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Effects of the 2008/09 global financial crisis and Asia’s response The recent crisis had the global financial system badly shaken with widespread effects of an unprecedented scale across the world. The Asian region has however demonstrated remarkable resilience during the crisis as most countries in Asia entered the crisis period with a sound set of economic and financial fundamentals, mainly attributed to the lessons learned from the Asian financial crisis of the late 1990s. It was painful. It was a bitter lesson. We embarked on a bold reform that fundamentally alters the landscape of our financial system. But the payouts have been tremendous. The governments of the Asian economies have now the flexibility to implement large stimulus, given the strong economy and low public debt levels in the region. Credit flows to the private sector remain undisrupted as financial institutions in the Asian countries were strong and well capitalised. The household and corporate sectors in Asia were also not over leveraged. Furthermore, Asia was not confronted by widespread unemployment. The various reform measures had enabled the Asian economies to build more shock absorbers and reduced the number of shock amplifiers in their economies following the 1997/98 financial crisis. What we have learnt is that there are no short cuts in reforming a broken system. We also learnt that we should always have an open mind in looking at probable solutions. Just like what a good doctor would prescribe, some time, administering bitter medicines are the only way to go. | With a humble beginning of establishing the first Islamic bank in 1983, Islamic finance in Malaysia has evolved to become a comprehensive domestic Islamic financial system, comprising the Islamic banking institutions, the takaful industry, the Islamic money and capital markets. Malaysia’s Islamic banking sector grew 20% annually since 2001 in terms of assets and as at the end of June 2010, the share of Islamic banking assets in the total banking sector has expanded to reach 20.9 percent as compared to 6.9 percent a decade ago. Malaysia also remains the world’s largest sukuk market, accounting for more than 60 percent of global sukuk issuances. Islamic finance prospers in Malaysia because it is competitive, innovative and in sync with what the market want. Recent developments of Islamic finance that strengthen its resilience Significant milestones achieved in the recent decade in the area of international financial infrastructure provides further support for sustainable and orderly development and continued growth of Islamic finance. In 2002, the Islamic financial Services Board or IFSB was established with the role as an international prudential standard setting body for Islamic finance. The IFSB has been instrumental in developing and issuing global prudential standards and guiding principles for the industry. Further efforts to ensure sustainability of Islamic finance in this new and more challenging environment include the formation of a Task Force on Islamic Finance and Global Financial Stability by the Islamic Development Bank and IFSB. | 1 |
The global economic and financial landscape is currently at an important turning point, as we transition to a fundamentally changed future. The challenges facing us in this environment are manifold. We therefore want to have the skills for this future – to be well equipped to effectively manage our future. Sasana Kijang aims to provide such a platform to pursue this human capital development agenda to become a centre of excellence for learning with the state of the art facilities. Sasana Kijang also reflects our commitment for regional and international collaboration and cooperation. It is our intention for Sasana Kijang to provide a platform for the meeting of minds and to harness the wealth of expertise in the field of Central Banking and finance. As a centre for collaboration, Sasana Kijang has wide ranging facilities for regional and international meetings, seminars and conferences. These facilities are also shared with the South East Asian Central Banks (SEACEN) Research and Training Centre and the Islamic Financial Services Board (IFSB) which are now located in Sasana Kijang. For the SEACEN Centre, it is hoped that all the available facilities will support its enhanced role in the region, particularly, as financial and economic integration in Asia intensifies. For the IFSB, an international organisation that was established as a result of the collaborative efforts of regulators from different parts of the world, it is hoped that it will facilitate further collaboration in the development of Islamic finance and in safeguarding its soundness and stability. | I thus consider that it should be the Riksbank that decides the size of the foreign exchange reserves, as well as how they should be funded. In crises and times of unease, the Riksbank must always consider all the 22 [25] possibilities for performing its remit. If there are no other possibilities for the Riksbank to secure access to foreign exchange other than issuing promissory notes in foreign currency in its own name, then such a measure must, of course, be considered and, indeed, implemented when circumstances demand it. A central bank must be able to use its balance sheet I have returned to the central bank’s balance sheet several times, This is because I consider there is a great probability that this will play an important role in monetary policy in the period ahead, just as it did earlier, at least if we are prepared to look further back in time than the Great Moderation. In addition, if real interest rates continue to remain on the weak levels we have seen over the last ten years, changes in the terms for the monetary policy facilities and securities purchases will become necessary parts of normal monetary policy. It is therefore important that the new Sveriges Riksbank Act does not restrict these possibilities. References Agrawal, R. and M. Kimball (2015), “Breaking Through the Lower Bound”, IMF Working Paper No. 15/2015. Andersson, B., M. Jonsson and H. Lundvall (2020), “The new macroeconomic environment after the global financial crisis”, Sveriges Riksbank Economic Review 2020:1, Sveriges Riksbank. | 0 |
Már Guðmundsson: Monetary policy at a crossroads Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at the Icelandic Chamber of Commerce Monetary Policy meeting, Reykjavík, 5 November 2015. * * * Honoured chairman, ladies and gentlemen: The Iceland Chamber of Commerce has a decades-long tradition of holding a meeting like this one on economic developments and prospects and monetary policy. The meeting is held following the publication of the Central Bank’s autumn forecast and, in latter years, the Monetary Policy Committee’s interest rate decision. The title of my talk today is Monetary policy at a crossroads. These crossroads are, first, the disappearance of the slack in the economy and the development of a positive output gap, with the result that the task of monetary policy is no longer to stimulate GDP growth to the extent that the inflation target allows but to ensure that the tension in the economy does not cause overheating, which would jeopardise economic stability. The second crossroads is that, in recent months, the labour market situation has become much more serious than would have been anticipated given the state of the economy. The third lies in the unusual level of uncertainty about the inflation outlook, stemming from the interplay between domestic inflationary pressures and the global tendency towards deflation. And fourth is the recent rapid progress in solving the of the balance of payments problem Iceland has faced since the financial crisis struck and the approaching liberalisation of capital controls. | Norman T L Chan: Bond Connect – enhancing Hong Kong as an international financial centre Remarks by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Bond Connect Launch Ceremony, Hong Kong, 3 July 2017. * * * The Honourable Carrie Lam Cheng Yuet-ngor, Deputy Director Huang Liuquan, Deputy Director Qiu Hong, Financial Secretary Paul Chan, Deputy Governor Pan Gongsheng, Mr CK Chow, distinguished guests, ladies and gentlemen, 1. Good Morning. 2. I am very pleased to join you today for the launch of Bond Connect. Bond Connect marks another milestone of mutual access of capital markets between the Mainland and Hong Kong, following the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. It is also another important measure of the Central Government to support Hong Kong’s development as an international financial centre. 3. A key function of Hong Kong as an international financial centre is financial intermediation, providing efficient and safe conduits for fund flows. The establishment and smooth operation of these conduits shall be underpinned by suitable and sound financial infrastructures. Over the years, the Hong Kong Monetary Authority (HKMA) has endeavoured to build our financial infrastructures, from the Real Time Gross Settlement system to the Central Moneymarkets Unit (CMU) for debt securities settlement, which have laid a solid foundation for Hong Kong’s development as an international financial centre. 4. Bond Connect is a new financial infrastructure established through the connection between HKMA’s CMU and the relevant central securities depositories (CSDs) on the Mainland. | 0 |
