia which is a nationally representative survey of the use of, and demand for, financial services. It provides insights into how consumers source their income and manage their financial lives. This is the first time a survey like this has been conducted in Zambia and provides valuable information for players in the financial market. The survey, which was conducted in 2005, notes that very few Zambians use the formal financial sector. The report reveals that most Zambians prefer to invest in non-financial instruments such as a business, livestock, land or agriculture equipment. | 1 |
I think the consensus at present, as reflected in the recent discussion at the LegCo Financial Affairs Panel, is that neither the current volume and nature of complaints nor the deficiencies in existing arrangements would justify the creation of such elaborate machinery. The second option would be to give the HKMA a clear mandate to arbitrate and resolve consumer complaints and the powers to impose sanctions. This option could go some way towards addressing the current gap between the expectation of bank customers and what the HKMA can do for them under its existing powers. However, I think there is a consensus that this is not the right time for the BIS Review 39/2002 3 HKMA to be given such a role. It would require a considerable increase in resources and some form of cost recovery from the banking industry, and it would also require addressing concerns about conflict of interest between different branches of the organisation - a problem that is not insoluble, but which would nevertheless require some careful thought. This, at least for the time being, does not seem to be the preferred option. The weight of opinion seems, then, to fall on the third option, which is to rely mainly on the industry itself to ensure that complaints are properly handled. There are three things which banks can do in helping to promote self-regulation: • First, AIs should strictly follow the Code of Banking Practice, which is issued by their own industry associations. | Yields on bonds with high credit ratings are also very low in Switzerland. At the beginning of June, ten-year Confederation bonds attained a new all-time low, at around 0.5%. Thirty-year bonds were trading in the market at yields of under 1%. For short to medium-term maturities, yields were in negative territory, in some cases very negative. The low interest rates continue to be reflected in robust growth in lending and rising real estate prices. As a result, the imbalances on the Swiss residential mortgage and real estate markets have increased further. Following my presentation, my colleague Jean-Pierre Danthine will take a closer look at the risks for financial stability in connection with the mortgage and real estate markets. SNB monetary policy Let us now return to the SNB’s monetary policy. The debt problems in some euro area countries have deteriorated seriously over the recent period. Accordingly, the euro has lost value against most countries since May. This has led to increased upward pressure on the EUR/CHF exchange rate. Even in this difficult environment, we have consistently enforced the minimum exchange rate of CHF 1.20 per euro. To defend the minimum exchange rate, we purchased foreign currency. This has led to a further expansion in Swiss franc liquidity and the SNB balance sheet. Even when the minimum exchange rate was first introduced, we drew attention to the fact that its enforcement could have significant consequences for our balance sheet. | 0 |
2 See, for instance, Eggertsson, G. and P. Krugman, “Debt, Deleveraging, and the Liquidity Trap”, Federal Reserve Bank of New York Working Paper, February 2011 and Mian, A., K. Rao and A. Sufi, “Household Balance Sheets, Consumption, and the Economic Slump”, Chicago Booth Working paper, November 2011. 3 See, for instance, Eichengreen, B., R. Rajan and E. Prasad, “Central banks need a bigger and bolder mandate”, Financial Times, 24 October 2011. 2 BIS central bankers’ speeches there is then a risk that both will become unclear. The outcome may also be poorer and it may be more difficult to hold policymakers accountable.4 The problems are exaggerated by those who believe that both types of policy must be coordinated… I can understand both points of view, but I believe that both have exaggerated their arguments somewhat. Those who say that monetary policy and financial stability policy should be integrated to a greater extent sometimes give the impression that they believe the central bank should at every monetary policy meeting both determine the policy rate and activate a number of macroprudential supervisory levers to find a policy mix that is appropriate for both monetary policy and financial stability. I do not believe that this is the way things will be done – I believe that this way of thinking is too coloured by recent events. After all, it is not as though problems arise from overgenerous credit granting during every economic cycle. Most cycles are ”normal”, with no financial imbalances or balance-sheet problems. | Yellow indicates normal conditions. Includes bank and non-bank credit. BIS central bankers’ speeches 11 Chart 9: Term premia have been a significant driver of the decline in yields Change in expected policy rates Change in term premia Change in nominal interest rates Basis 0 -10 -20 -30 -40 -50 -60 -70 -80 -90 UK Source: Bank calculations Chart shows estimates of contribution to change in 10-year government bond yields between end July 2014 and end April 2015. Derived using the model described in Malik, S and Meldrum A (2014) Chart 10: Central banks will purchase around $ per month (on average)until September 2016. Monthly flow of G4 Central Bank Asset Purchases (6-month moving average, $ 250 200 150 100 50 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Euro Area Japan US UK Total Sources: BoE, Federal Reserve, Bank of Japan, ECB, DataStream Asset purchases have been converted to $ using $ per pound, $ per euro, and 120 yen per $ 12 BIS central bankers’ speeches | 0 |
There is still a rationale for central banks to hold gold. 2. Gold selling After having listed all the good reasons for holding gold, you will not be surprised if I reiterate that we have no plans to sell gold! The leading official holders of gold have not changed their attitude in this respect. Neither the American Federal Reserve System, nor the German Bundesbank, nor the Bank of Italy, nor the Banque de France have any plan to sell gold. 3. Gold lending Concerning gold lending, the Banque de France, as most of you probably know, is definitely not among the active players in the market. Quite the contrary, alongside the other major holders, it has refrained from an active management of its gold holdings. The Banque de France has always adopted a very prudent and rather conservative approach, acknowledging the fact that the issue of gold lending is a matter of common interest to the major holders. Two main reasons are traditionally put forward to justify gold lending: – The first one refers to a question of principle. Foreign currency assets are actively managed. Why not extend this management to gold insofar as gold is considered to be part of a country’s external reserves? – The second reason is that central banks obviously have to take into account profit and loss account considerations. From this standpoint, gold should provide a return just like other assets. | European firms were lagging behind US firms in terms of foreign direct investment and they are now catching up. European firms have entered a “globalisation process” whereby they aim to reach a global size through acquisitions. BIS Review 61/2000 6 Conclusion Allow me to conclude. The euro area has adopted a sound macroeconomic policy and has embarked upon a fairly comprehensive programme of structural reforms. These reforms will still take time to be fully completed. But they are well underway and have already boosted economic growth, job creation and corporate restructuring. This move has been triggered by the creation of a monetary union and a vast unified financial market. I am impressed by what has been achieved during the past years and the National Central Banks as well as the ECB are strongly encouraging governments and businesses to foster structural reforms in the future. The euro exchange rate is clearly misaligned relative to euro area fundamentals (robust domestic growth, steady implementation of the single market, abundant domestic savings, healthy external accounts). This is the reason why we consider that the euro has a strong potential for appreciation. The Eurosystem, which is the guardian of the euro on behalf of the people of Europe, knows that our fellow citizens want the single currency to be at least as solid as their previous national currencies. In France, to give but one example, 96% of the population want the euro to be at least as solid as the franc. | 1 |
Accompanying these changes has been the prevalence of abundant liquidity in the global financial markets, resulting in an intensified search for higher yields. These trends are encouraging flows into the capital markets of emerging economies, presenting new opportunities for wholesale banking and capital market related financial services. These flows, however, also pose potential risks of reversals in financial market conditions. This increases the need to ensure that we have the capacity to absorb or adjust to changing financial flows. A second significant trend shaping the future financial landscape is the intensification of regional economic and financial integration. Economic integration through trade is already well-advanced in Asia, with the share of intra-regional trade already more than half of the total trade in Asia . More recently, however, greater financial integration at the regional level has been an important development, bringing complementary and mutually-reinforcing benefits to the economies in the region. Intra-regional investments among the Asian economies have increased with an accompanying rise in cross-border financing activities. There has already been an increase in cross-border mergers and acquisition activity among Asian financial institutions in order to reap emerging opportunities. The transformation in the financial landscape in the current environment has not been confined to the Asian region but has also involved growing ties with other emerging regions. Of significance is the rising trend of trade and financial linkages between Asia and the Middle East and other parts of the world. Malaysian banks now have the capacity to take advantage of these trends. | It is also important that the central bank, even if it does not have direct supervisory responsibilities, closely monitors general financial market developments, including in the major institutions, to detect potential crisis situations that may call for ELA. The traditional view that ELA should never be given to insolvent banks can also be discussed from another perspective. A prerequisite for all kinds of support, including ELA, should be that there is considerable risk for a systemic crisis. Given that, it can be discussed whether it is worse to provide ELA to an insolvent institution, or to refrain from an action that could avoid a systemic crisis. If there is a risk of systemic crisis, it is normally determined that public support even to insolvent institutions may be warranted, but this is normally given by the government through the fiscal budget, not by the central bank. The moral hazard aspects, which are common arguments for not providing ELA to insolvent institutions, will be no different if the central bank provides support or if the government does. The central bank may have a better capability than other authorities to provide financial support if the need arises very quickly. The main reason for this is that the central bank has the instruments for lending available and it has resources in its balance sheet or the credibility to get resources if they are needed (for example in foreign currency). | 0 |
Admittedly, depreciation of CEE currencies has hardly been an issue in the recent past; the currencies in the region have either stable exchange rates (when these are pegged) or tend to appreciate (when the exchange rate regime allows it). However, concerns remain that under such conditions, domestic monetary policy cannot 7 Égert, B., Mihaljek, D.: Determinants of House Prices in Central and Eastern Europe, BIS Working Paper No. 236, September 2007. 8 Zajączkowski, S., Żochowski, D.: Housing Loans Growth, Foreign Currency Risk and Supervisory Response: the Polish Case, mimeo, November 2007. 9 Brzoza-Brzezina, M., Chmielewski, T., Niedźwiedziska, J.: Substitution between Domestic and Foreign Currency Loans in Central Europe, mimeo, November 2007. BIS Review 137/2007 3 effectively control the growth of credit due to the substitution effect: monetary tightening at home does not lead to a slowdown of total credit growth, but rather to increased foreign currency indebtedness. The analysis in the paper has identified the existence of this effect in the case of three largest CEE economies. Generally, most papers presented and discussed over the last two days have stressed the necessity of prudential supervision of the banking system in the face of a credit boom. Even though financial deepening and capital inflows bring about long-term benefits that can hardly be overstated, in the short to medium run they can lead to imbalances and distortions that pose a threat to the macroeconomic stability of a country. | Krzysztof Rybiński: Rapid credit growth in converging economies – the challenges ahead Closing remarks by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the National Bank of Poland International Conference of Central Bankers and Economic Educators “Monetary Policy Challenges Resulting from the Rapid Credit Growth in Converging Economies”, Warsaw, 23 November 2007. * * * Ladies and Gentlemen, We have now come to the end of the conference on “Monetary Policy Challenges Resulting from the Rapid Credit Growth in Converging Economies”, and it is my honour to provide some concluding remarks. Over the last two days, we have been discussing opportunities, challenges and problems related to the rapid credit expansion in Central and East European (hereafter: CEE) economies that find themselves in a convergence process towards more advanced EU member states. In the following, let me briefly summarize the main conclusions that emerge from all the presentations and discussions. Before I proceed, I would like to thank you all for attending this conference, especially the speakers and discussants for their valuable contributions. Most of all, I would like to thank central bank governors from our region: Ms Júlia Király, Deputy Governor of the Magyar Nemzeti Bank, Mr Andres Sutt, Deputy Governor of the Bank of Estonia, Mr Sławomir Skrzypek, President of the National Bank of Poland, and Mr Zdeněk Tůma, Governor of the Czech National Bank, for enriching this conference with their presence and their views. | 1 |
Past episodes of persistent negative price growth, such as those seen in Japan over the last decade, have shown us that in those conditions monetary policy loses much of its potential to exert a decisive influence on the price path and on the level of output. In that regard, most central banks, such as the ECB, recognise that their price stability objective should be made compatible with a low probability of deflation. Moreover, in the current setting of low inflation and interest rates, we have witnessed episodes of rapid increases in some asset prices that have led analysts to suspect important deviations between fundamental and observed values. Some notorious recent examples include the overvaluation in the real-estate sector in several East Asian countries in the 90s, and the surge and subsequent correction of the wave of excessive optimism in some equity markets around the turn of the millennium. Currently, the extreme increases in housing prices and households’ level of indebtedness witnessed in some western countries is attracting some attention and concern in view of the potentially adverse consequences on the stability of the whole economy. Looking back, one can indeed find in unbalanced developments in asset and debt markets the seeds of some of the major financial crises that ultimately led to persistent negative output and price growth. Therefore, conditions such as low inflation and interest rates may sometimes conceal risks capable of bringing a phase of price and economic stability to its end. | It is about establishing an incentive-based approach to risk management and capital adequacy, within a framework of the three mutually-supporting pillars The new comprehensive framework provides at least four transmission channels for influencing financial stability and the overall economy: first, by setting more risk-sensitive minimum regulatory capital requirements, so that regulatory capital is both adequate and closer to economic capital; second, by providing incentives to encourage improvements in banks’ internal risk management processes; third, the enhanced mechanisms to encourage the marketplace to exert external discipline on banks and the banking sector; and fourth, the necessary greater co-operation among supervisors across jurisdictions. The effects of each of these channels will be different in terms of time and in terms of final influence, some of them having the capacity to bring significant long-term positive changes to the financial markets. In my view, perhaps too much attention is placed on the minimum capital rules of Pillar 1 and not enough on the effects of the other three channels. 3. Implications of Basel II for monetary policy Let me therefore turn to the issue of how the main elements of Basel II may affect the ability of the monetary authority to fulfil its objectives. I believe that the achievement of price stability as a desirable medium to long-term target is, by now, a non-controversial objective of primary importance whose foundations are well known. On one hand, the proposition that labels inflation largely as a pure monetary phenomenon within long time-horizons can hardly be contested either conceptually or empirically. | 1 |
