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The monetary policy transmission mechanism is more fraught with uncertainty and less "linear" than it used to be, as shocks on asset and risk prices introduce discontinuity into financing conditions. These developments underscore two interesting issues in particular that I would like to briefly consider. The first concerns monetary policy responses. It will have escaped nobody’s attention that these responses are not identical across all countries. In my view, this reflects different situations more than divergent approaches. All of the world’s economies are not affected in the same way by property market shocks or developments on credit markets. In particular, we can observe that the distribution of credit remains very dynamic in Europe and that, in most euro area countries, property markets remain relatively stable. More fundamentally, it seems to me that developments in the economic and financial context of globalisation bear out and reinforce the importance given to what, in Eurosystem parlance, we call monetary analysis, i.e. the examination and analysis of the main monetary and financial aggregates. We derive three major benefits from our monetary pillar. First, it favours the anchoring of long-term inflation expectations, which is essential when, as is currently the 1 Guilloux S. and Kharroubi E. (2008), “Some preliminary evidence on the globalization-inflation nexus”, Working paper series N°195, January 2 BIS Review 28/2008 case, instantaneous pressures are strong. Second, it constitutes an integrated framework for the analysis of financial and monetary developments, which is particularly useful in times of structural change and turmoil on credit markets. | According to studies carried out at the Banque de France 1 , the disinflationary impact of imports appears to be relatively independent of import volumes: the mere existence of potential competition renders the markets, in the words of experts, more “contestable” and influences behavioural patterns. These disinflationary forces are still present. However, there are now other more powerful forces that have the opposite effect. The growth of emerging market economies and the rise in the living standards of their populations are leading to a surge in the demand for natural resources, food and energy, which logically has a strong and permanent impact on inflation. Furthermore, by strengthening the magnitude of global shocks in relation to more specifically domestic shocks and favouring the international transmission of the latter, globalisation introduces a much greater synchronisation of inflationary cycles between countries, with the ensuing risks of amplification. Overall, the effects of globalisation have ceased – probably in the long term – to be spontaneously disinflationary. The second topic that I wish to discuss concerns globalisation and financial innovation. There is, in my mind, no doubt about the long-term benefits of the financial innovation process that we have been witnessing over the past twenty years. However, we can also see that it may be accompanied by cyclical developments and structural changes that could potentially prove to be disruptive for monetary policy. Monetary and financial conditions are simultaneously influenced by central bank decisions, but are also increasingly affected by sometimes exogenous trends in asset prices and the pricing of risk. | 1 |
There are new areas that we are looking to operate under the macroprudential surveillance framework of the Central Bank. These include analysing trends in banking sector and non-banking sector exposure to the corporate sector, assessing the impact of dynamic provisioning frameworks on the banking sector, analysing financial sector exposure to the household sector, evaluating the possibility of introducing Escrow accounts to safeguard the residential property buyers and to achieve long term stability of the real estate market as well as commencing multivariable stress tests for LFCs covering credit, market and liquidity risks. We have recognised risk management as a key strategic priority of the Central Bank, and we are in the process of implementing an Enterprise-wide Risk Management (ERM) Framework, which is intended to promote a culture of informed risk-taking at all levels. Accordingly, the Risk Governance Framework and the Risk Management Policy of the Central Bank were approved by the Monetary Board in 2018, and relevant committees were formed and meetings were convened to make the framework functional. We expect to develop Risk Registers and implement an Incident Reporting Mechanism in 2019. With regard to financial risk management, we will further strengthen the risk management framework of the fund management activities. With the growing priority being attached to achieving the Sustainable Development Goals (SDGs) as well as promoting greener and climate friendly 31 growth activities by providing productive and sustainable investment, the Central Bank initiated a process of promoting sustainable finance practices in Sri Lanka in 2017. | Accordingly, with the view of providing policy direction to the financial sector, the Central Bank is in the process of developing a ‘Road Map for Sustainable Finance in Sri Lanka’. For this process, we are obtaining the technical assistance from International Finance Corporation of the World Bank (IFC-WB) and financial assistance from the United Nations Development Programme (UNDP). Going forward, we intend to launch the ‘Road Map for Sustainable Finance’ during 2019 which would serve as a reference for all stakeholders in formulating their own sustainable finance policies. 32 4. Policies Related to Ancillary and Agency Functions In addition to our core functions, we have effectively performed several ancillary and agency functions as well. We have performed these functions to support the smooth functioning of the economy and the financial system, thus contributing to strengthen the broader economy. Currency Management The Central Bank has the exclusive right to issue currency notes and coins on behalf of the government. During 2018, we continued to perform this function as per our mandate. In spite of increased use of technology driven non-cash modes of payment, demand for currency notes and coins increased in 2018 in line with the expansion of the economy. In 2018, we launched a new coinage and issued a commemorative currency note and a coin. Further, we have introduced policy measures against willfully altered, defaced or mutilated currency notes in order to preserve the quality of currency notes in Sri Lanka. | 1 |
Parallel to this development, the upward trend in unemployment rates reversed. In the mentioned period, unemployment rates increased in annual terms while they decreased compared to the second quarter in seasonally adjusted terms (Figure 30). Indicators such as capacity utilization rates and per capita hours worked suggest that resource utilization remains low throughout the economy. Given that ample slack would continue to be an obstacle to investment and employment, recent signs of improvement in employment data is not expected to turn into a significant recovery, suggesting that unemployment is likely to remain elevated for an extended period of time. Therefore, unit labor costs and domestic demand would continue to support disinflation. Figure 30: Unemployment Rates (Seasonally Adjusted, Percent) 19 Nonfarm Unemployment Rate 17 Unemployment Rate 15 13 11 0709 0509 0309 0109 1108 0908 0708 0508 0308 0108 1107 0907 0707 0507 0307 0107 9 Source: TURKSTAT, CBRT. BIS Review 143/2009 13 As I have mentioned before, the tightness in credit conditions has been on an easing trend. Accordingly, developments in the credit market would begin to support domestic economic activity as of the fourth quarter of the year and the impact of monetary policy is expected to be more visible in the medium term. However, the rising domestic borrowing requirement of the government, ongoing problems in the global economy, and elevated levels of unemployment would continue restraining credit expansion. | In the third quarter, the disinflation process lost pace due to the tax measures to restore fiscal balances. 2 BIS Review 143/2009 In addition, phased-out tax cuts on durable consumption goods were one of the featured developments with regard to consumer prices in the third quarter. All in all, the decline in prices of core goods remained below previous levels (Figure 4). In the third quarter of the year, the rate of increase in services prices continued to slow down in the face of weakening domestic demand and the fading of high base effect caused by supply shocks in the previous year. Seasonally adjusted data suggest that the main trend of services inflation is at historically low levels, this prevailing across all sub-groups. It is especially noteworthy that monthly rent inflation continued smoothly along a downward path (Figure 5 and Figure 6). Nevertheless, we expect that the services sector will enter a gradual recovery trend, however prices will continue to increase at a moderate pace in the last quarter of the year. Figure 5: Services Prices Figure 6: Services Prices (Seasonally Adjusted, 2-Month Averages) (Percentage Months) 2.0 16 1.8 Services 1.6 Rent 14 Change, First Nine 2006-2007 average 2008 2009 12 1.4 10 1.2 1.0 8 0.8 6 0.6 0.4 4 0.2 2 Source: TURKSTAT, CBRT. | 1 |
The questions about trend productivity and other matters that may have altered the relationship between growth and inflation are one of several elements of uncertainty in the Riksbank’s forecasting 3 BIS Review 28/2000 work. When constructing assessments and material for decisions it is therefore important to check what is happening and be alert to any signs of changes that should be taken into account. The current assessment The Inflation Report we are publishing today presents a picture of the Swedish economy that remains bright, with good growth and moderate, though rising inflation. External economic prospects have gone on improving. It is above all GDP growth in the US economy that continues to be remarkably positive but it also looks as though growth in the euro area and the United Kingdom could be higher than assumed earlier. International consumer prices, however, are not expected to move up to the same extent. Less relaxed monetary policies among a number of central banks and growing pressure from international competition are judged to hold external prices back. But partly because the krona is not expected to appreciate quite as rapidly as we counted on earlier, import prices to producers are now assumed to be somewhat higher. On account of strong competition, however, we do not foresee a full pass-through to consumer prices. Domestic demand is also expected to be stronger than we foresaw in the December Report, notwithstanding the subsequent repo rate increase of 0.5 percentage points. | Rising asset prices and increased household wealth are also contributing to the growth of private consumption. Moreover, the strong economic activity and good stock market trend should contribute to a favourable development of investment. Diagram 2. GDP growth between 1994 and 2002 2. GDP growth 1994 - 2002 5 4 Average 1994-2002 3 2 1 0 1994 1995 1995 1997 1998 1999 2000p 2001p 2002p Sources: Statistics Sweden and the Riksbank’s forecast for 2000-2002 The Riksbank foresees GDP growth rates of 4.0% this year, 3.5% in 2001 and 2.6% in 2002. These are high rates compared with the 1970s and 1980s. By itself, the upward revision of GDP growth implies that unutilised resources in the economy are brought into production more quickly. The strong economic activity points to a higher rate of wage increases in the coming years. At the same time, it is possible that changes in the labour market will hold wage increases down. A growing proportion of wage increases is being allocated locally, for example. Moreover, inflation expectations among labour market organisations are still in line with the target. This means that, as we have seen in recent years, a real wage increase can be secured without such a large increase in nominal wages. BIS Review 28/2000 4 Historically high real wage increases in recent years should likewise contribute to a moderate development of wages. | 1 |
Monetary policy is a matter of trade-offs Last year, we cut the repo rate to zero in Sweden, and we have continued to lower it below zero at the same time as we have purchased government bonds (see Figure 4). We did this BIS central bankers’ speeches 3 to safeguard confidence in the inflation target. If we can get inflation to rise, this will reduce the risk of the inflation target’s role as nominal anchor being undermined. Figure 4 The Riksbank’s purchases of government bonds and the repo rate SEK billion and per cent Source: The Riksbank. According to our analysis, the purchases of government bonds have contributed to interest rates in Sweden being lower and the krona being weaker than would otherwise have been the case without the purchases. 4 We are now also seeing that inflation is moving in the right direction (see Figure 5). Figure 5 Inflation in Sweden Annual percentage change Note. The CPIF is the CPI with a fixed mortgage rate. Source: Statistics Sweden. 4 4 See De Rezende, R.B., Kjellberg, D and Tysklind, O., ”Effects of the Riksbank’s purchases of government bonds on financial prices”, Economic Commentary no. 13, 2015, Sveriges Riksbank. BIS central bankers’ speeches However, we are very much aware that the low interest rate level is also increasing the risks linked to households’ already-high indebtedness. | I am referring to the development of FinTechs and the growing role of Big-Techs in the financial scape as they ride the digital revolution underway, and to the fight against climate change. On the former, regulators have become far more active in order to understand the risks and concerns associated with this ever expanding industry. At this stage, we need to consider consistent regulation across the board, with an extension of the coordination perimeter beyond financial authorities to competition authorities, AML-CFT ones, data and cybersecurity agencies. This would be useful to ensure adequate surveillance, an even level playing field and to limit the potential risks for financial stability including the ones stemming from cyber-incidents and crypto-assets with network effects of potentially international magnitude. On the latter, the fight against climate change, disclosure and standardization are key elements to close the data gaps and ensure adequate incentives for corporates. I therefore consider that disclosure should become mandatory, at least as a first step for financial institutions, as it is already in France, and for large corporates. Ensuring consistency and comparability of disclosure around the world is essential, and relevant authorities, including sometimes the ones we are not so used to talk to as central bankers or supervisors, need to converge on these new challenges. | 0 |
That is not so obvious in the figures for quarterly GDP growth (see left-hand panel of Chart 1), which have been buffeted by a variety of special factors, such as: the bad weather late last year; the impact of the Tōhoku disaster on global supply chains; and the extra bank holiday for the royal wedding. These last two, in particular, provided a temporary boost to the third-quarter growth rate of 0.5 per cent released on Tuesday. But business surveys and other indicators suggest that the underlying rate of expansion has probably eased (see right-hand panel of Chart 1). Those same surveys point to only very moderate growth at best in the final quarter of this year. This slowing in growth is not confined to the United Kingdom. Growth has eased in the euro area and the business surveys are consistent with contraction in the second half of this year (see Chart 2). Though output growth has picked up in the United States according to the latest official data, the business surveys suggest this may prove ephemeral (also see Chart 2). And there are signs that China and some other emerging economies have slowed too, though in their case the slowing was partly policy-induced in order to alleviate inflationary pressures. I would highlight two primary drivers of this slowing. The first is the heightened tension in financial and bank funding markets associated with the twin euro-area banking and sovereign debt crises. | However, this increase was exceeded by far by the wage hikes, which explains the sizeable widening of the external deficit, as well as the increasing inflationary pressures over the past year and a half. So, we embark upon this path, carrying a serious burden on our shoulders. I wonder what will happen the moment the increase in labour productivity slows down. Such a trend is closely connected to economic rigidities, the infrastructure-related issues, the slowdown in economic restructuring. In view of all these issues, the NBR does not embrace the idea of slowing down wage increases, but rather it advocates the creation of conditions likely to render this hike sustainable and maintain its actual nature. After all, from a nominal point of view, there is no limit to increasing wages. However, the market will admit only pay rises matched by labour productivity gains. The rest fuels inflation and the depreciation of domestic currency, taking the real level of wage rises to where it is matched by output and labour productivity. Next, I would like to make reference to the factors that establish the direct connection between the NBR’s legal tasks concerning wage increases, on the one hand, and the rise in labour productivity, on the other. | 0 |
Of course, access to data should always be in line with the authorities’ mandate and with the CPSS-IOSCO guidance, issued last month, on authorities’ access to trade repository data. However, even if this is warranted, privacy laws, blocking statutes and indemnification clauses which are in place in several jurisdictions restrict effective access to the detail of OTC derivatives transactions. Another important issue is whether authorities will be able to aggregate data across trade repositories and jurisdictions. Where there is more than one authorised repository in a single jurisdiction, it will be necessary to aggregate data across repositories. This in itself will be challenging. If no central entity is responsible for such aggregation, it could well mean that a plethora of public authorities with an interest in accessing data will need to conduct this task. This would hardly be efficient. It gets even more complicated if data, for example for all entities of a large financial group which is present in several markets, have to be aggregated across jurisdictions, as the level of information reported to repositories is different. A lot of work has already been done to address these issues. The January 2012 CPSSIOSCO report on OTC derivatives data and reporting and aggregation requirements identified the Legal Entity Identifier (LEI) as an essential tool for aggregation. Good progress has been made in the development and implementation of the Global LEI System. | In an unprecedented act of international cooperation, the G20 leaders met in 2008 and 2009 in Washington, London and Pittsburgh to coordinate action and address the regulatory gap. As the crisis has shown, deregulation and reliance on self-regulation just do not work. In the area of OTC derivatives, the objective was to have all standardised OTC derivatives contracts traded on exchanges or electronic trading platforms and cleared through central counterparties by the end of 2012. OTC derivatives contracts were to be reported to trade repositories, and non-centrally cleared contracts subject to higher capital requirements. No doubt, a vast amount of technical work has been undertaken during the last four years, and substantial progress has been made in regulatory and supervisory reform in response to the financial crisis. Just to mention some examples: the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) issued, in 2012, new and more demanding international standards for payment, clearing and settlement systems and trade repositories, and have also recently published guidance on authorities’ access to data stored at trade repositories. The clearing and reporting obligation has been implemented in major jurisdictions. The CPSS and the Financial Stability Board (FSB) have issued guidance on the recovery and resolution of financial market infrastructures, including central counterparties. However, it should also be highlighted that little more than half the FSB jurisdictions have legislative frameworks in place that implement the G20 Pittsburgh commitments. Other important reforms are still underway or have only recently been adopted and implementation is outstanding. | 1 |
Adherence to this requirement will inject transparency, accountability and ensure the integrity of the financial system. It will prevent criminals from hiding their ownership of companies and assets through complex methods and vehicles. I last spoke at this conference in 2011. The theme of the 2011 conference was “Raising the bar in enforcement and compliance”. Looking back and taking stock of the present state, I am glad to see that the whole industry has matured and progressed in such a significant way. This is validated by the NCC report that the sector’s control measures for both money laundering and terrorism financing are strong. Further, fines imposed by the Bank on financial institutions has decreased over the past few years, reflecting the progress made by institutions in ensuring adequate controls. I hope the industry continues to strengthen its capability to fight crime. Another area in which progress has been made is the priority accorded within each institution to compliance. The focus of the compliance function has developed to become more comprehensive as financial institutions have a better understanding of the threats and risks involved. With increasing awareness of the direct and indirect costs of non-compliance, the compliance function is no longer viewed only as adherence to rules set by regulators, but is instead, an integral part of the organisation’s culture. The very fact that the theme of this 4/5 BIS central bankers' speeches conference is on reshaping the future, governance and transparency is a testament to this. | Conclusion I spoke at length today about the responsibility that we have to combat crime and the ways to do so. Let me end by saying that eradicating financial crime makes good business sense. Financial crime is a cost and burden to all of society. Robust governance and greater transparency is good for business. It creates an environment of trust and a level-playing field for businesses to flourish. This is important as we seek to ensure longevity and continuity of businesses and the health of the economy as a whole. Therefore, let us be united in working for a better and brighter future for Malaysia. Greater governance and transparency will get us there. Thank you. 5/5 BIS central bankers' speeches | 1 |
Survey responses show the mean value for the repo-rate expectations of money market participants in February 2015. “MPR” refers to the Riksbank’s forecast for the repo rate in its monetary policy reports. Sources: Statistics Sweden and TNS Sifo Prospera But Chart 4 also shows that the repo rate has so far turned out to be much lower than the interest rate forecasts. The bonds have therefore risen in value and the funding of the bond purchases seems to become cheaper than expected, something which, at least in the short term, has led to higher profits than expected for the Riksbank. This is 11 An alternative measure of the future repo rate is provided by the market’s pricing of certain derivatives. This pricing suggested that the repo rate would increase more slowly than in the Riksbank’s forecast, but the bond purchases would realise losses also according to these market-based expectations. 6 [12] reflected in, for example, the forecast for the Riksbank’s dividend-qualifying profit in 2015 and 2016. 12 At the end of 2014, a total loss of just over SEK 10 billion was expected for those two years. 13 In March 2015, when bond purchases had begun on a small scale, the expected loss had risen to almost SEK 14 billion. The latest forecast, from October this year, has the benefit of hindsight and indicates that the outcome will instead be a profit of almost SEK 13 billion. | 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. | 1 |
A dynamic growth of the derivatives market is the result of an increase in the cross-border flows in the financial markets. Between 1995 and 2004, the turnover on the global derivatives market grew nearly two-fold, whereas during the same period the activity on all exchange-traded derivatives grew almost three-fold (Chart 7). Chart 7: Average daily net turnover in global derivatives market, 1995-2004 USD billion 5 000 4 500 4 000 3 500 3 000 2 500 2 000 1 382 1 221 1 500 959 688 1 000 265 500 151 0 1995 1998 OTC FX derivatives market Exchange-traded derivatives 4 657 2 180 1 292 853 1025 489 2001 2004 OTC interest rate derivatives market Source: BIS. BIS Review 60/2006 5 Reasons for globalization of financial markets The key factors that brought about the aforementioned changes in capital flows and in the structure of the global financial market comprise the following: • liberalization of national financial markets and the related growing competition among financial institutions, • technological progress in IT and telecommunications, • faster flow of information and its standardisation, • globalization of national economies in their various aspects (commerce, institutions, ownership structure, capital and knowledge). The liberalization of national financial markets has eliminated restrictions in the operations of both domestic and foreign financial entities. Regulations regarding the range of services performed by the banks and other financial institutions have been changed. | The franc did not really begin to appreciate until after the events of 11 September. Within a very short space of time it had appreciated by 5% against the euro. Later on, the way the Swiss franc was moving caused us concern on numerous occasions. This led us to ease monetary policy further last year as well. It is only recently that the franc corrected itself against the euro. The stabilisation of the geopolitical situation is likely to have played a major role in this. All in all, the Swiss franc has appreciated by 4% against the euro since its introduction - much less than had originally been feared. If one also takes into account the inflation differential between Switzerland and the euro area, the appreciation has been even more modest. 4 BIS Review 27/2003 Our monetary policy concept enables us to take greater account of developments on the foreign exchange markets and to communicate our intentions openly. We do not, however, actually seek to manage the exchange rate. Only on rare exceptional occasions - such as the extreme appreciation of the franc in the late 1970s - does an explicit exchange rate target make sense for Switzerland. The frequently expressed concern that the introduction of the euro would mean the disappearance of the interest rate differential between Swiss franc and euro investments has also proved groundless. | 0 |
Our collaboration has most recently been demonstrated through the establishment of the regulator-industry steering group and working group on regulatory reporting reform, which I am pleased to note the AFM is a member of. We are currently running a Quantitative Impact Study to gather data that will allow us, with government, to formulate effective 4/6 BIS central bankers' speeches policy proposals. I should emphasise that the scenarios used in the QIS are not policy proposals. The QIS is complemented by a qualitative questionnaire to support our policy thinking, and our future cost-benefit analysis. High quality submissions from a range of respondents, including mutuals, will be key to the PRA’s ability to help develop well-evidenced reform. We welcome participation from all firms who are able to submit responses to the parts of the QIS and questionnaire that are relevant to your business, by the deadline of 20 October 2021. I am pleased that the AFM and some individual mutuals responded to the HM Treasury’s call for evidence on Solvency II. Having mutuals input at this early stage will help inform our policy development. In the deposit-taking sector, a lot of work in relation to mutual deposit takers has been undertaken and benefitted from good engagement between industry and regulator. I am thinking in particular of our simplification of the regime for credit unions. This approach to the removal of unnessary/burdensome regulation is part of the overall work being undertaken by the PRA. | When I addressed the invitation to Madame Lagarde to visit Cyprus a few months ago, I could not have imagined how much more complicated the situation would be today. At the beginning of the year, the economic confidence was improving and the GDP growth rate was recovering fast. The war in Ukraine however changed everything. It has first and foremost caused a humanitarian tragedy, which we, as Cypriots, can relate to since we have gone through a similar situation with the Turkish invasion back in 1974. It has also shaped an economic landscape of higher risks and uncertainties. The situation calls for a strategy that goes far beyond the financial technical sphere, reaching to the core of our European values. I am confident that once again, as we did recently with the pandemic, the Eurozone will manage to address the challenges and come stronger out of this crisis. The most recent ECB policies have successfully guided the euro area economies out of the pandemic shock with the minimum possible scarring. Both the euro area as well as Cyprus have reached the pre-pandemic real GDP level within 2021, while a similar path has been recorded in the labour dynamics with the labour force participation having reached pre-pandemic levels. This has been achieved by the formulation of ample policy support. The ECB took a series of policy decisions aimed at achieving favourable financing conditions and alleviating the economic hit on households and businesses. | 0 |
The monetary policy implementation framework continues to provide the FOMC with excellent control over overnight money market rates, and has proven to be flexible, including through the technical adjustment, in the face of new developments. Thank you for your attention. I look forward to the panel discussion. ### 29 The Federal Reserve is working on enhancements to the overnight bank funding rate (OBFR) to capture wholesale borrowing activity, which moved from offshore to onshore branches. Collection of these data began on October 1, 2018. There will be a review of the new data and an evaluation of how its inclusion will impact the OBFR before its expected addition. 30 For more information about this survey, see Senior Financial Officer Survey, August 29, 2018. 13 | Measuring productivity in service industries is difficult. The chart shows that according to the national accounts, productivity growth is very volatile. If we smooth the data somewhat, it appears, however, that productivity growth has been relatively high through the 1990s, following low growth at the end of the 1980s. At the very end of the 1990s, however, productivity growth was weak. 10 BIS Review 47/2001 One source that may be used to analyse developments in distributive trades is Norges Bank’s database Sebra which contains figures for all limited companies that have turned in valid accounts to the Brønnøysund Register. The figures, from 1988 to 1999, show that profitability in this industry has been positive since 1993. Both measures of profitability show a slightly falling trend from the peak year 1994 to 1998. In 1999, it appears that profitability improved again. The increase in profitability from the end of the 1980s to the mid-1990s reflects a structural development in the industry since the 1980s. The most important changes were the emergence of chains and the development of shopping centres. When the upturn came in the mid-1990s, a better structure was in place. Both the chains and the shopping centres have increased their market shares. This structural development has probably made it possible to maintain satisfactory profitability at the 2 same time that profit margins have declined. Operations became more efficient. Profitability has been satisfactory despite lower mark-ups on the cost of goods. In 1998 and 1999, however, profit margins increased somewhat. | 0 |
With a flexible exchange rate regime, there is nothing new about some depreciation in connection with a cyclical downturn. Numerous examples can be cited from all over the world. Basically, in a small, open economy the exchange rate often functions as a sort of shock-absorber. The problem today is that the krona’s depreciation has occurred from a level that was already weak. This amounts to a further appreciable lowering of Swedish manufacturing’s relative costs and thus an increased profit share. Our experience from the 1970s and 1980s has shown that a weak exchange rate can generate inflationary tendencies. Let us not forget what happened in recent years. When the krona weakened in connection with the crises in Mexico, Asia and Russia, Swedish exports recovered quickly and strongly. During the autumn of 1998 exports dropped, order inflows were weak and forecasts where quickly revised downwards; but just a few quarters later production for export was booming again. So it is reasonable to expect that sooner or later, although just when is not clear, Swedish exports will pick up this time as well. But the terrorist attacks have probably postponed the recovery and perhaps even accentuated the slowdown in the short run. It is important to keep an eye on the exchange rate as well as economic activity. On the domestic scene there are some bright spots. Household disposable income, for instance, looks like rising strongly next year. | In particular, there has been much greater cross-border activity in Europe, supported by fully-integrated pan-European systems for making wholesale payments. But many systems for the trading, clearing and settlement of securities are still fragmented nationally by sector. Market firms are keen to see consolidation of the arrangements for clearing and settling securities trades, where costs are still considerably greater in Europe than in the US. Even without mergers, market firms can of course trade remotely from a single location, though this does not address the issue of duplicate investment costs. But it seems that full rationalisation may take years to implement and, while the broad vision of integrated European systems is widely shared, there are still differences of view about how best to achieve it. The third change is the diversification of investment. The launch of the euro has begun to encourage a shift in funds away from the particular national market in which they have traditionally been invested, and towards investment across the euro area as a whole. This helps to explain the increasing use by fund managers of European benchmark indices against which to measure investment performance, rather than national benchmark indices. Portfolio diversification has so far been rather slower than originally expected. But there is evidence that diversification is continuing to take place, and it is expected to pick up over time. Fourth, financial institutions themselves are consolidating, including in some cases across borders, so that they can better provide a service to clients across the Single European Market as a whole. | 0 |