New technologies could allow operations all year round and 24/7, and reduce the number of intermediaries involved. - A CBDC can also facilitate cross-border payments thanks to the use of distributed ledger technology and the interoperability of CBDC systems in different jurisdictions. We have this year joined forces with the SNB, the BIS innovation hub and a private sector consortium led by Accenture, within a project named JURAiii, which would allow the use of Swiss franc and euro CBDCs on a DLT platform. We are also working with the Monetary Authority of Singapore to test cross-currency payments with CBDCs. - Existing market infrastructures (like T2S) and players, and future systems based on distributed ledger technology will need to be interoperable. Decentralised finance is still not mature enough to handle large volumes of transactions, and therefore will not replace conventional systems from one day to another: centralised and decentralised systems will have to coexist securely and efficiently. This is the purpose of two experiments that we recently completed respectively with SEBA Bank,iv for the settlement of listed securities, and with Euroclear/Agence France Trésor on a collateral operation involving a French OAT. 3/ When: getting ready to introduce a CBDC rapidly if necessary We therefore need to prepare ourselves, without hesitation, to introduce a CBDC rapidly if necessary: Next July, the Governing Council could give the green light to launch an investigation phase, which could begin in the autumn and last until 2023. | 1 / Why: incorporating digital innovations is an imperative I shall sum up some very strong trends as a “triangle of risks”: First, on retail payments, over the last 18 months, cash has accelerated its decline while the share of dematerialised payments has increased twice as fast as before the crisis, from 51 % in 2019 to 70 % in the first half of 2021. There is also a strong shift towards the tokenisation of financial assets. This dual trend could lead to the marginalisation of the use of central bank money, be it in the form of banknotes or in settlement systems. We, as a central bank shall never abandon cash; but this commitment cannot be our sole response to technological change. Second, the emergence of BigTechs and new settlement assets (crypto-assets and stablecoins) could threaten our monetary sovereignty and our mandate to safeguard financial stability. Third and final factor, the progress made by extra-European CBDCs and notably by the digital yuan, already accessible in the major Chinese cities. The risk is clearly that Europe will lose momentum not just in its drive to strengthen the international role of the euro, but even in preserving it. The challenge here is also a geopolitical concern. 2/ How: reasserting the anchoring role of central bank money thanks to a holistic approach Faced with these challenges, we want to be proactive and move forward in partnership with commercial banks. | 1 |
i The past growth path is calculated here using the December 2019 macroeconomic GDP projection, extrapolated from 2023 onwards using the potential GDP forecast at that time. ii F. Villeroy de Galhau, Europe’s growth gap reconciling Keynes and Schumpeter, Speech, March 2021. iii European Commission, Impact assessment, Stepping up Europe’s 2030 climate ambition, Commission staff working document, 2020. iv J. Pisani-Ferry, Climate policy is macroeconomic policy, and the implications will be significant, PIIE Policy Brief No.2120, August 2021. v T. Allen, J. Boissinot, L. Clerc, S. Dees, Developing climate transition scenarios to manage financial risks, Bulletin de la Banque de France No.237/9, by T. Allen, S. Dees, C. M. Caicedo Graciano, V. Chouard, L. Clerc, A. de Gaye, ... & L. Vernet, Climate-related scenarios for financial stability assessment: An application to France, 2020. Page 16 sur 15 vi Spain and Italy have the lowest scores in the Programme for the International Assessment of Adult Competencies (PIAAC), 252 and 250, respectively, in adult literacy, just behind France (262), compared to 284 for the Netherlands, 278 for Norway and 279 for Sweden. In France, 22% of workers are low-skilled, in Spain and Italy around 27%, in Sweden and Norway around 13%. Shares of high-skilled workers: France 8%, Spain 5%, Italy 3%, Sweden 16%, Norway 14% Based on PEICA 2012 and OECD 2013, qualifications in terms of skills. | I wish you a very fruitful conference. 2 BIS central bankers’ speeches | 0 |
In my opinion, moreover, they have had a favourable effect on the Riksbank’s internal atmosphere and efficiency. 6 BIS Review 75/2001 As regards currency market interventions, we should likewise naturally aim to be as open and distinct as possible. The arguments about credibility and legitimacy apply here as well. There is also reason to believe that interventions will be more successful if they are perceived as a monetary policy signal, with information about the central bank’s assessment of price developments and thereby the future path of the instrumental rate. When the Riksbank intervened last June we made a point of demonstrating that the measure’s context was monetary policy. The measure was announced and communicated in speeches by Urban Bäckström and myself. At the time of the first intervention, moreover, the Executive Board issued a press notice and Urban Bäckström took part in a broadcast interview in which a good deal of time was devoted to this issue. The degree of openness was also substantial in the sense that we informed our counterparties that the interventions had been made and confirmed this when questions were asked. Moreover, the size of the interventions could be calculated later from the weekly publications of the Riksbank’s balance sheet. So on this occasion we were more transparent and distinct than is customary with currency interventions, compared both with our earlier record and with most other central banks. We did, however, depart from the customary procedure in one respect. | In addition, we consider other relevant information that is available, not least the exchange rate that can be said to be more fundamentally reasonable. Which of these three approaches is most appropriate - given that game situations and the risk of sudden shifts could be disregarded - is not self-evident. Personally I cannot see why we should not treat the exchange rate in much the same way as other forecast variables. We normally try to consider all the relevant information that can be gathered on a particular variable. It seems reasonable to do so in this case, too. Another matter is the considerable degree of uncertainty that surrounds virtually all forecast variables and particularly the exchange rate. That is why we also produce an assessment of risks. Our policy is then based on an overall assessment, including a valuation of the various risks. Exchange rate theories It is often said that for the conduct of economic policy, the best help in practice is a good theory. In the case of exchange rates, however, the relevant theories have not been particularly successful at either explaining or predicting movements of the Swedish krona or other currencies in recent years. A basic difficulty with theories for determining exchange rates is the fact that an exchange rate is a nominal price, whereas economic analysis is constructed to explain relative prices. | 1 |