It is our earnest aspiration that the entry of ING Public Takaful Ehsan will further add to the dynamism and vigour of the takaful industry. With this strategic alliance between 2 financial groups of such calibre, Bank Negara Malaysia looks forward to strong management stewardship, innovative product offerings, wide distribution channels, operational and service excellence as well as breakthrough business strategies that are well-matched by robust risk management capabilities. I am confident that ING Public Takaful Ehsan will benefit greatly from the synergies and complementary strengths of its shareholders, by drawing upon the combined wealth of market experience, technical underwriting expertise, multi-channel distribution network and infrastructure, to successfully make its mark as one of the leading takaful operator, both domestically and on the global front. 2 BIS central bankers’ speeches In the pursuit to seize the growing business opportunities in the increasingly competitive environment, building a pool of highly skilled and knowledgeable workforce must remain a strategic priority for takaful operators. As a knowledge-intensive industry, human capital can indeed be a potent weapon of competitive advantage for the industry. As the industry seeks to achieve a higher level of competitiveness, increased product complexity, business sophistication, service excellence and the global nature of competition are all demanding greater depth and breadth of leadership, knowledge, competence and skills of industry professionals. Adding to the demands for increased organisational capabilities is the changing regulatory landscape towards risk-based capital, soon-to-be implemented for the Malaysian takaful industry, which places greater prominence on strong risk management culture. | The industry experienced a compound average growth rate of 27 percent in terms of net contributions between 2005–2010, with family takaful driving the growth at 28 percent for the same period, to dominate more than 80 percent of the total takaful market in 2010. The strong growth momentum is expected to continue, underpinned by the rising affluence of Malaysian amidst strong economic fundamentals. Given the large untapped market that still exists with only 54 percent of the population having a life insurance or family takaful policy, the takaful industry is poised to benefit in the years ahead. Today’s launch is thus an important step in our overall strategy to further elevate the growth and development of the takaful industry. ING Public Takaful Ehsan is the 3rd licensee to launch out of the 4 family takaful licences awarded recently, making up to a total of 11 takaful players now operating in Malaysia. The initiative for strengthening competition in takaful industry is premised on our quest to unlock the enormous growth potential that lie ahead. There are 3 dimensions from which strong opportunities for growth can be harnessed in the takaful industry. First, is the opportunity to penetrate the remaining underserved areas in family takaful. One such area is medical and health, which in 2010 constitutes only 9 percent of new family takaful business. | 1 |
It will wish to take time to reflect carefully on the Report before expressing a view. 4 BIS Review 32/2009 Given what has happened there is now international support for developing a counter-cyclical toolkit for the prudential supervision of banks. But let us be clear what such tools would have entailed had they operated in the past. They would have imposed constraints on the growth and profitability of bank balance sheets. They would have been seen as a tax on the success of the investment banking community and the City of London more generally. And that would have taken place at a time when virtually the entire weight of opinion, not only in this country but also abroad, was in favour of the expansion of financial services. Indeed, just before the financial turmoil broke out in the summer of 2007, there was a debate in New York about the need to follow London’s example of unfettered markets if they were not to lose ground. What are the lessons for central banks? With the passage of the new Banking Act last month, the Bank of England now has two objectives enshrined in statute: monetary stability and financial stability. Events of the past six months show that there are limits to what can be achieved in respect of either objective. No policy framework can, or should be expected to, stabilise output when demand in the rest of the world suddenly and simultaneously “falls off a cliff”, to use the expression heard so often in recent months. | 2 See for instance Már Guðmundsson and Thorsteinn Thorgeirsson, “The Fault Lines in Cross-Border Banking: Lessons from the Icelandic Case” SUERF Studies 05/2010, European Money and Finance Forum (2010); Már Guðmundsson, Keynote address at the Eighth High-Level Meeting for the Middle East & North Africa Region: Recent Policy Developments for Strengthening the Resilience of the Financial Sector, Abu Dhabi, 28 November 2012. www.cb.is; and Már Guðmundsson‘s speech at the IIEA conference in Dublin, Ireland, “Iceland‘s crisis and recovery: facts, comparisons, and the lessons learned”, 27 April 2015. www.cb.is. BIS central bankers’ speeches 3 Let me conclude by telling you what we are contemplating in Iceland in this regard, as this issue is very much on the agenda as we prepare to lift the comprehensive controls on capital outflows that were introduced at the peak of the crisis. We will work through all of the avenues that I have just mentioned, and many of the reforms have already been implemented. What I call IT-plus – or plus-plus – will replace IT of the precrisis type. A managed float has already taken the place of the free float. Foreign exchange intervention is thus used to reduce excess volatility in the FX market and lean against capital flow cycles. The financial stability framework has been strengthened, and macroprudential tools are being developed that should mitigate adverse interactions between capital flows, on the one hand, and domestic credit growth and asset prices, on the other. Foreign currency borrowing by unhedged domestic agents will be very much restricted. | 0 |
Sources: Statistics Bureaus of each country. 10 BIS Review 41/2009 Figure 4 Inflation and expectations (annual change, percent) 12 12 9 9 6 6 3 3 0 0 -3 01 02 03 CPI 04 05 06 07 CPIX 08 09 -3 8 8 6 6 4 4 2 2 0 0 06 CPIX1 Jul. 07 Jul. 08 BI 1 in 1 (1) BI 3 In 2 (1) BI 5 In 5 (1) Jul. 09 EES 1 year (2) EES 2 years (2) (1) Breakeven inflation calculation based on swap contracts. (2) Economic Expectations Survey conducted by the Central Bank of Chile. Sources: Central Bank of Chile and National Bureau of Statistics (INE). Figure 5 Monetary policy rate, deposit rate, and forward rate (percent) 12 12 10 10 8 8 6 6 4 4 2 2 0 Jan. 08 0 May 08 180-day prime deposit rate Sep. 08 MPR Jan. 09 6-month forward rate Source: Central Bank of Chile. | Although every month we carry out exercises in which we try to measure the impact of macroeconomic changes on our own baseline scenario, we do not yet have a final and complete revision of such scenario which may allow us to estimate, with a reasonable degree of certainty, the expected growth for 2009. However, it is not hard to guess that such growth shall be below the 2-3% range we estimated in January. The exact figure remains to be seen. Anyway, a useful background could be the change in the projections of the analysts who answered the Economic Expectations Survey carried out by the Bank or the last issue of Consensus Forecasts. In these projections, the expected growth for this year went, respectively, from 2% and 1.9% in December to 0.2% and 0.0% in March. Actions taken by the Central Bank during the crisis Since the beginning of the crisis, halfway through 2007, the actions taken by the Central Bank have been focused on three fields: • Accumulation of reserves. • Supply of peso and dollar liquidity. • Monetary easing. In the first half of last year there was an unusual strengthening of the peso, within a context in which there were great risks of deterioration of the international financial environment, such as it actually happened. At the same time, inflationary pressures had been relatively limited during the first quarter. In this scenario, the Bank’s Board decided to strengthen our international liquidity position by accumulating 8 billion dollars over an eight-month period. | 1 |
Josef Bonnici: Reflections on the financial and economic challenges in the euro area and beyond Address by Professor Josef Bonnici, Governor of the Central Bank of Malta, at the FinanceMalta’s 5th Annual Conference “Malta’s financial services industry – sustaining the momentum”, Mdina, 18 May 2012. * * * Ladies and gentlemen, The euro area continues to face a number of unprecedented challenges. Bond and equity markets have been highly volatile and the degree of uncertainty in financial markets has increased. It can be said that Member States have largely recognised the gravity of the situation and have already implemented or are in the process of implementing various major reforms. These are generally directed at fiscal consolidation and the enhancement of competitiveness and growth, and include significant labour market reforms, as in Spain, and reform of the public administration, as in Italy. Ireland and Portugal are on track in the implementation of their EU-IMF programmes. But the tensions in the debt markets are clearly not over yet. Despite the efforts being made by policy makers across the European Union, the sovereign debt crisis continues and its ramifications are still uncertain. The recent rise in Spanish yields and the turbulence in Greece are evidence of this. The main problem is that fiscal consolidation has to be effected at a time of an economic slowdown. Recessionary conditions slow down GDP growth and compound the difficulties that are encountered in the reduction of the fiscal deficit and debt. | Given that the prices that determine inflation are partly rigid, the central bank may influence the real interest rate by adjusting nominal rates. Before the onset of the financial crisis, the central bankers’ manual prescribed that if the economy is overheating and prices and wages are under growing pressure, the central bank should raise nominal interest rates above inflation expectations, thus tightening real rates and cooling down the economy. And vice versa, in a downturn, with falling prices and rising unemployment, the central bank should cut nominal interest rates, thus reducing real rates and stimulating aggregate demand. 10 Conceptually, central bankers sought to maintain real interest rates at a level – known as the natural rate of interest – that would hold GDP at its potential level and would keep inflation stable around its target level.2 This natural rate of interest is not directly observable 2 The concept, determinants and monetary policy implications of the natural rate of interest are discussed in depth in Galesi, Nuño and Thomas (2017). 11 and may only be estimated, with some degree of uncertainty, using econometric techniques.3 In recent decades this natural rate of interest has gradually fallen in the advanced economies. This is attributed both to demographic factors (such as population ageing) and to technological factors (such as low productivity growth), which have changed the balance between the supply of savings and the demand for investment. | 0 |
The combination of the Riksbank now publishing its own interest rate forecast and at the same time continuing to report how we think has the potential to change the discussion outside of the Bank. It could to a greater extent concern how new information should affect 2 BIS Review 111/2007 expectations of interest rate developments rather than exactly what formulations are used in for example speeches and press releases. Interest rates are by definition always uncertain Let me take up some issues that are important to keep in mind when formulating forecasts for the repo rate. Firstly, the interest rate path we present is a forecast and forecasts are, as we know, very uncertain. To illustrate this, the Riksbank publishes uncertainty intervals, known as fan charts, around its interest rate forecasts and also its inflation and GDP forecasts (Figure 8). As you see, the uncertainty interval increases considerably in relation to the length of the time horizon. Put simply, the probability of unexpected shocks arising in the economy that would lead to developments deviating from the forecasts increases when the time horizon is longer. In other words, it is not easy to make accurate forecasts of the development of the interest rate in the longer term. One means of illustrating this is to see how the implied forward rates have changed over time. Figure 9 shows implied forward rates measured on a quarterly rate. Expectations of the development of the repo rate have varied substantially over time when measured in this way. | If our analysis of the prospects for production and inflation shows that our repo rate path needs to be revised in a particular way so that monetary policy is well balanced, then we will do this. What lessons can we learn? So far we have only limited experience of the new system and it is difficult to draw any farreaching conclusions. But perhaps we can learn some lessons for the future already at this stage. To begin with, it is important to note that, apart from the differences between different market agents’ expectations, there may also be differences between market agents’ own forecasts for the repo rate and their forecasts for the interest rate path the Riksbank will publish. It will be important for us to analyse what these differences are due to and how they should be interpreted in order to be able to predict the reactions at the times of the interest rate decisions. It is also important that we should constantly strive to become clearer in our communication to avoid it being interpreted in a way we did not intend. The decision to begin publishing interest rate forecasts in connection with each monetary policy meeting should be regarded in this context. There are some indications that certain market analysts interpreted a couple of speeches by Executive Board members during the spring in a way that was not intended. They appear to have drawn the conclusion that the interest rate path would be revised upwards less than had been assumed previously. | 1 |
Chart 3 shows that the slope of the short-run Phillips curve has moved around during the post-war period, apparently in response to changes in the monetary policy regime. In the 1970s labour market pressure was not offset by tighter monetary policy, leading to a spiral of wage and price inflation. The short-run Phillips curve steepened, with larger inflationary consequences of any deviation from the natural rate of unemployment. As monetary policy became more focused on controlling inflation, the Phillips curve flattened in the latter part of the 1980s and 1990s. Such changes in the monetary policy regime can also be detected in the behaviour of inflation over time. Table 2 shows that the persistence of inflation – measured by the estimated explanatory power of past inflation in predicting current inflation – has fallen quite markedly since the inflation target was introduced in 1992. Was this 4 BIS Review 36/2005 because the failure of monetary policy to react quickly to an inflationary shock in the 1970s meant that inflation remained high for some time? And has the prompt response of monetary policy meant that movements in inflation more recently have proved short-lived? The answers to these questions matter for monetary policy. But the economy is continually evolving, and we can never definitively conclude that one answer is right and the others wrong. So learning about changes in the structure of the economy lies at the heart of the daily work of central banks. | This process has, in the past five years, notably improved the sector’s position in terms of basic metrics such as asset quality and profitability and solvency levels. This has come about against the background of the correction of structural imbalances, built up on bank balance sheets during the pre-crisis upturn. Arguably, the cause and, largely, the effect of the formation of these imbalances was excess capacity in the development of Spanish deposit institutions’ business. 3/15 We can observe the scale of the adjustment that has come about, both in the volume of banking activity and in the total volume of lending to the resident private sector. From its June 2009 peak, when the stock of lending practically amounted to € trillion, to the present day there has been a reduction of almost 40% in volume, i.e. of over € billion. In terms of GDP we have moved into line with the European average. Also, the excessive dependence on external financing has been corrected; specifically, the Spanish economy’s net debtor position has declined from accounting for almost 100% of GDP in 2014 to 77.1% of GDP in 2018. The consolidation process, which began in 2009, has entailed a reduction of more than 30% in the number of institutions. The most striking impact has been on the former savings banks, of which only two have survived, although another seven have converted into banks. | 0 |
This is something on which individual banks will have to take a view, but I would like to offer some general advice. First, banks should accept that profits for 2003 may not reach budgetted targets as a result of the outbreak; and they should not strain too much to make up the difference. When profitability comes under pressure, it is important to avoid the mistakes that might arise from over-aggressive business tactics. Keep the bank healthy from a capital and liquidity point of view in order to benefit from the business recovery when it comes, as it surely will. Banks should also monitor closely the financial position of their customers and adopt a supportive attitude to those experiencing financial difficulties as a result of the SARS outbreak. This means being prepared to offer temporary relief arrangements to borrowers who find that they cannot service their debts in the current environment. This should not be seen as soft option for customers since the banks will certainly not benefit if those customers go bankrupt. Nor do I suggest that relief should be offered indiscriminately. The long-term viability of the customer or his business, his track record and his willingness to cooperate with the bank are all factors to be taken into account in deciding whether to restructure debts. Each case thus needs to be looked at on its merits. | All this has taken place against the background of various upheavals in the global economic and political environment, the war in Iraq being just one manifestation of this. The defining characteristic of Hong Kong banks during this difficult period has been their resilience. Despite the ups and downs, banks’ balance sheets have remained strong. For the locally incorporated authorized institutions, the aggregate capital ratio remains around 16%, twice the minimum international standard. Many of the smaller banks have ratios well above this. Capital strength has not been impaired by losses during this period. The banks have continued to make money and earn a reasonable return on assets from their Hong Kong operations, averaging 1 around 1.25% (before tax) over the last three years. However, this has not been easy to come by. Growth in mortgage lending, the mainstay of profits in the 1990s, has stagnated, and the spread on new mortgage loans has fallen to 2.6% below prime barely enough to earn a decent return on capital employed. Other sources of loan demand have also dried up as corporates have deleveraged since the Asian Crisis. So the banks have had to change their focus in order to generate revenue. Attention has switched to the liabilities side of the balance sheet as the banks seek to make best use of the large amounts of surplus funds that have built up. Banks have been managing down the cost of their liabilities in order to improve deposit margins. | 1 |