During periods of low growth and low yield, banks should refrain from unsound search-for-yield behaviours or facilitating aggressive search-for-yield behaviours that could build-up systemic risk and cause financial instability. Thirdly, behaviour and culture within financial institutions must gear towards good governance, soundness, and sustainability to pre-empt unwarranted risks. During the last Asian and global financial crisis, excessive risk-taking behaviour was one key driver. Short-sighted views on risk were embedded in the practice of management and employees. This was defined and reflected in the structure on rewards, accountability, personalities, as well as check and balance mechanisms, or lack thereof, within the organization. More recently, the manipulation of the London Interbank Offered Rate (Libor) which has done serious reputational 3 damage to the banking industry and reduced public trust was an example of misbehaviour fostered by inappropriate cultures. While events such as the financial crisis, and other scandals have continuously triggered waves of regulatory reforms, those are not enough and our work is far from over. Today, there are still examples of poor corporate governance and misconduct resulting from the root-cause of inappropriate behaviour and culture within banks. Recently, fraudulent practices in a large global bank were exposed where bank accounts were opened without customers’ consent or knowledge. Banks themselves need to create culture that encourages management and employees to have the right values and behaviour. This behaviour and culture cannot be detected quantitatively and similarly to the way we assess financial data, or risk-taking investment. | Jean-Pierre Roth: Demography and economic policy – the challenges ahead Summary of a colloquium 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, on “Chances et défis du vieillissement” (opportunities and challenges of demographic ageing), at the University of Geneva, Geneva, 10 November 2006. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * What will Switzerland look like in 2050? The demographic changes under way will have a strong impact on the future demographic landscape, with regard to both the working population and the older age segments. The ageing society poses two major challenges for economic policy: ensuring the production capacity of the Swiss economy as well as the continuance of the social security scheme. To address these challenges, an economic policy that promotes productivity increases while guaranteeing economic growth must be implemented with immediate effect. In line with this economic policy, adjustments must be made to our social security system. | 0 |
We have moved beyond measuring access, to including measures of the usage and quality of financial inclusion services. We need to go further to include measurement on how efficiently we are increasing financial inclusion. Such measures do not exist widely, if at all, and have yet to be systematically propagated. This blind spot ignores one of the most important aspects of innovative strategies for financial inclusion, which is the potential to drive down the costs of delivering financial inclusion initiatives. A framework for evaluating financial inclusion efficiency can provide powerful incentives to harness technology in the most optimal way. This should drive lower the costs of delivering inclusive financial services over time, and thereby enhance the viability for both Governments and private actors. Sustainability also calls for the strengthening of financial institutions that provide services to low-income and vulnerable groups. The misconduct or underperformance of such institutions can have a disproportionate impact on the poor simply because they have lower buffers. It can also significantly set back financial inclusion efforts by further entrenching the mistrust of formal financial institutions. It is therefore, critical for such institutions to exemplify strong and socially responsible corporate governance, and to have the appropriate technical expertise that will enable them to expand product offerings, increase outreach and develop alternative delivery channels. They must also be adept at identifying and managing financial and operational risks inherent in their business models. This requires investments in systems and in the development of talent with deep knowledge within the institutions. | He worked on economic reconstruction in Afghanistan, and on coordination of financial policy with the G7 countries. All in all, an impressive job. Currently, John is a member of the G20 Eminent Persons Group on Global Financial Governance, which aims at improving the functioning of the global financial architecture and governance. No less fascinating is John Taylor the teacher in both ‘quantitative’ and ‘qualitative’ terms. On the one hand, he has given countless speeches, hundreds of lectures, written several Page 3/4 textbooks and developed online courses. On the other hand, he is known for mixing teaching with entertainment. Indeed, John does not hesitate to use special didactic techniques to help students understand or remember material. During his classes, to cite just one example, John enters into a humorous dialogue with Adam Smith, revealing deep enthusiasm and dedication to the job. And by the way, this example is quite remarkable for someone who describes his humour “as mostly deadpan”, so that it generally takes a few lectures before his students are able to figure out when something is actually a joke. Having talked about John’s three occupations separately, I should emphasise how well they interact and stimulate one another. Research is integrated into college lectures; government work has enabled him to understand policy constraints, while this in turn has stimulated research. “Economic research,” John once wrote, “is most exciting and productive when it is policy-driven.” Karl Brunner could not have agreed more. | 0 |
Figure 2 shows our interest rate adjustments on the vertical axis and our inflation forecasts’ deviation from the target two years ahead on the horizontal axis. As we can see there is a clear relationship between forecast deviations from target and our decisions, but there are also points in Figure 2 that deviate from the average behaviour. These points chiefly relate to the forecasts we produced when we chose not to counter the effects of energy prices on inflation. So it seems that we have essentially acted in line with how we have said we will normally act. Yet another way to evaluate the result of our policy is to investigate whether it is credible. The most important factor here is that inflation expectations 2 years ahead and beyond have been firmly anchored to our target since the regime was stabilised in 1997-1998. That conclusion holds up fairly well regardless of the method used (see Figure 3). Our ambition to be transparent derives, among other things, from a desire to avoid unnecessary movements or unease in the financial markets. To illustrate our performance in this regard the Riksbank has conducted a number of studies over the years, of which some have been published.3 The picture we’ve received is that our policy has essentially been intelligible and that it hasn’t resulted in any sharp fluctuations in financial prices that could have been avoided. | Faced with these foreseeable changes in the regulatory and supervisory framework, and irrespective of whether the ongoing assessment exercise is likely to be generally satisfactory, Spanish banks must evidently seize every opportunity to strengthen their capital position as the improvement observed in financial conditions progressively firms, be this through gains in efficiency, retained profits or new securities issues. 5. Conclusions To conclude, I believe the major structural changes sweeping the banking industry will have been reiterated in this conference. We should assume that in the future the banking sector will be better capitalised and safer. As a counterpoint, however, it will likely be smaller and, probably, less profitable. All these changes will have appreciable consequences for banks’ business models and competitive strategies. The concurrence of this global process and the start-up of the banking union in Europe poses, in the short term, additional and considerable logistic and strategic challenges. Yet far from being a disadvantage, the banking union will over the medium term improve the European banking sector’s competitive capacity. Banks will benefit not only from a genuinely unified market but also, more directly, from the added strength this project brings to the monetary union. And the soundness of banks and the stability of the financial system as a whole will hinge crucially on the proper functioning of this union. Thank you. BIS central bankers’ speeches 5 | 0 |
This has undergone seismic shifts over recent years. Charts 22 and 23 show the proportions of UK households renting or with a mortgage. Those under 50 have seen a secular rise in renting and a fall in mortgaged households. Among young adults, these shifts have been dramatic. In 1977, one in four 25-year-olds were renters. By 2014, that fraction had risen to two-thirds. The number of households aged 21 to 25 with a mortgage has fallen by a factor of three. While these trends in housing tenure are long-lived, the financial crisis has clearly amplified them. Since 2007, the share of renters among those aged between 25 and 34 has risen by 12 percentage points. Among 35–49 year olds, the share of renters has increased by over two thirds. By contrast, those over 50 have seen a much smaller change in housing tenures. These shifts are likely to reflect the combined effects of a rise in UK house prices relative to income and, since the crisis, a reduction in mortgage availability for the young. Whether someone owns or rents a property need not affect their well-being, other things equal. But when it comes to the UK housing market, other things are rarely equal. The combination of rising demand for rental property, and constrained supply, has led to more rapid rises in rents than in household incomes. As a fraction of household income, rents have doubled since the early 1980s from around 10% to over 20% today. | Increased global engagement in Shariah matters among scholars, practitioners and regulators through international discussion platforms, together with the massive flow of knowledge, ideas, technology and people across borders also cumulatively foster a greater global understanding on the practices in Islamic finance. Innovation has fundamentally transformed the global financial landscape at a rapid pace and is undeniably a driver to sustain growth and to secure the competitive advantage of financial market participants. In the context of Islamic finance, the broadening of the frontier of product development can be further propelled by intensifying exploration, research and development initiatives and through intellectual discourse and engagements. It is duty-bound for us to continuously expand the dimensions of Islamic finance, hence contributing towards improving financial stability and economic prosperity in the interest of the local and global community. I am confident that this conference and the opportunities presented for deliberation on the research papers will be a fruitful one. I wish all delegates and participants a successful conference. With the lafaz Bismillahir Rahmanir Rahim, it is my pleasure and honour to declare open the 2nd Foundations of Islamic Finance Series Conference. BIS central bankers’ speeches 3 | 0 |
The lesson is that today’s oil price should not be regarded as a forecast of future prices, not even if the level is priced into long-term futures. Substantial uncertainty must be expected. The management of the Petroleum Fund will be part of the State Pension Fund. This essentially involves a name change. The capital will not be earmarked for pension payments. On the other hand, the intention has long been for the capital in the Petroleum Fund to be used as a means of easing the burden in connection with the large pensioner cohorts expected from about 2015. With the assumptions set out in the last national budget, only a share of the rise in pension payments ahead can be financed by an increase in returns on the Fund. The bulk of the increase must be financed by higher ordinary tax revenues. A number of analysts have calculated that with high oil prices the Petroleum Fund will be sufficiently large to finance pension payments. Norges Bank has analysed the uncertainty surrounding such expectations. We have looked at the probability that the capital in the Petroleum Fund will be sufficient by calculating developments in market value and pension payments using a model with uncertainty. We have used Statistics Norway’s projections for pension payments. Standard assumptions concerning uncertainty with respect to returns on the Fund’s investments have been incorporated. The main uncertainty is nevertheless associated with the production volume and prices for oil and gas. | I recommend giving it a read: the report itself is a treasure trove of data, and the results do you credit. The average solvency capital requirement (SCR) coverage ratio on the French market climbed from 222% in 2016 to 238% in 2017. What’s more, in the first quarter of 2018, the French insurance market overtook Germany and the United Kingdom to become Europe’s number-one market, with over EUR 35 billion in direct premiums written in non-life insurance and over EUR 2.100 trillion in technical provisions. It also leads in investment capacity: commanding total assets of EUR 2.7 trillion in September 2018, France’s insurance sector is far and away the largest institutional investor in Europe, accounting for over one-third of the total assets of euro area insurers. In comparison, France makes up 21% of euro area GDP. Insurers, then, are a crucial asset for France, and their critical role in financing the economy can and indeed must grow further. Corporate equity is vital to innovation and hence to a vibrant economy, but in mid-2018 equity was equivalent to just 77% of GDP in the euro area and 76% in France, compared with 124% in the United States. II. Tapping into regulatory opportunities. I would like to start this section off by noting that France’s introduction of a flat tax on capital income on 1 January has not had the slightest detrimental effect on life insurance, despite fears on this score within your industry. | 0 |
Svein Gjedrem: Turbulence in credit markets – mortgage financing at home and abroad Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the annual meeting of the Norwegian Savings Banks Association, Hamar, 11 October 2007. The text below may differ slightly from the actual presentation. The speech does not contain assessments of the economic situation or the monetary stance. * * * Financial markets in different countries have become more closely interwoven over the past few years. New participants have appeared and new and more complex products to diversify risk have been introduced ― across sectors and across national borders. Some of these products were put to the test for the first time during this autumn’s turbulence in credit and money markets. Triggered by problems in the subprime mortgage market in the US, the turbulence quickly spread to other financial market segments. In my remarks today, I will try to describe the driving forces behind these developments and the contagion effects on the Norwegian money and credit markets, with a discussion of the lessons to be drawn. Turbulence in the financial sector The US subprime mortgage market has expanded sharply in recent years. These mortgages usually have low interest rates at the beginning of the loan term followed by higher interest rates after a period. Subprime mortgages are based on expectations of a rise in house prices. Borrowers can maintain their debt-servicing capacity by refinancing their mortgage when house prices rise. | And no Norwegian banks operate in the same way as the British bank Northern Rock, with its extensive debt-financing in money markets. 3 In Norway, the premium is one percentage point. 4 John. M. Keynes (1931): “The Consequences to the banks of the collapse of money values”, Essays in persuasion, and Wolf, Martin (2007): “Life Could Yet Follow Death for the Idea of Securitisation”, Financial Times, 3 October 2007. 8 BIS Review 115/2007 Contagion occurred because a substantial share of Norwegian banks obtain financing abroad. The eurodollar market has been a frequently used source of financing for Norwegian banks. This is both because Norwegian banks have substantial dollar lending and because this market is used as a source of NOK, i.e. banks borrow in dollars and then swap them for NOK. In the early 1990s, a market was established for pure krone liquidity, called the NIDR (Norwegian Interbank Deposit Rate) market, but this market has few participants and low liquidity. Since the beginning of August, the eurodollar market has not functioned well. This has affected the Norwegian money market. The difference between the money market rate and the expected key policy rate has widened considerably, although less than in major markets abroad. This has resulted in a rise in banks’ borrowing costs – at least for a period. This might have an impact on banks’ profitability. Turnover time for deposits and loans in the interbank market has also increased and loan terms have decreased. | 1 |
And focus the message on the needs of those shaping our economy, companies and households, not those trading financial instruments. This is the direction the forward guidance puck, in my view, needs now to travel. Whatever Next? From September I am moving a mile west from one roughly 270-year old building to another – the Royal Society of Arts (RSA). The RSA is an 18th century Enlightenment institution. Like the Bank, it has delivered large and lasting social change by combining brains and hands. Although no longer in the public sector I will remain a public servant, seeking social change on some of the signature issues of the day - good work, fair education, lifelong skills, natural capital, place and belonging, good governance. Before I start, I shall be writing a book for students on Why Economics Matters. If history is any guide, it is unlikely to trouble the bestseller list. I have written extensively about the failures of economics, which are well captured by Robert Heilbroner’s “mathematics has brought rigour to economic, but it has also brought mortis.” Yet, more than at any time in my professional life, economics really does matter, especially to young people writing the next chapter. The aim of any job is to leave the place slightly better than when you arrived. While I can claim no credit, the Bank I leave is a far more transparent, powerful, analytical, agile, engaged, diverse and meritocratic institution than the one I joined. | The Bank of Albania deems that though the cautious consumer behaviour has not made any direct impact on economic growth over this period, it has helped keep risk premia on track and has led to low long-term interest rates, thus contributing to boosting private investments. Looking forward, we deem that the fiscal policy should retain its orientation toward fiscal indicators sustainability, supporting Albania’s economic and monetary stability and being an important pre-requisite for a stable and long-term growth. BIS central bankers’ speeches 1 Foreign demand continued to support the growth of exports and economic activity throughout 2012. Trade deficit narrowed by 7.9% in the third quarter, reflecting mainly the good performance of exports. The latter increased by 17% in the third quarter, retaining the previous quarters’ positive trend. On the other hand, imports performed poorly, reflecting the low demand for consumption and investment. In the third quarter, imports recorded positive annual growth of only 0.7%. Performance of monetary indicators attests to moderate pressures on monetary inflation. The annualised broad money growth rate decelerated to 6.8% in September. Reflecting the sluggish domestic demand, economic agents’ demand for money has been low. The weak demand for money has been associated with a constantly falling contribution of funding from public and private sectors to increasing the monetary supply throughout 2012. Private sector’s contribution continued to slow during this month; its annual growth rate reached 4.2%, recording one of the lowest historical levels. | 0 |
Governments, regulators, prosecutors and non-executive directors have all struggled to come to terms with firms that pose a risk to taxpayers, cannot be prosecuted because of their systemic importance, and are difficult to manage because of their size and complexity. It is not in our national interest to have banks that are too big to fail, too big to jail, or simply too big. Solving these problems is the work of a generation, and I hope that the financial community will rise to this challenge and not shrink from it. The City as a whole does merit trust. And, when the historians look back on this period many years from now, they will conclude that although we were not wiser than the financiers of the past, we did learn and we reformed, and the country benefitted and prospered as a result. As I leave the scene, there is undoubtedly much unfinished business for my successor. I am delighted that Mark Carney will be the next Governor. He brings a new generation of leadership to the Bank, as well as enormous experience from his time as a central bank governor and his role in steering the Financial Stability Board. He has my wholehearted best wishes for his term as Governor. Mark is, however, not the first Canadian to have been in the frame for the Governorship of the Bank of England. The very first Governor of the Bank of Canada, Graham Towers, was put forward by Keynes as a successor to Montagu Norman. | This is not surprising news, given that major global players in the industry such as HSBC, Standard Chartered and Citibank have established SSO centres on our shores. Regional players such as Maybank, CIMB and OCBC have also outsourced certain operations here to increase their productivity levels. We are happy to have them here today to share their experiences and perspectives. It would not be presumptuous of me to say that the financial institutions in Malaysia are in an enviable position where SSO is concerned in view of Malaysia's standing as a leading destination for the establishment of SSO hubs. A.T. Kearney ranked Malaysia as the third most attractive outsourcing centre in their Global Services Location Index in three consecutive reports, including this year's index. The report states that Malaysia was a "natural choice" for outsourcing in view of its low costs, modern infrastructure, business environment and high levels of global integration. Frost & Sullivan ranked Malaysia as the fifth most attractive SSO location in 2007 whereby the finance sector was identified as one of Malaysia's niche areas, ranking fourth in this sector. Key strengths that they pointed out include infrastructure quality, favourable Government policies, political stability and cultural adaptability of skilled workforce. Indeed, the Multimedia Development Corporation has implemented various initiatives in developing the Multimedia Super Corridor or MSC Malaysia as a conducive and attractive environment for outsourcing activities. Leveraging on these competitive advantages of Malaysia would seem to be a natural progression for financial players who are looking to stay ahead of the game. | 0 |
And so they actually found a way to get into some securities activities, and then Glass-Steagall Act a number of years later was actually formally repealed because the firms were already, essentially, in the business. Now my own personal view is that I don’t think the Glass-Steagall Act had much to do with the great financial crisis. If you look at the firms that got into great difficulty, at the earliest stages – Bear Stearns and Lehman Brothers, AIG – they really had nothing to do with Glass-Steagall because they really weren’t banks and securities firms. They were securities firms and insurance companies. My own view is that the Glass-Steagall Act was not a major – the repeal of the Glass-Steagall Act was not a major factor behind the Great Recession and the financial crisis. Now this is something that people probably would debate. Other people might have somewhat different views. You could repeal the Glass-Steagall Act again. I think it would obviously require a lot of financial corporate restructuring because there are a lot of firms in the U.S. that are in both the securities business and the commercial banking business today. I think that there are links between those two businesses. It probably helps those firms, satisfy the demands of their large corporate clients more easily than if you had to separate them into separate entities. But you could do it. | Of course, the automation of activities through a smart contract raises many questions about how firms and regulators ensure appropriate risk management and resilience. In the UK, the authorities are to establish a regulatory ‘sandbox’ to allow firms to investigate technical feasibility in this area and the regulators to assess related risks and risk management. It is of course impossible to say how successful and how disruptive these technologies will ultimately prove to be in finance. History has many examples of technologies that promised much but failed to deliver. Given the pace of change and the disruption we have seen in other sectors of the economy it would, as I said be very unwise for financial regulators to ignore these developments. But it would also be unwise for innovators and the authorities alike to forget that to be successful and sustainable, technologically driven innovation needs regulation. A succession of cryptowinters will not, in the end, help the deployment and adoption of these technologies and the reaping of the benefits that they may offer. History also has examples of technologies that have been put aside/ shunned because of dramatic early failures. While the causes of the Hindenberg Zeppelin disaster are still debated, it is very probable that the general development of the use of hydrogen in transport was put aside for decades as a result. Innovators, alongside regulators and other public authorities, have an interest in the development of appropriate regulation and the management of risk. | 0 |
SMEs can enjoy lower financing costs offered by this scheme with a 2% reduction in financing rate. Sukuk issuers also benefit from the three year extension of the double tax deduction for additional expenditure incurred for sukuk issued under Ijarah and Wakalah principles. Other cost savings for sukuk issuers include reduction in professional fees relating to due diligence, drafting and preparation of prospectus; and various fees charged by Securities Commission Malaysia and Bursa Malaysia. Islamic finance is anchored on sustainable values beyond profit The unique propositions of Islamic finance are drawn from its underlying Shariah principles that have universal applications, which fundamentally advocate the prevention of harm or attainment of benefits. All Islamic finance transactions must reflect Islamic values which are ethical and fair. Any financial conduct or transaction relating to goods or services that are contrary to Islamic principles are prohibited, thus promoting fairness, equality and justice. As such, Islamic finance practitioners are duty-bound to observe the norms of high ethical conduct to uphold the values and the sanctity of Shariah. Businesses can therefore take assurance that their financial needs are well served, managed and protected. For the halal industry, players could benefit greatly from appropriately raised funding and protection, which ultimately nurture an end-to-end halal ecosystem. Beyond this, the Islamic financial system also promotes Value-based Intermediation (VBI). Through VBI, Islamic financial institutions are encouraged to adopt more structured frameworks to assess how they create value and impact, particularly in response to changing economic, social and environmental conditions. | But even though this is not inconceivable, and though history shows that the market is living proof of the most improbable outcomes, the likelihood is that the probability of winning the wait-and-hope game is measurably poorer than that accompanying the purchase of a Lotto ticket. Therefore, it is appropriate to assume that the situation will not right itself very much in the short term, and if it does right itself to any measurable degree, it will hardly return to its prior state. If people haven’t prepared themselves already, there is no reason to wait. We must seek all possible ways to strengthen the liquidity position of companies – particularly financial companies – and at the same time we must re-examine market models. In athletic terms, one could say that this means that now is the time to consolidate our defences and be content with a goal if opportunities emerge in spite of all odds. Though exaggerated pessimism is obviously unnecessary, it is as bad or worse to paint the situation in rosy colours for the benefit of ourselves and the public and imply that there is some sort of magical solution to the problem that faces us. As the saying goes, “Lying to others is a wicked bent; lying to oneself breeds a lethal event.” The fact that the past few months have seen dubious conduct in the international markets is another matter altogether. Recent examples include a rumourmongering campaign against the British bank HBOS, causing substantial, though temporary, damage. That case is now being investigated. | 0 |
7 The gap in manufacturing is around 50%. 8 UK estimates of firm-level productivity dispersion are based on Bank of England analysis of ONS data, whereas non-UK estimates of productivity dispersion are provided by the OECD. Differences in underlying data used may therefore play a role in Charts 5 and 6. 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 low road. Capitalism always of course throws up winners and losers, hares and tortoises, gazelles and snails, upper and lower tails. In the UK, however, these differences are far-larger, and have increased by more, than elsewhere. And therein, I would argue, lie the roots of the UK’s productivity gaps. Let me start with the good news, focussing on companies on the high road. The first and most important point to make is that the UK does not lack for innovative, high-productivity companies. If you tour the UK, as I do, you find these “frontier” companies in every region and every sector. Their productivity is world-leading, their technology world-beating, their managers and workers world-renowned. They are inspirational. Micro-analysis of UK companies confirms this anecdotal impression. Chart 7 plots the distribution of UK 9 relative to French and German companies. There are more UK companies in the upper tail than in Germany, with its much-vaunted industrial reputation, and France. The top 10% of UK companies have levels of productivity at least 100% above the median. | The IFSB which was established in 2002 has been instrumental in developing and issuing global prudential standards and guiding principles for the industry. The IFSB has also contributed to the harmonisation in the development of Islamic finance across different jurisdictions. Apart from the implementation of these prudential standards, there is also a need to ensure the supervisory and legal infrastructure remains relevant to the rapidly changing Islamic financial landscape. In Malaysia, these efforts are also supported by a comprehensive financial safety net that includes a deposit insurance scheme and a resolution mechanism, so that not only are depositors protected, but it also allows for prompt, effective and least cost resolution of the financial system that can facilitate recapitalization of Islamic financial institutions as well as institute programme to remove troubled assets from the books of financial institutions. Greater collective effort by international community to strengthen global financial stability In the reform of the international financial architecture, the G20 has launched an ambitious agenda to reform financial regulations, which include key main areas namely, (1) the strengthening of international frameworks for prudential regulation, (2) the review of the scope of regulation, (3) the revision of accounting standards; and (4) more effective oversight of the credit rating agencies as well as strengthening risk management. 1 These areas should 1 2 Declaration on Strengthening the Financial System by Leaders of the G20, London 2 April 2009. | 0 |
The chief executive? Peter Robinson. The company? Liverpool FC. Perhaps banks should have heeded the message. If they had, this crisis might have felt rather different. If UK banks had reduced dividend payouts ratios by a third between 2000 to 2007, £ billion of extra capital would have been generated. 13 Had payouts to staff been trimmed by 10%, a further £ billion in capital would have been saved. And if banks had been restricted from paying dividends in the event of an annual loss, £ billion would have been added to the pot. In other words, three modest changes in payout behaviour would have generated more capital than was supplied by the UK government during the crisis. Opportunistic behaviour is also needed to repair banks’ liquidity positions. Reversing the fall in the maturity of banks’ balance sheets will require a front-loaded terming out of their debt liabilities. There is some evidence of banks doing so. But given the scale of the refinancing mountain, this will be an uphill struggle. There is also some evidence of companies tapping capital markets opportunistically to help repair their balance sheets. Corporate bond issuance by non-financial companies during 2009 was around $ trillion globally, the highest on record. Manchester United have 10 Cameron, A (1995), “Bank of Scotland 1695-1995”, Mainstream Publishing. 11 Modigliani F and Miller M (1961), “Dividend Policy, Growth and the Valuation of Shares”, Journal of Business, 411–33. | At times in the distant past it has been higher still: the average payout ratio to Bank of Scotland shareholders over the period 1800 to 1995 was around 70%. 10 Second, there is little evidence of payout ratios being higher for financial than for non-financial companies. Such high payouts are themselves something of a puzzle because, at least in theory, the payout ratio ought not to affect the value of a firm. 11 This may be a collective action problem, with firms fearful of sending an adverse market signal through lower payouts. Third, for both financials and non-financial firms, the flow of dividend income is much less volatile than firms’ stream of profits. In other words, there is evidence of firms systematically smoothing dividend payouts to shareholders. 12 This may also reflect a problem of collective action. Fourth, the profits stream of the financial sector is significantly more volatile than for non-financial companies. That appears largely to be the result of large-scale, one-off losses by banks. This is as we would expect, given their greater leverage. Fifth, as a result, the dividend payout ratio for banks is more volatile than for nonbanks. This behaviour is unlikely to support banking stability. It risks profits being distributed as dividends when they are most needed to augment capital ratios and boost confidence. In 1996, the Chief Executive of a famous company observed: “We are an old-fashioned business, not a quoted plc, and we don’t pay dividends to shareholders”. | 1 |