If we rely on strong macroeconomic policy, the principles of an open economy and future-looking investment, Estonia will continue to have all the possibilities for defeating the crisis. But what are the national economy level measures the government should take and how should they support the financial system? Here I start with a firm standpoint that the fixed exchange rate of the kroon to the euro is the pillar of Estonia's economic policy and the accession to the euro area as soon as possible is its logical continuation. The experience of the past half a year show that monetary policy that is based on the fixed exchange rate and the currency board supports economic stability also in more difficult times. But how does the fixed exchange rate help us overcome the crisis? First of all, it helps stabilise inflation expectations and stop price rises. Price corrections after the accession to the EU were sharper then we expected. The opening of the labour market and price rises of many goods in the global market had a strong impact on Estonia. This stage, which was, in a sense, unavoidable and paradoxically also the result of successful reforms at the start of the century, is now over. The price level is expected to decline somewhat both this and next year. Second of all, the currency board arrangement brought about a relatively fast correction in several sectors of the economy, which displayed clear signs of overheating after the accession to the EU. | Another possibility is that low long-term rates reflect unusually strong demand for long-term securities, for example, by pension funds seeking to improve the match between the durations of their assets and liabilities, by holders of mortgage-backed securities seeking to maintain the durations of their portfolios, or by foreign central banks that have been acquiring dollars. China may have been playing an especially large role, as its central bank has intervened in foreign exchange markets to peg the renminbi at a low level against the dollar. Of course, last week the People’s Bank of China announced that it had revalued the renminbi against the dollar by 2.1 percent, with the stated intention of managing the renminbi’s exchange value against an unspecified currency basket. This is not a large revaluation, but some observers think that it is the beginning of a much bigger move over time. If this is the case, we may gain a better understanding of the impact, if any, that Chinese exchange rate policy has had on U.S. bond rates. An alternative to “special factors” as an explanation for the low level of long-term yields is the possibility that the flat yield curve reflects the market’s assessment that bad news is on the horizon. In other words, investors may expect only modest increases in the funds rate in the future because they think that the drags I’ve described will keep demand on the weak side for some time to come. | 0 |
This has been reinforced by increased liquidity in the international financial system in search of higher returns and greater diversification of risk. Since the issuance of the first sovereign global Islamic sukuk by the Government of Malaysia in 2002, there has been a series of other issues by the governments of United Arab Emirates, Qatar, Bahrain and Pakistan. An increased number of multilateral agencies have BIS Review 88/2007 1 also issued sukuks to finance development projects. In addition, both government agencies and the corporate sector have considered the sukuk market as an attractive instrument of financing. Thirdly, there is a great number of global players such as investment banks, Islamic banks and securities firms that are involved in the issuance of sukuk in the international financial markets. A large number of Western banks are also providing Islamic financial services taking advantage of the opportunities and to provide customised products and services to their customers. Fourthly, the established international financial centres have also shown interests to have an active role in promoting the development of the sukuk market including enacting the appropriate legislative provisions. These developments would augur well for the development of the sukuk market. Finally, the regulatory and supervisory paradigm continues to evolve. Indeed, the recent decade had witnessed significant global shifts in the approach to regulation and supervision across many countries. In addition, the harmonisation of standards and practices is also important. | Subsequent to the FOMC’s decision, a compromise was reached on extending the Bush tax rates in conjunction with additional fiscal stimulus measures for 2011. The flow of economic data as 2010 came to a close on balance indicated that the economy was in fact regaining its lost momentum. Economists began to mark up their forecasts for 2011 economic growth. This recent improvement in the economic outlook is welcomed news. We should keep in mind, though, that there is considerable uncertainty associated with every economic forecast. There are both upside and downside risks that could cause actual economic growth this year to deviate from the consensus forecast. One important downside risk to the outlook is associated with housing markets. Following the end of the homebuyer tax credits, there was a sharp drop-off in home sales. In addition, the firming of house prices noted earlier has given way to renewed house price declines in many markets (Chart 27). There still remains a significant excess supply of housing that will exert downward pressure on house prices and new construction (Chart 28). Given the very low level of new home construction, the primary driver of this excess supply of housing is the on-going foreclosure process. The foreclosure pipeline continues to grow (Chart 29). How far along are we at resolving the foreclosure BIS central bankers’ speeches 3 problem? | 0 |
As more instruments that transfer risk are added to the balance sheets of financial institutions, so leverage and connectivity 2 BIS Review 70/2006 grow. While some of these connections might constitute a "perfect hedge", they can leave the system more vulnerable to both counterparty risk and the liquidity of these markets. The precise extent to which market participants are now connected through interlocking obligations is difficult to gauge, but the UK interbank market provides some clues. Over 70% of the total lending in the market is accounted for by 15 institutions. And the major UK banks’ large exposures to the main foreign-owned LCFIs are almost two-thirds of Tier 1 capital. The rising correlation between the share prices of major UK banks and foreign-owned LCFIs also provides a hint of the growing interconnections (Chart 4). At the same time, rapid innovation in new financial instruments poses challenges within the financial system. As I have already discussed, these developments are likely to be positive in the long run, allowing market participants greater scope to diversify and manage risk. But in the short run, newer products, such as structured credit derivatives, do pose challenges. We simply do not have experience of how they behave in the full range of market conditions. The models that have been built by banks and other players in the market to value and hedge positions in these instruments are more sophisticated than ever before, but they are not proven in adversity. | It establishes a framework for cooperation on three joint responsibilities – first identifying risks to the stability of the UK financial system, second reducing the risks where we can, and third managing crises if they occur. The Bank contributes to all three. • We bring to the assessment of risks both the expertise in economic analysis that we have developed as the monetary authority and the experience that gives us as a participant as well as an observer of financial markets. • We can help to reduce risks directly through our engagement with payment systems and by working with the FSA at home, and with other financial authorities abroad, to improve the resilience of the financial system. • As Lender of Last Resort, we can contribute to the resolution of crises either by supplying liquidity to the market in general or, in rare circumstances, acting as the channel of support or facilitating transactions for individual institutions. The new MoU makes plain that the decision to authorise support operations rests with the Chancellor following independent advice from both the Bank and the FSA. Our concern is with the stability and resilience of the financial system as a whole. Inevitably that causes us to focus on the major UK banks, markets and infrastructure at the centre of our economy, not because they are the most likely to run into problems but because an incident that doesn’t affect them will not become a crisis for the system as a whole. | 1 |