At the same time, central banks and financial regulators became increasingly vocal in stressing the overwhelming importance of a stable financial system, and took a more active role in strengthening their regulatory frameworks, both nationally and globally. Inevitably, these substantial, unprecedented shifts in the design and operation of a key field in economic policy have raised fundamental questions and cast doubt on deeply entrenched beliefs. Based on practical experience of making monetary policy in the last few years, I will try today to dispel four Swiss monetary policy “fictions” by contrasting them with established facts about Swiss monetary policy. These facts are not necessarily new, but rather took a back seat in more benign times; it took the crisis to amply demonstrate their considerable relevance. Fiction I: Negative interest rates can’t happen First, I would like to address the belief that, because of the so-called “zero lower bound”, nominal interest rates cannot become negative. This belief has clearly been proved a fiction by current developments, with the SNB lowering its policy target rate into negative territory. 1 Unsurprisingly, the measure has sparked intense debate in the public domain. This is partially due to fears that the costs incurred by banks holding sight deposits with the SNB will, at some point, be passed on to their clients. But there is a more fundamental issue here. At first glance, negative rates violate the intuition that savings must be remunerated. However, this intuition is misleading. | A case in point is the SNB’s decision to introduce the minimum exchange rate of CHF 1.20 per euro in September 2011, and then discontinue it earlier this year. As mentioned, in enforcing the minimum exchange rate, the SNB intervened heavily in the foreign exchange markets, and did not refrain from taking on significant balance sheet risks, particularly in 2012. At the time, interventions were necessary to counteract upward pressure on the Swiss franc resulting from substantial capital inflows and a lack of outflows due to flare-ups in the European debt crisis. Towards the end of 2014, the minimum exchange rate again came under increasing market pressure, requiring renewed interventions by the SNB. This time, however, the international environment was very different. While expectations of an interest rate rise in the United States were mounting and the dollar was appreciating, from mid-year onwards there were signs in the euro area of further monetary policy easing, and the euro started to weaken across the board, pushing the EUR/CHF exchange rate close to the CHF 1.20 per euro floor. On the back of these developments – also reflecting the collapsing interest rate differential – Swiss franc investments again became relatively more attractive. Given these circumstances, and in view of quantitative easing in the euro area, the continuation of the minimum exchange rate policy would have meant a permanent, potentially uncontrollable expansion of the SNB balance sheet. | 1 |
Under the conditions when the temporary operation of pressures on supply direction is expected to be cancelled out, the non-inflationary pressures as a result of production negative gap from the demand side is estimated to set out the inflation volatility around the 2 BIS Review 77/2010 Bank of Albania target regarding inflation. The expectations of economic agents regarding inflation remain anchored over the medium term horizon. At the conclusion of discussion, the Supervisory Council decided to leave the key interest rate unchanged, at 5.25 percent. This decision is in line with the accomplishment of inflation target over the medium term period, and provides at the same time the needed monetary conditions to support the sound development of economy. Looking ahead, Bank of Albania shall continue to observe carefully the developments in inflation and in the other indicators of the economic progress, by analysing the need and time span in terms of a reaction from the monetary policy. BIS Review 77/2010 3 | Each country can then choose whether or not to publish the results of the assessment. A summary of the assessment is included in the IMF's annual assessment of member countries' economies. Dependence and complexity are increasing While the markets have thus (hopefully, I should perhaps add) become more robust, our use of them has grown. Households and companies have become operators on the financial markets, mainly because these offer better and cheaper services than those traditionally offered via the banks. An increasing percentage of the investments made are financed on the market through shares and bonds in other countries than the USA. This has become possible because households' savings are to an increasing degree channelled into shares and mutual funds. We use the financial markets much more than we did just ten years ago. This means that we have good reason to be concerned over their functioning. It has also meant that questions regarding financial stability have acquired greater importance on the international political agenda. At the same time as use of the markets has grown, new instruments are being traded that are increasingly complicated in structure and their risk content has become more difficult to assess. Various forms of derivative have been developed, for instance, to spread risks more efficiently. This in itself creates conditions for reducing the vulnerability of the banks as well as the financing costs of the investments. Essentially, this development benefits long-term growth. In recent years, the use of credit risk derivatives and securitisation has increased, for instance. | 0 |
Against this background, the capital situation at Credit Suisse and UBS has improved slightly since the first quarter. Looking ahead, the two globally active Swiss banks remain well placed to face the challenges posed by the difficult environment. An increase in provisions is likely in the coming quarters as a result of the expected deterioration in credit quality. Under the baseline scenario, however, the SNB estimates that the financial impact of the coronavirus pandemic on Credit Suisse and UBS will remain limited. Furthermore, the SNB’s scenario analysis shows that, thanks to their capital buffers, both banks could also cope with significantly worse developments in the economic environment than are assumed in the baseline scenario. At the same time, this analysis shows, however, that the estimated loss potential under stress scenarios at Credit Suisse and UBS continues to be substantial. Moreover, uncertainty about the future course of the pandemic and thus about the financial impact on the two globally active banks remains high. Both factors underline that the capital requirements under the current TBTF regulations are necessary to ensure adequate resilience at these two banks. Domestically focused banks I shall now turn to the domestically focused banks. Here too, there has been little change in the situation since the Financial Stability Report was published in June. These banks’ financial figures and risk indicators are still showing scarcely any effects of the coronavirus pandemic. | Despite the series of shocks from the foreign and domestic environment which the Macedonian economy has faced in recent years, we maintain the average inflation rate at the level of 1.5%, which is very close to the average inflation of the Euro area countries and confirms the adequacy of the monetary setup in this period. The nominal exchange rate of the denar against the euro has been maintained at a stable level, contributing to stable expectations and maintaining the confidence of economic agents. We have maintained the foreign reserves at a comfortable level by guarantying currency stability and dealing with shocks. The banking system is set on a completely market basis, with the presence of renowned international banking groups – stable, liquid and capitalized. Our permanent investment in observing the international standards in the banking regulation and the modern supervisory standards has made a great contribution. 1/2 BIS central bankers' speeches No central banking institution can be set on firm grounds without dedicated and responsible people who have a vision, follow the direction of the modern central banks and at the same time work very hard to follow that path. In recent years, we have been continuously investing in the human capital. The support that we receive from international financial institutions, along with our dedication enables us to have a high quality core of professionals. | 0 |
Christakis, NA and Fowler, J (2007), ‘The Spread of Obesity in a Large Social Network over 32 Years’, The New England Journal of Medicine, Vol. 357, pp. 370-379. Crawford, C, Davies, NM and Smith, S (forthcoming), ‘Why do so few women study economics? Evidence from England’, Royal Economic Society. Disney, R and Gathergood, J (2013), ‘Financial literacy and consumer credit portfolios’, Journal of Banking & Finance, Vol. 37(1), pp. 2246-2254. Earwicker, R (2016), ‘The impact of problem dent on health – a literature review’, EU Joint Action Programme on Health Inequalities. Edelman (2017), ‘2017 Edelman Trust Barometer’, available at https://www.edelman.com/trust2017/ Financial Conduct Authority (2017), ‘Understanding the financial lives of UK adults – Findings from the FCA’s Financial Lives Survey 2017’, available at https://www.fca.org.uk/publication/research/financial-livessurvey-2017.pdf FLY Project (2015), ‘The State of Financial Education and Financial Literacy in the UK’, FLY Project. Gerardi, K, Goette, L and Meier, S (2010), ‘Financial Literacy and Subprime Mortgage Delinquency: Evidence from a Survey Matched to Administrative Data’, Federal Reserve Bank of Atlanta Working Paper Series, No. 2010-10. 18 All speeches are available online at www.bankofengland.co.uk/speeches 18 Haldane, A (2015), ‘The Great Divide’, speech available at www.bankofengland.co.uk/publications/Documents/speeches/2016/speech908.pdf Haldane, A (2017), ‘A Little More Conversation, A Little Less Action’, speech available at www.bankofengland.co.uk/publications/Documents/speeches/2017/speech971.pdf Haldane, A and Turrell, A (2017), ‘An interdisciplinary model for macroeconomics’, Bank of England Staff Working Paper, No. 696, available at http://www.bankofengland.co.uk/research/Pages/workingpapers/2017/swp696.aspx Harris Interactive (2005), ‘What American Teens & Adults Know About Economics’, report prepared for The National Council on Economic Education, Harris Interactive. | People have more important things to do in their lives than think about interest rates and bank regulation, about price and financial stability. Or at least I hope they have. Indeed, central banks would be failing in their job if people were spending too much of their lives thinking or worrying about these issues. Nonetheless, the actions of central banks are important for most people at key decision points in their lives. At those points, a trusting and understanding relationship between the central bank and the public matters. It matters for people when making good decisions. It matters for the economy when following a good course. It matters for policymakers when setting good policy. That is why everyday economics, terrible title and all, matters to the Bank of England. 16 All speeches are available online at www.bankofengland.co.uk/speeches 16 Annex Figure 1 – Study of Mathematics Per cent of total population at each age 1% Undergraduate level 12% A-level 75% GCSE 100% Pre-GCSE Sources: HESA, Joint Council For Qualifications, ONS and Bank Calculations Notes: As mathematics is compulsory at younger ages, we assume that the percentage of students studying it pre-GCSE is 100%. Undergraduate level includes of the professional graduate certificate in education, foundation degrees, HND/DipHE and other undergraduate qualifications. This chart does not include Scottish qualifications. | 1 |
In addition, to guarantee that we act in the general interest of the euro area, and not that of individual countries, the central banks of the Eurosystem are all completely independent and free from political influence. This independence is sometimes questioned, but it is a strength: we have to commit over the long term to serving the mandate entrusted to us – price and currency stability. This independence is therefore governed by a strict framework: a clear objective; an obligation to report results regularly to our citizens and to their elected representatives; and a democratic process for the appointment of all senior figures. 4/6 BIS central bankers' speeches III. What remains to be done, tomorrow, collectively The euro has brought great benefits, in the form of soundness, confidence, unity and sovereignty – as I have endeavoured to remind you. However, it also raises questions, which I have tried to answer, while at the same time underlining that the euro cannot be held responsible for everything that happens. But we have not yet come to the end of the road. We cannot ignore the rising tide of Euroscepticism in Europe, and the extreme case of Brexit. I particularly like this saying, attributed to Dante, one of the great citizens of Florence: “Some wait for time to change, others seize the moment and act.” But what direction should we take? Less Europe? | b) The euro is an “all-risks insurance” for all Member States This view appears to be the opposite of the preceding one; in fact it stems from an equally false perception: attributing excessive evils or benefits to the euro. A currency is an essential nominal value; but this alone does not determine the real performance of the economy. In the first part of the 2000s, once it had acquired the collective gain of the euro, France and Italy, like many 3/6 BIS central bankers' speeches Southern European countries, wrongly believed that it was possible to let up on competitiveness efforts, which are nonetheless an ongoing imperative – “there is no free lunch”. Today we are suffering the consequences: we have lower economic growth and employment than some of our neighbours, such as Germany and Spain, which succeeded in carrying out the reforms necessary for enterprise (corporate sector), employment, education and expenditure reduction (public sector). Contrary to what some say, our lag in growth is not due to excessive fiscal discipline. The government debt to GDP ratio has more than doubled in Italy since 1980, and it has risen fivefold in France. When my generation was 18 years old, debt stood at 20% of GDP in France. For your generation today, it verges on 100% of GDP in France and in Italy stands at over 130%. We have failed when it comes to intergenerational solidarity and sustainable development. | 1 |
With these additions, we reaffirm the Board's decision to not only disclose rigorously how the institution is managed, but also use its autonomy to improve the quality and transparency of its processes beyond what it is strictly required by law. The Monetary Policy Report In recent months, inflation and growth were below the estimates in the June Report. However, the main differences were related to factors that we consider to be transitory, in particular supply-side factors that affected the performance of activity and the level of certain prices. For this reason, neither the outlook for the economy for the next two years nor the general orientation of monetary policy, differs much from the projections contained in it. In the baseline scenario I will examine in a moment, core inflation —the CPIEFE— will gradually return to 3% as from mid-2018, after several months around 2%, while headline inflation will rise somewhat faster, as prices of its most volatile components return to their historical patterns and market expectations about the world prices of fuel and foodstuffs are confirmed. We expect GDP growth to pick up beginning in the second half of this year. With this, the activity gap should remain fairly stable for some time, to begin closing gradually towards the second half of 2018. | Indeed, the data show that, beyond the difficulty of calculating productivity by sector, the negative effect of the decline of mining ore has taking its toll on this industry (figure 12). The evidence from Chile suggests that there are important inefficiencies in resource allocation across firms and that there would be first order gains from measures aimed at improving them, which, unlike the case of human capital, could generate gains sooner. To back this last analysis, the document provides some international comparisons on productivity, microeconomic evidence on how the productivity of firms evolves, and its degree of dispersion. In particular, from a comparative perspective, although Chile's productivity appears to be aligned with its GDP per capita, it is about 60% that of the United States and less than that of the richer OECD countries, which implies that there is great room for improvement (figure 13). In Chile, as in many other economies, there appear to be significant gains from fostering a better allocation of productive resources, helping the more efficient firms to grow and the less efficient to shrink and eventually exit the market. As can be seen in table 3, 9 resource reallocation is an important source of TFP growth. For this, it is essential to have flexible labor markets that allow adjusting the endowment of companies when necessary, developing the financial system to direct resources to where the good ideas are and implement rules that facilitate the creation and dissolution of companies. | 1 |