However, during the summer the countries affected have managed relatively well in issuing government bonds, and the banks’ interim reports have been positive. The European Central Bank has been able to reduce both its purchases of government bonds and its lending to the banks. The general picture is, to summarise, that the unease in the financial markets has been subdued during the summer, at the same time as the situation is still not normal. From this international perspective I shall now move on to a national one, and take a look at economic developments in Sweden. Economic developments in Sweden At the beginning of this presentation I summarised the picture of developments in Sweden painted in the Riksbank’s Monetary Policy Report. The Swedish economy is developing strongly following the severe downturn. GDP was expected to grow relatively quickly over the coming years, and the labour market was expected to improve. Inflationary pressures are currently low, but are expected to increase as resource utilisation rises. I will now describe developments in the Swedish economy in a little more detail, and at the same time discuss new information received during the summer. 1 Somewhat simplified, one can say that a CDS is a contract where the buyer pays the seller a premium for the seller to take on the credit risk linked to an underlying asset, such as a bond. The premium then becomes a measure of the credit risk. | An increased credit risk means that it becomes more difficult and more expensive for the banks concerned to fund themselves on the credit markets, which can hold back lending. This also dampens the real economies in the countries concerned. (Figure: CDS premiums for the banks). Reduced concern, but still not normal In an attempt to assess the stability of the banking sector the Committee of European Banking Supervisors, CEBS, carried out stress tests on 91 European banks in July this year. The results of these stress tests have now been published. The assessment is that all but 7 banks have sufficient resilience to manage a worse scenario in the period 2010–2011. The CEBS has here assumed a weaker economic growth, higher interest rates and poorer stock market than in the European Commission’s forecasts, as well as losses linked to the banks’ holdings of European government bonds. The four major Swedish banks included in the survey managed all of the stress tests with a good margin. 2 The results of the stress tests have generally been well-received by the market. However, it should also be pointed out that there has been some criticism, which has concerned the CEBS’ assumptions not being sufficiently tough. Nevertheless, interest rate differentials towards Germany declined after the CEBS reported its results, as did the basis spreads and the CDS premiums for banks in the four countries concerned, although they have risen again in August and the levels remain higher than they were in the spring. | 1 |
Strengthening financial market infrastructures is another important initiative underway to make the financial system more resilient and robust. In this regard, there are two important strands of work underway. First, there is strong momentum both in the United States and abroad to require that standardized OTC derivative products be cleared through central counterparties (CCPs) and that the information associated with all OTC derivatives trades be reported to trade repositories, with this information then being available to regulators around the world. Second, the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commission (IOSCO) are undertaking a review of international standards for financial market infrastructures. This review will lead to a comprehensive set of BIS Review 131/2010 7 recommendations as to what constitutes best practice with respect to the operations of financial market infrastructures. These recommendations will apply to a broad array of financial market infrastructures, including CCPs and trade repositories. The final report will be completed during the first half of 2011. The goal will be to have these standards endorsed by the Financial Stability Board and the G-20 leaders. With those endorsements, it should be possible to harden the recommendations into more substantial standards. In all of the reforms that we are implementing it is important that we pay close attention to the shadow banking system. | It is also my hope that by establishing a robust global regime, we can mitigate the incentives for national regulators and supervisors to impose local rules that make it hard for globally active institutions to manage their operations on a global basis, thereby undermining the global integration of markets that has supported economic globalization. Over the next 12 to 18 months, regulators will be particularly busy in implementing these reform efforts. Broad legal statutes now have to be turned into specific rules and regulations governing business practices, conduct and operations. Doing this well – in particular, in a way that is sufficiently informed, deep and broad – will be very important. Basel III and the 1 Governor Daniel K. Tarullo, Comments on “Regulating the Shadow Banking System”. Brookings Panel on Economic Activity, September 17, 2010. 8 BIS Review 131/2010 Dodd-Frank Act are important markers on this road, but it will always be a journey to a neverreached destination of perfection. Thank you for your kind attention. I would be happy to take a few questions. BIS Review 131/2010 9 | 1 |
– Analysis of the size and depth of capital markets in the EU27”, New financial, September 2019 4/4 BIS central bankers' speeches | Out of that pain and misery emerged a consensus – a hard won consensus – that low and stable inflation was a prerequisite for economic prosperity. More recently, though, there have been some worrying signs that cracks may be appearing in that consensus. A sense that inflation is somehow yesterday’s war. That central banks should focus more on growth. That a period of higher inflation may even aid the recovery. This is dangerous talk. It sometimes feels like we’ve been here before. One of the mistakes made by policymakers in the late 1960s was to allow inflation to get out of control after nearly two decades of price 2 King (1997), “Inflation targeting 5 years on”, speech given at the London School of Economics. 3 King (1997), “Changes in UK monetary policy: Rules and discretion in practice”, Journal of Monetary Economics. 4 George (1999), Annual Cornwall Lecture. BIS central bankers’ speeches 3 stability. As Sir Alec Cairncross, who worked in a host of senior economic roles in the heart of the civil service during this period, put it “...governments in the last years of the 1960s …allowed inflation expectations to develop that proved increasingly difficult to extinguish” (Cairncross 1992). There is little doubt that policymakers of that time had a strong aversion to inflation, but they were complacent about the risks posed by further stimulus. It would be irresponsible to repeat the same mistakes again. How do we ensure that the lessons of yesteryear are not forgotten? | 0 |
As stewards of financial institutions, boards and senior management bear the responsibility of ensuring that regulatory policies translate into operational practices. Rules must be embedded into the day-to-day business and operations that suit an institution’s business environment. Good corporate governance will not emerge from mere compliance with regulatory checklists as each financial institution is different and unique. With careful introspection, each individual institution needs to continuously reflect on whether its governance arrangements, practices and business models are effective and still relevant. In doing so, each institution must continuously assess and take into consideration the nature, scope and scale of its business. In some instances, conventional and proven governance approaches might not work anymore and therefore new thinking and methodologies are required. Real change cannot be dictated by regulation alone. This is neither sustainable nor possible. Instead, principles of good governance need to be deeply woven into the fabric – or DNA – of an organisation. Directors and senior management, as leaders of financial institutions, are in BIS central bankers’ speeches 3 the position to foster a positive organisational culture. The board and senior management should work in harmony to cultivate an environment which appropriately balances between performance and stability. For instance, the structuring of remuneration schemes should reward long-term performance and encourage sound risk-taking. There should always be a balance between financial innovation and excessive risk-taking. While an equilibrium is not easy to attain, it cannot be achieved accidentally. | In such circumstances, we expect the board to provide leadership, guidance and oversight in ensuring that the needs and rights of all parties are adequately and appropriately managed. Thirdly, the implementation of global regulatory reforms will pose further challenges for the industry. While the reforms are well-intended, the complexity and impact of the reforms to business should not be underestimated. Increasingly, there seems to be a trend on the “extraterritorial” application of laws and regulatory requirements, which have implications on other jurisdictions. The extraterritorial effect of such laws may require changes to existing practices and may involve substantial costs in terms of system change and improving monitoring capabilities. At the board and senior management levels, an adequate understanding of the potential impact of these trends and regulatory changes is critical to help the organisation in setting business priorities while ensuring full compliance with emerging regulatory requirements. With much at stake, board members must take seriously their responsibility to drive the corporate governance agenda forward. One important lesson we ought to learn is that weak governance causes the failure of financial institutions. The costs of salvaging a failed institution far outweigh the costs incurred to prevent such a failure. Over the long term, the failure of institutions would also cause businesses and households that depend on financial institutions for funding to be in a difficult position, erode public trust that would take many years to restore and consequently result in more intrusive and prescriptive regulation of the industry. | 1 |
Against this backdrop, the Bank of Albania remains confident that the return of the economy to its potential and the fuller utilisation of production capacities will be accompanied by faster increase in wages and productions costs. Inflation is, therefore, expected to return to the target within 2019. This forecast is conditional to maintaining an accommodative monetary policy stance in the quarters ahead, and takes into account the continuation of the fiscal consolidation process. The continuation of fiscal consolidation has enabled a better transmission of the monetary stimulus to the economy and has helped reducing fiscal weaknesses and increasing the resilience of the public sector against future challenges. The coordination of the monetary policy with the fiscal policy is vital for strengthening the macroeconomic stability and ensuring sustainable growth. We deem that the current macroeconomic policy mix is adequate. On one hand, it maintains a stimulating resultant trend of main economic policies and, on the other hand, it addresses the weaknesses deriving from the relatively high level of public debt. *** Honourable Committee members, In response to your recommendation for on-going improvement of the monetary policy transmission mechanism, let me share with your some obstacles we have identified as well as our matrix with actions for addressing them. 2.2. Monetary policy and its transmission mechanism In our judgment, the pass-through of the monetary policy effect to financial markets and the economy, in other words the transmission mechanism, continues to suffer from three structural obstacles. | We deem that the implemented policies and the undertaken measures have served to promoting monetary and financial stability, by contributing to safeguarding the economic and financial balances, necessary for sustainable economic growth. *** Following, I will briefly summarise the work of the Bank of Albania regarding the promotion and development of the payment system. 4. Functioning of safe and efficient payment systems In the framework of strengthening the payment systems and payment instruments oversight, the Bank of Albania has worked to align the regulatory base to the international standards that guarantee the security and promote the efficiency of payment systems. A huge amount of work has been done to compile the draft-law on Payment Services, which approximates the EU’s Payment Services Directive. The implementation of this directive is expected to considerably contribute to improving the security and efficiency of payment services through promoting competitiveness, strengthening transparency and clearly defining the rights and obligations of these services’ providers and consumers. Also, it addresses the risks arising from technological novelties (Fin-Tech) in payment services. Currently, the Bank of Albania is in the consulting and finalising process of the draft-law. The approval of this draft-law is an important step towards the implementation of the European Commission recommendations for the free movement of capital and for the adherence to the Single Euro Payment Area (SEPA). The Bank of Albania also has the role of payment systems’ reformer. | 1 |
Today, we are in a much better state. We have reopened our borders and business travel has substantially resumed. Global firms are now once again able to build up the necessary staff capacity to meet their expanding business needs. Second, public discussions on growing the Singaporean Core, and some recent changes in work pass policies have also added to concerns about whether Singapore continues to be welcoming to foreigners. As I have said earlier, growing the Singaporean Core is not a zero-sum game with attracting the best of global talents. An internal MAS study shows that there is generally a high degree of complementarity between high-skilled employment pass holders and local professionals in the financial sector. In fact, staying open to global talent has been critical to the growth and success of our financial centre. Our financial sector will not be where it is if we had not been welcoming of talents from around the world. As we become an even more international and sophisticated financial centre pursuing cutting-edge developments in technology and sustainability, it is even more critical that we remain open. The recent changes in employment pass policies will not hinder firms from continuing to have access to the talents that they need for their growth in Singapore. There are no quotas on Employment Pass holders. The purpose of the new Employment Pass Complementary Assessment or COMPASS framework is not to reduce the intake of employment pass holders. | Not only did this reliance on short-term funding create the potential for a firm to fail in an extraordinarily rapid manner when faced with a loss of market confidence, but it also served as a channel through which the effects of those failures were widely propagated throughout the broader financial system. I will focus my brief remarks on describing the structural vulnerabilities associated with shortterm wholesale funding, laying the groundwork for our discussions at today’s workshop. As always, my remarks reflect my own views and not necessarily those of the Federal Reserve System. As this audience knows, in the two decades leading up to the financial crisis, the global financial system underwent a rapid transformation. During this period, there was a shift from bank-based financial intermediation to capital markets-based financial intermediation, and an increase in the scale and complexity of securitization activities. In the pre-crisis period, the growth of securitization was accompanied by an increasing reliance on short-term funds raised in wholesale markets to finance securities and activities essential to securitization. This ranged from the use of repo funding to finance inventories of securities held for market-making purposes to the issuance of asset-backed commercial paper by conduits created to acquire and hold securities. Both demand and supply factors drove the increased use of short-term wholesale finance. On the supply side, the growth of savings from corporations and institutional investors in need of deposit-like products in which to place their cash balances created a plentiful source of funds. | 0 |
Jean-Pierre Roth: Highly leveraged institutions and financial stability – a case for regulation? Address 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 Second Conference on Law and Economics of Risk in Finance, University of St. Gallen, St. Gallen, 29 June 2007. The author thanks Ms Jeanette Henggeler-Müller, Financial Stability Unit of the Swiss National Bank for the first draft of this paper. * * * Highly leveraged institutions (HLIs), or hedge funds, are currently a hot topic. No day passes without a warning about HLIs in the financial press, and HLIs are on the agenda of politicians, supervisors and central bankers in many countries. The German presidency of the EU and the G8 have declared HLIs to be a high priority agenda item. After the collapse of LTCM, the then chairman of the Federal Reserve Bank said that "had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own" 1 . And in the newspaper Bild am Sonntag of 17 April 2005, the German Bundesminister für Arbeit und Soziales accused HLIs of "remaining anonymous, having no face, pouncing on firms like locusts, grazing them and moving on." Why is there such distrust of HLIs? | This requires that creditors and investors receive sufficient and timely information from HLIs and that they act upon this information. It is up to the prime brokers, for instance, to make collateral and margin requirements dependant on the transparency and risk profile of their HLI counterparties. Second, the private and official sector can make a contribution to regulation by developing best practice guidelines – or recommendations – for HLIs and large international banks acting as counterparties. A good example of recommendations for and by the HLI industry are the “Sound Practices for Hedge Fund Managers”, developed by the Managed Fund Association 10 . This is a promising approach, and the Financial Stability Forum (FSF) 11 thus encourages "the global hedge fund industry (to) review and enhance existing sound practice benchmarks for hedge fund managers in the light of expectations for improved practices set out by the official and private sectors". 12 A further private sector initiative, even if it is not focussed specifically on HLIs, is the extensive report of the Counterparty Risk Management Policy Group II 13 with guiding principles on risk management, risk monitoring and enhanced transparency for financial institutions. 8 The President's Working Group on Financial Markets, 1999, page C-12. 9 The President's Working Group on Financial Markets, 1999, page 18. 10 The Managed Fund Association (MFA) is the U.S.-based trade association representing the interests of the alternative investment industry such as hedge funds and fund of funds. | 1 |
Such scenarios are where contingency planning and evidence-led preparation will be most valuable. It’s not our job to assess point estimates of their likelihood – it’s to assess the risks to safety and soundness, and consider how to mitigate them. This is second nature for forward-looking supervisors who are in the business of precautions. The Treasury Committee is also quite rightly taking a close interest in these issues. We are also engaging with financial institutions, trade bodies, the FCA and the government to unpick cross-sectoral problems. The two uppermost in our mind are the need to ensure that existing insurance and derivatives contracts can continue post-Brexit, and that data can be shared within groups across the UK/EU27 border. It would be messy and difficult for all firms to try to self-solve for these risks and I hope that we can find suitable fixes as the Brexit negotiations progress. Most important is some form of transition or implementation period. This will not only help mitigate the Day 1 risks, but will also enable firms to adjust to the new relationship in an orderly way. While it is highly welcome that the UK government is clearly committed to this, the EU’s position on transition is not yet clear – despite some obvious risks to EU financial stability in its absence. If we get to Christmas and the negotiations have not reached any agreement on this topic, diminishing marginal returns will kick in. Firms would start discounting the likelihood of a transition in the central case of their planning. | Extending the logic of domestication Retail deposit-taking is a critical economic function and local supervisors have more levers over subsidiaries than branches. Therefore – consistent with the ICB’s logic – we have preferred for several years that international banks from outside the EEA (known as ‘third countries’) with more than £ of retail and SME FSCS-covered 6 transactional or instant access account balances put them in a subsidiary . There are not many of these: most international banks in retail focus on small expatriate or diaspora communities, or on particular niches in private banking. We expect each of these firms to have a viable and sustainable UK business model which accretes a portion of its own capital, rather than being reliant on its parent, with high standards of risk management and governance. 5 See the PRA Annual Report and Accounts; July 2017 and U.S. Department of the Treasury; A Financial System That Creates Economic Opportunities; June 2017. 6 See SS10/14: Supervising international banks: the PRA’s approach to branch supervision; September 2014. 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 EMBARGO: not for release before 19:30 on Wednesday 4 October 2017 These retail subsidiaries are not as insulated as the financial and operational separation required by the ICB. But with a much lower threshold than the £ billion of core deposits at which ring-fencing kicks in, our policy follows the same logic, proportionately applied. | 1 |
But I feel acutely the loss of working relationships and external stimuli – the chance conversations, listening to very different people with very different lived experiences, the exposure to new ideas and experiences. These losses will grow with time. At some point, they will offset the benefits of avoiding South-West trains. Although it is hard to measure, I feel home-working probably has reduced my capacity for creative thought. No modern-day classic novels lie unfinished in my office drawer – or at least not ones penned by me. And the past six months have certainly depleted my social capital: I do not feel I know anyone at work better than six months ago and most a little less well. Everyone I know would I think say the same. Conclusion Let me conclude. Covid has re-shaped our working lives, our economic contributions and our well-being, certainly in the short-term but probably in the longer-term too. Whether this change is for the better is one of the key questions of our time, as workers, businesses, policymakers and citizens. The evidence so far on these issues cannot at this stage be more than illustrative. There is a balance to be struck between events which distract and events which fire the imagination. For me, the 0-5 model of homeworking strikes this balance in the wrong place, as with hindsight did my pre-pandemic 5-0 model. | Interestingly, the main reason cited is improved staff well-being. Among workers the picture is much the same, with surveys suggesting more than a quarter expect to spend more time home-working after the pandemic has abated. My own experience since March has mirrored trends in the wider economy. I am one of the lucky ones who has been able to work from home, as have virtually all other Bank of England staff. I have been back into the office only twice in the past six months. Full-time home-working has, for me, been a radical shift. For the past 30, my working week has been 5-0, office versus home. Nonetheless, like many others, if you asked me how my future working week might look, I think it unlikely I will revert back to the 5-0 model. 2 APSCo (2020). ONS (2020a). 4 Milasi et al (2020), Mongey et al (2020). 3 3 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 3 The Effects on Productivity and Output Given these shifts, some of which seem likely to prove durable, what impact might they have had on workers’ and businesses’ economic contribution – that is to say, their productivity (the amount done per hour worked) and their overall output (productivity multiplied by working hours)? In short, how has this shift in working practices affected working capacity of the economy? | 1 |
Counterparty credit risk as well as uncertainty about the development of own liquidity needs have led banks to hoard liquidity and impaired the normal functioning of money markets. As a consequence, the liquidity provided to the market does not circulate as smoothly as it does in normal times. Moreover, the nervousness of market players sometimes implies stronger than anticipated interest rate reactions. 5. Conclusion I would like to conclude by saying that monetary policy implementation has certainly become a more challenging task as a result of the current financial turmoil. At the same time, the flexibility of the ECB’s operational framework has very much helped us in coping with the turmoil. The ECB has been able to maintain control over the short end of the money market, though – not surprisingly – our influence on longer maturities, where prices are driven mainly by credit concerns, remained limited. At the ECB we believe that the separation principle, i.e. the separation of liquidity policy measures from any considerations about the monetary policy stance, has served us well. 9 On this subject, see Cassola, N., M. Drehmann, P. Hartmann, M. lo Duca, and M. Scheicher (2008): “A Research perspective on the propagation of the credit market turmoil”, ECB Research Bulletin No. 7, June 2008. 10 This has been modelled formally by Duffie and Lando (2001): “Term structure of credit spreads with incomplete accounting information”, Econometrica 69, pp. 633-664. | Further, I call upon all banks to partner with the Government in alleviating the suffering of our people by contributing to the development of our nation. After all a growing and more developed economy will contribute more to the banking sector and therefore increase more profits. Banks need to seriously engage in activities that will contribute to the environment in which they are benefiting. This can be achieved in many ways including; • By making available more loans that will increase the productivity of our economy; • By encouraging more Zambians to open bank accounts through provision of easily accessible and affordable products and services; • By providing products and services that suit the needs of the various customers across the country and not only those that suit people in Lusaka; • By opening more branches across the country; and • By installing more ATMs All this, Ladies and Gentlemen, will greatly contribute to the emergence of a middle class in Zambia, which will bring real economic development and lead to poverty reduction. I am pleased to note that despite the recent challenges facing the financial sectors in the world, Standard Chartered Bank’s commitment to growth and re-investment is unwavering. The bank continues to be adequately capitalised with its total assets accounting for 14.4% of the banking sector’s total assets while its deposit base remained strong at 16.3% of the total industry deposits. | 0 |
Philipp M Hildebrand: From monetarism to the inflation forecast 30 years of Swiss monetary policy Public lecture by Dr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, at the University of Berne, Berne, 23 November 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * Following the collapse of the Bretton Woods system, the Swiss National Bank, in 1974, was one of the first central banks to adopt a monetary policy with monetary aggregates as intermediate targets. The monetarist phase of the National Bank lasted until 1999. During this phase, the National Bank repeatedly changed its monetary targets. In the course of time, it adopted an increasingly pragmatic monetary policy and paid more attention to the development of the exchange rate. In December 1999, the SNB introduced its current monetary policy concept, which uses an inflation forecast as the basis for monetary policy decisions. On the whole, monetarist ideas had a positive influence on Switzerland’s monetary policy. They brought the realisation that price stability is important, thus furthering the process of disinflation in the 1970s and 1980s. Moreover, monetarism caused the SNB to make its monetary policy more transparent and rule-based. The use of monetary aggregates as intermediate targets, however, was more problematic. With money demand proving to be too instable, simply controlling money supply growth was not sufficient to achieve price stability. | Several companies have applied, and Royal Decrees were issued approving the establishment of 21 insurance companies. Approvals were issued by SAMA for 50 offices to provide insurance related services such as brokerage, loss assessment and insurance consultations. Some offices completed necessary procedures to obtain commercial registrations and others are about to finalize necessary procedures. More licenses are expected to be issued soon. The banking system is also being expanded by allowing foreign banks to open branches in the Kingdom. So far ten licenses have been issued for that purpose to 5 GCC banks and to 5 banks from other countries. All of them have already established their branches in the Kingdom, or are likely to open their branches in the very near future. Also, in March 2006 the Council of Ministers approved the foundation of a Saudi joint-stock company under the name "Alinm'a Bank" with a capital of SR 15 billion to carry out normal banking business and investment. This bank is likely to become operational in the near future. Saudi Arabia has one of the youngest populations in the world. This means that one of the challenges facing the national economy is to continue creating jobs for our young people to enter the labour market. This involves development of education and training to qualify the youth and prepare it to meet the requirements of the labour market. | 0 |
See Kim, D. H. and Wright, J. H. (2005), “An Arbitrage-Free Three-Factor Term Structure Model and the Recent Behavior of Long-Term Yields and Distant-Horizon Forward Rates”, FEDS Working Paper No. 2005-33. 17. See, for example, Bullard, J. (2019), “When Quantitative Tightening Is Not Quantitative Tightening”, The Economy Blog, Federal Reserve Bank of St Louis, 7 March; and Lee Smith, A. and Valcarcel, V., op. cit. For the signalling channel under QE, see Krishnamurthy, A. and Vissing-Jorgensen, A., op. cit. ; and Bauer, M. D. and Rudebusch, G. D. (2014), “The signaling channel for federal reserve bond purchases”, International Journal of Central Banking, September. 18. See also D’Amico, S. and King, T.B. (2013), “Flow and stock effects of large-scale treasury purchases: evidence on the importance of local supply”, Journal of Financial Economics, Vol. 108, Issue 2, pp. 425448. 19. Schnabel, I. (2020), “The ECB’s response to the COVID-19 pandemic”, remarks at a 24-Hour Global Webinar co-organised by the SAFE Policy Center on “The COVID-19 Crisis and Its Aftermath: Corporate Governance Implications and Policy Challenges”, Frankfurt am Main, 16 April; and Motto, R. and Özen, K. (2022), “Market-stabilization QE”, Working Paper Series, No 2640, ECB, February. 20. Prospects of QT may have contributed to the rise in the OIS term premium through the arbitrage relationship with German government bond yields. Expectations of an increase in the net supply of German government bonds could have increased term premia in both the OIS and the Bund markets. | 14, No 5; and Arora, C. and Cerisola, M. (2001), “How Does U.S. Monetary Policy Influence Sovereign Spreads in Emerging Markets?”, IMF Staff Papers, Vol. 48, No 3, pp. 474-498. 25. Gilchrist et al. (2019), “U.S. Monetary Policy and International Bond Markets”, Journal of Money, Credit and Banking, Vol. 51, No S1, pp. 1-200; Motto, R. and Özen, K., op. cit. ; Andrade, S. C. et al. (2023), “Sovereign risk premia and global macroeconomic conditions”, Journal of Financial Economics, Vol. 147, No 1, pp. 172-197; and Eichengreen, B. and Mody, A. (1998), “What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?” NBER Working Paper, No 6408. 26. See, for example, Miranda-Agrippino, S. and Rey, H. (2020), “U.S. monetary policy and the global financial cycle”, The Review of Economic Studies, Vol 87, No 6, pp. 2754-2776; and Gilchrist, S. et al. (2022), “Sovereign risk and financial risk”, Journal of International Economics, Vol. 136. 27. Gilchrist, S. and Zakrajšek, E. (2012), “Credit spreads and business cycle fluctuations”, American Economic Review, 102, No 4, pp. 1692-1720. The excess bond premium has also been shown to be a powerful driver of economic activity. See Gilchrist, S. and Mojon, B. (2016), “Credit risk in the euro area”, The Economic Journal, 128, No 608, pp. 118-158; and Bleaney, M. et al. (2016), “Bond spreads and economic activity in eight European economies”, The Economic Journal, Vol. 126, No 598, pp. 2257-2291. 28. Anderson, G. and Cesa-Bianchi, A. | 1 |
In 1997 and 1998 the economy shifted from an upturn with high growth rates to an expansion with lower growth but low unemployment, labour shortages in many sectors and strong growth in labour costs. Unemployment has increased again since 2001. Capacity utilisation in the mainland economy has fallen again from a high level and is now on a par with the level in the years 1995-1997, before cost inflation accelerated. The output gap has again closed. At the same time, wage growth has dropped to a more sustainable level. However, growth in the economy stalled last winter. It has therefore been appropriate to reduce interest rates markedly. Even though the krone has depreciated this year, competitiveness is still fairly weak. In the period 1996-2003, competitiveness in Norwegian manufacturing has deteriorated by about 13 per cent. The deterioration is solely ascribable to higher growth in labour costs in Norway than among our trading partners. The krone measured in terms of the trade-weighted exchange rate index (TWI) is currently at about the same level as in 1996. Compared with the average for the last 30 years (1970-2003), wage growth has contributed to a deterioration in competitiveness of 15 per cent. In the years around the turn of the millennium, the depreciation of the krone veiled the underlying deterioration in competitiveness. In May 2000, the krone exchange rate reached its lowest level in six years. | The effect of the interest rate differential on the krone has been amplified by developments in international capital markets. Part of the appreciation in 2002 may also be due to higher oil prices. In a highly uncertain situation and with fears of war in Iraq, the Norwegian krone, buoyed by a relatively high interest rate and oil wealth, may have been regarded as an attractive alternative. Investment in NOK may have been considered a good hedge against a downturn in the world economy as a result of fears of war and high oil prices. Since December last year, the interest rate differential between Norway and other countries has narrowed by 2 BIS Review 38/2003 about 3 percentage points. Since the beginning of 2003, the krone measured in terms of the trade-weighted exchange rate index (TWI) has depreciated by 11 per cent. At the beginning of the 1990s, the Norwegian economy was in a deep recession. Production was far below capacity. When growth in the economy picked up, capacity utilisation increased. The output gap shows the difference between actual GDP and the level indicated by trend growth - estimated at close to 2½ per cent in Norway. Around 1996, there was full capacity utilisation, and the output gap, as we normally measure it, closed. Subsequently, costs increased and prices for goods and services produced for the Norwegian market accelerated. The upturn peaked in 1997, with GDP growth approaching 5 per cent. | 1 |