One of the things that the Federal Reserve runs – the New York Fed runs – is called FedWire, so if you have to wire money, if someone needs the money immediately, you can wire that through a New York clearinghouse in the CHIPS system, or you can wire that through FedWire. It’s really important that – and FedWire interacts with lots of institutions around the country. We need to make sure that all those institutions that interact with FedWire also have their systems secured. So, it’s a big issue. We spend a lot of resources on it. We’re going to continue to spend a lot of resources on it. We take it very seriously. Audience Member: We welcome you to Jamaica. I’d just like to ask, there have been some other regulatory measures taken over the past couple of decades. As I understand it, they repealed the GlassSteagall Act and also passed the Sarbanes-Oxley laws. Would you say that these things had any effect on the 2008 recession, or has Congress been more responsible than not for the recession? President Dudley: I think that – well, I think Sarbanes-Oxley is actually – was basically about good financial reporting, good financial accounting. Accountability of the people at the top of the house for all the financial records and statements. The Federal Reserve is not subject by law to Sarbanes-Oxley, but we actually follow Sarbanes-Oxley nevertheless. We think it’s good governance. | Such price increases are all the more remarkable given that these prices had tended to stagnate in recent years. This jump in the price of commodities was mainly attributable to the continuous growth in domestic demand in the emerging markets and low extraction and production capacity. In our opinion, this situation is not likely to change in any direction in the short term. Although partially offset by the weak US dollar, the rise in the oil price during the final quarter of 2007 triggered a sharp increase in inflation – from 0.7% in September to 2% in December. The price rises of other commodities were also significant, but they only had a minor impact on inflation in Switzerland. In fact, commodities are not directly included in the reference basket used to calculate the price index, which means that their price increases only had a minor impact in this respect. However, the indirect effects, i.e. higher prices for goods and services as a result of higher production costs, constitute a much more serious inflationary risk. Having said this, the related impact last year was modest because many companies chose not to pass on their higher costs to consumers, given the considerable competitive pressure in numerous markets. Moreover, the relatively moderate increase in wage costs and gains in productivity over the last few years allowed companies to absorb a good part of the additional costs they had incurred as a result of higher commodity prices. | 0 |
Norman T L Chan: Monetary policy’s effect on wealth distribution and a way forward for policymakers Welcoming remarks by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong Monetary Authority and Federal Reserve Bank of New York Joint Conference, Hong Kong, 23 May 2019. * * * 1. Good morning, President Bullard, Director Hirtle, ladies and gentlemen. Welcome to this conference jointly organized by the Federal Reserve Bank of New York and the Hong Kong Monetary Authority. I would especially like to thank our overseas guests who have travelled a long way to be with us today. 2. Over the past 40 years, the global economy has undergone impressive growth and transformation. From 1980 to 2018, PPP-adjusted real per capita GDP in advanced economies and emerging market economies have increased by 94% and 205% respectively1, driven by globalisation, open markets, technological advancements, and the general trend of falling inflation. 3. But the news is not all good. While the world economy has done well on the whole, economic inequality has widened noticeably at the same time. Just take a look at the Gini coefficient, which is a commonly cited measure of income inequality. | • Trust that asset managers and investment brokers are acting in the clients’ interest and not front-running them is key to the investment process. The licensing and regulation of financial institutions confers a degree of legitimacy on them. But being a bank, an insurance company or a capital markets intermediary is not just about holding an official stamp to collect and manage funds. • As Mark Carney puts it, financial institutions also need a social licence to operate. 2 • They earn this social licence through a track record of exemplary conduct and a reputation for integrity and prudence. • Their obligations towards their customers and counterparties must be based on not just a contractual obligation but a moral one as well. Getting the culture right What accounts for the repeated cases of misconduct in the global financial industry? Weaknesses in governance, risk management, and operational controls have allowed unbridled risk-taking and encouraged some individuals to push, and in several cases, break the bounds of what is permissible. Since the financial crisis, the international regulatory community has issued directions and guidance to tighten financial institutions’ governance standards and curb excessive risk-taking. But weaknesses in governance and control, grave as they were in some financial institutions, cannot fully account for the spate of misconduct. There are deeper issues of trust, ethics and culture in the financial industry that we need to confront. First, finance is at risk becoming more “de-personalised”. | 0 |
The average return on equity varies significantly across countries – and France ranks among those with the most solid in the euro area – but on average it has stagnated at around 5%. This situation raises three questions, about three possible factors: low rates, non-performing loans and the digital transformation. The first factor, and the one most frequently mentioned, although sometimes to excess, is the low interest rate environment. Insurers and pension funds with a high level of fixed rate guarantees may suffer. As for banks, their net margins have been squeezed by the low interest rates and the flattening of the yield curve. However this question needs to be examined from all angles [slide 5]. Monetary policy has also had offsetting effects: lending volumes have picked up again; banks have booked significant capital gains; the cost of risk has fallen as borrower solvency has improved; the cost of funding including market and ECB financing has become cheaper. All in all, the overall impact of our non-standard monetary policy measures on bank profitability is expected to be modest for the period 2014–17. Furthermore, nominal interest rates are slightly on the rise since the turning point in August 2016, and nominal rates are the ones – not real ones – which matter for bank profitability, as well as the slope of the yield curve. The second factor putting pressure on profitability is the level of non-performing loans [slide 6]. | Paul Tucker: Remarks on “Making Monetary Policy by Committee” Discussant remarks by Mr Paul Tucker, Executive Director and Member of the Monetary Policy Committee of the Bank of England, on “Making Monetary Policy by Committee” by Alan Blinder, at the Bank of Canada Conference “International experience with the conduct of monetary policy under inflation targeting”, Ottawa, 22-23 July 2008. * * * Central banking involves a lot of learning – by doing, by thinking, researching, and by comparing ourselves with our peers. At the core of that learning process is exchanges amongst central bankers themselves, much of it in Basel. The other rich seam is the academic literature. But relatively few turn (or return) to scholarly reflection after periods of alternatively practising and theorising about central banking. Alan Blinder has therefore provided a signal service, since stepping down as Vice Chairman of the Federal Reserve Board, through his series of papers on monetary policy practice and how it both draws on and fuels theory. Today’s paper, on the role of committees in the making of monetary policy 1, places central banks into categories Blinder first set out a few years ago: single decision taker; autocrat-led college; genuinely-collegial; individualistic. It is especially interesting to the Bank of England, where for just over a decade we have operated a one-member/one-vote system for deciding our policy rate. As Blinder rightly says, comparatively speaking, this is clearly at the ‘individualistic’ end of the spectrum, and is a rare example of the species. | 0 |