On top of this, a substantial part of the growth in one of our best-performing sectors - exports - is generated by offshore trade, which by its nature creates fewer jobs domestically than does the more traditional entrepot trade, not to mention domestic exports. What this means is that, however quickly the recovery penetrates society as a whole, and whatever the efforts made to open up new areas of economic activity, a large pool of unemployed may still be left behind. These fellowcitizens will have a legitimate claim on the community for assistance in one form or another, and how to tackle this issue without further compromising fiscal discipline will be a great challenge. It is a challenge that many developed - and not-so-developed - economies have been grappling with for many years. But it is a fairly new and unfamiliar challenge for Hong Kong. A related issue is the question of property values, although how far this should be classified as a structural or a cyclical issue is uncertain. Hong Kong's property market is a complex and volatile creature: it is not at all clear how the various factors on the demand and supply sides have contributed to the extraordinary collapse we have seen in the market over the past five years. How the market will behave in the future is even less clear, though it does seem that there has been some stabilisation in prices recently. | The things that set great risk managers apart, like great navigators, are their ability to work with their captain and crew as a unit, their skills at employing the tools at their disposal to deal with risks at hand, and their attention to their surroundings for signs of impending threats. With that, I wish you all a smooth-sailing journey ahead and a productive and fruitful conference over the next two days. Thank you. 5/5 BIS central bankers' speeches | 0 |
Cash changeover positive but entails practical challenges It is not only the banks’ services that need to become more user-friendly, cost-effective and certain over time, our banknotes and coins also need to develop in the same way. When the new banknotes and coins are introduced, starting next year, the size and weight of the banknotes and some of the coins will decline and two new denominations will be introduced; the 2-krona coin and the 200-krona banknote. The banknotes and coins will thus become much more user-friendly and will be cheaper to handle. Safety is also increased through the new security features. I believe that we all agree these improvements are positive for all parties concerned. However, as with electronic payments, the introduction of the new banknotes and coins will give rise to some practical problems and friction during a transitional period. 4 BIS central bankers’ speeches Firstly, there is a huge amount of banknotes that are to be replaced; 300 million banknotes are to be withdrawn and around as many are to be put into circulation. For coins the figure is 500 million to be distributed in both directions. Secondly, Sweden has one of the world’s most automated cash systems. This means that all appropriate equipment in Sweden must be adapted to be able to handle the new banknotes and coins. | The international economic picture has darkened considerably and in the Inflation Report published at the end of March GDP growth was estimated at 2.4 per cent for both 2001 and 2002. This entails a reduction of a whole percentage point for the current year and half a percentage point for next year, compared with the Report published in December. The growth figures are still good in an historical comparison, but we have undoubtedly begun the slowdown that appeared desirable in December. The question now is whether the downturn will be too rapid and too severe. A good starting point When one considers this question, it is useful to observe that the Swedish economy has a pretty good starting point. A lot has happened since the crisis years of the early 1990s. Deregulation of the financial, telecommunications and electricity markets, as well as the ongoing liberalisation in trade has increased competition in the economy and forced companies to become ever more efficient. A purposeful management of the bank crisis and an equally single-minded consolidation of the central government finances have restored the international confidence in Sweden that had become rather tarnished. We have directed our policies towards price stability and thus, hopefully, left behind us a long period of price and wage spirals, followed by devaluation and where growth was lower than in our competitor countries. A credible inflation target is now seen as a necessary condition for macroeconomic stability. | 0 |
In a more specific aspect, the European integration processes will slowdown, as far as our firms will not be able to withstand the competitiveness pressures. For this reason, I think that the regional and Albanian authorities should continue with the implementation of structural reforms, which aim to: Increase the formalisation level of the economy, as a tool for raising competitiveness, for promoting consolidation, for improving the governance of firms, and for lowering their financing costs; Promote the development of firms in fields where the region and Albania provide competitive advantages, such as tourism or the agro-industry, and in those fields that have high value added, such as the information technology or the financial services. Development capital markets, as a tool to support new and innovative firms and as a partner to share the financial risk of entrepreneurs in the stage of the expansion and development. Dear participants, Let me emphasise that, notwithstanding the focus on the future challenges, the report shows optimism for the region. It notes that, unlike the other emerging economies, the presentation of productive industries will contribute to the increase of employment. Also, the regional integration in industry has the capacity to generate growth of productivity, to better compete with the imports and contribute to the growth of regional exports. The institutional adoption and convergence is considerably important for the integration of Albanian firms in the global output chain, and for strengthening their sophistication and specialisation in the global market. | Nevertheless, the Report notes that productivity growth slowed down; hence, the firm dynamics is identified as one of the main issues that should concern our region. The main reasons of these developments seem to derive from some factors: First, the low capacity of markets and firms to regenerate, decelerates the replacement of non-productive firms with new innovative ones, and hinders the efficient allocation of resources. Second, small firms do not succeed in increasing their output or the number of employees. Studies show that their productivity is rather lower compared with larger firms. Smaller firms make up the majority of producing entities – around 80% in EBRD region, and 95% in Albania. For this reason, more should be done for the integration of smaller firms into global production networks, finding human capital, access in the financial system or capital markets. The Bank of Albania deems that the development of the financial system is indispensable for the economic development of the country. In this regard, through our policies, we are trying to encourage a more efficient allocation of bank lending, in order for it to be less fragmented or concentrated in certain sectors of the economy. Also, we are closely monitoring the financial and borrowing situation of micro-economic firms, including those in the agricultural sector. These firms have a considerable share in the gross value added and in the number of employed persons in Albania. | 1 |
Part of the consensus is that Basel III should be seen as a set of minimum requirements. Hence, countries are free to impose more stringent rules if they wish. But we should not underestimate how Basel III strengthens bank-capital adequacy rules. A fundamental feature of the new framework is the significant increase in required minimum capital levels. All banks must hold common-equity capital of at least 7% of their risk-based assets, compared with only 2% previously. In the event of a credit boom, banks under Basel III would potentially need to hold a further 2.5% in common equity, bringing the total to 9.5%. Finally, the most systemically important banks must hold up to 2.5% in additional common equity. That is a total of 12%, a sixfold increase from pre-crisis levels for these institutions. The Basel Committee supports a regulatory framework that is both prudent and as simple as possible. Hence the Basel III agreement introduces several simplifying changes to the regulatory framework. For instance, the definition of capital now focuses on tangible common equity, the truest form of loss-absorbing capital. Moreover, all components of the capital base and associated deductions such as goodwill or deferred tax assets must be disclosed in a fully comparable manner. By standardising and simplifying the measure of capital, Basel III makes the regulatory framework easier to understand, and will enable market discipline to work better. Another important step has been the introduction of a non-risk based leverage ratio as a supplement to the risk-based requirement. | • The facts therefore served as a stark reminder that self-regulation just doesn’t work, primarily because of the imperfections in certain financial markets, which are neither transparent nor efficient (like the CDS market for example) and can generate potentially huge negative externalities. Thus, regulation and supervision were once again elevated to their rightful role after the crisis – a role they should never have lost. By way of an aside, I note that the crisis was triggered in the United States by unregulated entities (conduits) or banks that weren’t applying Basel 2 requirements (investment banks which theoretically were regulated by the SEC). By contrast, French banks for example, where supervision was at times branded “intrusive”, managed on the whole to get through the different phases of the crisis relatively unscathed. ii) What rules should apply to finance? • Once a consensus had been reached over the need to reinforce financial regulation and supervision, the next question was naturally: what kind of regulation? • The principle that guided the regulators, notably on the Basel Committee, was that finance should once again be made useful to the economy: that it should serve the economy rather than govern it. | 0 |
These observations confirm that the relationship between economic activity and inflation, as postulated by the Phillips curve, has continued to play a role at the euro area level.3 The link between inflation and economic slack is complicated by several factors. On the one hand, the degree to which prices respond to slack may depend on the state of the business cycle and could change, in particular, in severe and protracted recessions. The empirical evidence on such non-linearities, however, is not conclusive. On the other hand, secular shifts in the economy may have altered the relationship between inflation and economic slack. For instance, the trend towards a deeper integration of the global economy over the last decades is likely to have increased the importance of global relative to local conditions in shaping domestic cost and price pressures. A further often-cited factor is demographics – and especially the trend towards greater longevity – which may have interacted with cyclical conditions by inducing households to save more and, ultimately, put downward pressure on inflation.4 Empirical evidence on this issue is inconclusive and demographics would 2/5 BIS central bankers' speeches only have lasting effects on the economy if left unattended by monetary policy. Overall, these observations have three important implications for monetary policy. First, the evidence confirms that the core Phillips curve connection linking inflation formation to resource utilisation remains a key ingredient in explaining the prevailing disinflationary pressures. | Jean-Pierre Roth: The Swiss economy and financial centre – successes and new challenges Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Handelskammer Schweiz-Österreich und Liechtenstein (Foreign Trade Chamber for Switzerland-Austria and Liechtenstein), Vienna, 25 February 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Mid-2003 saw the start of a remarkable, broad-based economic upswing in Switzerland which is still underway, even if business cycle uncertainty has increased in the recent period. A number of factors indicate that the long-term growth outlook, too, has improved for Switzerland. These factors include the increasing globalisation of our economy and the opening up of the labour market to the EU. The Swiss economy is participating in globalisation through increased direct investment as well as growing foreign trade. At the same time, there is more competition on the domestic goods market, although a fair bit still remains to be done in this area to complement the opening up of the labour market to the EU. Globalisation and market opening present companies and economic policymakers with challenges that become particularly acute when setbacks occur – as in the case of the current international financial market turbulence. | 0 |
Basel III has incorporated the so-called “capital buffer for the most significant (or systemic) institutions”, applicable to institutions exceeding certain size, complexity and interconnectedness thresholds; and, moreover, the “countercyclical capital buffer”, which requires an increase in capital at times of credit expansion in order to reinforce bank solvency when the risks associated with such credit materialise. After all these changes, what would be left for post-crisis reform? Fundamentally, the completion of the review of the risk-based capital framework being undertaken by the Basel Committee. In terms of the essentials, Basel is reviewing the way the denominator of the capital ratio, Risk-Weighted Assets (RWAs), is calculated, i.e. the way in which the risks for which capital is required are measured. The aim of this review is to strike a better balance between simplicity, comparability and risk-sensitivity. BIS central bankers’ speeches 3 From now to the end of 2016, the date set for the finalisation of the post-crisis reforms, what are still to be decided are the reforms of the standardised approaches for measuring credit and operational risk; the use of internal models for these two risk categories: the possibility of establishing an additional surcharge based on the leverage ratio for global systemic institutions; and the design of the so-called “capital floors” in the calculation of RWAs. With regard to the standardised approaches, I shall focus on that applied to measuring credit risk, as this aspect is one of the most important, as it is of course for credit cooperatives. | Luis M Linde: The Spanish banking system – situation and challenges Speech by Mr Luis M Linde, Governor of the Bank of Spain, at the University of Almeria, Almeria, 18 July 2016. * * * Let me first thank the Universidad de Almería and all the sponsors for their invitation to participate in the inauguration of this three-day conference on cooperative banks. In my address I shall first briefly review the current situation of the Spanish banking system, including the cooperative sector, and the main challenges it faces. Secondly, I shall tackle some of the current regulatory developments in the banking sector, with a reference to the European regulation on bank recovery and resolution. Situation of and main challenges to the Spanish banking sector During the first half of 2016 global financial markets were markedly volatile, as a result of various factors. Firstly, forecasts of global economic growth have been revised downwards since the last quarter of 2015; secondly, the weakness shown by the emerging economies, particularly those most dependent on commodities exports; and, thirdly, the unstable social and political setting, compounded by the decision by UK citizens on 23 June to back the exit from the European Union. These factors have prompted a correction in asset prices on different markets which, though it eased from mid-February, has regained momentum since 23 June as a result of the increase in uncertainty and greater volatility. | 1 |
See Potter, “Money Markets and Monetary Policy Normalization,” April 15, 2015, and Frost, Logan, Martin, McCabe, Natalucci and Remache, “Overnight RRP Operations as a Monetary Policy 10 / 13 BIS central bankers' speeches Tool: Some Design Considerations,” February 19, 2015. 6 Designated financial market utilities may be paid interest on balances maintained at the Federal Reserve as well, as provided for in the Dodd-Frank Act and Regulation HH. The payment of interest to these entities does not appear to have had a measurable impact on money markets to date. 7 Recall that federal funds loans are unsecured. Like the vast majority of central banks, the Federal Reserve conducts its open market operations in the secured market. 8 Although households and firms do not directly transact in the federal funds market, the effective federal funds rate is used as a reference rate in the setting of a variety of private sector contracts, including in interest rate futures and swaps. Many bank loans are priced to The Wall Street Journal’s Prime Rate, which since the mid1990s has been set by convention to 300 basis points above the FOMC’s target rate or range. 9 See Dudley, “The Importance of Financial Conditions in the Conduct of Monetary Policy,” March 30, 2017. | 16 The U.S. regulatory capital rules include two leverage ratios: the tier 1 leverage ratio and the supplementary leverage ratio (SLR). The tier 1 leverage ratio applies to all banking organizations subject to the regulatory capital rules. It is measured as tier 1 capital divided by weekly or daily average total consolidated assets. The minimum tier 1 leverage ratio requirement is 4 percent and is currently in effect. The SLR is effective January 1, 2018 with public disclosure requirement in effect starting in January 1, 2015, and will apply only to “advanced approaches banking organizations” That are defined as those with at least $ billion in total consolidated assets or at least $ billion in consolidated on-balance sheet foreign exposures. It will be measured as tier 1 capital divided by total leverage exposure, which equals the daily average of total consolidated assets plus month-end average of certain off-balance-sheet exposures. The minimum SLR requirement will be 3 percent. In addition, there will be an enhanced SLR requirement applicable to U.S. top-tier bank holding companies identified as globally systemically important banking organizations (G-SIBs). The enhanced requirement consists of a 2 percent leverage buffer above the minimum SLR requirement, for a total of 5 percent. 17 Burhouse, Feid, French and Ligon, “Basel and the Evolution of Capital Regulation: Moving Forward, Looking Back,” January 14, 2003. 18 Other financial regulations, such as the G-SIB surcharge and the FDIC assessment fee, have similar economic effects. | 1 |