Some background Chart: Oil wealth has brought strong rise in prosperity In order to put the Norwegian economy into some perspective, we can compare Norway with Sweden, our close neighbour and a country with many similar characteristics. The relative income level between the two countries was stable – until 1969, when oil was discovered in the Norwegian part of the North Sea. Since then, Norway’s income has pulled ahead. Chart: Terms of trade and real exchange rate in Norway and other countries Our national income reflects the considerable improvement in Norway’s terms of trade over the past couple of decades compared with other resource-rich countries. Nonetheless, the real exchange rate in Norway has not appreciated as sharply as in these countries. The extraction of oil and natural gas from the sea bed along Norway’s coast has come to play a major role in the economy. The petroleum sector now accounts for 50 percent of our exports and more than 20 percent of GDP. Furthermore, tax payments by oil and gas companies1 and direct government ownership interests in oil and gas fields ensure that economic rent largely accrues to the public sector. Petroleum income makes up 30 percent of government revenues. Chart: Oil and gas exporters 1 Both ordinary income tax and an additional resource rent tax. BIS central bankers’ speeches 1 On the world market, Norway’s most significant role is that of natural gas exporter. Norway was the world’s second largest exporter of natural gas in 20102. | • Thirdly, a fund owned by the government must be highly transparent, not only to the Norwegian public but also in an international context. Let me elaborate on these aspects. In the early summer of 2007, the fund’s strategic equity share was raised from 40 to 60 percent. From summer 2007 to 2009, the fund bought equities worth USD 180 billion in international markets, equivalent to 0.5 percent of all globally listed equities. The largest volume of transactions was carried out in the midst of the financial crisis of 2008 and 2009. The long-term horizon also enables us to invest countercyclically, by rebalancing asset classes: If the equity share increases by more than 4 percentage points from the target weight of 60 percent, we will sell equities and buy bonds. Conversely, if the equity share drops below 56 percent, we will sell bonds and buy equities. The capacity to withstand market turmoil was demonstrated during the financial crisis in 2008 and 2009. For a period of 18 months, the fund’s losses totalled roughly USD 120 billion – more than 25 percent of Norway’s GDP. The losses did not go unnoticed. They led to lively public debate on the fund’s investment strategy. However, the conclusion drawn was that the strategy was robust, and the government remained committed to it.10 Norway would have to accept that the fund’s capital would fluctuate, sometimes dramatically, given the high equity share. Indeed, through 2009 and 2010, not only were those losses reversed, but additional gains were also made. | 1 |
What would happen if the threat of sanctions fails to act as a deterrent? Will the European political system be capable of punishing a member state? BIS Review 14/1997 -4- The main features of the growth and stability pact have been established. It remains to draw up specific rules about, for example, the monitoring of exchange rate stability, the construction of the stability programme and the legal framework. Finally it may be worth mentioning that the monitoring routine and the excessive deficit procedure will be essentially the same for countries outside the euro area, except in one respect - the sanctions. 2. ERM 2 The Dublin meeting also decided that a new exchange rate arrangement, ERM 2, is to be set up as the dominant mechanism for the coordination of monetary policy and other economic policies between the member states in the euro area and those that remain outside. The system will resemble the existing ERM except that this is a multilateral system of rates for conversion between all the member currencies, while in ERM 2 the currencies of nonparticipating countries will be linked directly to the euro. The risk of systemic tensions with ERM 2 will probably be smaller than it has been earlier with ERM because the degree of convergence in the EU area is now greater. Moreover, the band on either side of the central rates will probably be relatively broad. The experience gained in 1992-93 has also resulted in a greater readiness to adjust rates when this is considered necessary. | Mr. Heikensten looks at the consequences for Sweden of joining EMU Speech by the Deputy Governor of the Bank of Sweden, Mr. Lars Heikensten, at the Baker & McKenzie’s EMU seminar held in Stockholm on 5/2/97. First a word of thanks for the invitation to talk with you about Sweden and the European Economic and Monetary Union. Today I have chosen to consider this matter from three angles: general aspects of the issue of Sweden and EMU; the work we did last year in the Union to prepare for EMU; and some consequences of EMU for Sweden’s financial sector. The EU’s preparations for the economic and monetary union are continuing. The member states are doing all they can to fulfil the economic criteria for participation in the euro area. Along with this, intensive political work is being done to remove any remaining obstacles. After the latest meeting of Heads of State or of Government, in Dublin last December, political agreements are in place on, for example, the stability and growth pact and the relationship between the euro and outside currencies. Solutions are still required on a number of important issues. One is how the path into EMU is to be arranged for countries that do not belong to the first group. Then there are many technical details to adjust in the course of the year. But the puzzle’s main pieces are now in place. | 1 |
In the 1960s he became the first player to earn £ per week (roughly £ in today’s terms) in the British game which was then about four times the average male wage. Top Premiership players now earn more than 200 times the average wage. What has changed is the fact that pay is now being set in a world market. We have in the Premiership as in the City some of the best paid people in an international industry which is developing rapidly. We have imported the top of the world earnings scale and at a time when the stretch at the top world wide is increasing very fast. Just as in the Premiership, the stars of the City – the people who have not just the talent but the recent experience and networks to perform at the top level today – can command a high proportion of the returns from being at the hub of the industry. The growth of hedge funds and private equity can be seen in part as a move by the small group who have sufficient expertise in new instruments and markets to take more of the returns on ownership. 5 To sum up so far, internationalisation and technology favour the clustering of financial markets in London so we should expect London to continue to prosper relative to the financial industry worldwide and to the rest of the UK economy. | Large countries have been toughening restrictions on foreign acquisitions and flow of technologies. The US Committee on Foreign Investments objected to a record number of requests by overseas investors in 2017. The EU is planning to implement a screening framework for cross-border acquisitions. US tax reforms may potentially have adverse consequences for international trade and investment flows. The finance ministers of France, Germany, Italy, Spain and the UK have written to the US, warning that some provisions of the US Tax Cuts and Jobs Act may contravene international trade agreements and tax treaties. For example, a 20% excise tax could be imposed on payments an American company makes for buying goods or services from its foreign subsidiary. We will do well not to get complacent about the return of “mama bear” because the underlying causes for populist anger and support for protectionism are deeply rooted. Income inequality in many advanced economies remains wide. According to research by McKinsey, two-thirds of households in the US and Western Europe have experienced stagnating or falling real income between 2005 and 2014. Trade and immigration are the obvious scapegoats for voters frustrated by the stagnation in living standards. The risk remains that some countries may erect trade and investment barriers and others may do so in retaliation. A protectionist spiral will almost certainly derail the growth momentum, not just for 2018 but beyond. “Baby Bear” - Financial Instability And finally, the “baby bear” of financial instability. | 0 |
In this context, the conflicting schools of thought, for example, the Keynesian and monetarists, serve no purpose. Those who did not understand the crisis were those who, in some way or another, were trapped in simplified models without understanding that these models are the starting and not the finishing points of an analytical path aimed at understanding reality. On the one hand, those who have made the neo-Keynesian models extreme, excluding money and the financial markets, have made the search for model elegance an end in itself, without understanding that it does not actually help to explain reality. This may seem absurd nowadays, but at a conference organised by the European Central Bank, in the autumn of 2006, to explain its own monetary policy strategy – a strategy in which money and the financial markets play an important role – the majority of academics, above all on the other side of the Atlantic, played down the usefulness of taking money and financial markets into account in economic models. In the more sophisticated neo-Keynesian models, they managed to completely get rid of money! Consequently, monetary policy could also get rid of money, and focus only on the interest rate as the variable representative of the equilibrium on the money and financial markets. With such models, it was sufficient to align the interest rate with the equilibrium level, or the so-called “neutral” level, in order to ensure a monetary policy in line with the general equilibrium. | However, the point is not to intervene to remedy problems of solvency resulting from wrong decisions regarding investment or resulting from insufficient capital. In this regard, a central bank is not in a position to deal with these problems, nor is it its job to. This is the responsibility of the political authorities. Following the collapse of Lehman Brothers, this has become clear in Europe. Only the heads of state and government, in their meeting in Paris prompted by President Sarkozy, were able to commit public funds to avoid several banks going under. The programme aimed at supporting banks’ capital and at guaranteeing bonds was a government initiative, even if the ECB made a technical contribution. And this is exactly how it should be. If something can be said to have gone wrong, it was with the implementation of the measures, not with the decision itself. The ECB has repeated its invitation to financial institutions many times to make full use of the state measures for increasing capitalisation in the banking system. If this doesn’t happen, there is a risk that the retroactive effect of the current recession on banks’ accounts will cause the banks ultimately to reduce their financing of the real sector, thereby further exacerbating the economic crisis. Evidently, there is not enough incentive for bank shareholders and bank managers to make use of such instruments, the shareholders out of fear that their shares will drop in value, and the managers for fear of operational and pay structure constraints. | 1 |
Migratory problems and those arising from unstoppable urbanisation have also become priorities given their implications for economic, social and environmental development. With all these ingredients, the author’s main line of argument in the book is that globalisation, bound up with intense technological changes and the deregulation of economies, has contributed to generating uneven economic growth, a prevalence of the financial over the real economy, a concentration of market power in major corporations (which has stifled competition) and a deterioration in the environment. These are the “excesses” to which the title of the book refers. And, according to Professor Ontiveros, they must be tackled by reformulating the capitalist system and the multilateral governance framework. With this reformulation, Professor Ontiveros suggests governments and public institutions should play a more active role when regulatorily mitigating market failings and oversee compliance with the rules. In his view, that would also serve to ensure the use and efficient, but fair, distribution of resources along with more inclusive and sustainable growth. 2. Some thoughts I would like to delve now into some of these aspects which, admittedly, are essential for preventing the threats so rightly identified by Professor Ontiveros from materialising. We should not forget that the Bretton Woods Agreements, and the principles of universality and cooperation underpinning them, were the multilateral and cooperative response to the unilateral protectionist measures pursued in the 1930s and which exacerbated a situation of severe economic contraction. | As I recently remarked1, the pillars acting as a basis for 1 See the opening address “Global imbalances and capital flows in the era of new technologies”, at the conference bearing the same name organised by the Banco de España and the Reinventing Bretton Woods Committee. Available at https://www.bde.es/f/webbde/GAP/Secciones/SalaPrensa/IntervencionesPublicas/Gobernador/Arc/Fic/hdc100919.pdf. 2 fundamental institutions for the global economy such as the WTO and the IMF were complemented by certain mechanisms and procedures. The aim thereby was to ensure they fulfilled their mission and to resolve potential conflicts on the basis of the principles of justice and equity for all the participating States. Such arrangements have, for decades, enabled the containment of certain unilateral actions. From my standpoint, and taking stock, the liberalisation of trade and financial exchanges in recent decades under these institutions has made, and continues to make, a net positive contribution to global growth. This has, moreover, helped improve substantially the opportunities for development, especially in the poorest countries, drastically reducing inequality and extreme poverty globally, at least at a pace never previously seen. Accordingly, these principles and institutions are, for me, as necessary today as they were then. However, the world has seen far-reaching change in the past 75 years. Currently, the setting of rapid transformation means some adjustments are needed to update international economic governance. Specifically, one of the key challenges at present is to improve the adaptation of the multilateral rules-based system in force since the Bretton Woods Agreements to the current circumstances and to future challenges. | 1 |
Therefore monetary policy cannot be governed by how one or another interest rate level might feel. To finish where I began: In an experimental world, with many uncertainties, clear game rules are needed so that all parties in the economy can take well-founded decisions on economic transactions. Reliable price stability, in terms of purchasing power, is one such game rule. The alternative, which would lead to inflation developing more unsteadily, would be a poor contribution from monetary policy to Sweden's changeable society. 5 [5] | Third, reduced technology sharing and collaboration will hamper the widespread adoption of best practices, thereby reducing efficiency and increasing costs. Fragmentation in the real economy will also have an impact on capital flows and financial markets. Geoeconomic fragmentation elevates financial market risk and disruption, as capital flows become more regionalised and less global. Consequently, this reduces market liquidity and returns and increases market volatility. The impact of disruptions in cross-border capital flows falls disproportionately on the less developed countries. In short, no country will emerge unscathed with rising geoeconomic fragmentation, with emerging market economies set to bear the brunt of reduced trade and capital mobility. In the last decade, emerging market financial assets benefitted from the rising tide of capital inflows that created a virtuous cycle of capital market reforms, deeper liquidity, and vibrant market development, which in turn drew in more capital inflows. The impact of a slowdown in capital inflows would be felt most acutely in those countries with the least developed capital markets and rely the most on foreign capital, putting them at risk of financial or balance of payments crises. Emerging markets that have already reached a more advanced stage of development, included in global indices, and run healthy external balances may be more resilient. LONG TERM: CLIMATE CHANGE Perhaps the most significant financial risk for investors over the long term is climate change. This risk can materialise in two ways. | 0 |
It accommodated, if not supported, decisions by its members to calibrate policies designed for a more benign external environment than was realistic and therefore encouraged less self-insurance than was necessary to manage safely. And it was drawn too far into a range of efficiency-improving long-term institutional reforms that necessarily diffused attention from critical vulnerabilities. BIS Review 37/2004 3 To some extent, these criticisms suffer the classic failure of claiming that what seems obvious in hindsight was as clear at the time. Many are unfair in the degree of influence they expect the Fund to be able to exert over a reluctant member - recall the constraints I described at the beginning on the Fund’s powers over its members. And many of the criticisms fail to recognize the difficulty of making definitive judgements about the path of policies consistent with sustainability. Yet elements of this general diagnosis of the Fund’s policy advice to emerging market economies have substantial merit. If the Fund is going to contribute to a process of well-targeted reform, particularly in the more vulnerable countries, it probably needs to raise the bar, to increase the level of ambition of its policy recommendations. Greater policy focus is required on the principal sources of near-term vulnerability, ideally without fully eclipsing longer-term institution building and structural reforms important to raising growth potential. A risk-based framework for determining the hierarchy of policy priorities is important. | But I do want to remind ourselves to stay vigilant and ensure that implementation is seen through, as this work has not yet been completed. For example, initial margin requirements on non-cleared derivatives, which guard against the overuse of embedded leverage in derivatives, are still being phased-in in a number of jurisdictions including Hong Kong. At the same time, while derivative transactions that are intended to be cleared has increased five-fold in the past four years in Hong Kong, according to data from our Trade Repository, there is more room for further standardisation. Finally, solutions such as deference mechanisms, which helps eliminate cross-jurisdictional regulatory arbitrage, are still works-in-progress between the HKMA and our overseas counterparts. As we embark on further deepening of the derivatives markets in the Asian region, the high standards set up by regulators and by the industry over the past ten years should be well respected, and strengthened regulations on margins, clearing, and transparency should be taken seriously as safeguards against potential risks. Let me close by saying a few words about our host today. ISDA has been instrumental in promoting standardisation of documentation and practices in derivatives markets. In the process, it has played a key role in navigating the industry through post-crisis reforms. ISDA is and will continue to be an important platform for consensus building and knowledge sharing. I’m certain that ISDA will remain a valuable partner for everyone in Asia as we continue to overcome the challenges I discussed today. I look forward to more fruitful collaboration going forward. | 0 |
This is partly because about 60% of all investment funds fall under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and so face tight leverage constraints. On the other hand, many alternative investment funds do not face any binding restrictions on leverage. Among those alternative funds, we find a tail of highly leveraged bond and hedge funds, which sometimes have a leverage multiplier of more than 30. I urge authorities to use the new data which is available to shed more light on this highly leveraged part of the sector. 5 This may help to better understand some of the lightly regulated and less transparent activities where risks may be building up. For instance, private loan funds may potentially erode credit standards and take on higher credit risk in the current market environment, whereas private equity funds may facilitate excessive leverage in the non-financial sector. Some of these activities may be escaping our attention, as statistics on them are scarce and they are often conducted by funds outside the euro area. Leverage may be building up, for instance, by the use of derivatives or in off-shore centres. Therefore, consistent reporting frameworks have to be developed with a view to gaining a system-wide perspective on evolving risks, also at global level. | As a result, the structure of the euro area financial sector is changing. In 2008, total assets held by investment funds were only 15% of banking sector assets. In 2017, euro area investment fund assets had grown to 42% of total banking sector assets, amounting to EUR 12 trillion. This major growth in relative size is likely to have far-reaching implications for the ability of the financial system to absorb shocks and for the financing of the economy more broadly. On the positive side, an increase in market-based finance through the issuance of debt and equity instruments can help diversify the funding base of the real economy. It also gives investors more choice and enables them to benefit from diversification effects offered by investment products. This holds true for retail and institutional investors alike, as an increasing share of institutional investors are using professional asset management services. The growing share of investors outside the core financial system tends to increase the system’s risk-bearing capacity, as traditional end-investors, typically not leveraged, can absorb any potential losses more smoothly. One should also acknowledge that thanks to significant efforts in the last ten years, investment funds in the EU are subject to an enhanced regulatory framework. | 1 |
But the fact that much of the increase in debt occurred within the financial sector means that the necessary unwinding of balance sheets could and should take place primarily within the financial sector. That is why the Bank of England has been monitoring carefully the lending by banks to the non-financial sector – businesses and households – and why the lending agreements announced yesterday which will be negotiated between Government and individual banks will focus on lending to those sectors. There is scope for a reduction in the leverage of banks without restricting lending to the “real” economy. But to bring that about much of the necessary “netting” of exposures would be cross-border, demonstrating that almost every aspect of the present crisis has an international dimension. What is the appropriate policy response in present circumstances? Some say that because the massive increase in indebtedness contributed to the crisis the right response is to save and repay debt. Others argue that the only way out of our present difficulties is to borrow and spend more. Who is right? Both are – up to a point. We cannot avoid the necessary long-term adjustment. To pretend otherwise would only store up problems for the future. But we can try to slow the pace of the adjustment to domestic demand in order to limit its impact on output and employment. So we need to take actions now that will dampen the adjustment in the short term while recognising that the adjustment will ultimately need to be made. | Some have suggested as a result that Bank Rate be directed not only at meeting the inflation target but also at preventing excessive increases in debt and asset prices. Leaving to one side the feasibility of targeting the latter, the obvious question is how one can meet two objectives with one instrument. The answer of course is by accepting a trade-off between the two objectives. But why should we accept unemployment or high inflation in order to reduce 2 BIS Review 8/2009 financial imbalances? It would be more sensible to use Bank Rate for its traditional task of targeting inflation to maintain a balance between demand and supply in the economy, and to create a new instrument to limit the build up of debt. What is required is an additional policy instrument to stabilise the growth of the financial sector balance sheet. There is an active international debate as to the optimal design of such an instrument, but one way or another it must provide incentives for banks to reduce the volatility of their balance sheet. It is also clear that at the heart of the crisis was the problem identified but not solved at Bretton Woods – the need to impose symmetric obligations on countries that run persistent current account surpluses and not just on countries that run deficits. From that failure stemmed a chain of events, no one of which alone appeared to threaten stability, but which taken together led to the worst financial crisis any of us can recall. | 1 |
But in a situation where we are going to have much longer lives, it is critical that we have the ability to earn a living and to save money over more years, so as to provide security and assurance through our retirement years. 22. It’s true everywhere in the world. Some countries have already recognised it through legislation. Denmark is a good example, of having linked their retirement age and pension age to life expectancy. Sweden intends to follow. Several other countries are considering the same thing. 23. But it is not just about pushing back the retirement age or pension age. It is critical that we make it attractive for older citizens to work. That means not just providing jobs but rearranging the work place so that it becomes part of the culture to have older persons, experienced persons, in the team, in the work place. The culture of the work place has to change and the culture of the consumers has to change in a whole range of industries so as to accept and celebrate the presence of older persons at work. 24. So that’s one important reform over the next 10 to 15 years – enabling older persons to work for longer, it may be full time or part time, but make it attractive to work. 25. The second important reform concerns the financial industry. We have to reduce the costs that ordinary savers face in saving for the retirement. 26. | First, the efforts already made on the fiscal front by euro area countries are already bearing fruit: the primary position of the euro area should be close to balance by the end of 2012, which is a remarkable achievement compared to the other major economic areas (Japan, the United States and the United Kingdom will all run deficits of around 9%, 6% and 5% respectively). At the current juncture, this is clearly an asset for us and an element of confidence both for the markets and economic agents, and needs to be further enhanced. In addition to these efforts at the national level, a stronger framework for common discipline has been put in place, which represents a major step forward towards a more integrated economic union. The legislative package (known as the “six-pack”) which came into force last December considerably reinforces the Stability and Growth Pact: the surveillance powers of the European Commission regarding national budgets have been enhanced, sanctions have become quasi-automatic and the public debt and public spending criteria are being more closely monitored. In addition, the Treaty on Stability, Coordination and Governance puts in place a new “fiscal compact”, notably including the requirement that the annual structural government deficit does not exceed 0.5% of GDP. 2 BIS central bankers’ speeches At current debt levels, economic agents would respond to loose fiscal policy by delaying their own private spending. The financial markets would continue to impose very punitive interest rates on our countries to compensate for the uncertainty surrounding the fiscal outlook. | 0 |
More than one banker and merchant in the City has said to me recently, “I cannot recall a time when credit was more easily available”. How worried should we be? Let me begin with the implications for the stability of markets and institutions before turning to monetary policy. Securitisation is transforming banking from the traditional model in which banks originate and retain credit risk on their balance sheets into a new model in which credit risk is distributed around a much wider range of investors. As a result, risks are no longer so concentrated in a small number of regulated institutions but are spread across the financial system. That is a positive development because it has reduced the market failure associated with traditional banking – the mismatch between illiquid assets and liquid liabilities – that led Henry Thornton and, later, Walter Bagehot to promote the role of the Bank of England as the “lender of last resort” in a financial crisis. But the historical model is only a partial description of banking today. New and ever more complex financial instruments create different risks. Exotic instruments are now issued for which the distribution of returns is considerably more complicated than that on the basic loans underlying them. A standard collateralised debt obligation divides the risk and return of a portfolio of bonds, or credit default swaps, into tranches. But what is known as a CDO-squared instrument invests in tranches of CDOs. | This is an expanded definition to cater for the operational needs of private banks. Once we have defined who qualifies as a “Private Banking Customer”, the next step is to consider specific measures that would help make private banking more “user friendly” without compromising the need to accord appropriate protection to private banking customers. First of all, let’s talk about suitability assessment. The HKMA agrees that private banks need not mechanically match their client’s overall risk tolerance level to product risk level. This is because in private banking, customers often look to their private bankers for investment advice on a continuous basis having regard to the customers’ entire portfolios or balance sheets. This is quite different from the retail end of the market in which one-off sales transactions are common. We therefore consider that suitability assessment for private banking customers can be conducted on a holistic or portfolio basis, taking into account all the relevant circumstances of the customers. For example, as long as the portfolio allocation and the overall risk level agreed with the client is adhered to, a low or medium risk tolerance client buying high risk products that only constitute a minor proportion of his portfolio is not necessarily a “mismatch”. The same principle applies to some other aspects like investment tenor and concentration risk of AUM with any individual private bank because the entire portfolio of the customer will be taken into account. Also, we agree that the documentation of rationale for recommendations need not be on a per transaction basis. | 0 |
All these initiatives, coordinated with other policies, have proven effective. Inflation remains subdued and in check, inflationary expectations are anchored, macroeconomic environment is steady and financial stability is consolidated. Looking ahead, the Bank of Albania holds that the Albanian economy will continue to face the above-cited concerns over 2013 and beyond. Although improving, economic activity is expected to remain below its potential, followed by low inflationary pressures, creating premises for maintaining stimulating monetary conditions in the future. Likewise, our BIS central bankers’ speeches 1 projections suggest that external balances of the economy are expected to improve. On the other hand, slow economic growth rates may generate pressures on debt stability indicators, unless they are identified and taken into consideration in fiscal policy decisions. In Bank of Albania’s view, growth rate recovery will require combining the cyclical stimulus of the economy with structural measures that expand the growth potential. Regarding the cyclical aspect, the Bank of Albania holds that macroeconomic policies are rightfully stimulating. In the absence of space, fiscal policy should continue to be oriented towards long-term stability of debt indicators. The monetary stimulus is expected to be transmitted more completely in the upcoming period. We continue to underline our message that businesses and consumers should have a more realistic approach on sound perspectives for the country’s development as well as revise up their consumption and investment plans. | In the presence of temporary shocks from the supply side, these factors were translated into negative economic growth for the first quarter. According to our estimations, the following months have recorded improved aggregate demand and economic activity, yielding economic growth for 2012. This growth, however, remains relatively low and inadequate to ensure full production capacity utilisation. It has led to low inflationary pressures during 2012 and is reflected in improved external position of the Albanian economy. The banking and financial system remains sound. Banks that operate in Albania are characterised by satisfactory liquidity and capital levels, and fit for financial intermediation. Transaction and risk indicators are also improving, as perceived in the financial markets and, following fluctuation in the first half of the year, interest rates have trended down. Given the above-mentioned circumstances, the monetary policy of the Bank of Albania has been increasingly stimulating. During the past year, we have sequentially eased the monetary conditions; after five consecutive key interest rate cuts, the cost of money in the economy reached its record low. Moreover, through our monetary operations, we have supplied the banking system with the liquidity it needs for smooth operation. Finally, through the review of regulatory norms and application of a prudent supervision of the banking system, we have managed to establish a stable financial environment for the country’s long-term development. Boosted confidence of the public in the banking system was followed by rapid increase of bank deposits, thus reducing reliance on foreign short-term financing. | 1 |