The developments in the Middle East, Iraq in particular have resulted in soaring oil prices reaching highs of about $ per barrel, due to the insecurity and uncertainty pertaining to the global oil supply. Both gold and oil prices are expected to maintain high prices throughout 2004. Increased foreign assets obtained from export earnings from the real sector will in effect improve the capability of oil exporting African countries to release more funds towards the achievement of their environmental goals. In line with the expectations of the Heavily Indebted Poor Country (HIPC) initiative, many heavily indebted African states have cut their fiscal expenditure and are focussing on staying within their set targets. Attainment of the HIPC initiative completion point, will lead to the much needed debt BIS Review 74/2004 5 cancellation by Paris Club members resulting in an overall improved financial position of these economies. Failure to reach the target will however prolong reduced fiscal expenditure. Despite the long-term economic benefits of the HIPC initiative in achieving the MDGs, short and medium-term growth strategies of development concerning the environment and other areas will be constricted. 4.1 Prospects of economic growth The prospects for economic growth in Africa remain bright. The African Union (AU) is currently making efforts towards ensuring political stability in the continent aimed at promoting both foreign and domestic investor confidence. | When profit expectations ultimately fall back to more realistic levels, share prices drop. Corporate investment slackens as the economy’s aggregate capital stock is adjusted to match a more reasonable long-term return. This is accompanied by decreased household consumption, not least of capital goods, to match a more realistic assessment of the long-term development of income. The Austrian School also provides us with a fundamental insight into economic policy’s limitations. If a technological breakthrough leads to a period when the growth of investment and consumption exceeds what is sustainable in the longer run, there is bound to be a fall-off. After a supply shock of this type, measures of economic policy are simply not capable of preventing an adjustment to a more realistic appraisal of the future. The necessity of the adjustment means that the measures only postpone it and presumably tend to make it all the more painful when it does occur. History teaches us that after a period of what I would call “growing pains”, the optimism about what the new technology can achieve will be restored, albeit in a more orderly, realistic guise. In my opinion, neither the rapid fall-off in global activity nor the terrorist attacks on 11 September have upset the grounds for being optimistic about the new technology’s potential. Problems for many companies After the investment boom and the marked slowdown we are now experiencing, there is a risk of a good many companies having balance-sheet problems. | 0 |
This is evident with the significant three-fold increase in contributions of the product marketed through bancatakaful in 2005 which accounted for 20.4% of total contributions. Bancatakaful has contributed considerably to the increased penetration in the family takaful business, especially for single contribution takaful plans. We envisage significant inroads in the penetration rate of bancatakaful in future years in line with the positive trend shown by the conventional counterparts, where the bancassurance captured 45.3% of the new life insurance business premiums generated in 2005. Through efficient cost structures of bancatakaful and with the entry of joint-venture takaful operators involving banks and savings institution with extensive nationwide branch network, the takaful industry should maximize the potential of this alternative distribution channel. Finally, on the global front, Islamic finance has made significant inroads and has achieved growing global recognition. Another significant milestone in the progress of Islamic banking and finance as recently announced by Bank Negara Malaysia is the initiative to enhance the position of Malaysia as an international Islamic financial centre (MIFC). With the vibrant domestic Islamic financial industry that has become an integral component of the financial system, Malaysia is now well positioned to be an international centre of origination and issuance of Islamic financial instruments, fund and wealth management, Islamic financial activities in international currencies and takaful and retakaful businesses. As at year 2005, the total gross contributions from takaful business outside Malaysia recorded an insignificant proportion of the total contributions of the industry. | and HSBC Bank Malaysia Berhad, with the group's strong international network and experience, are well positioned to make Malaysia as their regional and global hub for Islamic banking and takaful. HSBC Amanah Takaful (Malaysia) Sdn. Bhd. should also leverage on the strengths of its shareholders i.e. HSBC, Jerneh Insurance Berhad and Employees Provident Fund, to further accelerate the growth of the takaful business. On this note, it is my pleasure to congratulate HSBC Insurance (Asia Pacific) Holdings Limited, Jerneh Asia Berhad, and EPF on this momentous occasion of the official launch of HSBC Amanah Takaful (Malaysia) Sdn. Bhd. I wish HSBC Amanah Takaful (Malaysia) Sdn. Bhd. every success in its endeavours and look forward to its contribution towards further development of the Islamic financial services industry in Malaysia. Dengan lafaz Bismillahir Rahmanir Rahim, saya dengan sukacitanya merasmikan pelancaran HSBC Amanah Takaful (Malaysia) Sdn. Bhd. Terima kasih. BIS Review 84/2006 3 | 1 |
We learnt this lesson the hard way in the wake of the GFC, and that is why the Committee's membership – comprising both central banks and supervisory authorities – is crucial to ensure that we benefit from both the system-wide and institution-specific perspectives. Moreover, given the increasingly cross-sectoral nature of many of today's financial stability issues – such as digitalisation and climate – I believe that more cooperation across different sectors – for example, on accounting, competition, anti-money laundering, data privacy, and taxation, to name a few issues – is also vital. In many instances, we are all working on similar issues from a slightly different angle, and so we would surely all benefit from sharing notes and ensuring that there are no unintended gaps or overlaps. Let me end by noting that cooperation need not mean full harmonisation. While having a single, uniform "global rule book" may be theoretically appealing, the fact is that we live in a heterogeneous world, with structural and cyclical differences across banking systems and jurisdictions. Moreover, many of our central bank and supervisory authority members are accountable to their national legislatures, so it is crucial that global standard setting bodies are perceived to be legitimate and transparent. This is why the Basel Committee has an extensive outreach programme with a wide range of stakeholders that go beyond market participants, to include academics, public sector bodies, legislatures and civil society. Indeed, there needs to be an appropriate balance between globally-agreed decisions and national measures. | Pablo Hernández de Cos: Central bank independence and policy coordination in a globalised world Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the International Symposium on Central Bank Independence, panel on "Central bank independence and policy coordination in a globalised world", organised by Sveriges Riksbank, Stockholm, 10 January 2023. *** Let me start by thanking the Riksbank for organising this symposium and for inviting me to take part in this panel. In many ways, the theme of our panel – central bank independence and policy coordination in a globalised world – is a good description of the objectives to which Stefan Ingves' many, many, achievements have contributed during his long and varied career, including most notably as Chair of the Basel Committee and as Chair of the Advisory Technical Committee of the European Systemic Risk Board. It is therefore somewhat humbling for me to take part in this discussion as his successor as Chair of both these Committees. While I will focus my remarks on the financial stability aspects of independence, globalisation and coordination, allow me to start by recalling the main reason why the task of controlling inflation has been assigned to independent monetary authorities in a large number of economies. The argument is based on what the economic literature calls "time inconsistency", which highlights the role of expectations in agents' behaviour. Price stability unquestionably enhances economic growth and improves wellbeing in the long run. | 1 |