For some of the banks, the sources of financing of the credit activity were limited, acting as drag on their credit activity. Hence, the exploration of the individual bank data indicated that there are various reasons why the monetary measures do not yield the expected results and that different solutions are relevant for different banks. Lending survey has been widely recognized as an important source of relevant data on the credit market. In the midstream of the crisis, in particular, not only central banks, but also some international institutions started to conduct lending surveys to tackle the potential structural rigidities, precluding more rapid credit growth. In the case of Macedonia, we are running lending surveys since 2006. Ever since these alternative “soft” data have been an auxiliary, but at the same time a very important information source allowing us to detect the paths of the demand and supply of credits, the main determinants driving the two, but also the banks’ vision on the future developments. Very often, as policymakers, we go beyond the aggregate results and screen the results of the survey either by observing individual banks data, or data by group of banks (large, medium, small), as their behavior might differ significantly and can “be lost under the mask of the average”. This helps in better understanding the monetary policy shocks of different types of financial institutions (small/large, foreign/domestic, across different business models). | Its subsidiary EnterNext, which is dedicated to the financing and promotion of small and mid-caps, in turn enabled 26 companies to carry out IPOs, raising EUR 6 billion over the period. You are thus helping to bring about two important reconciliations: between the worlds of business and finance, and between France and its appetite for risk. What’s more you are achieving this with a European dimension. I can’t stress this enough: having a strong position in market infrastructure is vital for the French economy. I would like to look beyond Euronext now, and focus on two more general avenues for promoting equity financing. First, the French public needs to adapt its savings behaviour to the current low interest rate environment. This is a chance to encourage a “riskier” and more long-term approach to investment, in the interest both of savers and our economy. Today, only 31% of households’ financial investments are made up of risky assets, compared with 45% in the euro area. This means taking action in two areas: first, the decrease in interest rates should be gradually passed on to risk-free investment returns – which is why I proposed lowering the rate on the PEL, the French housing savings plan, and why we must continue to lower the returns on life insurance savings invested in euro funds; second, we need to develop new products: less liquid, and with or without a long-term capital guarantee, and which allow savers to benefit from the higher returns offered by equities over the long term. | 0 |
On 14 September 1998, he wrote: “the more I think about it, the more sympathetic I become toward the Hong Kong Monetary Authority and its stock market intervention”. David Hale of the Zurich Group also said that: “it is difficult not to sympathize with the frustrations and anxieties which compelled... the government of Hong Kong to intervene in the stock market”. And last week George Soros said in Washington, when asked what he thought of Hong Kong’s actions in the stock market: “I can’t really disapprove”. My correspondence with Alan Greenspan is still ongoing: while I continue to point out to him that we were only trying to deter market manipulation, which in any case is against anti-trust laws in the US, he still has doubts. This is because of the difficulty in distinguishing between what he calls “conventional, albeit sharp-eyed, arbitrage and speculative BIS Review 85/1998 -2- activities” in financial markets and what I call market manipulation. I shall persevere. In my view, whilst distinguishing between the two is difficult, it is not impossible, particularly when you are close to it. Perhaps I should deploy Chairman Greenspan’s argument for the Fed’s involvement in Long Term Capital Management in justifying our case. Instead of deterring market manipulation, I could say, in Alan Greenspan’s words, that we were trying to “avoid possible serious market dislocations that could have potentially impaired the economy”. But whatever argument we use, it is my firm belief that our actions, whilst controversial, are well justified. | The measures to strengthen our currency board arrangements have been effective. But basically what we have done, amongst other things, was to dampen interest rate volatility by accepting some fluctuation in our foreign reserves. In isolation this would probably not have been effective in deterring market manipulation. The timing for doing anything is of course an easy question to pose, but the reality is much more complex than that. One should realize that the system, before the introduction of the technical modifications, has served Hong Kong very well for almost fifteen years. Furthermore, there is no free lunch. Costs are involved. The larger fluctuations in foreign reserves may affect confidence. It may be seen as a sign of weakness, although with foreign reserves in multiples of the monetary base this should not be a cause for concern. Tightening the provision of liquidity to the banking system by denying access to the discount window paper other than that issued by the currency board may affect the development of the debt market. And making explicit the passive convertibility of the monetary base into foreign reserves may dampen activity in the foreign exchange market. The pros and cons must be considered carefully before making these significant changes. I think I have spoken long enough. I hope I have made my case convincingly. Thank you Victor for giving me this opportunity. In closing, may I quote Barton Biggs again. | 1 |
In response, the Office of Thrift Supervision required fair values to be reported from the early 1990s. “Timely risk management” Perhaps the most recent of the arguments used to support fair values arises from its role as a risk management device. Market prices, while noisy, offer timely signals. They are likely to prompt early recognition and management of emerging risks and mistakes, by both regulators and the regulated. Sunlight is an effective disinfectant. In this regard, it is telling that more widespread marking to market accompanied regulatory efforts to improve prompt corrective action measures – for example, in the US through FDICIA. Among market participants, the use of fair values and fleet-of-foot risk management techniques is widely felt to have contributed to the relative success of some firms during the course of the crisis. Lloyd Blankfein, CEO of Goldman Sachs, certainly appears to think so. 16 For the prosecution, the main arguments also appear to be threefold. Essentially, these follow from the three commonly attributed failures of the EMH. “Excess volatility” If market prices exhibit greater volatility than warranted by fundamentals, this will be mirrored in the balance sheet footings and profits of entities marking their positions to market. This is far from a new phenomenon. Robert E Healy, the SEC’s first Chief Accountant back in the early 1930s, lamented that firms “can capitalise practically everything except the furnace ashes in the basement”. 17 The impact of fair values on profits may have been even greater over recent decades. | Banks’ profits have become significantly more volatile over the past few decades, with the standard deviation of banks’ return on equity trebling comparing the forty-year periods either side of 16 “At Goldman Sachs, we calculate the fair value of our positions every day, because we would not know how to assess or manage risk if market prices were not reflected on our books. This approach provides an essential early warning system that is critical for risk managers and regulators”, Lloyd Blankfein, Financial Times, October 13 2009. 17 Quoted in Seligman (2003). BIS Review 28/2010 7 1970. There is also evidence of banks’ equity prices having exhibited higher correlation as fair value principles have been extended. 18 Consider a hypothetical experiment. Imagine banks in the UK had been required to mark their banking books to market over the period 1999 to 2008, in addition to their trading book. Market prices are used to proxy different categories of loan. For example, Residential Mortgage Backed Securities (RMBS) and covered bond prices are used to proxy mortgage loans. As with banks’ trading books, all gains and losses arising on the banking book are assumed to flow directly to profits. Chart 6 plots the path of UK banks’ profits, both actual and simulated under the mark to market assumption. Simulated profits are around eight times more volatile. Between 2001 and 2006, UK banks’ cumulative profits would have been around £ billion higher than recorded profits, as the expected future returns to risky projects were brought forward. | 1 |
Norman T L Chan: Hong Kong’s role in China’s reform and opening Speech by Mr Norman T L Chan, Chief Executive of Hong Kong Monetary Authority, at the 4th Annual China Bankers Forum 2010: “Global banking – restructuring and reform”, Shanghai, 17 September 2010. * * * I am very pleased to be invited to attend the Annual China Bankers Forum 2010 today. The concepts of economic globalisation and financial globalisation have been around for decades. Yet, without the reform and opening up of China in the last 30 years and the rapid development of China’s economy which forms a major part of the global economy, globalisation would merely be a concept without important implications. Nowadays, the scale of the economy of China has exceeded $ trillion and China has surpassed Japan as the world’s second largest economy. However, when the reform and opening up policies were initiated in 1979, how many of us could ever forecast that China would be able to develop from a poor country to its current state? In 1979, the GDP of China was $ billion, with per-capita income of $ many of the daily consumables were in significant shortage and had to be allocated by the rationing system. At present, per-capita income of China is $ which is 14 times the level in 1979; and per-capita income in large cities, such as Shanghai, Shenzhen and Beijing, even reaches as high as $ China can now be regarded as having entered a “moderately affluent” stage. | Some said that the development in the last three decades was a miracle and was almost incredible. Instead, I would describe it as a “world-shaking” development. Having encountered enormous difficulties and challenges at every single stage of reform and opening up, China, as the country with largest population in the world, managed to carry out an unprecedented transformation from a planned economy to a market economy. As there was no precedent to learn from, China could only rely on its own efforts and took one step at a time. Hong Kong has played an extremely important and irreplaceable role during the process of China’s reform and opening up. At the initial stage of opening up, China focused on attracting foreign investors to set up manufacturing factories. Hong Kong manufacturers were the first to move their operations to Mainland China. In the past 30 years, Hong Kong has always been the largest source of direct investment in the Mainland. In 2009, Hong Kong invested $ billion in China, accounting for one half of the total foreign investment in the country. In the course of investing in China, not only has Hong Kong injected capital but, more importantly, it has introduced skills in production and management. In the past decade, the Mainland projects in which Hong Kong invested have gone through some significant changes. The focus has been shifted from investment in the manufacturing industry to a range of diversified and multi-dimensional investments that include investment in all kinds of service industries. | 1 |
But keeping interest rates low in the future will boost future inflation, thus raising expected inflation and boosting activity today. The problem is that the central bank lacks the incentive to stick to this strategy once economic conditions have improved and the ZLB episode is past, i.e. the policy is time inconsistent. So the central bank needs to have some way of making credible a commitment to what will subsequently seem like future irresponsibility; words alone will not suffice, unless reneging on those words carries a significant reputational cost. It is important to distinguish this policy strategy from simply communicating that policy rates are likely to stay low because output and inflation are expected to stay low. That may help to align expectations with the views of the policy maker and be valuable in aiding transparency, but does not represent the pursuit of a policy strategy under commitment. As noted above, the earlier deflation scare, following the collapse of the dot-com bubble, had already persuaded the FOMC not only to keep the target Federal Funds rate at an especially low level, but also first to indicate that it would remain low for an “extended period” and then to indicate that the monetary stimulus would be withdrawn at only a “measured” pace. This has something of the character of attempting to reap the benefits of being able to commit in the future by sticking to past promises. | That was justified theoretically by appeal to the comparative advantage of monetary over fiscal policy in controlling nominal demand or to Ricardian Equivalence or to the argument that fiscal expansions were harder to reverse than initiate. 2. Monetary policy was therefore assigned the primary role in short-term aggregate demand management, with policy conducted through the manipulation of a suitable short-run interest rate. BIS Review 111/2010 1 3. The monetary transmission mechanism operated mainly through longer-term interest rates, asset prices and expectations of future inflation. Expectations of future policy rates were central and credibility was key. These channels might be augmented by a weak credit channel but the banking sector generally was conspicuous by its absence, particularly in the New Keynesian synthesis models, which also dominated thinking within central banks. The importance accorded to expectations led naturally to an increased focus on communication and transparency. 4. The conduct of monetary policy was best delegated to an independent central bank, free of short-term political considerations. That was buttressed by academic thinking which drew attention to the potential time inconsistency of optimal policy when expectations of future policy mattered and which suggested that monetary policy was best delegated to conservative central bankers with long horizons. 5. Intermediate monetary targets were not useful, because of their unstable link with the ultimate objectives of policy (though that did not preclude them being helpful at times as indicators of future demand and inflation). | 1 |
If such a bank makes losses on loans in one state it can offset them with gains BIS central bankers’ speeches 3 in another – thus at least in part internalising the costs. In the euro area, however, banks tend to have a more domestic focus, meaning losses in one country are more likely to exhaust the capital of the domestic banks. In the capital markets, the US has integrated equity and debt markets, allowing losses from bank failures and corporate insolvencies to be dispersed across the whole market. In the euro area, by contrast, cross-border capital markets are only partially developed, which means the effect of a negative economic shock is fully concentrated at home. In Germany and France, for example, around 85% of equity is held domestically. One should not underestimate the importance of this: it has been estimated in a paper that two-thirds of economic shocks in the US are absorbed via the integrated financial market.1 While the launch of the euro seems to have encouraged more private risk-sharing between EMU countries, it remains at much lower levels than between US states, and markets are vulnerable to fragmentation.2 This point underscores that the private and public banking unions are to a significant extent interdependent. Having a strong set of federal institutions can stop market failures such as a fragmentation during a crisis. | But to push this further – and perhaps too far – for the Financial Policy Committee’s role in relation to the financial system we need a rather different metaphor. The FPC is more like the safety authority for a race track. Its job is to see that the safety standards for the track and for the cars are high enough. That there are sufficient buffers on the bends if one of the cars comes off the track. And that, if there is a crash, the wreckage can be got off the road and does not cause a multiple pile up. But the track authority’s job is not just about ensuring the track is safe. If, when the race is running it starts to pour with rain and conditions become riskier, the track authority brings the “safety car” onto the track to slow the other cars down. Sometimes a race has to be interrupted because it has become too risky. The FPC sometimes has to do the same. BIS central bankers’ speeches 3 The safest approach of course might be to shut the track altogether. But the economy needs a healthy, thriving financial sector. It needs credit so that it can grow. Savers need to be able to invest. So the FPC needs to consider the impact of its actions on the economy. Adding more safety features or slowing the speed down can have an impact on the economy that has to be factored in to decisions. | 0 |