Because the investment with the Fed is riskless, little or no economic capital would be needed to support such arbitrage by banks. In this way, the IOER rate should theoretically form a “floor” beneath short-term interest rates, allowing the Fed to achieve its target for the fed funds rate even with a very high level of reserve balances. In practice, however, many lenders in the U.S. money markets are not banks and so cannot earn IOER. Moreover, from the perspective of a potential lender to a bank, the arbitrage 2 In the five years prior to the crisis, total reserve balances averaged $ billion and excess reserves – balances in excess of those required to satisfy reserve balance requirements – averaged about $ billion. Currently, total reserve balances are about $ trillion, nearly all of which are excess reserves. 3 For discussion of changes in recent years to activity in the fed funds market, see the Liberty Street Economics blog posts, “Who’s Lending in the Fed Funds Market” and “Who’s Borrowing in the Fed Funds Market,” at http://libertystreeteconomics.newyorkfed.org/. 4 The FR 2420 is a transaction-based report that collects daily data on federal funds transactions, Eurodollar transactions, and certificates of deposits from domestically chartered commercial banks and thrifts that have $ billion or more in total assets and from U.S. branches and agencies of foreign banks with total third-party assets of $ million or more. | Finally, allow me to express once again my gratitude to the co-organizers of this event for making the conference possible, and to wish all the participants a very fruitful meeting and a pleasant stay in Madrid. And without further due, let me now introduce our first speaker, Governor Philip Lane. It is a special honor for us to have him here today. He is especially suited to be our first Keynote Speaker in this event because he has a profound knowledge of economy and finance, as a result of his long and prestigious career as an academic, as well as a brilliant policy-maker. His keynote speech today will verse about “Trends and Cycles in Financial Intermediation”. Philip, you have the floor... 10 For more information on the impact of FinTech on the finance industry see Philippon, T., “The FinTech opportunity”, NBER Working Paper, No 22476, 2016; and Huang, Y., Shen, Y. Wang, J. and Guo, F. , “Can the internet revolutionise finance in China?”, in Song, L., Garnaut, R., Fang, C. and Johnston, L. (eds. ), China’s new sources of economic growth: reform, resources, and climate change, Australian National University Press, 2016, pp. 115-138. 6/6 | 0 |
Whatever its starting position the subsequent declines in prices were far more than the domestic industry could bear. Since the mid-1970s domestic output has shrunk by two thirds, domestic employment by 90%. If ever there was a loser from globalisation the UK’s clothing and textile industry would surely qualify as one. 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 Chart 5: Even in nominal terms clothes are Chart 6: Globalisation crushed domestic cheaper than in the 1970s production of clothing and textiles price index, 1975=100 800 Rest of consumption 600 Clothes 400 200 0 1975 1985 1995 2005 2015 Source: ONS Source: ONS What can we say about the balance of these effects? The red line in Chart 7 plots the estimated gains to consumers from lower prices over this period, relative to an assumed “non-globalisation” path of 1¼% per year. As I said above, the actual and more pronounced declines have delivered a real income gain for consumers of around 3%. The blue line plots the estimated loss in labour income in the sector. Because we’ve assumed real prices would continue to fall somewhat, even in the absence of globalisation, the industry would probably have to have slimmed down a bit (falling prices have to be matched by falling average costs). In a plausible scenario, consistent with the assumed 1¼%-per-annum rate of (real) deflation, job numbers would have 3 fallen by around a quarter . | But there’s little doubt that, for the UK’s clothing and textile businesses, globalisation mattered a great deal. And if you’re inclined to view de-industrialisation as a sorry tale, it can only be the sorrier for a sector that played such a prominent part in our history and in the industrial revolution in particular. During the ten years Adam Smith spent writing the Wealth of Nations, and a few miles further south of here, the inventor and entrepreneur Richard Arkwright was awarded patents for his new spinning and carding machines. He opened his famous mill at Cromford in 1776, the same year as the book was published. By 1790 mills using his new machines employed 30,000 people. By the 1820s, Britain was producing half of the global cotton 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 1 textiles . Famously, in his two-sector example of the principle of comparative advantage, Ricardo chose Portuguese wine and “English cloth”. And yet it is still worth bearing in mind Smith and Ricardo’s basic insights. If people can move relatively easily from one job to another, employment needn’t fall in aggregate even if it’s doing so in one particular sector. (Nationally, the rate of employment is significantly higher and the rate of unemployment far lower than in the mid-1970s.) And in the meantime, we have all had the benefit of cheaper clothes. | 1 |
Nevertheless, I cannot leave the topic of the financial system without mentioning the massive overhaul of financial market infrastructure that is currently underway and the germination of ideas in the area of payment intermediation, as the Central Bank is integrally involved with both. The renewal of the most important core infrastructure elements used for decades to operate the financial system began recently. The investment as a whole represents the financial system’s largest IT investment ever undertaken. The overhaul will move us away from “home-grown” solutions to standardised international systems. The systems being renewed are the banks’ internal payment systems, the Central Bank’s interbank payment systems, and the Nasdaq securities depository’s securities settlement system. A variety of benefits accompany new financial market infrastructure, but the implementation process can be risky, partly because the new systems must communicate with the old ones during the transition phase. Supervisory bodies monitor this risk. It is analysed at meetings of the Systemic Risk Committee and is identified as a risk factor in statements issued by the Financial Stability Council. Such a risk materialised to an extent last November and the cooperative forum on operational security of financial market infrastructure that I just mentioned was set up afterwards. In that forum and elsewhere, work will be done to minimise the operational risk accompanying the ongoing renewal process. | Apart from a short period early in this decade, when Iceland was at an entirely different point in the business cycle than it is now, the Central Bank’s interest rates are at their lowest since the early 1990s, when they became an important monetary policy instrument. We must therefore consider realistically whether we can expect further reduction of interest rates without an outright slack in the economy. Developments in Central Bank rates over the coming term will be determined by economic developments, which could be in either direction. When we met a year ago for the Bank’s Annual Meeting, the vast majority of the capital controls had just been lifted. As expected, exchange rate volatility increased afterwards. But that volatility proved temporary, and short-term fluctuations in the exchange rate subsided markedly in the latter half of the year. In recent months, short-term volatility has actually been limited in historical and international context. The Central Bank has not intervened in the foreign exchange market in recent months, supporting the conclusion that this reduced volatility is due to improved balance in capital flows. According to currently available forecasts, GDP growth is set to remain robust and the domestic economy will experience a “soft” landing. The outlook is uncertain, however, and various risks could materialise, not only in Iceland but also abroad, where uncertainty is considerable at present. In addition, it is important that there is considerable scope for interest rates and large foreign exchange reserves to respond to adverse developments. | 1 |
Conclusions In conclusion, if monetary and budget policies appear to be different on the two shores of the Atlantic, and indeed have been in terms of gradualism and activism, the reason does not necessarily lie in differences of conduct on the part of the economic policy authorities, but in differences in the way the economies are structured and in how they function. Let us take a look at the current monetary policy stance in the two economies, where the policy interest rate has been brought to 1% in the US, 350 basis points below the level one year ago, while in the euro area it was reduced to 3.25%, just 75 below the levels of one year ago. Anyone who, in comparing the different stance of monetary policy between the US and the euro area, fails to take into account the differences in economic structure and in the shocks hitting the two economies is making an error of judgment. In particular, the US economy has been hit by a major slump in the real estate market, which in Europe is restricted to only a few countries. The financial crisis, that started on the other side of the Atlantic but it has propagated rapidly on our side, is having a bigger impact on the US banking system’s capability to convey financing to non-financial firms on account of the different financial structure. | There are factories 1/4 BIS central bankers' speeches located in the United States, Switzerland, Germany, Belgium and Spain, and then there are other materials (such as glass for vials, or refrigerators) from all over the globe. The irruption of trade barriers, both for vaccines and some critical medical supplies in the early months of the pandemic, exemplifies the harm a parochial, protectionist view can do to global growth and health. In turn, while global supply chains have drawbacks, including their exposure to foreign shocks, they have proved their robustness during the pandemic. Firms whose production is more integrated into global value chains have performed better and with least disruption to their output. True, the sectors most integrated into the value chains bore the brunt of the initial external shock originating in China. But when the pandemic also hit domestic markets, such sectors clearly performed comparatively better, by accommodating the shocks to the domestic economy.1 What lessons are to be learned? I think a similar approach to that taken after the Global Financial Crisis is warranted. The answer then was not less but more and better integration; deeper, more rules-based, more resilient. So too for the role of value chains after the COVID crisis. Global supply chains have to be tested, as banks were after the crisis with stress tests. And critical supply chains need specific regulation, just like big banks, so vulnerabilities can be detected. | 0 |
It has justifiably become a cornerstone of our global economy, which thrives on openness, including in international financial and banking services. But such openness makes domestic economies more vulnerable as a result of contagion and spillovers from shocks that originate elsewhere – whether from other international economies or global capital markets and the international financial system. In addition, when banking is international, it can generate problems of effective oversight and coordination, and so difficulties in ensuring a full understanding of the risks being run within that sector. To get the benefits of international banking safely, these risks need to be managed. We need to work out how to be better lion tamers to create a safe environment for all. And we should aim to get to the point where we are happy that even in a crisis it is safe to put our heads in the lions’ mouths. Globally, the regulators of financial services activity have been prominent in their response to the crisis. We have sought to improve the resilience of banking, domestically and globally, thereby supporting financial stability. But in pursuing this objective, we need of course to look at the costs as well as the benefits of our approach. We need in particular to ensure that that resilience and stability is not achieved at the expense of what might colloquially be described as the “stability of the graveyard”. | There is sometimes a tendency by the authorities to try to solve all problems by more regulation. It is BIS Review 104/2006 5 true that we could regulate away all the risks in the banking sector – but such regulation would hamper economic development. There must be a balance. Thus for each regulation we introduce we must also conduct a fair analysis of its costs, also non-financial, as well as its benefits, also non-financial. I agree that this is not easy, partly since in most cases you will not find any clearly measurable indicators, but the process of conducting the cost/benefit analysis will in itself help you in your decision. Supervision Good regulation is closely linked to good supervision. Supervisors must be able to build their work on a broad and relevant regulatory framework. Supervisors must also possess the necessary powers and other prerequisites to conduct efficient work. There are at least four important aspects: First, the supervisory authority must have operational independence from industry as well as from politicians. These must not interfere in the operational decisions of the supervisors, e.g. to take remedial measures or to close banks. Such decisions must be taken on purely prudential grounds. Of course, the supervisors are still responsible for their actions and could be criticized afterwards, e.g. in Parliament hearings, but they must be able to perform their operational duties independently. Also the bank, its owners and management should be able to sue the supervisors for malpractice and they may receive compensatory payments. | 0 |
Elvira Nabiullina: Overview of Russia's fiscal and monetary policy Speech by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the panel meeting of the Russian Federation’s Ministry of Finance, Moscow, 20 April 2017. * * * Good afternoon, Mr. Medvedev, and good afternoon to my esteemed colleagues. For us here at the Bank of Russia, the Ministry of Finance is our closest and most important partner. It is not for nothing that we are brought together in a single understanding of fiscal and monetary authority. And of course our measures – monetary policy on the one hand, and fiscal policy on the other – are closely intertwined, and have an influence on one another. We share the responsibility of maintaining economic stability between us. The financial system was the first to take the hit of external shocks experienced two years ago. And since that time we have often needed to make tough, and sometimes unpopular, decisions. In our view, the Ministry of Finance, in making conservative fiscal policy decisions, and in consistently holding the course towards reducing the budget deficit and towards reducing dependence on oil revenues, has made a significant contribution to the preservation of stability and provided support to adaption processes in the economy. Major credit is due to the Ministry of Finance for the fact that the Russian economy now feels more secure and macroeconomic indicators are normal. The current economic situation in general looks very promising. | Even as regional economic integration increases in Asia and other parts of the world, these economies seem a long way from the point where economic, or political conditions, will make a compelling case for monetary integration. In Europe, of course, the political case for monetary integration to a large extent preceded the economic case. And the architects of the European Union integration worked consciously to induce a level of economic integration in Europe that would induce conditions that more closely met the economist's test for an optimal currency area. For most of the emerging markets today, in contrast, the challenge is to establish the conditions that will enable them to live more comfortably in a world where their exchange rates will adjust more freely in response to changing fundamentals. As these economies become more open to capital flows, they will necessarily find it more difficult to occupy the tenuous middle ground with an exchange rate regime that is neither fully fixed nor flexible, but managed in a way that closely tracks the value of the dollar or carefully constrains fluctuations against the dollar. This does not mean that these countries can be indifferent to exchange rate movements or that the exchange rate is irrelevant to the conduct of monetary policy. For many small open emerging economies, price stability and exchange rate stability are obviously intertwined, and a monetary rule that responds effectively to inflation pressure cannot afford to overlook the signals coming from the foreign exchange market. | 0 |
As we move to the next level, ethics and compliance will increasingly become a part of a single program. 2. Ethics and compliance as a tool for on-boarding risk The last 20 years have demonstrated the benefit of ethics and compliance in identifying legal risk and taking operational measures to keep that identified legal risk within the organization’s accepted risk appetite. In most applications, though, compliance has been the vehicle that prompts the organization to reduce risk by constraining activity. In the financial services industry, correspondent banking provides an illustrative case. Correspondent banking is the business of effecting funds transfers for other financial institutions. Because the U.S. dollar is the international medium of exchange, financial institutions throughout the world have a need to effect dollar-denominated transfers of funds. Ethics and compliance professionals in U.S. banks have pointed out that this type of business presents several different legal risks: money laundering, terrorist financing, and sanctions evasion are the most obvious and the most notorious. There is no doubt that these compliance professionals are correct. One consequence of their being right, however, is that U.S. correspondent banks decided to “de-risk”. To execute on the de-risking mandate, many U.S. correspondents stopped providing correspondent banking services to those perceived to present such risk. As a result, certain elements of the global financial services industry now find it increasingly difficult to transact business in dollars. | One related to fear on the part of the chief ethics and compliance officer to engage in action to resolve a conflict with a key business person – a fear of losing one’s job or her place in the corporate hierarchy. The other problem concerned access to the board of directors. It is one thing to go before the board of directors annually to have the compliance program approved. It is quite another to go before the board of directors to do battle with a senior executive who is probably before the board of directors on a regular basis. One possible solution as we move to the next level is to embed ethics and compliance issues in the disciplines that are more typical of governance issues involving the board of directors. These would be issues like strategy, business goals, and risk management, all of which touch ethics and compliance. Another solution would be to create escalation pathways to the board of directors for resolving conflicts between the chief ethics and compliance officer and a senior business leader. Conclusion As I said at the outset, ethics and compliance have come a long way in a very short time. We have learned a great deal during the journey. As I look out over the road ahead, I believe we will continue to make significant progress in business organizations that deliver on their value proposition, not only to shareholders, but to the other constituents that these organizations serve, their customers, employees, and communities. | 1 |
To do so would be a violation of the Treaties. Article 11 of the TFEU provides that environmental protection requirements must be “integrated into the definition and implementation of the Union's policies and activities”. This imposes an obligation on the ECB to take into account and consider the objectives of the Climate Law when performing its tasks. In addition, Article 11 could be understood as supporting measures which incorporate environmental considerations as secondary aims. This means the ECB could rely on Article 11 to support the climate neutrality dimension of measures falling within its monetary policy or supervisory competences. But it does not go so far as to establish an autonomous competence to adopt environmental measures. In addition, under Article 7 of the TFEU, the activities and policies of the ECB need to be consistent with Union law and therefore also with the Climate Law. We have diligently assessed how these provisions of the Treaty, together with the Climate Law, affect our tasks, always being guided by and staying within our mandate. The ECB is not an environmental policy institution. The ECB is a central bank and banking supervisor. As such, let me share with you what we have done to reflect these legal requirements in the common fight against the climate crisis within our mandate. First of all, when defining and implementing monetary policy, we need to take into account environmental protection requirements, such as the climate-neutrality objectives contained in the Climate Law. And that is what we have done. | In the new banking package, the concept of “transition plans” is important. Under Article 76 of the proposed amendments to the Capital Requirements Directive (CRD VI)[13], a bank’s management board is required to monitor and address environmental risks arising in the short, medium and long term. [14] Banks have to make sure that their business model and strategy are not misaligned with the relevant Union policy objectives towards a sustainable economy and they need to manage potential risks from such misalignments. Article 11 TFEU, the requirement to integrate environmental requirements into the policies and activities of the Union, plays a role in supervision. The ECB has a duty to integrate the Climate Law’s neutrality objectives into its supervisory policies and activities. However, we have some discretion as to how we do this. After all, the climate neutrality objective affects the ECB’s mandate in many respects and Article 11 TFEU does not prescribe how the ECB should integrate the environmental requirements. Do not expect us to act to regulate or enforce environmental policies. We will stick to our mandate. Our mandate is to keep under control the risks that banks and the financial system are facing, and in that capacity we have to look closely at the risks that are building up in the banking sector as a consequence of the climate crisis. Lastly, I would like to draw your attention to the work of the Central Banks and Supervisors Network for Greening the Financial System (NGFS). | 1 |
Building on strong foundations: Why central banks bank for each other Remarks given by Andrew Hauser, Executive Director, Banking, Payments and Financial Resilience At the Federal Reserve Bank of New York’s Commemoration of the 100th Anniversary of the Federal Reserve System’s U.S. Dollar Account Services to the Global Official Sector 20 December 2017 I am very grateful to Simon Heywood for his help in preparing these remarks. 1 All speeches are available online at www.bankofengland.co.uk/speeches Introduction 1917 was not a quiet year. In April, the United States joined World War 1. In July, the British royal family changed its name from ‘Saxe-Coburg and Gotha’ to ‘Windsor’. And in Russia, the October Revolution ushered in the most momentous political change of the twentieth century. Against that backdrop, the agreement by the Bank of England and the New York Federal Reserve in Spring 1917 to provide banking services to one another was never going to leave the same historical footprint. But that superficially unremarkable act was actually part of a seminal moment in the development of the international financial system. Those correspondent relationships between central banks, forged at a time of war but replicated widely in the years ahead, would achieve three key things: 1. They gave central banks safe, confidential and reliable access to overseas reserve currencies, assets and payments, and intelligence on the operation of those markets – and in so doing: 2. | That is why it is so important to co-operate, as Strong and Norman clearly recognised at a previous critical switching-point in world affairs. Of course, the concept of co-operation can be pushed too far. During his time in London in 1916, Strong reported an ‘astonishing suggestion’ during a dinner with the British press ‘that the Reserve Bank System was really the Bank of England, and that if we would only promote the right kind of relationship, we ought to be able to consolidate the English and American system, and in some way or other work out a complete cord. This caused some amusement, but was roundly cheered. I did not find the gentlemen present at the dinner particularly well posted in regard to the American financial system.’ I am not so misguided as to repeat that suggestion here today! But I will end with Norman's comment to Strong as they were formulating their principles of central banking in 1921: ‘if ever you should feel downhearted just you remember that, economically speaking, there is only hope through a community of interest and co-operation between all central banks.’ Thank you – and I look forward to sharing the rest of this Commemoration with you. 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 | 1 |
As the fundamental role of the financial system is financial intermediation, or the channelling of funds from those who have a surplus of it to those in need of it, the comparison should usefully be made in respect of the three channels of financial intermediation, namely, that of banking, equity and debt. The total assets of the banking system of Hong Kong are equivalent to 21% of those of the Mainland. You may think that this is not high; but if you put this along with similar comparisons for population, which is only 0.5%, or gross domestic product, which is 8%, you can appreciate the significance of the banking system of Hong Kong in the context of the country as a whole. What is more, the quality of assets in the banking system of Hong Kong is superior and the efficiency in financial intermediation, in mobilising savings in the form of deposits into the hands of borrowers who are credit-worthy, is also a lot higher. Capitalisation of the equity market of Hong Kong is 2.6 times that of the Mainland. The amount of funds raised in the past ten years in Hong Kong, through Initial Public Offerings (IPO) and other fundraising activities, is nine times that on the Mainland. The turnover value in 2005 was about 1.5 times that on the Mainland, and Hong Kong also has an active derivatives market, which traded 25 million contracts in stock futures and options last year. | On top of these, there are the restrictions in the mobility of factors of production, notably labour and capital, with the asymmetry in capital mobility between the Mainland and Hong Kong presenting the most obvious obstacle. These restrictions may well be there for good reasons, but they do not mean that the development of a working relationship that is beneficial to both financial systems and to the country as a whole can just be left to market forces. There is a clear case for the involvement of the authorities responsible for these policy areas. To be sure, there have been notable co-operative efforts between the two financial systems, both between the authorities and between the private sectors of the two financial systems, and these have been quite obvious since the resumption of the exercise of sovereignty. These efforts have arisen simply out of need, particularly where the free play of market forces has been possible, and through the initiatives of the authorities concerned, where a common understanding can be arrived at concerning the common benefits that could flow from the removal of restrictions. But I think it is fair to say that the process has not always been a smooth one. Neither has the outcome been as productive as it could be, at least when assessed, narrowly some say, against the fundamental objective of making the two financial systems work together for their mutual benefits and in the best interests of the one country. | 1 |
Lastly, it introduces a requirement for regulatory capital to be tailored for certain off-balance sheet exposures, particularly liquidity facilities associated with these transactions, which under Basel I were generally exempted of any capital charge. Second, by reinforcing the link between the capital base and the risks actually incurred, Basel II encourages banks to improve their systems for managing these risks as well as their due diligence procedures. Beyond reminding banks of the basic caution required when extending credit, this encouragement is all the more useful in that banks now often play a role in securitisation transactions for which the underlying assets, for example housing loans, may be initiated by unregulated entities, that are not always BIS Review 11/2008 3 accountable for their risk analysis and pricing. In other words, the weaker the discipline surrounding the granting of a loan the stronger banks’ diligence procedures needs to be. Thirdly, Basel II gives banks and supervisors a vital tool, Pillar 2, with which to assess the risk profile of institutions and in particular to take account of certain risks that are sometimes difficult to quantify but whose impact can be great. By way of example, I shall merely mention refinancing risk and reputational risk. Pillar 2 thus enables banks, through the determination of the level of economic capital and supervisors, via for example an increase in capital requirements, to ensure that all of the risks incurred are appropriately covered. | This also means that supervisors should not carry out a mechanical assessment of these risks and their management by banks such as would result for example from the simple observation of a statistical confidence interval. The assessment must be more refined. In addition, Pillar 2 should ultimately serve to improve risk management in the areas that supervisors, at a given moment, deem to be crucial for financial stability, using a forwardlooking approach. Lastly, the recent financial turmoil has highlighted the difficulties and risks associated with the valuation methods used for certain financial instruments, particularly complex structured products but also some products regarded as more straightforward. Indeed, a sometimes very great disparity has been observed between the theoretical valuations derived from models and market values. However, the issue of the accurate estimation of the price of complex transactions has taken on particular importance with the gradual adoption across the board of fair value assessments since the entry into force of the new accounting standards (IFRS). In this respect, it seems necessary to include in risk assessments assumptions of an erosion of liquidity and a rise in volatility as well as, more generally, to ensure that processes for monitoring valuations within banks are strengthened. In particular, it is vital to reinforce critical, independent and regular analysis of valuations obtained for certain complex positions, which appear to have relied too often on external data supplied by external rating agencies or service providers, without real analysis of the characteristics of the underlying and collateral. | 1 |
It was assumed previously that as long as oil is overly volatile, the ruble remains equally as volatile. Yet the volatility of the ruble is lower than that of oil. It will take a further diversification of the economy to enable basic conditions for bringing down volatility. The current developments call for further promotion of forex hedging instruments. We see demand emerging for these instruments, which is why we welcome the initiative of the Government’s Ministry for the Economy for the establishment of a dedicated facility to support businesses in hedging forex risks. QUESTION from TASS Agency: Another question about the ruble and oil, if I may. The Brent crude price has dropped by almost 13% since the start of the year. The ruble has appreciated against the US dollar by roughly 7% in the same period of time. Does the Central Bank monitor the ruble’s dependence on oil? Can you estimate how long this weakening of the ruble’s dependence on oil will last? Thank you. ELVIRA NABIULLINA: Your question clearly demonstrates that the ruble is not only affected by oil. The oil elasticity of the exchange rate depends on seasonal factors, among others. On some occasions we have registered the elasticity ratio at 0.9, it has even reached 1 during short periods. According to our estimates, it now stands at 0.2-0.3. You will see that the movement may even be reversely directed if other, more serious, factors affecting the exchange rate are in place. | Our special focus is currently on information coming in from regions using our network. Leaders of the Bank of Russia’s regional branches are invited to each of our rate-setting meetings. They update us on the situation in their regions; ultimately, our estimates and outlooks are not solely based on the data provided by Rosstat. Rosstat data should indeed be treated as a reliable source of information, considering that alongside authorities virtually all market participants also use them. So, the more trust in Rosstat’s professionalism and independence the better. There are a variety of options on how we may address this. At the end of the day I believe this is up to the Government. I would rather reserve my judgement here. Thank you. QUESTION from Bloomberg: Two questions, again, please. One, following up on the question from my colleague, we heard both the economic development minister and the finance minister mention that the ruble is stronger than its fundamental values. In this connection, what does the Bank of Russia make of this; is the ruble close to its fundamental values, or is it actually stronger? And my second question, which is in some way related to the first. You mentioned that purchases of foreign currency are a possible means to replenish reserves, provided these purchases do not do damage to inflation targets. All indications are, we are on track to meet the 4% inflation target by mid-year. Can the Central Bank launch foreign currency purchases to replenish its reserves? Thank you. ELVIRA NABIULLINA: Thank you. | 1 |
29.05.2018 Testimony of the Governor of the Banco de España before the Senate in relation to the draft State Budget for 2018 Luis M. Linde Governor Ladies and gentlemen, I appear before you today as part of the Senate’s debate and approval process for the State Budget for 2018. Allow me to begin by reviewing the current international economic setting of the Spanish economy and its outlook. I shall then refer to the main aspects of this draft Budget. To conclude, I will mention what, in my opinion, are the main challenges for fiscal policy in Spain in the coming years. The external setting of the Spanish economy The external setting of the Spanish economy broadly remains favourable, although the global economy is subject to factors of risk that should not be ignored. Following several quarters of upward surprises, the opening months of this year have – more so in the euro area – seen some moderation in global economic activity whose scope is still uncertain. Notwithstanding, the information available continues to point to the maintenance of the current upturn over the next two or three years, underpinned by the correction of the previous imbalances, agents’ confidence, the favourable financing conditions and the boost from the expansionary fiscal policies in the United States. On the financial markets, despite the bout of marked volatility last February, asset values remain high by historical standards. | Our institutions – such as the Banque de France’s Lab, its Infrastructure, Innovation and Payments Directorate (DIIP), the ACPR’s Fintech-Innovation Unit, with its ACPR-AMF Fintech Forum – are fully mobilised to facilitate these initiatives and help them grow. Among these initiatives, three in particular are worth highlighting. First, those in the field of instant payments, which open a new chapter in the payments industry. Second, the continuing development of open banking, thanks to the European financial sector’s work on APIs. Last but not least, the European Payments Initiative (EPI) which will provide European citizens with a pan-European solution for everyday payments, via both a payment card and a smartphone, covering all retail use cases. With some major decisions scheduled to be taken this autumn for the actual launch of EPI, I would like to remind you here that the Banque de France fully supports this initiative, alongside the other Eurosystem national central banks and the European Commission. We are counting on you all, as participants in the financial ecosystem, to make this unique opportunity for European payments into a reality. C) We are also actively supporting financial innovation by conducting an ambitious experimentation programme for a central bank digital currency (CBDC) Several central banks have begun working seriously on the idea of issuing a CBDC, if it were to prove necessary, to preserve the anchoring role of central bank money in the digital era. | 0 |