It was created in 1925 by the government, which was unimpressed by the then private service offerings for paying remotely – basically sending cheques and banknotes by post! With the infrastructure in place, transfers via Postgirot quickly gained ground. Private banks took some time to react, but did so compellingly when in 1959 they founded Bankgirocentralen – the future leading clearing house in Sweden. Bankgirot also kick-started a long tradition of Swedish banks working together in the fields of payments. Numerous are their common services targeted at end-users, that is, households or businesses as payers or payees. Many were developed and then operated by Bankgirot, which became more than a pure clearing house. Today, Bankomat (ATMs) and Getswish (instant mobile payment service) are other examples of joint ventures that allow their owners, the banks, to offer joint payment services to customers. By collaborating on rules and standards for common payment instruments, banks enabled payments between their customers. Basically, you were not limited to making payments within the same bank, a closed-loop system, as it is sometimes called. Broadening the network of payers and payees provided a reach that increased the efficiency of the overall payment system. Increased digitalisation also meant that sharing infrastructure and development costs was cost-effective for the banks. Most recently, the major Swedish banks have joined forces with Danish and Finnish equals to build a Nordic clearing platform – the P27 initiative. As well as further exploiting economies of scale, the intention is to smooth payments across borders within the Nordics. | Much in the same way, the Zambian private sector in general and Celtel Zambia plc in particular has the challenge of opening up to creditworthiness scrutiny and withstanding world-class due diligence by recognising and upholding good corporate governance norms of transparency, accountability and fairness. We are also aware that a formal sovereign credit rating undertaken by international credit rating agencies would not only further open up Zambia to global financial markets but also permit the appropriate reflection of our sovereign creditworthiness or risk premium in private sector financial dealings, which we believe is currently much better than generally held by both domestic and offshore market participants. In other words a good sovereign rating would improve the terms and conditions of international financial dealings for the Zambian private sector and businesses which could also be passed on to consumers in terms of affordable pricing and improved product quality. Ladies and gentlemen, today’s event therefore is an opportunity for honest introspection, though, this time not about the potential of our economy but about our own private and collective resolve of translating this potential into jobs, incomes and a quality life for all. We all need to recognise and BIS Review 126/2006 1 understand that our commitment to upholding good corporate governance practices in both the public and private sectors and the resultant confidence and trust of our citizens, customers and clients be it in Government policies or private sector goods and services is inescapable for the long term health of both our society and businesses. | 0 |
The MPC’s remit is broadly the same today – it aims to return inflation to the 2% target while avoiding unnecessary economic costs. Another critical event was the Global Financial Crisis (GFC), which had similarly fundamental implications for the Bank. One lasting image of that crisis is of queues outside branches of a high street bank – Northern Rock. I worked on the Bank’s response – providing liquidity support to Northern Rock as depositors withdrew their cash. In the event that was just the beginning of the crisis. One year later, the US investment bank Lehman Brothers had defaulted and confidence in the financial system had collapsed. As a consequence we saw a credit crunch and economic costs on a huge scale. There were many lessons learned from the GFC. One was that monetary stability is not a sufficient condition for financial stability – more was needed. We needed macroeconomic policymakers to take account of ‘systemic risks’ in the financial system. That means understanding that total risks in the system might be larger than the sum of their parts. Why? Because these risks can amplify each other, particularly in times of stress, and as they do so can harm economic growth. In the UK, Page 3 this realisation led to the creation of a new committee with clear responsibility for the stability of the financial system as a whole – the Financial Policy Committee (FPC) on which I sit today. The FPC’s primary objective is to pursue financial stability. | The views expressed here are not necessarily those of the Financial Policy Committee. References Aikman, D., J. Bridges, S. Hacioglu Hoke, C. O'Neill, and A. Raja. (2019a). “Credit, capital and crises: a GDP-at-Risk approach”. Bank of England Staff Working Paper No. 824. Aikman, D., P. Chichkanov, G. Douglas, Y. Georgiev, J. Howat and B. King. (2019b). “Systemwide stress simulation”. Bank of England Staff Working Paper No. 809. Allen, W. A. (2022). “Models of Central Banking and the Organisation of the Bank of England”. Available at SSRN 4283767. Altunbas, Y., L. Gambacorta and D. Marques-Ibanez (2014). “Does Monetary Policy Affect Bank Risk?”. International Journal of Central Banking, 10(1), 95-136. Aramonte, S. and P. Rungcharoenkitkul (2022). “Leverage and liquidity backstops: cues from pension funds and gilt market disruptions”. BIS Quarterly Review, December. Bailey, A. (2022a). “The economic landscape: structural change, global R * and the missinginvestment puzzle”. Speech at the Official Monetary and Financial Institutions Forum. Bailey, A. (2022b). “Monetary policy and financial stability interventions in difficult times” Speech at the G30 37th Annual International Banking Seminar, Washington, D.C. Balls, E., J. Howat and A. Stansbury (2018), “Central Bank Independence Revisited: After the financial crisis, what should a model central bank look like?”. Harvard M-RCBG Associate Working Paper No. 87. Baranova, Y., G. Douglas and L. Silvestri (2019). “Simulating stress in the UK corporate bond market: investor behaviour and asset fire-sales”. Bank of England Staff Working Paper No. 803. Bean, C. (2010). “Joseph Schumpeter Lecture The Great Moderation, The Great Panic, and The Great Contraction”. | 1 |