While every situation is unique, and in some cases not all of the facts are known, many of the recent corporate governance breakdowns appear to have several factors in common: BIS Review 38/2005 1 - The board of directors failed to understand the risks that the firm was taking, and did not exercise appropriate oversight or questioning of senior managers’ and employees’ actions; - Conflicts of interest and a lack of independent board members and senior executives resulted in decisions that benefited a few at the expense of the many; - Internal controls were either weak or non-existent, or appeared to be adequate on paper but were not implemented in practice; - Internal and external audit “fell asleep at the switch” and failed to detect fraudulent behaviour, and in some cases even aided and abetted such behaviour; - Transactions and organisational structures were designed to reduce transparency and prevent market participants and regulators from gaining a genuine picture of the firm’s condition; - And perhaps most importantly, the corporate culture fostered unethical behaviour and discouraged questions from being raised. Fortunately, none of the high-profile corporate scandals of recent years have brought down banks. I would like to think that strong, effective banking supervision has been very helpful in that regard and I also believe that a sound risk management culture has become increasingly present in the banking sector in recent decades. | This does not mean that we can rest; banks are not immune from any of the factors that I have just described. Indeed, if we were to look closely at bank failures large and small over the years, I believe we would find that poor corporate governance lay at the heart of many of these failures. Why should we have higher expectations for the governance of banks than we have for other firms? Fundamentally, because banks must act in a way that promotes “confidence” to the public and the markets in general and, more specifically, to their primary stakeholders. Banks play a crucial role in the flow of capital within an economy and are charged with a special public trust to safeguard customers’ wealth. A stable and healthy banking system is critical to the long-term growth of an economy. Banking supervisors have long recognised the importance of good governance; supervision can not function properly if sound corporate governance is not in place. Experience underscores the need to have appropriate levels of accountability as well as sufficient checks and balances. For banking supervisors, although the range of topics that corporate governance may encompass is quite wide, the focus is mainly on those elements that relate to the manner in which the business and affairs of an organization are governed by its board and managers. | 1 |
14 All speeches are available online at www.bankofengland.co.uk/speeches 14 References Abad, J, Aldasoro, I, Aymanns, C, D’Errico, M, Rousová, L F, Hoffmann, P, Langfield, S, Neychev, M and Roukny, T (2011), ‘Shedding light on dark markets: First insights from the new EU-wide OTC derivatives dataset’, ESRB Occasional Paper Series, No. 11. Albertazzi, U, Becker, B and Boucinha, M (2018), ‘Portfolio rebalancing and the transmission of largescale asset programmes: evidence from the euro area’, ECB Working Paper Series, No. 2125. Ali, R, Haldane, A and Nahai-Williamson, P (2012), ‘Towards a common financial language’, paper available at https://www.bankofengland.co.uk/paper/2012/towards-a-common-financial-language Anderson, C (2008), ‘The End of Theory: The Data Deluge Makes The Scientific Method Obsolete’, Wired Magazine, 23 June. Anson, M, Bholat, D, Kang, M and Thomas, R (2017), ‘The Bank of England as lender of last resort: new historical evidence from daily transactional data’, Bank of England Staff Working Paper, No. 691. Bacon, F (1620), Novum Organum. Bagehot, W (1873), Lombard Street: A Description of the Money Market, Henry S. King & Co. Bahaj, S, Foulis, A and Pinter, G (2017), ‘Home values and firm behaviour’, Bank of England Staff Working Paper, No. 679. Bank of England and Procyclicality Working Group (2014), ‘Procyclicality and structural trends in investment allocation by insurance companies and pension funds’, Discussion Paper, July. Baptista, R, Farmer, JD, Hinterschweiger, M, Low, K, Tang, D and Uluc, A (2016), ‘Macroprudential policy in an agent-based model of the UK housing market’, Bank of England Staff Working Paper, No. 619. | Haldane, A (2016), ‘The Dappled World’, speech available at https://www.bankofengland.co.uk/speech/2016/the-dappled-world Haldane, A and McMahon, M (forthcoming), ‘Central Bank Communication and the General Public’, American Economic Review: Papers & Proceedings. Henderson, V, Storeygard, A and Weil, D (2011), ‘A Bright Idea for Measuring Economic Growth’, American Economic Review: Papers & Proceedings, Vol. 101, No. 3, pp. 194-99. Henke, N, Bughin, J, Chui, M, Manyika, J, Saleh, T, Wiseman, B and Sethupathy, G (2016), ‘The Age of Analytics: Competing in a Data-Driven World’, McKinsey Global Institute. IMF (2018), ‘Cyclical Upswing, Structural Change’, World Economic Outlook, April 2018. Lagos, R, Rocheteau, G and Weill, P-O (2011), ‘Crises and liquidity in over-the-counter markets’, Journal of Economic Theory, Vol. 146, No. 6, pp. 2169-2205. Lazer, D, Kennedy, R, King, G and Vespignani, A (2014), ‘The Parable of Google Flu: Traps in Big Data Analysis’, Science, Vol. 343, pp. 1203-1205. 16 All speeches are available online at www.bankofengland.co.uk/speeches 16 Leamer, E (1983), ‘Let’s Take the Con Out of Econometrics’, American Economic Review, Vol. 73, No. 1, pp. 31-43. Lehdonvirta, V and Castronova, E (2014), Virtual Economies: Design and Analysis, MIT Press. Levitt, S, List, J, Neckermann, S and Nelson, D (2016), ‘Quantity discounts on a virtual good: The results of a massive pricing experiment at Kind Digital Entertainment’, Proceedings of the National Academy of Sciences of the United States of America, Vol. 113, No. 27, pp. 7323-7328. Moore, G (1965), ‘Cramming more components onto integrated circuits’, Electronics, Vol. 38, No. 8. | 1 |
Indeed, in recent times, especially in the aftermath of Asian crisis in late 1990s, we have seen several countries amending the laws governing their central banks. Such amendments have given them greater independence in the conduct of monetary policy. The current world trends have required the central banks to be transparent and accountable. This would be attained by ensuring a greater disclosure policy on their decisions. I have no doubt that today’s Seminar will lead to a healthy discussion and exchange of views on comparative policies among SEACEN member central banks and monetary authorities in selected areas of corporate governance. The first session will cover strategic planning process for central banks, for which a background paper has been prepared in consultation with the SEACEN Centre. I hope the paper will be a useful document to initiate fruitful discussion on the issue of strategic planning for central banks. In addition, Mr Gavin Bingham, Head of International Liaison, Bank for International Settlement, will present an overview of current issues and practices relating to this topic. I am confident that the participants would contribute with their country specific experiences on Central Bank Governance and specifically on their experiences with the formulation and implementation of Strategic Plans in the respective central banks. The second session will cover selected Central Bank Governance issues and will serve as a follow-up to the SEACEN-BIS Seminar on Central Bank Governance conducted in Langkawi, Malaysia in February 2004. | Financial institutions to constantly develop expertise in support of this sector. Green financing teams should have in-depth knowledge and capacity across the entire financing process flow including product development, promotions, sourcing of viable projects, effective credit assessment, holistic risk management and robust monitoring. The larger regional reach by Malaysian banks will also enhance the potential to access a wider talent pool from the region, catalyzing efforts to build a specialised human capital team needed to drive the green technology financing agenda. ii. Government policies that are further enhanced to spur the growth of the industry and create larger consumer awareness. On the supply side, more efforts should be taken to build a highly skilled workforce and increase collaboration between BIS central bankers’ speeches 3 research institutions and businesses to commercialise and scale up innovative green technology research. On the demand side, to create incentives to encourage consumers to use green products and government procurement policies which prioritise green solutions could be explored. iii. A holistic governance structure and performance measurement system would be put in place to drive the implementation of policies and ensure that green and sustainability outcomes are achieved. This could potentially bring us to a more transparent reporting of green initiatives by various players including the Government, business and the financing community. iv. As Asia becomes increasingly more integrated, economically and financially, Malaysian financial institutions have the opportunity to leverage on regional networks to scale up their business and serve a sustainably growing green technology market in a cost-efficient manner. | 0 |
It may be of interest to this audience to know that trade finance has been a particular problem area and has attracted higher than average bad debt provisions. On the face of it, this seems strange since trade finance is normally seen as being short-term, self-liquidating and secured on the underlying goods. In practice, companies found it possible to obtain trade lines from a multiplicity of banks in excess of their underlying needs. In this situation, trade finance becomes in effect part of the general working capital of the company and can be siphoned off into the kind of speculative activities I have already described. In many cases, short-term trade finance financed long-term property developments in China. What lessons can be drawn from this? Banks should obviously have a thorough knowledge of their customers’ business and of their real funding needs. Banks should know what their lending is being used for and try to ascertain the borrowers’ facilities from other banks. 3 BIS Review 53/1999 However, in situations where banks are too anxious to lend, it is all too easy for the borrower to deny information to the banks and to play the banks off against one another. In granting credit, banks thus need to undertake proper financial review of their customers based on reliable information. Particular attention needs to be paid to cash flow and the ability to service debt in stress situations as well as normal conditions. | For takaful operators, staying competitive in a digital world will require far more than just direct sales channel or automated processes. It requires a rethinking of the fundamentals and principles of takaful, for which digital technology can be a catalyst. Takaful operators must rethink their sources of revenue, operational efficiency and talent strategy to reap the opportunities of digital disruptions. It is also important to rethink the business model and the role that takaful operators can play in a digital ecosystem that has transcended geographical boundaries. Digital disruptors such as virtual or peer-to-peer takaful provider that is tech-enabled might be able to overcome many pain points experienced by the industry in more efficient ways. The buzz right now in the financial industry is around digital banks. Nonetheless, this can swiftly turn to digital insurers or takaful operators. Such development could be the next phase that could further enhance the 3/5 BIS central bankers' speeches quality and pricing of services delivered, while also penetrating new areas for the industry to achieve our protection goals. This development could provide the impetus for exponential growth in insurance and takaful penetration in the country. Thirdly, the industry must take greater responsibility to educate consumers and inculcate understanding about the importance of financial protection. Almost half of respondents in the 2018 Financial Capability and Inclusion Demand Side Survey cited lack of product understanding to be the key reason for not purchasing life insurance and family takaful. | 0 |
This is unfortunate as macroprudential policy is an important policy area and it is vital that a longterm, sustainable structure is created for it, so that macroprudential analysis is not given lower priority when other tasks require resources, and experiences from the crisis are forgotten. The Stability Council has so far played an insignificant role in practice. Sweden deviates from international and European standards Sweden thus deviates – in several respects – from European standards as regards how its macroprudential policy framework is designed. We have also organised the responsibility for macroprudential policy differently to most of the other countries in Europe. In 13 EU Member States, the responsibility has been given to the central bank, a similar number have given it to a separate council and two countries (Sweden and Finland) have given it to the supervisory authority. 18 In addition, it is worth mentioning that the European Central Bank, the ECB, has received a mandate that basically means that it shares the macroprudential policy responsibility with the national macroprudential authorities in those countries that 15 See ESRB (2011). 16 See ESRB (2011). 17 See ESRB (2011). 18 See ESRB (2014). 8 BIS central bankers’ speeches participate in the Single Supervisory Mechanism. The ECB has the responsibility for a socalled “top-up” of some of the macroprudential policy measures decided at national level – i.e. to tighten the measures further if the bank feels it is necessary. | The use of the CPI as the target variable has, however, led to some difficulties and we have therefore analysed other inflation indices as well in our interest rate decisions, more recently the CPIF (the CPI with a fixed rate of interest). It may, however, be difficult to evaluate monetary policy if there are major differences between the development of the variable that guides the Riksbank, more recently the CPIF, and the formal target variable, the CPI. Another problem is that both domestic and overseas forecasters relatively seldom take into account the fact that the Swedish CPI is calculated the way it is when they describe the situation in Sweden. This can lead to misleading international comparisons. In recent years, for example, eye-catching headlines have appeared at regular intervals in the media saying that Sweden is in deflation, despite this being largely due to the fact that housing costs in the CPI have gone down when the Riksbank has cut the repo rate. This can give the impression that the situation in Sweden is worse and the inflation is much lower than in other countries, despite the difference being because the Swedish CPI is particularly sensitive to changes in the policy rate. It may therefore be time to open up a discussion on the target variable. In their evaluation, Goodfriend and King suggest that the target be expressed in terms of the CPIF. An 22 See Flodén (2015). 23 See for example Williams (2009), Blanchard, et al. | 1 |
Christian Noyer: Interview in Le Point Interview with Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, in Le Point, 9 August 2012. * * * Markets were hoping that Mario Draghi and the ECB Governing Council would take strong action to give Spain and Italy a little breathing space ... The ECB has chosen to do nothing! Why? Are you saving your ammunition for later? We haven’t heard the same thing! The Governing Council recently announced its intention to intervene on the bond market to allow a smooth transmission of monetary policy. The objective is to counter the emergence of excessive risk premiums on certain sovereign debts. Naturally, this only makes sense if governments themselves decide to act and to activate the solidarity and support mechanisms of fiscal consolidation they have established. Our operations will be on a sufficient scale to have a strong impact on the markets. We should be prepared to respond very rapidly, by focusing on short-term bonds. Have no doubts about the Governing Council’s determination and its ability to act within its mandate. One gets the impression in this crisis that everyone is watching the boat sink without doing anything. To start with the ECB ... That is incorrect! And unfair! It is the markets that are reacting in this way. European authorities have been responding to countless issues since the start of the crisis. | They knew that it would require stronger European governance and the implementation of euro-area fiscal discipline … But governments chose to side-step their responsibilities in this respect. 2 BIS central bankers’ speeches In 2003, France and Germany, the two most powerful States in the euro area, breached the famous Maastricht criteria… Are they not partly responsible for the subsequent crisis? Each Member States carries a share of the blame. The ECB however is not to blame. There were strict fiscal rules. If governments had respected these rules we would not have had this chain reaction leading to the current crisis. In 2007, 2008 and 2009, we had to prevent the financial crisis from deepening and limit the consequences for the real economy. The ECB and States did what was expected of them by supporting the banking systems. However, after 2009, the markets started looking at the accounting situations of each Member State and started doubting the capacity of certain States to honour their financial liabilities. The markets also remembered that behind the governments’ bank rescue plans there were States and with no single or common signature and that the banking system was not sufficiently uniform at the European level. Each State therefore found itself with its own financial credibility and its own specific debt financing conditions, depending on its individual fiscal situation. And in this respect, what is your opinion of the policy orientations adopted by François Hollande, his government and the new majority? | 1 |