Ardian Fullani: Financial supervision and measures to strengthen financial stability Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the International Conference for the 10th Anniversary of the Central Bank of the Republic of Kosovo, Prishtina, 30 October 2009. * * * Dear Governor Rexhepi, Distinguished ladies and gentlemen, It is a pleasure for me to participate in this Conference which is perfectly organized by the Central Bank of the Republic of Kosovo, and to witness the amazing progress this institution has achieved in such a short but intense period of time. The energy and desire of the local staff to contribute to the history of this institution, has been rightly channeled by the vision and experience of several managing professionals that have given a valuable contribution in chairing this institution in the last years. I am sure this story will continue to be a successful one, based on the commitment of the management of the Central Bank of Kosovo to achieve and comply with the best work organizational and efficiency standards, by pursuing a clear long-term policy of investing in the quality of its personnel, and by supporting actions that contribute to maintaining fruitful inter-institutional cooperation. In addition, I want to thank the organizers for giving me the honor to speak in front of you today, regarding a topic that has become so relevant in the last year, following this unprecedented international financial crisis. | Peter Pang: Islamic capital and money markets Welcoming remarks by Mr Peter Pang, Deputy Chief Executive, Hong Kong Monetary Authority, at the workshop on “Islamic capital and money markets”, Hong Kong, 19 March 2013. * * * Distinguished guests, ladies and gentlemen, 1. It is my great pleasure to welcome you to this Islamic finance workshop. We are particularly grateful to Mr. Mohd. Radzuan, Mr. Azidy and Mr. Azahari, the experts from Malaysia, who have flown all the way to Hong Kong to share with us their knowledge on Islamic capital and money markets and their valuable experience in developing these critical components of Islamic finance. I would also like to thank Mr. Najmuddin of Bank Negara Malaysia for bringing the Malaysian delegation here. Two fast developing asset classes in the global markets 2. This workshop comes at a very opportune time as Hong Kong is looking to develop Islamic finance as a way to diversify our financial platform and further enhance our capability as an international financial centre. In my view, to be a truly international financial centre, one needs to develop a conducive platform for the two fast developing asset classes in the global markets – Islamic financial products and RMB-denominated investment assets. 3. The development of Islamic financial markets has been phenomenal in the past two decades. | 0 |
Athanasios Orphanides: The role of central banks – lessons from the crisis Panel remarks by Mr Athanasios Orphanides, Governor of the Central Bank of Cyprus, at the VIth International Symposium of the Banque de France on “Which regulation for global imbalances?”, Paris, 4 March 2011. * * * The topic of this session is lessons from the crisis, specifically regarding the role of central banks. Let me start with a question: How do we learn in our profession? The answer, I believe, is that our main guide is history. Indeed, one of the many differences between central banking and the natural sciences is that in central banking, unlike the natural sciences, we cannot run controlled experiments to improve our knowledge. As a result of the crisis, we are experiencing a unique natural experiment to draw lessons from. I fully expect this episode, which unfortunately is still mutating and evolving in some areas, to provide material for myriads of PhD theses and other studies for decades to come. What do we mean by “lessons” for the role of central banks? Lessons in the sense of learning things we did not know? Or in the sense of reaffirming things we knew? In my view, we have some of each but, in addition, we have seen an evolution in the consensus views on familiar questions. Let me focus on just a few1. | How activist central banks can be is an issue where there seems to be quite a bit of disagreement so let me be more explicit by using the euro area as an example. Let us take the first ten years of the euro area and look at real-time estimates of the output gap as published by the IMF and by the European Commission (EC). (The information can conveniently be found on their websites.) Both organisations have suggested, virtually every spring since 1999, that the output gap for the year reported would be negative. If we compare these to recent retrospective estimates we observe a significant bias. The bias is mainly due to the fact that the experts are now more pessimistic about what potential output was in the euro area than they were in the past. This is not the experts’ fault. We simply cannot know in real time. And this applies not only to the size of the output gap, but even to its sign. In comparing what the experts tell us now and what they were telling us then, in real time, the sign of the output gap is revealed to be incorrect in more than half of the years in the first decade of the euro area. Consider the year 2006, the year before the financial turmoil began. According to the IMF and the EC, the euro area operated below its potential that year with the gap being around minus 1 percent (see Figure 1). | 1 |
In France, the ACPR is mobilised to support innovation, as demonstrated by the creation of the Fintech Innovation Unit and the Fintech Forum with the French financial markets authority. Within this Fintech Forum, we work closely with other public authorities to promote the development of Fintechs and Insurtechs in France. A year ago, the ACPR authorised the first fully digital insurance company in the health sector, the Insurtech “Alan”. In the case of insurers, the digital revolution starts with a complete overhaul of customer relationships and user habits. But it goes further than that. In the digital revolution, the insurance sector can bring stability and protection – it is this that has always been the raison d’être of insurance. I’d like to underline two topics that I think are essential: cyber-insurance and big data. Coverage against cyber-risk, first, is a very real concern that affects all companies – both small and large – as cyber-attacks are becoming increasingly frequent and costly: in 2016, cyber-attacks were estimated to cost businesses about USD 450 billion a year at the global level, 3/4 BIS central bankers' speeches according to a report by Lloyd’s and Cyence. Despite these threats, the cyber-insurance market is still underdeveloped. Insurers can and should take inspiration from their own experiences in tackling cyber-risk, and use it to develop a more mature European cyber-insurance offering. The second subject I’d like to focus on is personal data and big data. | In line with this principle, the validation of internal models, for instance, should preferably remain the responsibility of the NCA in order to reflect the close link between this decision and the on-going dialogue that takes place between the insurer and its national supervisor; EIOPA for its part could concentrate more efficiently on the essential task of enhancing the harmonisation between national practices. In addition to these desirable adjustments of the European institutional framework, there is a need to make concrete progress towards a European resolution mechanism, which would provide more adequate tools to limit the impact of an insurer failure and increase trust and confidence. France has been working along these lines at national level and such a mechanism will be in place in our country before December. 1 The French resolution insurance regime requires insurers of a certain size to set up preventive recovery plans, which will form the basis for preventive resolution plans. Moreover, the ACPR is entrusted with several powers to be used in a resolution context, such as the possibility of appointing a resolution administrator in the insurance undertaking, limiting the distribution of dividends, or organising portfolio transfers to another insurer. 2. Economic innovation Let me now turn to my second point: economic innovation. As Europe’s economy is close to the “technological frontier”, businesses need to innovate more. As such, they need to be able to take more risks, which requires more equity financing, over the long term, rather than debt financing. | 1 |
To put it in another way, the framework in question is intended to establish a balance between flexibility and safety, gradually easing the burden on employment, increasing the firms’ and workers’ capacity to adopt to changes, increasing the quality of workers that are transferred from the agricultural sector, and developing active labor policies to meet labor market’s needs. In the last part of my presentation, I would like to briefly mention the current account deficit problem. As it is known, in line with the high growth rate, an upward trend is observed in the current account deficit. Today, the primary reason of the current account deficit is that investments grow faster than savings. In 2005, the current account deficit was recorded as USD billion 23.1 billion and the ratio of current account deficit to national income was 6.4 percent. In this ratio, the impact of energy prices, which is composed of the prices of crude oil, natural gas and coal, was 1.4 points and the impact of the rise in crude oil prices alone was 1.1 points. By April 2006, the current account deficit increased to USD 26.8 billion. However, the question is not the level itself but its sustainability. When global trends are analyzed, it is observed that countries, which have succeeded in increasing financial and economic integration and reinforced macroeconomic stability, are able to sustain higher current account deficits compared to the past. | Turkey, being an energy importing country benefited from lower oil prices in many dimensions. The current account deficit fell from $ billion in June 2014 to below $ billion in November 2015 in 12 month rolling terms. This sharp improvement in the current account balances is also greatly helped by prudent macro-economic polices including monetary, macro-prudential and fiscal policies. Tight monetary policy, well-targeted macroprudential measures and strong fiscal balances have all contributed to lower levels of domestic demand by stabilizing loan growth and reducing risk taking behavior. Going forward, the current levels in oil prices and depressed producer prices in most part of the world due to weak economic activity are expected to lead to further improvements in external balances. Therefore, it is highly likely that Turkey will record a current account deficit of below 4 percent of its Gross Domestic Product in 2016, representing a major achievement in satisfying the norm of the European Union’s Macroeconomic Imbalances Procedure. Unlike these positive developments in the economy, inflation increased and its outlook worsened in 2015 reflecting the pass-through from the TL depreciation, elevated food inflation, and markedly increased minimum wages. These factors together with some deterioration in inflation expectations led the MPC to revise its inflation forecasts for 2016 and 2017 up to 7.5 percent and 6 percent respectively and postpone the projected realization year of the 5% target to 2018. Going ahead, we see there are three potential developments which would improve the inflation outlook a great deal. | 0 |
This gives me reason to underscore the worrying signs that I perceive, especially at an opportunity like this, when I before you in the Riksdag Committee on Finance speak about how I see monetary policy and the Swedish economy in the future. This does not mean, however, that I am going to embark on a discussion of different concrete solutions to the problems. I don't believe that this is a natural task for us at the Riksbank. Over the last ten years, the task of monetary policy has been to safeguard price stability, that is to say, a low and stable inflation rate. This has worked fairly well; inflation has been largely in line with our target. In turn, this has contributed to relatively good economic growth, in clear contrast to the 1970s and 1980s. However, this is not enough. No matter how well stabilisation policy functions, it does not provide higher long-term economic growth. In reality, growth potential and thereby our welfare is determined by how much we work and how productive we are. Nothing can change this. The amount that we work depends on many different factors, for instance, how many people are of working age, how many of theses are employed, absenteeism, etc. Labour productivity, measured as GDP per hour worked, depends partly on the level of education and on technological progress or the prevailing conditions for businesses and investment. To this can be added productivity changes resulting from the labour force moving over from less productive to more productive sectors. | Through these changes, the New York Fed is seeking to expand and diversify the pool of firms eligible to apply for primary dealer status, while also recognizing that a certain scale of activity is needed in order to be able to meet the many business obligations to which primary dealers must commit, in supporting the operations of the Federal Reserve and the Treasury. These changes offer the opportunity to increase capacity and further support competitive pricing for the Fed’s open market operations. Going forward, the New York Fed will periodically review its counterparty policy. Turning to monetary policy, at the conclusion of its September policy meeting, the Federal Open Market Committee (FOMC) announced that it would begin to reduce the size of the Federal Reserve’s securities portfolio.2 Over the past month, the Fed took the first steps in a multiyear effort to bring the Federal Reserve’s balance sheet to its longer-run size, by not reinvesting a portion of the securities repayments it received. In the remainder of my prepared remarks today, I will offer my views on this policy from a financial markets perspective, drawing on a fuller set of remarks I delivered last month, which can be found on the New York Fed’s website.3 1/7 BIS central bankers' speeches The message I’d like to leave you with today is one of confidence. | 0 |
Today, the Single Supervisory Mechanism is the largest banking supervisor globally and successfully contributes to shaping the international supervisory framework. Since the global financial and euro area debt crises, however, the euro’s international role seems to have gradually eroded. While its importance as the currency of invoice for international trade transactions has remained broadly stable, its role in global foreign reserves and global debt markets has declined. This decline is a symptom of the fault lines in EMU exposed by the crises. Concerns about the resilience of the EMU architecture and about financial fragmentation underpinned this erosion. Indeed, stability, financial depth and liquidity are among the key determinants of an international currency. European policymakers are now paying closer attention and various calls have been made in recent months for the euro to assume a stronger international role. The Euro Summit of 2/4 BIS central bankers' speeches December 2018 encouraged work to be taken forward to this end. The international role of the euro is supported by the pursuit of sound economic policies in the euro area and a deeper and more complete EMU. And this requires further efforts along the path of deeper integration. Completing the Economic and Monetary Union The past 20 years have revealed beyond doubt how challenging ensuring economic prosperity and stability can be. This was true both inside and outside the euro area. Nonetheless, these years also demonstrated that such a shared challenge is best faced collectively. | Many more would follow and you effectively ensured that the ECB would be accountable and therefore could legitimately be independent in carrying out its monetary policy. But I am also grateful for the support that this Committee always expressed for the actions of the ECB, a sincere support because it built on the voice of European citizens and an important support that helped the ECB through the many difficult times of the past years. As co-legislators your role was also essential in delivering reforms that further strengthened our Union. This Committee, and the European Parliament more generally, has been in my experience an attentive interpreter of the demands of European citizens. It is only by doing so that the trust in the legitimacy of the EU’s institutions and policies is built, making it possible to achieve a more effective and inclusive Union. As I have argued elsewhere, citizens demand, and Parliament may help in achieving, a “more perfect Union”. A Union that will continue providing its citizens with physical and economic security, while also promoting the values of an open, democratic and peaceful society. Thank you for your attention. I am now at your disposal for questions. 1 See Speech by Mario Draghi, President of the European Central Bank, at the plenary debate of the European Parliament on the ECB’s Annual Report 2017, Strasbourg, 15 January 2019. | 1 |
Since 15 January, we have repeatedly and thoroughly explained our reasons for discontinuing the minimum exchange rate and introducing negative interest on sight deposits at the SNB. Upholding the minimum exchange rate was no longer sustainable given the changes taking place in the international arena and the sharply diverging monetary policy stances of the world’s major currency blocks. In formulating our monetary policy, we are confronted with an exceptionally complex situation on international financial markets. What is more, the global economy is still grappling with the after-effects of the financial and economic crisis, not least in the form of high levels of uncertainty. These are the realities that the SNB – and the Swiss economy – are facing. Turning a blind eye is not an option. In this environment, we were aware that the discontinuation of the minimum exchange rate would cause Switzerland’s economy to slow. While the data from the first quarter confirm that this slowing process is now underway, the country’s economic development since 15 January has been broadly in line with our expectations. Our monetary policy is geared towards this challenging set of circumstances and is currently guided by our willingness to take an active role in the foreign exchange market and apply negative interest rates. This two-pronged approach is designed to weaken the Swiss franc. The SNB’s interventions in the foreign exchange market, which feed more liquidity into the banking system, reinforce the effect of both of these measures. | My colleague, Fritz Zurbrügg, will provide further details on interest rate developments on the money and capital markets. Despite the low interest rates, mortgage growth has continued to weaken slightly in recent months. Notwithstanding this, imbalances on the mortgage and real estate markets remain high. My colleague, Jean-Pierre Danthine, will discuss this in greater depth in his remarks. 1 2 In October 2014, Consensus Economics projected inflation expectations of 1.4% for the period 2020–2024; in April 2015, it put these at 1.5% for the period 2021–2025. Long-term inflation expectations are only surveyed on a half-yearly basis. BIS central bankers’ speeches In light of the uncertainty regarding the future of Greece, the Swiss franc continues to serve as a safe haven currency. In trade-weighted terms, the Swiss franc is still approximately 12% higher than it was at the beginning of the year. Over time, negative interest rates on the Swiss money and capital markets should help to correct the overvaluation of the Swiss franc. The rise in long-term interest rates abroad has also led to a widening of the interest rate differential with these countries of late. As conditions continue to normalise on international financial markets, investments in other currencies should become more attractive; this, in turn, is likely to help ease the overvaluation of the Swiss franc. The slowdown we are now observing in the economy also suggests that the Swiss franc is very unlikely to remain persistently high. Monetary policy outlook I shall now move on to our monetary policy. | 1 |
All the models the Riksbank has used suggest that the real exchange rate will appreciate in the coming years. So to that extent the conclusion is clear. But the size of the calculated appreciation varies a good deal; in our calculations it ranges from a few per cent up to 10 per cent from the current level. Given the reasonable assessment that the level of inflation will be much the same in Sweden and the euro area in the years ahead, this real range implies an interval for the nominal SEK/EUR rate that extends from approximately 8.20 to a little more than 9 kronor. Take the next few years into account as well The assessment of the real exchange rate in the longer run is thus an important component when considering an appropriate central rate. It is a matter of arriving at a rate that results in a balanced economic development in the long term. But it is not just the long term that is relevant here. In practice it is highly important that the chosen rate is perceived by the market as credible in the shorter run, too. That is a prerequisite for a stable development during the period in ERM2. That in turn presupposes, for example, that the rate functions properly in relation to the prevailing level of economic activity, the current fiscal policy and so on. The underlying inflationary tendencies that are discernible in labour costs, for instance, also play a part. | The prices of those assets fell, and markets closed for a range of complex credit instruments. As I said two years ago, “risk premia have become unusually compressed and the expansion of money and credit may have encouraged investors to take on more risk than hitherto without demanding a higher return. It is questionable whether such behaviour can persist”. And, as we have seen, it hasn’t. The re-pricing of risk that is still continuing is not a process that we should try to reverse. Adjustment to this has been painful for banks in the major financial centres in two ways. First, with some asset markets closed, banks found funding more difficult. Some needed to finance loans they had made but had then expected to package up and sell. Others needed to finance off-balance sheet investment vehicles that were no longer able to fund themselves. At the outset of the crisis, banks were concerned to protect their liquidity position. But increasingly, attention has turned to a second, more fundamental concern. As a range of asset prices fell, banks began to report large losses. Uncertainty about the scale and location of losses led to concerns about the adequacy of bank capital and hence the ability of the banking system to finance continued economic expansion. At the end of last year, sentiment in financial markets worsened markedly. So in mid-December, central banks around the world announced a co-ordinated set of actions in money markets. | 0 |
The introduction of a European Scientific Advisory Board on Climate Change promotes the idea that all policies should be based on up-to-date scientific insights. It is hard to overstate the importance of the Climate Law. The EU is setting the bar high. Allow me to quote what the law says about the transition to climate neutrality. It “requires changes across the entire policy spectrum and a collective effort of all sectors of the economy and society […] all relevant Union legislation and policies need to be consistent with, and contribute to, the fulfilment of the climate-neutrality objective while respecting a level playing field”[4]. We are starting to see this happen. From housing to energy and from transport to finance, the EU is introducing reforms to put Europe on track to become the first climate-neutral continent by 2050. So how will the Climate Law affect the ECB? For me, as a member of the ECB’s Executive Board and the ViceChair of its Supervisory Board, this question is relevant to both our monetary policy and banking supervision tasks. This question matters because, in the field of the environment, the ECB is a policy taker, not a policymaker. So what does the ECB need to take from the policy and objectives reflected in the Climate Law? To answer this, we first need to consider whether the ECB is bound by the Climate Law. If so, the ECB would have to take measures towards achieving the climate-neutrality objective. There is more, though. | SPEECH The European Climate Law and the European Central Bank Keynote speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, Lustrum Symposium organised by Dutch Financial Law Association Amsterdam, 1 December 2022 I am honoured to speak at this 20th anniversary dinner, with so many distinguished lawyers around me. In this setting, I feel quite comfortable dwelling on legal issues for a while. A topic close to my heart – apart from the law – is the ongoing climate and environmental crises. I am glad that we have long since moved on from the time when only scientists and activists were concerned with this topic. It is now high on policymakers’ agendas, as we saw at the recent United Nations Conference of Parties (COP27) at Sharm el-Sheikh, at which – along with world leaders and a wide range of policymakers and interest groups – the ECB was also represented. I was struck by one story in particular. [1] The tiny Pacific nation of Vanuatu is badly exposed to cyclones and rising sea levels. To the inhabitants of Vanuatu, climate change is a human rights issue. And, as Vanuatu’s president, Nikenike Vurobaravu, stated, “we are measuring climate change not in degrees of Celsius or tonnes of carbon, but in human lives.” Vanuatu now plans to ask the UN General Assembly to seek an opinion from the International Court of Justice on the human rights implications of the climate crisis. | 1 |
Replenishing their inventories, companies substantially increased their demand for commodities worldwide. Russia is a major producer of key commodities. High demand for Russian exports spurs economic growth this year. As companies complete their inventories, the effect of this factor will be tapering off gradually. The growth of oil export quantities will also be supported by the easing of the OPEC+ oil production cuts in response to the recovery of demand. Taking this into consideration, we have raised the oil price path in our forecast by 5 US dollars per barrel in the next three years. According to our preliminary estimates, the expansion of oil output under the new OPEC+ agreements will add about 0.1 pp to GDP growth this year and 0.2–0.3 pp next year. Another important growth driver is domestic demand, including both consumer and investment demand. Considering these trends, we have revised our economic growth forecast for this year upwards from 3–4% to 4–4.5%. After the recovery, the economy will expand at a pace close to its potential. We forecast that GDP will equal 2–3% in the next two years. The possibility to achieve higher economic growth rates will depend both on the expansion of production and logistics capacities and on labour resources, their expertise and performance. T hird. Monetary conditions have been progressively adjusting to the earlier increases in the key rate, but are still accommodative. | Likewise, instead of preventing institutions from taking risks, we must encourage them to better identify, monitor, and control the risks they take. Constant vigilance will help institutions to monitor their own status, and pre-empt any deterioration before damage is done, either to the institution or worse to the financial system as a whole. At the same time, MAS must continue to balance its natural inclination to regulate or supervise away what is new and strange and therefore risky, with the need to encourage the financial sector to be more dynamic and innovative. Nowadays when presented with new and ingenious schemes dreamt up by investment bankers, my first reaction is often to ask whether it may be too clever to be sound. Such scepticism on the part of financial supervisors is natural and healthy, but it should not deter innovation or become our dominant mindset. More broadly, because of the emergence of global financial conglomerates and the trend towards increasing risk transfers across financial industries, regulators need a holistic understanding of what and where potential vulnerabilities are, and how exogenous shocks might impact and permeate through the financial system. MAS must therefore enhance its capabilities in integrated supervision and financial surveillance. This is more critical as Singapore becomes more closely integrated into the global economy. 6 BIS Review 62/2002 We are also conducting our monetary policy in an environment of increased market uncertainty. Our exchange rate policy band should certainly be supported by sound fiscal and macroeconomic fundamentals. | 0 |
Of course, we should also support projects that foster excellence and value added in our work by not only harnessing all talent, but also by including environmental and social risks in our vision as a central bank. 8 I am personally championing the analysis of environmental risk and sustainability at my organisation. Like the promotion of equality, this is an unquestionably innovative project that requires empathy and a long-term vision. Undoubtedly, it also requires an unprejudiced ear and a very open mind to achieve patient learning and progress. Both topics are of great significance to society and may encounter resistance at first, often out of ignorance. Hence the importance of bringing together as many people as possible to address these challenges and, of course, of good communication to help raise awareness. Does my gender have a hand in this? I’m not sure, because the Banco de España’s commitment is unanimous. That said, this is perhaps a topic where women demonstrate greater awareness. Indeed, it was a woman, the biologist Rachel Carson, who is said to have sparked the modern environmental movement. She sounded the first scientific alarm about the death of the planet at the hands of human activity. It is also true that in Europe the European Commission and the ECB are leading the charge against climate change. Both institutions are led by women. Furthermore, according to a survey conducted by the Elcano Institute, women are more environmentally conscious. | The entrance of new, large emerging economies into the world trading system has strongly influenced relative prices and the prospects for nominal stability. The potential labour supply available for the global economy has doubled 7 and increased relative to the supply of capital. Wage shares have fallen and profit shares have risen, both globally and in Norway. Firms in high-cost countries increasingly offshore activities to low-cost countries. Imports of goods in industrialised countries have shifted from high-cost to low-cost countries. Furthermore, the collapse of the Soviet Union and the accession of Central and East European countries to the European Union have played a significant role for the labour market in Europe. Labour migration has increased. Off-shoring and outsourcing – or merely the threat of it – may have, at least temporarily, reduced the bargaining power of trade unions and employees. Increased competition, both in product and labour markets, has probably motivated productivityenhancing measures. Productivity growth has been unusually high. 5 John Gieve (2006): “Practical Issues in Preparing for Cross-Border Financial Crises”, at the Financial Stability Forum Workshop: “Planning and Communication for Financial Crises and Business Continuity Incidents”, 13 November. 6 Financial Times January 16 2008. 7 See Richard Freeman (2006) “Labour Market Imbalances: Shortages, or Surpluses, or Fish Stories?” presented at the Federal Reserve Bank of Boston’s Economic Conference, June. 4 BIS Review 14/2008 Lower import prices, intensified competition and high productivity growth have been important disinflationary forces both in Norway and elsewhere. | 0 |
Discontinuation of the minimum exchange rate The minimum exchange rate has undoubtedly served Switzerland well during an exceptional period. However, the old adage popular among economists – “there’s no such thing as a free lunch” – holds true for monetary policy as well. The SNB Governing Board was well aware that the introduction of a minimum exchange rate would entail certain risks – and we consistently alluded to these. That the SNB would have to make large foreign currency purchases and expand its currency reserves in order to enforce the minimum exchange rate was thus to be expected. The SNB must be willing to bear these risks if doing so is necessary for the fulfilment of its legal mandate, and if these risks are justified given the chances of success. We enforced the minimum exchange rate consistently for more than three years (6 September 2011 to 15 January 2015). At the peak of the euro crisis in 2012, the SNB had to purchase CHF 188 billion of foreign currency. Adding this to purchases from prior years reveals that the SNB’s currency reserves rose from CHF 50.5 billion in 2007 to 1 In August 2011, the SNB announced that it would very significantly increase the supply of liquidity to the Swiss franc money market by expanding banks’ sight deposits at the SNB from CHF 30 billion to CHF 80 billion within a few days. | 2 BIS 2013 Triennial Central Bank Survey. The Triennial Survey is coordinated by the BIS under the auspices of the Markets Committee (for the foreign exchange part) and the Committee on the Global Financial System (for the interest rate derivatives part). The latest survey of turnover took place in April 2013. Central banks and other authorities in fifty-three jurisdictions participated in the 2013 survey. They collected data from about 1,300 banks and other dealers in their jurisdictions and reported national aggregates to the BIS, which then calculated global aggregates. The survey, among other things, provides data on turnover, instruments, counterparties, and currencies, which are referenced in this speech; http://www.bis.org/publ/rpfx13fx.pdf. 3 SIFMA US Bond Market Trading Volume; http://www.sifma.org/research/statistics.aspx. 2 BIS central bankers’ speeches Changes to market structure The foreign exchange market is a dynamic market with a long history of change and innovation. Today, I would like to focus on two of the more significant recent changes in the market’s structure: first, the broadening of participation, and second, how execution is taking place within the market. Participation in the FX market The broadening of participation in the foreign exchange market is one reason why growth in FX trading volumes has far outpaced growth in global trade. The BIS Triennial Survey on foreign exchange market activity provides evidence of the degree to which this expanded participation is taking place. 4 Traditionally, volumes in the foreign exchange market were dominated by what is known as the inter-dealer market – trading between dealers. | 0 |