Under passporting, currently we cannot apply our preference for retail subsidiaries to banks from elsewhere in the EEA. It would be odd to continue with this if the UK and EU27 become third countries following Brexit. Subject to the negotiations, our current planning assumption is therefore that all international banks will need to put material retail business in a subsidiary. This should be no surprise given our existing policy – we are 7 engaged on this with the handful of relevant branches and will continue to promote a smooth transition . How far does this logic go? Overseas there are moves afoot to apply elements of this logic to other parts of financial services, in particular to wholesale banking. Why does this matter to us? The UK provides unrivalled access to global capital markets. Over three-quarters of foreign exchange and OTC interest rate derivatives trading in the EU takes place here. International banks from Asia to the Americas use their UK presence to raise finance on behalf of their home group. Since the first Eurobond in 1963, which financed the Italian motorways, international banking in London has driven growth in real economies around the world. And custody banks operating here safeguard and administer assets on behalf of institutional investors from east to west. Wholesale capital markets and the banks which serve them are deeply interconnected and contribute to the efficient allocation of capital. International banks match savers and borrowers across the globe, reducing 8 funding costs, facilitating cross-border investment and financing trade . | The BIS Review 30/2009 1 combined effect now is a painful deleveraging process that drives down asset prices, shrinks balance sheets, and feeds straight into the real economy in the form of credit contraction. Adverse feedback loops between the financial system and real economy have become entrenched. The Eurozone, which accounts for the second largest share of global GDP, has deep financial linkages with the US. Through these linkages, financial stresses were transmitted across the Atlantic rapidly. Many banks in Europe, as well as other financial institutions such as insurance companies and asset managers had large exposures to US assets. Many were over-leveraged and dependent on benign conditions for liquidity to continue flowing. So they got sucked into this vortex. We have a similar story of credit evaporating and strains being felt in the real economy. Over in Japan, recovery from a decade of economic growth stagnation has been derailed by the collapse of external demand with serious knock-on effects on domestic activity. Japan’s capacity to support the growth of other advanced and emerging economies is now diminished. So a global recession is now upon us. The three economic giants – the US, Europe and Japan – together accounted for just over 50% of global GDP in 2007. All three cylinders are sputtering. The impact has already been felt worldwide. How long and how deep this recession will be is still an unknown, though many economists are predicting a long L-shaped trajectory. | 0 |
While impact analyses reveal that the reform would increase capital requirements in some jurisdictions, they also show that certain facets of the reform would lower them. Specifically, some of these latter facets have already been implemented via the European quick fix I mentioned earlier.14 The objectives of this second phase of the Basel III reform, which consist of balancing simplicity, comparability and risk sensitivity, remain wholly in place. Thus, after deciding to defer implementation by one year so as to increase banks’ operational capacity, all members of the Basel Committee on Banking Supervision (BCBS) have committed to its full and consistent implementation on the new date agreed. The economy and financial system will thus have sufficient time to absorb the main effects of this crisis and to progressively rebuild their buffers, if they were used. Domestically, the coordinated supervision of the risks to financial stability has been strengthened in recent years through the creation of the Spanish macroprudential authority 14 For example, in relation to the digitalisation of the banking sector, this reform exempts from deduction from CET1 investment in software development, databases and database management; the related amortisation, however, must still be deducted. This is because such investment is considered a basic input for banks to pursue their activities amid the economy’s and society’s growing digitalisation, and for banks to be able to better compete with BigTech firms, which are software asset-intensive. | The level of solvency had increased, in terms of CET1 capital, from € billion in December 2007 to € billion in December 2019, up by slightly over 35%. This rise in capital entailed 1 From the 2008 peak to March 2020, the number of employees fell by 48% and branches by 35%. 1 a notable increase in loss-absorption capacity. Indeed, almost half of all capital took the form of buffers above the minimum regulatory level, which can be released should it prove necessary.2 In comparative terms, the CET 1 ratio of the main Spanish deposit institutions stood below the European average, while their leverage ratio is slightly above. This is because Spanish banks’ asset risk weightings are higher, basically as a result of a more intensive use of the standardised approach to risk management. The drive spread to the entire non-financial private sector in Spain, the deleveraging of which from 2010 to 2019 (almost 30 pp of GDP for the household debt ratio and 45 pp of GDP for firms’ debt level) has contributed to it being better positioned to tackle the strong shock to activity imposed by the pandemic. One way of illustrating this resilience are the stress tests we supervisors regularly conduct. This is the case of the FLESB (Forward Looking Exercise on Spanish Banks), conducted annually by the Banco de España. Its latest aggregate results were published in our autumn Financial Stability Report. | 1 |
Let me express a clear personal opinion; financial crises of the past were often, in large part, created by the people at the top making poor decisions – people not possessing the right information; not having due regard for risk; not being properly incentivised. Significant failures have often had their roots in poor governance with insufficient checks and balances to the decisions of powerful individuals. Strong, effective systems of oversight and risk management are paramount in meeting the PRA’s objectives for the safety and soundness of firms and insurance policyholder protection. Not surprisingly, governance issues are consistently at, or near the top, of the PRA’s agenda whether for banks or insurers. I can safely predict that this focus is not about to lessen any time soon. Firms in tomorrow’s world need to aim for governance best practice. BIS central bankers’ speeches 1 The recent banking crises further illustrated that one of the most obvious ways in which financial stability can be undermined is through disorderly firm failure and the consequent disruption of financial services. The PRA’s stance is that unsuccessful business models need to be allowed to fail, but that failure should be in an orderly manner so as not to disrupt the provision of core financial services. And I think we would all agree that the taxpayer should not be asked to bail out a failed firm. One difference from banking is that failing insurers usually do exit in an orderly manner. | Durmuş Yilmaz: The Central Bank of the Republic of Turkey – the history, recent developments and the future of monetary policy in Turkey Opening remarks by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the Conference on the occasion of celebrating the 75th anniversary of the Central Bank of the Republic of Turkey, Ankara, 1 June 2007. * * * Governors, Colleagues, Friends, and Distinguished Guests, It is a great pleasure to welcome you to this Conference on the occasion of celebrating the 75th anniversary of the Central Bank of the Republic of Turkey. As this conference is also President Trichet’s first official visit to the Central Bank, I would like to express my heartfelt gratitude to him for joining us at this special event. On occasions like these, I believe, it is appropriate to look back and make an assessment of the institutional progress the Central Bank of Turkey has made since its inception. I would therefore like to take this opportunity to share with you the most significant changes taken place in the Bank’s history, and then focus on the recent developments in the implementation of monetary policy. Finally, from a medium to long-term perspective, I would like to say a few words on the future of monetary policy in Turkey. | 0 |