At the same intensity, we strengthened the cooperation with the International Monetary Fund, the World Bank and the Bank for International Settlements, as well as regional central banks. The Bank of Albania has continued its contribution to the reporting for the Progress Report and the National Plan for European Integration, leading Chapter 4 “Free movement of capital” and Chapter 17 “Economic and monetary policies” and contributing in 6 other chapters of the Acquis. x. Human resources Improvement to the organisational structure of the institution has constantly been at the focus of human resources policies, with the main aim to enhance the efficiency of the activity of the Bank of Albania. It seeks to provide a better coordination and communication between the units, especially the successful implementation of engagements arising from strategic objectives and the approximation with the model of the European System central banks or the European Central Bank. The policies in the area of human resources have aimed at promoting the most experienced and proficient employees, through a professional competition. Staff motivation policies have aimed at preserving the stability and continuity of staff. Particular attention has been paid to observing gender equality. The professional development of the staff is realised, among others, through participation in specialised training organised by central banks or international financial institutions. In addition to enhancing professional capacities, there are also possibilities for the exchange of professional experiences and familiarisation with the most contemporary central bank theories and practices. BIS central bankers’ speeches 7 xi. | Eight meetings focused on the monetary policy decision, whereas four meetings focused on decisions about issues pertaining to supervision and financial stability. The decisions have been communicated to the public through press conferences, full publication of relevant reports and explanation, on a case by case basis, in accordance with requests by various media outlets. All the reports compiled by the Bank of Albania on the monetary policy and financial stability have been fully submitted, within the envisaged legal time frame, to the Assembly of the Republic of Albania and its Committee on Economy and Finance. In line with the above said, and in accordance with earlier public statements, the strengthening of governance has assumed a key place in the Supervisory Council decisionmaking process. From this perspective, I will now briefly focus on: Establishment of the Audit Committee The establishment of the Audit Committee is an important development with regard to strengthening the internal control at the Bank of Albania, especially the supervisory capacities of the Supervisory Council. The meetings held in 2015 discussed the organisation and functioning of the Control [Internal Audit] Department, the audit universe and annual plan, main findings, risk assessment and effectiveness of the internal control system at the Bank of Albania. Another important aspect of the activity was to monitor the work for the preparation of financial statements in accordance with the International Financial Reporting Standards. | 1 |
World growth projections for the period 2010–2011 have been revised upward and commodity prices will remain near current levels (table 3). The above projections include the assumption that monetary policy will remain very expansive in the following quarters. Towards the end of the projection horizon, the monetary policy rate will converge to a level similar to the one indicated by March’s Economic Expectations Survey. However, its pace of normalization will be somewhat faster than what was considered in that survey. It is important to consider that, until the last week of February, market expectations for the MPR indicated that its upward phase would begin in the second quarter and that the rate would stand between 2.5 and 3.0 percent by the end of the year. After the earthquake and tsunami, the expectations of analysts and survey respondents about the level of the MPR and its velocity of increase fell. In particular, the expected level for the MPR for the end of 2010 stands in the 2.0–2.5 percent range (figure 8). As usual, the scenario outlined here is subject to several risks. Compared with December forecasts, the recovery process and development prospects for the Chilean economy have not been hindered by the earthquake and tsunami; however, in the short run, the risk scenarios are dominated by the catastrophe. Particularly relevant is the medium term effect of the aggregate demand impulse originating in the reconstruction works that will be carried out. | This sets out baseline standards for financial institutions, and addresses key fundamentals of technology resilience including governance, cybersecurity risk management as well as capacity-building. Conclusion These are exciting times, where rapid technological innovations, evolving business models and shifting customer preferences, present new opportunities and challenges to the status quo. Such opportunities can bring about a positive and transformational impact to our society and economy. We should be bold to capitalize on these emerging trends, while remaining steadfast in managing the associated risks. Times are changing, and change is good. It takes us out of our comfort zones, and helps us reach new heights. Before I close, I would like to congratulate all the winners of today’s ceremony and I wish you all a pleasant evening ahead. 4/4 BIS central bankers' speeches | 0 |
Then, in September 2011, the FOMC announced that repayments from these securities would instead be reinvested in agency MBS to help support conditions in mortgage markets.29 The FOMC then maintained reinvestments, including Treasury rollovers, until commencing balance sheet normalization last month.30 Keeping the Fed’s holdings of longer-term securities at sizable levels helped to maintain accommodative financial conditions as economic conditions strengthened. This is because, in addition to the acquisition of securities through asset purchases, the period over which the central bank intends to hold its securities helps to shape market participants’ expectations about the size and duration of assets available to the public. Extending the holding period through reinvestments prolongs this so-called stock effect. The 2010 episode when the Fed was not reinvesting agency-related principal payments demonstrated both term premium effects that might have been expected to be associated with a reduction in the Fed’s securities holdings and the risks associated with an unexpected increase in the publicly-held stock of agency MBS. As we normalize the size of the balance sheet, maintaining redemption caps throughout the process (and continuing to reinvest any principal payments received in excess of those caps) provides an insurance mechanism that limits the amount of variation in the pace at which securities, particularly mortgages, will flow back into private hands. Lesson 5: Credible communications influence the effectiveness of asset purchase programs As a general matter, monetary policy transmits more smoothly when market participants are able to understand and anticipate central bank actions. | Try the following: • key elements of model design; • significant assumptions and expert judgements; • key sensitivities; and • significant limitations and uncertainty in the model. To restate, the challenge is to reduce complexity to simplicity, so that Board members feel that they understand: • where is the model expected to work well; • in what circumstances is it likely to break down; • is the overall model output credible; • what “moves the dial” in terms of key assumptions or judgements; and • are those assumptions and judgements reasonable? Non-Executives should be put in a position to possess a general understanding of the model and meet these expectations without detailed technical knowledge. That’s the job of the Executive, to explain complexity, provide good Management Information (to serve up the needle, to continue the saying) and enable challenge and thus accountability. If NonExecutives do not feel that they can meet these expectations, they should demand the time and support to enable them to do so, rather than head off for the haystack. I want to conclude by putting this into a broader context of governance. I am sympathetic to the view that the demands on Non-Executives have risen to the point where it is time to stand back and take stock and find ways to improve the approach. | 0 |
From the formal standpoint, the draft bill will consolidate in a kind of “Bank Code” all the regulatory provisions on the creation, activity and control of credit institutions, thus putting an end to the dispersion of legislation which has characterised the credit sector for various decades. Furthermore, the aforementioned consolidation aims to write into Spanish law the changes introduced in June 2013 by the so-called CRD-IV package, i.e. the Directive and the Regulation which incorporate the Basel III Accord into European legislation. As you know, that transposition has been partly handled by the promulgation of Royal Decree-Law 14/2013, which includes those matters considered essential for incorporation before 1 January 2014. Under the draft bill, and without prejudice to the framework resulting from the entry into force of the Single Supervisory Mechanism, the Banco de España will retain its current power to authorise the exercise of banking activities. Moreover, it will receive additional powers, such as that to revoke banking licences. Regarding the regime governing the purchase of qualifying holdings in credit institutions, the Banco de España will continue to be the authority responsible for assessing the proposals of potential purchasers, although now there are plans to give it powers of supervisory intervention, senior officer replacement, suspension of voting rights or, in extreme situations, licence revocation. As bank supervisor, the Banco de España will continue overseeing compliance with organisational and disciplinary regulations. | Three matters concern us: the elements of the new Basel III capital accord that have not yet been fully finalised; the Financial Stability Board’s work on the regulatory framework for the treatment of systemically important institutions; and the new powers of the Banco de España under the draft bill on the supervision of credit institutions, which will foreseeably be approved in the first quarter of next year. I shall begin with Basel III. The new capital accord improves the comparability and, thereby, the credibility of capital ratios. Basel III increases capital requirements with better-quality instruments, and it seeks consistency and a uniform application across banks and countries. It also adds two new prudential tools: one in the area of liquidity, and the other in that of leverage. First, the inclusion of the leverage ratio, the relationship between Tier 1 capital and exposure both on and off the balance sheet, i.e. the total banking book, without taking into account risk weights. Calculations are made at the consolidated level and, in principle, the level is set at a minimum of 3%. It is scheduled to come into force in 2018, although an earlier date will probably be set for the required disclosure of this figure. This new tool has been designed as a straightforward measure that complements and acts as a floor to the minimum risk-based capital ratio. It aims to provide additional protection against what is known as “model risk”, i.e. | 1 |
Distinguished Ladies and Gentlemen, with regard to the financial sector, the overall financial condition and performance of the banking sector continues to be satisfactory. On aggregate, the banking sector remains adequately capitalised, while the asset quality, earnings performance and liquidity position remain satisfactory. Further, the financial performance and condition of the non-bank financial institutions continues to be rated fair; while leasing finance companies, microfinance institutions and bureaux de change have had adequate regulatory capital, fair asset quality and liquidity position. Distinguished Friends, apart from the growing number of financial institutions, we have seen a number of innovations and product developments in the banking system. These include a modern and advanced electronic payment and clearing system as well as various financial products such as different types of accounts, loans, financial services and payment methods. These include ATMs whose number increased from 133 in 2006 to 724 at endDecember 2013. Further, a number of mobile phone and internet banking services have been introduced and continue to be introduced in line with the growing global trends. These developments have not only increased competitiveness in the financial sector, but also improved financial access and inclusion across the country. You may also wish to note that the Bank of Zambia, as the financial sector licensing authority, continues to receive numerous applications from institutions seeking to establish themselves in Zambia. Ladies and Gentlemen, Zambia’s economic prospects for 2014 remain strong with a projected growth of over 7 percent. This growth is expected to be mainly driven by agriculture, manufacturing, construction and mining. | Percentage of 21-34 year olds living with their parents 1996 1999 2002 2005 2008 2011 2014 15 Sources: ONS and Bank calculations. BIS central bankers’ speeches Chart 30 – Share of people living in absolute poverty after housing costs* Chart 31 – Share of people living in relative poverty after housing costs* Per cent of age group 60 60 Under 16 55 16-65 50 50 45 45 40 40 Over 65 Under 16 16-65 Over 65 35 35 30 30 25 25 20 20 15 15 10 94/95 97/98 00/01 03/04 06/07 09/10 12/13 Sources: ONS and Bank calculations. * A household is defined as living in absolute poverty where their income is less than 60% of 2010/11 median income held constant in real terms. 55 94/95 97/98 00/01 03/04 06/07 09/10 12/13 10 Sources: ONS and Bank calculations. * A household is defined as living in relative poverty where their income is less than 60% of median income. Chart 32 – Financial market measures of inflation expectations Per cent 3.5 23/06/2016 06/07/2016 3.0 2 3 4 5 6 7 8 9 10 2.5 Years Source: Bloomberg and Bank calculations. * Instantaneous RPI inflation implied from swaps. BIS central bankers’ speeches 23 | 0 |
4 BIS central bankers’ speeches Concluding remarks So, as I prepare to hand back to Mark (Johnson) for the panel discussion, I would just like to underline my points by summing them up very succinctly: First, I would say that, given the scale and the pace of change I mentioned earlier, we are now at the start of a new era. An era in which we will see a much greater use of RMB, driven by both policy and market forces. Second, we are only in the early days. The RMB started circulating outside Mainland China only in recent years, but is already starting to play a significant role in global trade and finance. It has the potential to go much further. Third, as the RMB develops a more central role and acquires more features associated with an international currency, Hong Kong is very well equipped to service the RMB needs of businesses around the world. Let me just finally say that today’s forum is a most welcome opportunity to help prepare for the future. As at any time of historic transition, if none of us have all the answers, then at least each of us has a piece of the answers; and if we don’t have that, then perhaps we can contribute a better question. I look forward to hearing your ideas and to working closely with you in our common effort to develop the offshore RMB market in the future. BIS central bankers’ speeches 5 | The banks are caught in a vicious circle. On the one hand they want to boost or at least maintain their liquidity. But if they do this by paying over HIBOR for deposits that they then place in the overnight interbank market at HIBOR, this is clearly costing them money. Banks do have the option of not paying the going market rate for deposits. But if they do this their customers may go elsewhere. The deposit base is therefore less stable than it was. The banks’ desire to stay liquid also means that they are more cautious about lending. Generally speaking, they will want to lend only if they can raise the deposits to do so, and deposits are growing more slowly. This caution also reflects their perception that credit risks have increased in the current economic environment. Of course, the demand for borrowing has also declined as the economy has slowed and the property and stock markets have weakened. But the supply of loanable funds has probably fallen even more, partly because of the decision of some foreign banks to cut back their lending in Hong Kong. This does not represent a loss of confidence by these banks in Hong Kong. Rather, it reflects the need of some banks to downsize their balance sheets and to concentrate more in the future on profitability rather than volume growth and market share. | 0 |
In order to restore an adequate flow of credit to the economy, banks should take advantage of governments’ commitments to support banks’ balance sheets through capital injections, the provision of government guarantees on new bank debt, as well as through asset relief schemes aiming at removing troubled assets from banks’ balance sheets. The common goals of these government measures in Europe and elsewhere are to safeguard financial stability, help restore the provision of credit to the economy and bolster confidence in the soundness of the financial system and in the prospects of the economy. Needless to say, the ongoing structural adjustment in the banking sector and the low confidence of investors in the soundness of some institutions cannot be counteracted by monetary policy and the provision of central bank liquidity. IV. Bank support measures and fiscal stimulus At present, the European economy is experiencing a mutually reinforcing interaction between, on the one hand, the weakening of economic activity and rising unemployment, and, on the other hand, the deleveraging of banks’ balance sheets and the persisting bank stresses in some bank funding markets. The deleveraging process and the emergence of an adverse feedback loop between the real economy and the financial sector will affect the favourable impact of monetary policy and liquidity provision on the economy. These developments underscore the importance of effective implementation of the government measures to strengthen bank balance sheets and improve banks’ medium-term market funding. | BIS Review 65/2009 9 | 1 |
For example, there is a striking correlation between the pattern of unemployment and wage growth in the UK and the US (Charts 3 and 4). In the US, unemployment has fallen to its lowest levels since 1969, while pay growth has remained modest. Given the strength of jobs growth, the weakness in pay has surprised many people, including the Bank of England. Chart 5 plots the Bank’s wage forecasts at annual intervals since 2012. Over this period, there has been a sequence of negative forecast errors, averaging around one percentage point per year. The same has been true of external wage forecasts, for the UK and elsewhere. These surprises suggest that the recent pattern in pay and unemployment has been unusual by historical standards. In the 1950s, A W Phillips uncovered a negative empirical relationship between pay growth and unemployment: pay grows faster when unemployment is lower. The Phillips curve was born (Phillips (1958)). This relationship has since become a central pillar of macro-economic theory and policy. Part of 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 the attraction of the Phillips curve lies in the fact that it tells a simple story: the tighter the jobs market, the greater the pressure on pay. Exactly 60 years on, the Phillips curve is still widely used, and widely debated, by economists and policymakers. But with pay undershooting expectations, and with unemployment touching generational lows, some big questions are being posed of it. | Department for Business, Energy & Industrial Strategy (2017), ‘Industrial Strategy: building a Britain fit of the future’, BEIS Policy Paper. Espinosa-Vega, M and Russell, S (1997), ‘History and Theory of the NAIRU: A Critical Review’, Federal Reserve Bank of Atlanta Economic Review, 1997 Q2. Gardiner, L (2016), ‘A-typical year?’, article for the Resolution Foundation. Gordon, R (2013), ‘The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery’, NBER Working Paper, No. 19390. Gregg, P, Machin, S and Fernandez-Salgado, M (2014), ‘Real Wages and Unemployment in the Big Squeeze’, The Economic Journal, Vol. 123, pp. 403-432. IMF (2017), ‘Understanding the Downward Trend in Labor Income Shares’, IMF World Economic Outlook, Chapter 3. Krueger, A (2018), ‘Reflections on Dwindling Worker Bargaining Power and Monetary Policy’, Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole. Manning, A (2003), Monopsony in Motion: Imperfect Competition in Labor Markets, Princeton University Press. Moscarini, G and Postel-Vinay, F (2017), ‘The Cyclical Job Ladder’, Annual Review of Economics, Vol. 10, pp 166-188. Mueller, H, Ouimet, P and Simintzi, E (2017), ‘Wage Inequality and Firm Growth’, American Economic Review, Vol. 107, No. 5, pp. 379-383. Phillips, AW (1958), ‘The Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957’, Economica, Vol. 25, pp. 283-99. | 1 |