This could be part of a European Monetary Fund, provided that its scope of action is extended beyond the current European Stability Mechanism. - A micro accelerator: i.e. a Financing Union for Investment and Innovation. The aim is to mobilise the EUR 350 billion savings surplus of the euro area, notably to shore up equity which is the key to an innovation economy, and also to foster synergies, thanks to an integrated steering mechanism, between the Juncker investment Plan, the Capital Markets Union and Banking Union. - A fiscal accelerator, once we have increased trust between Member States and made headway towards greater economic convergence: the euro area budget could be used to Page 6 sur 6 finance, for the benefit of all countries, certain “European common goods” such as digital technology, energy transition, security, and migration controls. - An institutional accelerator: The fourth is not an accelerator in substance, but rather a “facilitator” for the first three. In terms of institutions, we would need first and foremost a euro area Finance Minister, President of the Eurogroup and member of the Commission, backed by a European Treasury; but also a euro area Parliament group, in order to ensure the democratic legitimacy of the institutions and decisions. But it only makes sense if we make progress on the substance: if not, it would be little more than mere window dressing. The latter two accelerators, fiscal and institutional, would require Treaty changes, unless they were to be very limited. | I will not elaborate on Asia, but on Europe, and the European Monetary and Economic Union. ** I. The need for active multilateralism to face our global challenges. Let me start with my first point: the need for active multilateralism to face our global challenges. We have to strive to maintain the collective rules of the game, at international level and with all our partners. In the current context, international cooperation between countries is more important than ever: it is essential to preserving the improvement in the global economic environment. The global recovery has indeed been gathering pace since 2016: according to the latest IMF forecast, global growth should stand at 3.6% in 2017, after 3.2% in 2016, while in Japan real GDP growth should pick up to 1.5% in 2017 after 1.0% in 2016. Moreover, growth in the euro area should reach at least 2.2% this year, reflecting a strong economic recovery. However, there are two major risks threatening growth: financial instability and protectionism. Regarding financial instability, the continued rise in global public and private debt since the start of the 2000s – from 190% of global GDP in 2001 to 230% in 2016 [slide] – has become a subject of concern. The 2008 crisis stemmed from this, but this trend has unfortunately not slowed down since; the private debt in emerging countries (namely corporate debt) has risen particularly rapidly. | 1 |
In a Taylor Rule, the nominal federal funds rate depends on the equilibrium or neutral real short-term rate of interest, the deviation of the level of economic activity from estimates of the level of activity that would be consistent with long-run price stability, and the deviation of inflation from the central bank’s target.5 The Taylor Rule formulation has a number of characteristics that make it a useful input into the policy-setting process. First, it very explicitly focuses on the two parameters – the long-term inflation objective and the level of potential output consistent with that objective – that map directly to the Federal Reserve’s dual mandate objectives. Second, standard Taylor Rules are self-equilibrating. They respond to economic shocks and forecast errors in a way that pushes the economy back toward the central bank’s objectives. Third, academic research shows that Taylor-type rules typically perform quite well across a wide range of economic models. This is important because we want rules that are robust; that is, not overly sensitive to model-specific assumptions about how the economy performs or how households and businesses alter their expectations and behavior in response to changes in monetary policy. Fourth, with respect to the United States, the most popular versions of the Taylor Rule approximate how policy has evolved since the late 1980s – a period in which the Federal Reserve has been successful in keeping inflation in check (Figure 1). | Legal considerations and possible challenges A digital euro would raise legal, technological and policy questions that we need to address. 2/4 BIS central bankers' speeches Let me start with the legal basis. Today, only euro banknotes and coins are legal tender under EU primary law. This means they can be used to pay anywhere in the euro area.12 Therefore, a key issue discussed in the report is the importance for a digital euro to have legal tender status. Indeed, central bank money is a public good. Euro banknotes fulfil the core function of providing people with risk-free central bank money. It is crucial to ensure that, as a form of public money, a digital euro enjoys universal reach and acceptance, as the legal tender status provides. The introduction of a digital euro also raises technical challenges. Some are related to information technology and cyber risks, which will need to be managed effectively. Others are related to design choices. In this respect, we can leverage the experience gained in past projects that have put us at the frontier of payments.13 Finally, the design of a digital euro would have to be consistent with key policy objectives. In particular, its design should address the possibility that investors could rapidly move significant amounts of bank deposits into a digital euro, with potential adverse effects on the banking sector and financial stability. We are exploring design strategies to address this and other challenges, and we will assess them in depth. | 0 |
“Modified Jackson-Hole consensus” The first view is in principle based on the same monetary policy strategy as I have described earlier and called the standard prior to the crisis, but with a few small additions. Smets calls this view a “modified Jackson-Hole consensus”. According to this view, there is indeed a need to prevent financial imbalances, that is, it is not enough to wait until afterwards and deal with the problems caused by the imbalances. But the preventive work should be entirely done by macroprudential policy, while monetary policy should have the same role as before.7 The monetary policy strategy as such thus does not need to be changed very much. The most common argument in favour of this view, according to Smets, is that monetary policy is a blunt instrument and has limited effects on the financial risks one wishes to counteract. The macroprudential policy tools, on the other hand, are regarded as much more effective for this purpose. The interaction between macroprudential policy and monetary policy can thus be kept to a minimum, and it is perfectly simple to keep the objectives and tools separate from one another. “Leaning against the wind vindicated” Characteristic of the second view is that one is more doubtful that macroprudential policy will always manage to prevent financial imbalances on its own. It could, for instance, be because the macroprudential policy tools are not as effective in practice as many people believe and hope. If this were the case, macroprudential policy would need support. | See, for instance, Brunnermeier and Sannikov (2013). BIS central bankers’ speeches 3 I think that the division into these three main views provides a good reflection of the current debate. But there are of course no sharp dividing lines between them, rather the dividing lines are relatively fluid. And where one finds oneself on the scale ultimately depends on which argument or arguments one allocates the greatest significance. It will probably come as no surprise to those of you who follow the monetary policy debate in Sweden that I myself have great sympathy for the principle that monetary policy needs to support macroprudential policy. I would therefore place myself fairly close to the second view in Smets’ description. So what has led me to this view? Allow me to begin by giving my interpretation of what a monetary policy that leans against the wind entails. What does it mean that monetary policy leans against the wind? There are different ways of illustrating how and why financial imbalances and risks should be included in the monetary policy deliberations. Essentially it is a question of avoiding scenarios where the imbalances will lead to very negative effects on GDP, unemployment and inflation. So in principle it is a question, as usual in monetary policy, of stabilising inflation and the real economy. | 1 |
The alternative to the e-krona, increased regulation, could be difficult and expensive One conceivable alternative to the introduction of an e-krona would be for central government to intervene with increased regulation of the payment market to ensure safeguard objectives that private agents may not see as important but which are important for society. These include objectives such as general accessibility, resilience and innovative capacity. However, achieving both efficiency and security via regulation on a market like the payment market may be complicated. Allow me to explain why. In general, we usually consider competition to be good for achieving cost-effectiveness and innovation on a market. However, this does not apply to all types of market. In economics, we talk about ‘natural monopolies’. These arise on markets where major investments in infrastructure are needed and where the cost of serving an additional customer is low. A common example of such a market is the water system, where large investments are needed to lay water pipes and extend sewage systems. It would not be efficient to have two different companies digging up the streets and competing to supply water. In addition, once a system is in place, it is difficult for a competitor to enter the market and thus a monopoly arises. 12 See, for example, Tobin, J. (1985). ”Financial innovation and deregulation in perspective”. Keynote paper presented at Bank of Japan and BIS, CPSS (2003) “The role of central bank money in payment systems”. 13 Arvidsson, N., Hedman, J. and Segendorf, B. | (2018) ”När slutar svenska handlare acceptera kontanter?” (When will Swedish retailers stop accepting cash?) Swedish Retail and Wholesale Council research report, 2018:1. 5 [8] On the payment market, we have what is basically a similar situation, requiring major investments in IT infrastructure, which easily leads to a monopoly situation with one dominant company. So far, however, cash has always been available as an alternative that restricts the monopoly’s chances of exploiting its power. 14 Often it is central government that is responsible for production on markets with natural monopolies, but a private company can also have a monopoly at the same time as the state intervenes and regulates prices. 15 If the company were allowed to set the price itself, excess profits would arise, in addition to which quantities of the product would be too small and/or the quality too poor, as in all monopoly situations. On the payment market, there are also economic advantages in the participants using the same infrastructure. For the consumer, it is convenient if the same solution works everywhere the consumer makes a payment. We would prefer not to need one card for each shop, another for parking, using public transport and so on. This means that so-called network effects arise, as the more people who join the same system, the better it is for everybody in the system. However, this also means that it is difficult to set up normal competition on the market. | 1 |
Not only are government finances in considerably better condition than they were earlier (in fact, Sweden is one of the relatively few EU countries, which, according to the EU Commission can be expected to have a budget deficit in 1997 that complies with Maastricht targets with a margin), but also Sweden has a large current account surplus and the inflation forecasts are positive. Despite that, the krona has depreciated by 6 to 7 per cent in effective terms since October last year. How should monetary policy handle such a situation? We can use ‘open-mouth operations’ and inform the markets and other players of our assessment of what has been happening. Maybe this can influence developments in some measure. If the krona’s downward trend cannot be stopped, it will eventually have an effect on demand -- something the Riksbank has to take into account when the instrumental rates are decided. Accordingly, a depreciating exchange rate is an important factor that can affect the estimate of future inflation and thus the direction of monetary policy. Target Variable To conclude, I intend to discuss a few issues that have to do with the design and interpretation of the price stability objective. The line of argument I am going to take can hardly be perceived as controversial. Even with the general support for a price stability objective that has been achieved, a number of questions of a more practical nature concerning how monetary policy should be implemented remain. | The synchronized recession which ensued has made it even more urgent not only to ensure that our financial systems are resilient and able to absorb external shocks but that sufficient attention and resources are also available for achieving the financial inclusion agenda. We are now entering a period of improved international economic and financial conditions. However, even in times of economic stability, financial inclusion is a demanding endeavour. Firstly, the outreach needs to be comprehensive to include the low income and underserved segments, given that that they are generally geographically dispersed and have low levels of financial literacy. Secondly, micro finance institutions need to generate sufficient sustainable returns to cover the high costs involved in providing such services and the lack of potential for economies of scale so as to remain viable. Thirdly, such financial institutions also face the challenges of obtaining sustainable and competitive funding. Recognising the challenges in addressing these issues to achieve financial inclusion, this programme, which started more than two years ago, is an outcome of a proposal I made at the Langkawi Commonwealth Partnership for Technology Management (CPTM) Heads of Government meeting in 2007, which discussed the subject of poverty eradication through human capital development. The purpose of the Financial Inclusion Advisers programme was to provide practitioners and regulators in the area of financial inclusion with practical ideas via the sharing of knowledge and experiences on developing institutional structures, creating an enabling environment and enhancing financial literacy. | 0 |
We are responsive to the feedback in these consultations, and use it to inform our policy decisions, to ensure they remain proportionate, reflecting the nature of the diverse UK banking sector to which they apply. This includes subjecting our policies to ex-post review to check they remain fit for purpose. As part of our ongoing development, we are working on revising expectations on Operational Continuity in Resolution requirements, incorporating lessons since the initial policy was published in 201610. We are currently reviewing comments from industry and other stakeholders on our proposals communicated last year.11 See Sam Woods’ ‘Strong and Simple’ speech Our initial policy is here: Ensuring Operational Continuity in Resolution 11 Updates to the policy are here: Operational Continuity in Resolution: Updates to the Policy, 9 10 5 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 5 Ensuring sufficient financial resources to support an orderly resolution is another core element of our resolution regime. And again we have coupled this with an appropriately flexible and proportionate approach, through our policy on MREL, the ‘minimum requirement for own funds and eligible liabilities’. 12 MREL represents a requirement for banks to maintain resources which can be ‘bailed in’ or otherwise be exposed to loss if they fail13. | This will lead to increasing the confidence in the financial system. The Basel Committee on Banking Supervision and the Board for International Accounting Standards have already undertaken certain activities. • The regulation on determining and measuring banks' solvency deserves special attention. The appropriate level of capital is the main anchor for a stable banking system. When this issue is discussed internationally, primarily a reference is made to the New Capital Accord, the so-called BASEL II. It is being criticized even before its full implementation and therefore it is inappropriate to refer to it as one of the reasons for the current crisis. However, it is important to mention that draft amendments have already been prepared as a response to the new developments. Those are, inter alia, the following: - Improvement of the manner of covering the risks arising from the use of structural financial products. - Changes in determining the capital necessary for covering the risks from banks' trading portfolio, especially of those instruments characterized with lower liquidity on the market. - Measures for reducing the effects from the economic cycles on the level of the capital requirement. The purpose is: to allocate more reserves in periods of expansion in order to provide sufficient capital for covering the losses in times of crisis. This is Spanish experience, known as "dynamic provisioning". - Expanding of the type of data which the banks will be obliged to disclose. | 0 |
But it’s one that has gained colour from the debate about derivatives. An oddly polarised debate. Overstating it somewhat: in one corner, a group contending that derivatives bring tangible benefits to civilisation. In the other, a group arguing that they have within them the seeds of severe disorder. Unsurprisingly, my take is that the truth lies somewhere in between. It is nicely illustrated by the quite extraordinary development of the credit derivatives market over the past five years or so.2 Dispersion of risk, and the price of risk Credit derivatives plainly have been used as an effective risk management tool by a number of banks and others. Contrary to some suggestions, the acid test is not especially whether banks, individually or in aggregate, have been net sellers of credit risk. Individual banks have been able to reduce concentrated loan exposures to single corporates, industries or countries. As the Telecom episode reminded everyone just a few years ago, that is really important, if elementary. Individual banks have also been able to increase their exposure to borrowers with which they do not have a lending relationship. (Indeed, some commentators suggest that it may sometimes be more effective for second-tier and smaller banks to take corporate credit exposure via the derivatives market than via participation in the lower tiers of loan syndicates.) | The emerging economies will be the key drivers of economic transformation over the next decades, both within and across borders resulting in a more integrated global economy. It is therefore imperative that efforts are increased in ensuring collaboration and sharing of experience for the common good. The Langkawi International Dialogue continues to be an important platform for such exchanges and it is a great honour for me to have this opportunity to be here today. Thank You. 4 BIS central bankers’ speeches | 0 |
All in all, the introduction of the euro has been a very positive development for the international monetary system in general, and for Switzerland in particular. We benefit from the greater transparency offered by the euro and the lower transaction costs made possible by its creation. Perhaps for the first time in history, we are surrounded by an area that shares the same monetary policy objectives as we do, namely price stability. This explains to a large extent why the Swiss franc/euro exchange rate has been relatively stable over the past five years. But the presence of a single European currency has per se also shielded third currencies - like the Swiss franc - from too much volatility in the case of dollar turbulence. At the same time, we keep the trump card of an independent monetary policy that enables us to respond very rapidly to the specific needs of the Swiss economy. Between 2001 and 2003, we have thus lowered interest rates more quickly and more decisively than the ECB. Once economic activity showed signs of recovery, we were able to gradually shift to a less expansionary stance, again well 4 BIS Review 72/2004 before any similar move by the ECB. With inflation around the one percent mark, we enjoy price stability and our interest rates lie clearly below corresponding rates in the eurozone. Thanks to enhanced stability in Europe with the introduction of the euro, a two headed international monetary system is good news for small countries. | BIS central bankers’ speeches 5 For example, to cool Singapore’s property market, we imposed multiple measures to target different aspects of systemic risk. • Tighter LTV ratios on borrowers with multiple housing loans served to moderate credit-fuelled investor demand. • Caps on housing loan tenures served to curtail the phenomenon of those who stretched out their loans in order to meet the tighter LTV ratios. • Transaction taxes in the form of stamp duties served to constrain demand from investors who did not take loans to buy properties a. Stamp duties on sellers helped to deter speculators who resell their properties shortly after purchase. b. Stamp duties on buyers helped to curb investor demand by raising the hurdle rate. • Such a multi-dimensional approach required close co-ordination among the Monetary Authority of Singapore, the Ministry of Finance, and the Ministry of National Development. So, where does all this leave monetary policy? • To the extent that strengthened microprudential policies coupled with the newly developed macroprudential policies can adequately address the problem of financial stability, monetary policy is freed to focus on price stability. • We are back in the Tinbergen world. • Or are we? Monetary and macroprudential policies: working hand-in-hand? If only our job were that simple. Macroprudential policies are still in the experimental stage: • Its transmission mechanisms are not well understood. • Its collateral effects and potential distortions have not been studied in depth. | 0 |
One goal is to create a fast, robust, and secure software development lifecycle that stays current by design (perhaps enabled through the agile development methodology and cloud platforms). And, approaches like red-teaming, threat hunting, and external benchmarking can provide insight into cyber resilience strengths and areas to improve.17 On the people side, does the current organizational culture help people successfully adapt to rapidly changing environment? Do staff have the skills that are needed to achieve organizational objectives today and in the future? These are important questions to explore and potential priority areas to address if there are mismatches. Final Thoughts I'd like to wrap up with a bit of realism followed by optimism. Here's the realism: while we might prefer never to be surprised, we will be. The optimism is: effective risk management can help us be less surprised and respond better when we are. And, a strong risk management ecosystem will be self-sustaining because it generates demonstrable value – that is, practical and timely By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. solutions to material problems – to help our organizations succeed in all environments. 1 I would like to thank Greg Gaskel, John Reda, Dubra Shenker, David Stein, and other colleagues at the Federal Reserve Bank of New York for their feedback. | 2 See, for example, the concepts of Safety I and Safety II in Eric Hollnagel, Jorg Leonhard, Tony Licu, and Steven Shorrock, 2015, "From Safety I to Safety II: A Whitepaper," Eurocontrol. 3 Scott D. Sagan, The Limits of Safety: Organizations, Accidents, and Nuclear Weapons, 1993, Princeton University Press. 4 Basel Committee on Banking Supervision, "Principles for Operational Resilience,” March 2021. Joshua Rosenberg, "Thrive in any Environment: Strengthening Resilience through Risk Management," November 2019. 5 Quote Investigator, “Culture Eats Strategy for Breakfast,” May 2017. 6 Financial Stability Board, “Guidance on Supervisory Interaction with Financial Institutions on Risk Culture: A Framework for Assessing Risk Culture,” 2014. The Institute of Risk Management, “Risk Culture Resources for Practitioners,” 2012. 7 These are adapted from safety culture concepts in, 1997, Ashgate Publishing. See also, GAIN Working Group E, "A Roadmap to a Just Culture: Enhancing the Safety Environment," September 2004. 8 Risks highlighted include information and cyber security risks, physical and psychological health risks, technology risks and dependencies. See, Consultative Group on Risk Management, Bank for International Settlements Representative Office of the Americas, “Business Continuity Planning at Central Banks During and After the Pandemic,” April 2022. 9 Chair Jerome H. Powell, “Coronavirus and CARES Act,” Federal Reserve Board of Governors, June 2020. 10 Federal Reserve Bank of New York Economic Policy Review, Special Issue: Policy Actions in Response to the COVID-19 Pandemic, June 2022. 11 Daleep Singh, “The Fed’s Emergency Facilities: Usage, Impact, and Early Lessons,” July 2020. | 1 |
It would appear that easy money can reduce the growth capacity in an economy. A comparison of economic developments in Norway and the other Nordic countries in recent years may also be a source of concern. Their business sector now seems to have a stronger growth capacity than our own. There are three pitfalls that must be avoided. First, in countries with substantial revenues from natural resources, growth conditions for the internationally exposed sector may become less favourable. The exposure of large parts of the economy to intense foreign competition provides a breeding ground for learning, innovation and development. Competitive pressures in sheltered sectors, such as internal trade and public enterprises, are normally more limited. In my view, it is essential to maintain a broad exposed sector in the mainland economy, primarily because of the effect this has on the growth capacity of the economy. Second, substantial petroleum wealth can weaken financial discipline in enterprises that are financed or assume that they can be financed by the public sector. If enterprises assume that the central government will provide support, resources may be squandered and the risk of substantial losses may be given little emphasis. The organisation of public enterprises is thus important. The central government’s financial responsibility for individual enterprises and for other levels of public administration must be delimited in a credible manner. Third, petroleum production generates a profit in excess of a normal return, ie economic rent. As economic rent accrues to the state, the central government is now accumulating substantial capital. | A key event is the Raffles Seminar, organised by the Lee Kuan Yew School of Public Policy. It will gather leading thinkers to debate the issues and challenges countries face in achieving and sustaining good governance. 36. S2006 will require close collaboration between MAS, other government agencies and the private sector, in particular, our banks. Some of you are already working with the organising committee. I would like to thank you for your support. Together, we can make S2006 a success for Singapore. Conclusion 37. Let me conclude. Winston Churchill said: "The optimist sees opportunity in every danger. The pessimist sees danger in every opportunity." We should be shrewd optimists - bold but not reckless, cautious but not timid. 38. For we are living in exciting times in Asia. The economic centre of gravity is shifting from West to East. This could be Asia's Century. No doubt there are serious challenges. But I believe if we are innovative, realistic and skilful, we can overcome them. And together ride the Asian wave to prosperity. Thank you. 4 BIS Review 83/2005 | 0 |
Reducing the European economy’s vulnerability to future shocks will also call for continuing progress towards a full Banking Union and a Capital Markets Union. The necessary support of the European Central Bank On this occasion, and unlike previous crises, the approval of the European recovery fund will prevent the European response to the crisis in the euro area from resting exclusively on the common monetary policy. The European Central Bank (ECB) has deployed a range of emergency measures during this crisis. These have involved, first, the extension of sovereign and corporate bond purchases in the euro area, with the aim of improving financing conditions. Specifically, the ECB has increased its pre-existing purchase programme and added a new emergency programme currently worth € trillion (11.3% of euro area GDP in 2019) and which will last, at least, until June 2021. One new feature is the fact that asset purchases under the new programme are being made with a high degree of flexibility regarding their distribution over time and across asset classes, and, in the specific case of public asset purchases, also as regards the issuing countries. As a result, the Eurosystem is focusing its purchases there where they are most needed at each point in time. The aim is to ensure the smooth transition of the single monetary policy to all countries in the area and to head off the risks of financial fragmentation. | The case of Citibank which is on the verge of selling Salomon Smith Barney illustrates this trend. As far as governance and risk management are concerned, major improvements are needed, and I think, are on their way. It is certainly true that regulation needs adjustments and that a more macro-financial angle is requested in order to avoid, for example, procyclicality. However, the first responsibility lies with financial institutions themselves that did not develop enough scrutiny in risks analysis, were too much focused on short terms profits, did not integrate the cost of risks premium and liquidity, and in some circumstances, did not fully understand the likely financial consequences of their behaviour. Therefore, strong improvement is needed in terms of risk management and governance at the highest level of financial institutions. In terms of disclosure and communication policy, the crisis showed the importance of transparency. Financial institutions made a lot of efforts in this respect in recent months. They should continue to do so. Authorities will monitor progress on that matter. Public and private strategic improvements will help overcome the financial crisis. Beyond that, there is a growing consensus around the need for a fundamental review of the BIS Review 9/2009 3 foundations of financial regulation. Heads of States of the G20 have mandated changes in that matter and set principles to that purpose. The crisis has also rekindled concerns about the structure of supervision. | 0 |
At the same time, economic activity continues to benefit from the reopening of the economy (which is underpinning spending on services, in particular in the tourism sector), a strong labour market, the support of the savings built up by households during the pandemic and fiscal policy support both at the national and European level thanks to the implementation of NGEU-funded projects. Against this backdrop, the Eurosystem projections published in June envisaged real GDP growth of 2.8% in 2022 (albeit with 2 percentage points (pp) relating to carry-over from 2021) and 2.1% in both 2023 and 2024. These projections represented a further downward revision. For instance, compared with the December 2021 projections, the GDP growth forecasts for 2022 and 2023 were down by 1.4 pp and 0.8 pp, respectively. Meanwhile, last week saw the publication of the ECB Survey of Professional Forecasters (SPF) for the third quarter of 2022, conducted in early July. The results show a fresh downward revision of real GDP growth expectations from the second quarter, down to 2.8% for 2022 and to 1.5% for 2023 (down 0.8 pp on the previous survey), followed by 1.8% for 2024. | While I commend the significant development of the SEG forum in the 19 years since its inception, I know we can do so much more to leverage on the experience of each member country here. There is definitely a role for SEACEN that goes beyond equipping member countries with the necessary skills to manage capital flows. For instance, SEACEN can provide thought leadership on the need for small open economies to have a broad policy toolkit in preserving monetary and financial stability in the face of volatile capital flows. SEACEN can take a leading role in intellectually challenging the prevailing view that capital flow measures should only be considered as a last resort. There is no monopoly on good policies and Asia has plenty to offer. SEACEN can lead the way. On this note, I look forward to an engaging and fruitful discussion among members in our sessions today. I believe the forum will be thought provoking, with important learning points that 2/3 BIS central bankers' speeches will help us better weather the new waves of challenges ahead. Thank you. 1 Terms of Reference of the SEG. 2 Jon Kabat-Zinn (1994), Wherever You Go, There You Are. New York: Hyperion. 3/3 BIS central bankers' speeches | 0 |
Muhammad bin Ibrahim: Role and opportunities of the financial system in supporting green technology Welcoming remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at the Green Technology Financing Bankers’ Conference, hosted by the Central Bank of Malaysia and the Institute of Bankers Malaysia (IBBM), Kuala Lumpur, 2 October 2012. * * * Ladies and gentlemen, distinguished guests, Introduction I am pleased to welcome you today to the Green Technology Financing Conference jointly hosted by Bank Negara Malaysia and the Institute of Bankers Malaysia (IBBM). This conference is timely and provides the industry with valuable opportunities to stay abreast with key developments in green technology financing and discuss transformative solutions to grow this new era of financing in a sustainable manner. My remarks today will hence focus on how the financial system can play a catalysing role in the development of a vibrant and dynamic green technology financing ecosystem, and to continuously support the needs of the economy in becoming a high value added high income economy by 2020. The world’s ecosystem is experiencing growing risks of climate change, resource depletion and environment degradation which have far reaching and irreversible ramifications for societies and economies. In the past 100 years, the global temperature has risen by 0.74°C as carbon dioxide intensity has increased largely due to increasing use of fossil fuels. More than 80% of our energy needs are currently derived from fossil fuels, exerting a huge burden on this non-renewable resource. | 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 |
The focus on strengthening the ability of consumers and businesses to use financial services confidently and effectively must therefore be an important part of any effort to promote financial inclusion, to make a real difference to people’s lives including the two billion adults globally, who still do not have access to financial services. The role of financial inclusion in supporting sustainable economic growth is particularly important now, given the global economic landscape where countries continue to search for an engine of balanced, sustainable and long-term growth. Financial inclusion provides low-income households with equal opportunities to save and invest securely, borrow for productive activities and buffer against unforeseen shocks. The utilisation of relevant financial services improves households’ income and empowers them to attain healthcare, education and social mobility, effectively reducing social and economic inequality. Research (IMF) has shown that countries with lower inequality tend to have higher and more durable growth. There is also evidence that access to credit spurs entrepreneurship and job creation, and improves the economic well-being of households. Inculcating financial capability and discipline so that all segments of society have the ability to make sound decisions regarding saving, use of credit, investment for education and retirement, and protection against adverse events is one fundamental way to raise financial well-being for all. Financial literacy becomes even more important for those who are financially less privileged. For households with limited resources, it becomes vital for them to manage the finances even more effectively to attain financial security and improve economic well-being. | 2 As for the household sector, even though the level of debt had risen somewhat in the recent years, approximately 85% of GDP last year, the decelerating growth provides us a relief. The transparent and prudent macroeconomic policy frameworks, used for both fiscal and monetary policy, also command trust from investors and the public. For these reasons, the reputable credit agencies have still reaffirmed their positive assessment of the Thai economy. Indeed, the recent economic conditions have underscored the importance of preserving sound macroeconomic fundamentals in order to create resilience in the face of unexpected shocks. Domestically, the recent economic slowdown has put some small businesses and indebted households under financial strains. Loan quality has deteriorated somewhat, with NPL increasing slightly as a result, but these risks have been contained to specific sectors. The banking system and corporate sector remain strong and have coped with the slowdown well, owing to their improved risk management policies. Externally, like many emerging markets, Thailand faced a couple episodes of capital flow volatility in recent years. The economy, however, has withstood these challenges reasonably well. For instance, during the “Taper Tantrum” in May 2013 and our own political unrest towards the end of 2013, Thai baht had swung by more than 10 percent in a year, fluctuating from 30 baht per US dollar to 28 and back to close to 33 baht. Despite this volatility, market reactions (in terms of outflows) have been relatively dampened. | 0 |
In addition, we increased our international commitments to the IMF and concluded swap agreements with the central banks of Iceland, Latvia and Estonia so as to be able to give them loans in foreign currency if necessary. The Swedish banks also borrowed significant amounts in foreign currency from other central banks and made great use of the government borrowing guarantee. To manage the situation, we were forced to rapidly establish a swap agreement with the US central bank (the Fed), which gave us the possibility of borrowing USD 30 billion. The Fed concluded similar agreements with several other central banks as it had an interest in ensuring that the European banking system did not collapse as a result of a shortage of dollars. We also concluded a swap agreement with the ECB, which gave us the possibility of borrowing EUR 10 billion.13 In addition, we also ensured that it would be possible to borrow from the Bank for International Settlements (BIS). The agreement with the Fed has now expired and it is not likely that we would be able to conclude a similar agreement in the event of a new crisis, among other reasons because the Fed has received criticism at home for its support to the European banking system. The question of a suitable size for the foreign currency reserve led to some long discussions among the Executive Board. It was not easy to calculate how large the foreign currency reserve should be, and different Executive Board members had differing views on the matter. | It was used to borrow a smaller sum in conjunction with the Riksbank’s swap agreement with Latvia. 14 In its recently concluded mission, the IMF concluded that the foreign currency reserve is sufficient to meet risks, but this assessment should be reviewed on an ongoing basis with reference to developments in the euro area. BIS central bankers’ speeches 13 the banks’ market funding in foreign currency could possibly get the banks to reduce this, thereby reducing the need for a large foreign currency reserve and thus fund the costs to society of the foreign currency reserve.15 However, such charges do not exist at present and the effects of any charges are not clear. Conclusion About a week ago, we published our first Financial Stability Report for the year. In this, we report that the Swedish banks’ resilience towards shocks has continued to improve over the last six months. However, in large parts of the world, the recovery from the financial crisis has proceeded slowly and the financial markets are still marked by great uncertainty. This uncertainty is primarily linked to the fiscal problems in Europe. The issues I have addressed today are not issues that have much to do with the current situation. Instead, they are a few opinions on how the regulations for the financial sector should be changed to reduce the risk of new financial crises and to reduce the negative consequences for Sweden if such crises should again arise internationally. | 1 |
Beyond the significant adaptations that are needed in our productive systems, this major transformation will require massive investments, both public and private. And this is where sustainable finance has a key global role to play. II. Sustainable finance in France, in Europe and in Japan 2/4 BIS - Central bankers' speeches A. Sustainable finance, especially green finance, remains dynamic despite difficult conditions in bond markets While issuance of bonds have slightly decreased in 2022, due to an uncertain economic and financial environment, it is striking that most segments of sustainable finance have resisted well. In particular, green bonds have even continued to expand by 15% in the first half of 2022, reaching EUR 260 billion. (iii) Among those, sovereigns represent almost half of total issuance volumes. The French state, which was the first sovereign issuer of green bonds in 2017, now has the greatest outstanding, amounting to EUR 45 billion. And the European Commission, with its ongoing NGEU programme, is gaining momentum and will become the biggest issuer within the next few years, as it is set to issue 30% of this programme, or EUR 250 billion, in green bonds. (iv) Japan is also gaining momentum, notably through its green growth strategy laid out in December 2020 to facilitate private investment – through green finance among others. B. Central banks' and supervisors' actions regarding climate change Central banks and supervisors are delivering what they promised, in their catalytic role within the financial system. | The central bank of the Netherlands – De Nederlandsche Bank – has developed new approaches for the supervision of corporate culture and decisionmaking. 21 The MPG is working with the BIS FXWG to develop market-based adherence mechanisms for the FX Global Code. 6 BIS central bankers’ speeches of market participants as we develop best practices. This is to ensure that the practices reflect all relevant segments of the market and to promote buy-in and thus foster their adoption. As I mentioned before, both the TMPG and the FXC are expanding their membership such that a range of market participants feels vested in their missions. In addition, we engage with other sectors of the marketplace, such as trade associations and infrastructure providers, to educate them about best practices that have been developed and facilitate their potential adoption of aspects of them. When central banks operate in the markets ourselves, we expect the best practices to apply. This has two aspects. First, we align our own practices to the best practices, except where it would inhibit our policy functions. As a corollary, we expect those institutions that choose to become our counterparties to comply with the best practices as well, so that when we transact, we do so with the confidence that our counterparties are adhering to these standards of behavior. Finally, we keep supervisors, regulators and other official sector bodies, inside and outside our four walls, abreast of the work of our committees. | 0 |
This is where the introduction of APIs and the greater harmonisation of data through the important move to ISO 20022 can really make a difference. These building blocks have the potential to improve compliance processes and address data handling issues within legacy technology platforms, and maximise the positive impact of the technical, operational and regulatory process changes advanced under the other focus areas. Focus Area E is different: it is more exploratory and long term in nature. It includes assessing the potential for innovative new propositions such as central bank issued digital currencies (CBDCs), privately issued stablecoins and areas that are even less developed such as multilateral payment platforms. These innovations are still in their infancy on a domestic, let alone global, level. But if in time they are introduced, it is really important to consider the possible cross-border benefits they could bring. Importantly, real progress can only be made in these building blocks if work on the earlier building blocks has delivered. Issues around operating hours, AML checks and messaging harmonisation to name but a few will be relevant for these more far reaching innovations. The Roadmap A broad set of building blocks needs a broad set of players to deliver them. And that is why the Stage 3 roadmap is so important. The FSB, working with the CPMI and other relevant international organisations and standard-setting bodies, today published an ambitious but achievable roadmap to deliver these building blocks including initial actions and milestones 7. | The remaining challenge then is whether the authorities will have the nerve to follow through and carry out a resolution. This is the charge that comes from opponents, namely that it will be “bottled”. I don’t see this as likely to be an issue, because if resolution is a credible route to take, as it will be, why would the authorities want to put the cost somewhere else? 3 John Kay “Should we have ‘Narrow Banking’?” The Future of Finance, LSE Report, 2010 4 Anat Admati and Martin Hellwig: “The Bankers New Clothes: What’s wrong with Banking and what to do about it”. P271 5 Anat Admati and Martin Hellwig: “The Bankers New Clothes: What’s wrong with Banking and what to do about it”. P74–78 BIS central bankers’ speeches 3 Now for supervision and whether it too can function effectively. Make no mistake, in many countries supervision failed badly in the run-up to the crisis. Prudential supervision of banks is all about understanding the risks firms take, the effectiveness of the controls in risk management, using the framework of rules and regulations to create the right incentives to control risks appropriately, and where necessary intervening directly to require actions to be taken that would otherwise lead the firm to a potentially unsafe or unusual position. | 0 |
Data and news that transcends boundaries in real time are important for not only investors and financial institutions but also for researchers and scholars in Islamic finance. It will contribute towards enhancing competitiveness, product innovation and strengthen the international financial inter-linkages. As we enter this new decade, the challenge for the world is to sustain the economic recovery. While there continues to be many problems still to be addressed in the developed world, most emerging economies have continued to do well. In Malaysia, our economy recorded a strong growth of 7.2% in 2010 driven by strong domestic demand and our stronger economic and financial linkages with other emerging economies. An important part of this recovery is the strong recovery in private investment as capacity utilisation increases and as the dynamic nature of our economy presents new investment opportunities in new growth areas. For the Islamic finance industry, the year 2011 is set to be an exciting period. The global sukuk issuance in the year 2010 surpassed that of the previous year by more than 20 per cent. Against this positive growth, renewed confidence of investors and issuers is evident. In 2011, the sukuk issuance is projected to surpass the level recorded in 2007 when it sustained the highest level of issuances. The year 2010 also saw Malaysia’s evolution as a multi-currency sukuk origination platform with four foreign currency sukuk issuances amounting to about USD3 billlion. | But it is equally important not to give rise to unrealistic expectations about how fast potential output can grow. The Central Bank’s analysis and forecasting work always aims to answer this question, which is one of the most important in monetary policy implementation. Inflation subsided somewhat in 2012, falling from 6½% at the beginning of the year to just over 4% at year-end. The Bank’s February forecast assumed that this trend would continue, provided that the króna did not weaken further. According to the forecast, inflation should be close to target around the middle of next year. Whether that happens earlier or later depends primarily on developments in the exchange rate. It was therefore a disappointment to see how much prices rose in February, raising twelve-month inflation once again. It is always imprudent to read too much into individual measurements, and it has yet to come to light how much of that increase was based on temporary factors. Furthermore, the exchange rate has risen more than 5% since the beginning of the year, which could affect the next measurements. Nonetheless, this inflation measurement gives good reason for caution, and if the role of temporary factors proves smaller than might appear at present and inflation declines to the target more slowly than previously forecast, it will be necessary, other things being equal, to withdraw monetary accommodation sooner than would otherwise be required. The Central Bank’s interest rates have been unchanged since November 2012, when they were raised by 0.25 percentage points. | 0 |
After an assessment has been thoroughly debated in the Committee, the final assessment becomes public.7 The assessments, and the publication of the results, have proved to be a powerful tool. To date, more than 200 adjustments have been made by member jurisdictions in response to findings raised by the assessment teams. In addition, the process has also generated a positive feedback loop, meaning that the lessons learnt from assessments are used to improve and clarify the standards. So far, the assessments have concentrated on the capital framework, but from 2015 onwards the scope of this work will widen further to include the implementation of the liquidity coverage ratio and the SIB-requirements. However, for the new, stricter requirements to bring the benefits we are aiming for, it is important that they be properly reflected, not only in national legislation, but also at the level of individual banks. To use an analogy of car safety, if we are now providing banks with air bags, in the form of higher capital requirements, it is important that those air bags are actually activated in case of an accident. For this to happen, the sensors need to be functioning and well-calibrated. For banks, this means that risk weights need to signal appropriately the risks that individual banks actually face. This aspect is captured in the Committee’s thematic assessments. To put it simply, in these assessments we examined whether the banks’ risk-weighted assets could be trusted. | And indeed – the financial crisis has led to a comprehensive response from regulators and policymakers across the world. Compared to the pre-crisis era, international banks will face: – substantially higher capital requirements, – higher demands on the quality of capital, – a leverage ratio, – an international liquidity framework, with both short-term and structural liquidity requirements (I am proud to note that the Basel Committee, less than a week ago, published the final standard for the net stable funding ratio, NSFR), and – a regulatory framework for global systemically important banks (GSIBs). When you add to this work related to reducing RWA variability and disclosure, you end up with a pretty impressive list – a list that represents an unprecedented leap forward in terms of global banking regulation. So then, how do I see this? Do I claim to know how all these new rules will play out together? Am I confident that there will be no inconsistencies and contradictions? No, definitely not. We have every reason to be humble in this respect. Monitoring and assessing the effects of reforms will therefore be imperative. Will the reforms be costly for banks in the short term? Yes, they will. Will banks have to adjust their activities? Yes, a return to pre-crisis banking behaviour is neither appropriate nor viable. Do I therefore think that regulation has gone too far and that parts should be undone? No, not at all. | 1 |
Joseph S Tracy: What the Fed did and why Remarks by Mr Joseph S Tracy, Executive Vice President of the Federal Reserve Bank of New York, at the Westchester County Bankers Association, Tarrytown, New York, 25 June 2010. * * * In my remarks this morning, I would like to look back over the events of the past several years and offer my perspective on what were the essential drivers of the financial crisis and the Federal Reserve’s interventions. 1 I will review the changes that have been taking place in the U.S. financial system and how these changes created the conditions conducive to the crisis. I will then discuss the developments in residential real estate financing that provided the catalyst for the crisis. With this background, I will outline the interventions that were carried out to mitigate the crisis, focusing on those conducted by the Federal Reserve. I will direct my remarks to the facilities that were created rather than to the actions taken for individual institutions since these have been discussed extensively elsewhere. The lessons learned from the crisis are important for the design of the policy response aimed at reducing the likelihood that the U.S. economy ever again experiences this degree of trauma. I begin with the simple exercise of what name we should assign to this past crisis. At first blush, this may not seem like a useful exercise. But, as Shakespeare reminded us, names are important as they convey a sense of our understanding of the event. | “Reflections on the TALF and the Federal Reserve’s Role as Liquidity Provider”. Remarks at the New York Association for Business Economists, June 6. 15 David Wessel. 2009. In Fed We Trust. New York: Crown Business. 8 BIS Review 92/2010 market, Treasury pledged to provide the capital. The SCAP program was successful in restoring a degree of confidence in financial markets and in enabling these financial firms to raise capital on their own. By the second half of 2009, the financial fever from the Panic of 2007 had finally broken with the 3-month LIBOR/OIS spread narrowing back to pre-crisis levels. 16 The economy began to grow again. Having served their purpose, the Fed’s special liquidity facilities have been wound down. The policy focus has shifted to regulatory reforms and how to prevent a future financial crisis. To be successful, these reforms must deal with the run dynamics in the shadow banking system, as well as devise ways to limit the leverage cycle that is an integral part of asset booms and busts that can trigger a panic. If the lessons from the panics of 1907 and 2007 are incorporated into the reforms, we may well avoid the Panic of 2107. 16 Recently the spread has widened with the onset of concerns over Greece. BIS Review 92/2010 9 | 1 |
Public authorities have a clear role in this respect, and the Basel Committee on Banking Supervision is a major player in this field at the global level. I fully endorse the work done by the Basel Committee to review banks’ risk management practices, as well as the Guidance on Sound Liquidity Risk Management and Supervision, which was recently published and constitutes a benchmark for the practices of financial institutions. The European Central Bank, as the ultimate provider of liquidity in the euro area, has a particular interest in issues relating to liquidity risk management. Against this background, our work on liquidity stress testing and contingency funding plans has highlighted the importance of both banking supervisors and central banks having access to the results of liquidity stress tests carried out by banks so that they can better assess the potential 4 BIS Review 123/2008 systemic impact of a liquidity shock. The ECB supports the idea of organising common liquidity stress tests, for which participating banks would use their own stress tests based on a joint scenario. Furthermore, the contingency funding plans of large banks should be shared not only with banking supervisors but also with central banks, as also recommended by the FSF. Having said that, I would like to stress that financial institutions are ultimately responsible for ensuring that all relevant risks, including liquidity risk, are properly integrated into their overall risk management. | The new international division of labour thus affects every stage of the production process; it influences the localisation of added value and raises the question of the financing of the external imbalances of economies that focus on the design and marketing of products rather than their manufacture. The second session will deal with the impact of trends in productivity and competitiveness on international capital allocation and global imbalances. These trends may have contributed to the increase in global imbalances reflected in current account balances, and highlight several paradoxes. The first paradox is that of the US economy, which combines the structural surge in its productivity with a possible loss in competitiveness illustrated by the increase in its external deficit. This paradox is perhaps only apparent if we consider that the improvement in the US’ relative productivity performance is mainly in the non-tradable sector and as compared to the industrialised rather than the emerging economies. In addition, while this pick-up in productivity does boost the profitability of investments, logically, it goes hand in hand with an excess of investment over national savings that calls for increasing foreign capital inflows. However, the predominant nature of capital inflows to the United States changed at the start of the 2000s, switching from mainly purchases of equities and foreign direct investment by the private sector to purchases of government securities by central banks, which are not motivated by the search for increased profitability. This leads us to the second paradox, a twin to the first, i.e. | 0 |
As Figure 1 indicates, it was shall we say an interesting time for researchers from Japan to ask such a question. However, when I inquired about the rapid increase in real estate prices in their country, I always received the same answer – Japan is an island nation and had limited buildable lots, and that prevented real estate prices from declining. This view was very widely held. However, as you can see in Figure 2, that widely held financial myth was soon shattered. Unfortunately, the result of this belief was eventually the crippling of some of the world’s largest financial institutions, a long period of subpar economic growth in Japan, and eventually a problematic deflation that Japan struggles with to this day. A second example is provided by the growth of the Internet, and in particular the growth in “dot-com” stock valuations, in the late 1990s. As Figure 3 shows, there was a substantial run-up in stock valuations during this period. At the time I had conversations with a variety of financial professionals in Boston who made the argument that traditional valuation measures no longer applied. The view assumed by many was that valuation of firms should be based on clicks of a computer mouse rather than earnings, either current or expected in the future. As Figure 4 shows, such enthusiasm for a new way of valuing companies was short-lived. But importantly, the substantial decline in Internet-related stocks did not create a financial crisis. | Not only have we worked hand-in-hand for many years on various matters; we also share a similar mission and vocation, as well as similar concerns in many respects. The world has changed in the past 60 years, and the transformations both institutions have undergone bear witness to this. We have moved from a system of fixed but adjustable exchange rate parities to one where floating is the norm. Economic integration has made enormous headway during these years, both multilaterally and through regional agreements, the European Union being perhaps the most advanced. From a world of widespread capital controls and multiple exchange rates, we have moved to a very different one in which enormous cross-border flows take place daily in the form of a wide array of financial instruments, among which derivatives, which were virtually non-existent at the end of the Second World War. Undoubtedly, free capital movements have contributed to a significant improvement in the allocation of global saving to more profitable uses, although they have also entailed a swifter transmission of financial shocks across highly integrated markets, a phenomenon behind some of the recent crises. Economic policies - fiscal, monetary and structural - have been increasingly geared to providing a framework of stability and appropriate incentives for decision-making by agents. In addition to contributing to smoothing cyclical fluctuations, these policies help set in place the right conditions to achieve sustained economic growth based on flexible, competitive and efficient markets where comparative advantages are tailored to the changing circumstances of international markets. | 0 |
• BIS Review 26/2004 Estonia's GDP per capita currently amounts to about 42% of the respective EU figure; Estonia´s price level is about 56% of the EU level. 3 • Meanwhile, according to different studies, Estonia´s potential GDP growth is 5-6% per year - in a situation where the pace in the EU would be 2-2.5% per year. • If the current growth rate differences are maintained, the level of income in Estonia should reach the current EU average in some 20 years. Hence - the average price level will be reached in the course of the following decades, not in months. • However, as many as every fourth Estonian believes that on account of the changeover to the euro the prices will rise fast, which will have a significant impact on their welfare. These people are worried about their primary subsistence - above all, growth in food and housing costs is feared. I can assure you - based on the experience of other countries - that the adoption of the euro in itself will not bring about any price rises. It is a different matter that people sometimes perceive rises in prices to be steeper than they actually are, e.g. if a cup of coffee at one's favourite corner cafe becomes more expensive. Namely such rises contributed to the price growth after the changeover to the euro. According to studies, adopting the euro cash boosted the inflation rate ACTUALLY only by 0.1-0.2 percentage points. | It is still not wholly clear - to me at least - quite why the storm struck suddenly when it did. Most crises of this sort have their origins in some evident macro-economic policy failure. At least in hindsight there are usually fairly clear tell-tale signs of expanding fiscal deficits and/or lax monetary policies, classically accompanied by evidence of imbalance in the form of accelerating inflation or a rapidly deteriorating balance of payments. There were such signs, perhaps most notably in Thailand; but they were not for the most part particularly pronounced in Asia. Some of you perhaps understand better than I do why the initial infection proved to be so contagious. It was after all your money! In fact through the first half of the 1990’s, and in some cases for much longer, the countries in question had been remarkably successful. They attracted, by their very success, huge inflows of capital from the rest of the world, where yields had fallen, in the hope of achieving higher returns. There is no question that this capital inflow made a very big contribution to the remarkable economic expansion in Asia and hence to the global economy; but with the benefit of hindsight, the accelerating scale of the inflow, and particularly the forms that it took, became an important part of the problem. It was not all in the end productively employed. | 0 |
To meet the challenge of ensuring that this global network of individual payments systems is reliable, resilient and efficient requires a more integrated and comprehensive approach. This is true for the participants that are most exposed to the diversity of risks in this network of systems. And it is true for the official entities as well, because the growing number of cross-border payments systems require an effective framework of cooperation if we are to provide effective oversight. One important challenge faced by banks that operate across many different financial centers is how to meet their global liquidity needs. To meet the rising expectations of their customers, and simultaneously fulfill their own internal needs, the largest and most active banks in the payments business would prefer to mobilize their liquidity globally. But the reality is that the total liquidity available to a global bank is fragmented. Surplus liquidity in one currency at one location cannot always be readily converted into liquidity in another currency or in another market. An institution’s liquidity at a specific location is dependent, to a 4 BIS Review 59/2004 large extent, on the size of its payment flows, its capital, and the volume of marketable securities and other eligible collateral that is housed in that location. These factors often determine what is available either to gain access to daylight liquidity from a central bank, or to meet a clearinghouse’s margin or collateral requirements, or to borrow overnight in an emergency. | Adoption of the Hague Securities Convention by countries around the world will improve legal certainty for cross-border collateral arrangements, which is important for bilateral counterparties, clearing and settlement systems. And there are new market-led initiatives underway to bring some utility-type clearing services to the present bilateral arrangements for OTC derivatives. These efforts to improve the clearing and settlement infrastructure for the OTC derivatives market are important because they help make it easier for firms to understand and manage their bilateral risk exposures. Markets work better, particularly in times of stress, when firms are able to operate with greater certainty about their direct counterparty exposures. In this context, it is worth reflecting on whether it makes sense to build on these efforts by developing and utilizing central counterparty clearing arrangements in the more standardized part of the OTC derivative market. To be sure, poorly designed central counterparties can increase risk, and they necessarily concentrate operational risk. But well designed central counterparties can play an important role in reducing systemic risk in markets. This is a complicated challenge for instruments that are inherently complex and constantly evolving, and for which calculating exposures can be difficult. And attracting a critical mass of strong participants can be daunting. But it makes sense to think about whether use of a centralized clearing utility could provide significant advantages over the present bilateral arrangements by increasing transparency, enabling multilateral netting, and providing centralized risk controls, collateral management, and margin requirements. | 1 |
In short, the adoption of the advanced Basel II models should be seen from a perspective of realism and the pursuit of excellence. As far as the Banco de España is concerned, quality takes precedence over any consideration of timing in the adoption of the advanced approaches. As I have already mentioned, the implementation of the New Capital Accord will pose serious challenges for the institutions, which will be expected to step up the efforts they have no doubt already begun to make. The need to increase these efforts has become even more pressing since 11 May this year, when the Basel Committee on Banking Supervision approved the text of the Accord, which will be released at the end of June. Also prominent in the area of regulatory reforms, which will involve significant challenges and whose implementation is imminent, is the introduction of the International Accounting Standards (IAS). In accordance with the mandate of the European Union, these standards will affect the preparation of the annual accounts of groups with securities listed on any regulated market of the Union from 1 January 2005. The challenges associated with the introduction of the IAS not only relate to the technical adaptation that will be required to comply with them; some of these standards may affect institutions’ business strategy, since aspects such as provisions and the consolidation and amortisation of goodwill will be changed. | This has improved with the various initiatives that we have undertaken in creating awareness and working with the industry, government and agencies to expand the offerings and the use of Islamic trade finance facilitation with the share growing to 31.4% in 2020. However, we have to acknowledge that we may still have much to do and we look forward to the report which I have been informed also shares a host of ideas and recommendations for us to take forward. Before that, please allow me to share some thoughts on some of the important thrusts that we see for us to take into consideration as we continue our work in this. Firstly, we critically need trade-based solutions to ease liquidity constraints. The pandemic, which led to subdued domestic demand and stringent COVID-19 containment measures, has resulted in a liquidity squeeze among Malaysian businesses, particularly the SMEs. To stay afloat, some companies have had to resort to increased debt to meet their payment obligations. 1/4 BIS central bankers' speeches While measures have been introduced to lessen the burden of SMEs in the form of wage assistance programmes, support grants and deferment of financing instalments, these are merely a temporary backstop akin to a band-aid. Prolonged assistance of this form may not be sustainable. The over dependence on debt-based instruments also reduces the financial flexibility of businesses in supporting their recovery. Trade-based solutions can offer a viable option where funding is tailored to the lifecycle of production. | 0 |
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