Contrary to some claims, the outcome was a travesty for democracy and at odds with the will of the people. The referendum in question was initiated by the National Environmental Research Council (NERC) and involved a public ballot to choose a name for the new polar Royal Research Ship. Various options were mooted as suitable candidates, including “Sir David Attenborough” (the famous British naturalist), “Henry Worsley” (the famous British explorer) and “Pingu” (the famous cartoon penguin). The winner of the public ballot was none of these. With almost 80% of the popular vote, “Boaty McBoatface” romped home courtesy of a social media campaign. At that point, NERC jettisoned the will of the people. The ship was named instead “Sir David Attenborough” - though, in a small concession to democracy, its remotely operated sub-sea vehicle was named Boaty McBoatface. This is an object lesson in the perils of public polling for policy purposes. Sometimes, there is madness in crowds. 80 That is not to say, however, that public opinion is always and everywhere mad. In his book Superforecasting, Philip Tetlock uses evidence drawn from a variety of experimental studies to determine the ingredients of a good forecast. 81 He finds that the key lies in diverse perspectives, drawn from amateurs as well as experts. Often, he finds, there is wisdom in crowds. If harnessed, the wisdom of crowds and of amateurs can improve the forecasting performance of experts. | With the huge financing gap for infrastructure development standing at $ trillion in the decade to 2020, AIIB will be looking to play a major role in bridging the shortfall. Under the strong leadership of President Jin, AIIB would provide a global platform to coordinate efforts among existing international financial institutions and government authorities to bring development issues to light; it also has the capability to mobilise the liquidity and field expertise from investors, financiers and project developers from the private sectors to facilitate infrastructure development and their related financing activities. To the HKMA, President Jin has been a long-time friend. Just four months ago, we had the honour of President Jin as the officiating guest at the launch of IFFO and a key panel speaker at our inaugural conference. President Jin acknowledged that IFFO can be an important contributor to Asian infrastructure by helping to guide liquidity from private and institutional investors into productive investments, while also serving as a platform for communication, cooperation and knowledge exchange. Today we have the presence of 300 leaders from various sectors including finance, architecture, building and construction engineering, project management and consulting, project development and operation as well as professional services, many of you being the senior management of your leading organisations in the field. Indeed, Hong Kong possesses a critical mass of financial professionals which can support the operations of AIIB in areas such as project financing, bond issuance, investment, financial management and foreign exchange management. | 0 |
5 The intention is to avoid a firm drawing on publicly-provided liquidity support mechanisms if they actually have a fundamental problem of solvency or viability. But liquidity risk can never be completely distinguished from solvency risk at a point of stress. 2 BIS Review 126/2010 facilities, reserve account holders can deposit with, or borrow from the Bank overnight for unlimited amounts at a penalty to Bank Rate. 6 Open Market Operations The Bank’s Open Market Operations (OMOs) take the form of reverse repo operations – economically equivalent to secured lending – at different maturities. Normally we would lend (cash) short-term for one week and longer-term for multiples of three months. Shortterm repos have not been needed regularly since we started to inject cash directly via the asset purchase programme. But normally short-term lending operations would take place weekly at a size designed to be consistent with the commercial banks’ aggregate reserve targets for that maintenance period. This short-term lending takes place against a relatively narrow set of high quality collateral – mainly government bonds. The price has usually been Bank Rate 7 and bids pro-rated. Short-term repos are not intended to provide any back-stop liquidity support. They are limited, competitive and take a narrow range of high quality collateral. They are designed to help implement the monetary policy stance. If there is excess central bank money in the system relative to reserve targets, the Bank can also drain cash out. | A similar point can be made about debt issued under the Government’s Credit Guarantee Scheme – the Government provides a guarantee but it is still the market which buys the bonds and provides the cash. As these schemes come to an end, the challenge for the banks is not so much the sourcing of an additional quantity of funding. It is to roll over that existing market funding into different funding instruments. More generally, a central bank should not allow its liquidity operations to become, or even to be perceived as a source of sustained funding for banks or for any other form of mediumterm lending. The only medium-term source of commercial bank funding, and hence for their lending, is private sector savings, whether channelled through retail or wholesale markets. A central bank does not have access to those private sector savings. The grey area is that short-term liquidity support, in size and continually rolled over, looks and acts a lot like funding. That is why the Special Liquidity Scheme was designed to lend against legacy assets only and one of the reasons why the Bank has been so determined that it will end as scheduled. Suppose the scheme were to be rolled on indefinitely. What was intended and designed as system-wide central bank liquidity support would become instead a fiscal operation. We would be using government debt – and hence public money – to subsidise a group of private sector firms, with the public purse being at risk. | 1 |
Let me stress it for French and European bankers who are gathered here: accepting good compromises is often a sign of intelligence; maintaining for ever excessive demands is not, and can be a road to failure. III. Maintaining the momentum to implement the Capital Markets Union Let me now turn to CMU, which is the natural complement to the Banking Union. Capital markets and banks together provide diversified sources of financing, offering both safety and flexibility to economic agents. From a central bank point of view, a deeper and more integrated financial system is desirable to improve the transmission of our single monetary policy to all parts of the euro area and help absorb asymmetric shocks. In the United States around 60% of the impact of state-level shocks is alleviated through private capital flows, against a poor 20% in the euro area where, financial flows even tend to worsen imbalances and fragmentation in times of crisis. We need to reverse this trend, and in particular to foster equity financing which is the most appropriate tool for innovative projects. Insofar as innovation will be the key factor of success in the two major transformations ahead of us – digital and ecological –, we ought to pay special attention to the take-off of venture capital in the EU, which is still fivefold less developed than in North America. The EU has the world’s greatest pool of savings at its disposal: the surplus of domestic savings over investment structurally exceeds EUR 300 billion. | The public consultation launched by the Commission is a unique opportunity to put forward constructive proposals, on both sides of the coin: on the demand side, through well-calibrated prudential incentives for market participants; and on the supply side, notably with the extension of the scope of clearing, for products and entities. We have a collective responsibility to reduce systemic risk and we have to act now. As a conclusion, let me take a take inspiration from the recent Adam Mc Kay and Leonardo di Caprio movie “Don’t look up” to provide a broader perspective. We may be coming out of a storm called Covid, which has heavily disturbed our traditional landmarks and consumed a lot of our energy. We may be facing another crisis in geopolitics. But we must not forget to “look up” at the stars to see where we are in our journey and to remember where we are going… The two “great transformations” ahead of us require a Financing Union in Europe. The time to act is now. I thank you for your attention. 4/4 BIS central bankers' speeches | 1 |
Mr. Plenderleith considers what is new in the financial markets in the United Kingdom Speech by Mr. Ian Plenderleith, an Executive Director of the Bank of England, at the 6th Central Banking Conference, in London on 18/11/97. 1. This has been a year marked by important developments in the UK financial markets and I am delighted to have this opportunity to take you through some of the highlights. The UK’s new monetary framework 2. Perhaps the single most momentous change in the financial landscape in the UK has been the new government’s decision, in May, to give operational responsibility for interest rates to the Bank of England -- essentially, to establish operational independence for the central bank. This significant reform, which took effect immediately, and is to be the subject of legislation recently introduced in the UK Parliament, represented an immediate concrete demonstration of the new government’s commitment to monetary stability. It ensures that monetary policy will continue to be directed to the pursuit of low inflation, recognising that that is an essential pre-condition for achieving the sustained growth in output and employment that we all seek to achieve. The step was warmly welcomed by the markets, as was evidenced by the immediate fall of around 50 basis points it precipitated in long bond yields. 3. The framework put in place with that announcement has been carefully constructed and I would like to point to four features of it that I believe will be important to its long-run effectiveness. 4. | The UK’s sterling Real-Time Gross Settlement (RTGS) system is being developed to accommodate the euro, so that from the beginning of 1999 euro wholesale payments may be made in a safe, efficient and cost-effective way as sterling payments can now, even though the UK will not be a participant in the monetary union at the outset. That development remains on schedule, and it is encouraging that the UK system (CHAPS) has had expressions of interest recently from a number of overseas banks wishing to join. 23. The UK euro system -- CHAPS euro -- will allow payments to be made both between parties within the UK and cross-border from and to the UK through its link to TARGET. Using the knowledge and expertise we have acquired through developing and operating by far the largest RTGS system in Europe -- with average daily volumes of some 70,000 payments, worth some £ bn -- we are contributing a great deal to the technical development of TARGET. Because it extends the benefits of RTGS systems, in reducing the risk in payments, for the first time cross-border, it is a project we wholeheartedly support. 24. But we also want to see TARGET as efficient and effective as possible, so that it becomes the payment system of first choice for banks, in order to maximise its benefits in reducing systemic risk. We have to recognise that TARGET will be competing with alternative euro payments mechanisms, including correspondent banking and the European Banking Association’s net end-of-day settlement systems. | 1 |
Many large financial firms have increased their attention to misconduct risk and cultural drivers in the wake of serious frauds and enforcement actions over the past several years. But, the degree of commitment and progress in these efforts has not been even across the industry and serious or persistent misconduct continues in some firms. So, why wouldn’t a firm do more? One can turn to traditional economic theory to offer an explanation for why a firm might underinvest in cultural capital. Firms may operate with levels of cultural capital beneath both the social optimum and even the private optimum due to different types of market failures. Today I will consider three well-known phenomenon— externalities, principal-agent problems, and adverse selection—that may explain why misconduct risk persists and why firms might underinvest in cultural capital relative to what might be socially optimal. Externalities Externalities are the impact that one actor has on other, unrelated actors. Externalities can drive a wedge between private and socially optimally outcomes and, from a supervisors’ perspective, lead firms to underinvest in their own resiliency by ignoring the broader impact of bad outcomes on the financial sector and the real economy. In other contexts like environmental policy, externalities such as pollution motivate government intervention. | It is analogous to physical capital, like equipment, buildings and property, or to human capital, like the accumulated knowledge and skills of workers,6 or reputational capital, like the franchise value or brand recognition.7 Cultural capital is an input into a firm’s production process—impacting how it does its business. Cultural capital is an intangible asset. That is, we generally experience the impact rather than the thing itself—but its impact can be measured, assessed, and ultimately influenced. For example, in an organization with a high level of cultural capital, misconduct risk is low and observed structures, processes, formal incentives, and desired business outcomes are consistent with the firm’s stated values. The unspoken patterns of behavior reinforce this alignment. Problems are escalated to senior managers routinely, as employees feel empowered to raise their hand and believe that their efforts will result in meaningful responses. And senior leaders advance through the organization because, in addition to strong business performance, they set a credible tone from above by modeling behaviors consistent with the firm’s values. By contrast, consider some characteristics of an organization with low levels of cultural capital. | 1 |
Faced with such swings in sentiment, I want even more to stress today two ideas that are constant and consistent: (A) the ECB has been an innovative and efficient inflation-targeter, including in the Covid-crisis; (B) beyond Covid, the ECB has a powerful “quartet of tools” to keep its monetary policy as accommodative, and for as long as necessary. A. The ECB as an innovative and efficient inflation targeter In the first part of my remarks, let me try to answer three questions: is the ECB clear in its objective? is it consistent in its instruments? and is it efficient in its results? Page 2 sur 9 I. Is the ECB clear in its objective? For the ECB, like all other major central banks, our inflation objective is our lodestar. That means our definition of price stability should be simple, symmetric, and medium-term oriented. However, not everyone may perceive it this way. Hence, in the context of the Strategy Review launched by Christine Lagarde, we are currently reflecting on whether it can be communicated more clearly. To make it even simpler, we should reexamine the overly sophisticated qualifiers attached to the 2 % figure (“close to but below”). There is no benefit in appearing ambiguous about what we are aiming at. “Symmetric” refers to the fact that our objective is a target and cannot be a ceiling. Looking backwards, a central bank that has been successful in achieving its target on average will have had roughly as many episodes of inflation above its target as below. | Among major economies worldwide, the euro area has the lowest interest rates, be they nominal or real, short or long-term. And the ECB has developed a wide range of tools. Quantitative Easing was not created in Europe, but corporate bond purchases, the wide range of eligible collateral, TLTRO or negative rates were developed here. In calibrating our decisions, we look of course at both the stance (based on our desired effect on future inflation) and the effective transmission of monetary policy (is the stance having the intended effect for economic agents, including SMEs and households?). These two considerations are evident in our recent decisions about the PEPP. The purpose of the PEPP is to preserve favourable financing conditions for all borrowers during the crisis phase of the pandemic and thereby prevent inflation from falling even further below our objective. From Page 4 sur 9 the start in March 2020 and still more since December, we have included the possibility to buy flexibly across time, jurisdictions and asset classes, to ensure that all borrowers benefit from favourable financing conditions. The recent evolution of long-term sovereign rates illustrates our consistency. In January and February, long-term sovereign bond yields in the euro area began to increase, largely reflecting transatlantic spillovers from US monetary and fiscal policies. So we decided in our Governing council on March 11th to conduct our purchases “at a significantly higher pace”, which was implemented promptly and efficiently and limited the rates increase. From mid-April nevertheless, our action has been hampered by unwarranted tapering fears. | 1 |
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