Muhammad bin Ibrahim: Creating an inclusive, sustainable and prosperous Labuan Speech by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Labuan Industry Annual Dinner 2017, Labuan, 27 October 2017. * * * It is a pleasure to speak at this dinner. Last year I spoke on the urgent need for Labuan International Business and Financial Centre (IBFC) to reinvent itself to stay relevant – in other words, for us to reinvent ourselves in order to survive in a new world reality. In my remarks tonight, I will build on last year’s theme and touch on three imperatives for change in Labuan, namely: 1. First, to ensure the local community benefits from economic activity; 2. Second, to transform the economic structure to become one that is more diversified, resilient and sustainable; and 3. Third, to rationalise and enhance tax incentives consistent with international best practices. Ensuring the local community reaps the benefits of economic activity Labuan has come a long way. After two and a half decades, it is now home to close to 14,000 companies, 54 banks, more than 200 insurance related entities, foundations and leasing companies, respectively. Nonetheless, the growth of the financial sector should have more spillover benefits to the local community. Two facts illustrate this: 1. First, gains in income must be more evenly distributed across the local population. The top 20% earns more than 5 times the income of the bottom 40% household group1. | Tharman Shanmugaratnam: Financial technology (FinTech) transforming financial services in Singapore Speech by Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore, at the Launch of LATTICE80, Singapore, 10 November 2016. * * * Introduction 1 Good morning. Thank you for inviting me to join all of you. Let me begin by congratulating Marvelstone on the launch of LATTICE80. 2 It is the first innovation space in Singapore dedicated to and designed specifically to support FinTech. LATTICE80 is also the first not-for-profit private sector initiative in this business of nurturing start-ups. The FinTech Phenomenon 3 FinTech – or financial technology – is transforming financial services, both from within established financial institutions and from outside the regulated sector through new, FinTech players. 4 When FinTechs first came to global prominence, it was tempting to cast this as a battle between new, innovative and responsive players and lumbering, flat-footed banks and other financial institutions. 5 The real picture is more nuanced, mainly because the incumbents have not been sitting still: Many of them are investing heavily in technology to streamline and optimise entire swathes of operations. For example, several initiatives are underway among banks to tap on distributed ledger technology to achieve swift, seamless and secure trade settlement. Several financial institutions have set up in-house FinTech units to replicate the start-up culture. They are also collaborating with and, in some instances, buying over promising FinTech companies. 6 And not many technology companies aspire to become financial institutions. | 0 |
Adopting a more systematic and rigorous approach to assessing trust in the central bank may not only help address these shortcomings but also to acknowledge the full diversity of its responsibilities. I have already noted research stressing the relevance of credibility for the effectiveness of monetary policy, but credibility and public trust may be equally important for financial stability, the issuing of currency, or the generation of statistics. Moreover, one can conceive that trust across these functions could be somewhat connected. Loss of trust from a misconceived financial intervention or from distorted statistics may spillover to the way stakeholders assess the credibility of monetary policy. To foster trust, a central bank must go beyond the conduct of monetary policy to focus on how to develop reliability, adaptability, integrity, openness and fairness in its different areas of work. In the context of central banking, reliability is not equivalent to a dovish monetary policy giving priority to shortsighted demands to stimulate the economy, but to do the proper balancing of risks to align monetary policy with long-run social welfare. It means acting in a coherent way, showing thorough decision-making, carefully explaining reasons and arguments behind every action, conducing predictable decisions, and running efficiently the central bank as an organization. For this, I consider essential a clear framework for monetary and financial policy, data-driven decision making, unquestionable technical capacity and statistics, and skillful crisis management. | In sum, after recognizing credibility as the main asset of a central bank, especially an independent one, we can conclude that drawing on parallel work on trust in institutions may provide a useful Page 6 of 8 Central Bank of Chile July 2019 framework to assess the current situation and to guide action to address existing gaps and vulnerabilities. Trust in the Central Bank of Chile The experience of the Central Bank of Chile can illustrate some of the ideas above. The IMF study on the importance of credibility for monetary policy underscored anchoring of inflation expectations in Chile as key to the effectiveness of its monetary policy and macro resilience in the face of external shocks. Deviations of long-term forecasts of headline inflation from target have been less than 0.1%–being the lowest for a sample of emerging countries, and even lower a benchmark group of advanced economies. This is remarkable considering that inflation volatility in Chile has not been particularly low relative to other emerging economies. Yet we do not see credibility as an immutable attribute, given the dynamism of trust in institutions in the public opinion and market perceptions. We believe that a positive past record helps, but trust can deteriorate in a number of ways, some of them pretty fast, in the face of new standards and developments. Therefore, trust needs to be protected and enhanced in a systematic way with different stakeholders in the different dimensions of activity of the Bank. | 1 |
This concerns a quite substantial segment of the European banking sector. Consider that almost 70% of banks supervised by the SSM have not issued listed shares, 59% have not issued convertible bonds and 18% do not have subordinated debt on their balance sheets (see Chart 5). Many of these banks will foreseeably have to make adjustments to their business model, to align it to the change in size and composition of bank balance sheets required under the new regulations. Chart 5 SSM SIGNIFICANT INSTITUTIONS BY OWNERSHIP STRUCTURE 100% 90% LISTED 80% 70% 60% COOP. and SAV.BANKS • 59% have not issued any AT1 instrument (e.g. convertible bonds) 50% 40% STATE OWNED 30% 20% NON-SSM PARENT • 18% have not issued any T2 instrument (e.g. subordinated debt) 10% OTHER 0% SOURCE: Banco de España 3. Possible responses by the banking sector Macroeconomic and regulatory developments support the increasingly widespread perception that there is excess capacity in the European banking industry that will heighten competition and jeopardise the viability of those institutions least able to adapt to the new environment. BIS central bankers’ speeches 5 3.1 Efficiency Naturally, credit institutions’ first line of defence is to gain in efficiency. In recent years, as observed in Chart 6, cost-to-income ratios across the European industry have not appreciably improved in the different banking systems and they remain significantly heterogeneous. That suggests there is considerable room for improvement. | Total new lending to households in 2021 amounted to € which is higher than the € credit that was granted during the pre-pandemic year of 2019 and well above the € granted during 2020. The momentum has been maintained in the first two months of 2022 as well, since the new lines of credit amounted to € against € last year. Total new lending to businesses in 2021 accumulated to € which is higher than the € granted in 2020 but subdued when compared with the € granted in 2019. It is evident that the banks' financial position, the regulatory measures and initiatives taken by both the European Central Bank and Central Bank of Cyprus are the factors that contributed to this positive post-Covid development of the banking sector providing support to the economy. However, banks must, for their own good and profitability as well as for the good of the Cypriot economy, become better and more efficient at serving their clients. I have made this point to the CEO's and Chairmen of the banks a number of times and I also called a meeting between the CBC, economy stakeholders like KEBE, Institute of Certified Public Accountants of Cyprus, the Cyprus Bar Association and the Cyprus banks to promote and facilitate better and more efficient ways of doing business with the banking sector. Whereas as agreed, follow-on meetings have subsequently taken place 3/5 BIS - Central bankers' speeches between the stakeholders, I'm forced to say that I have not seen practical progress. | 0 |
Cold comfort because the UK’s productivity slowdown appears to have been larger than in almost any other country. Given its seriousness, it is no surprise there has been no shortage of words written, and proposals made, on how to understand and solve the productivity problem. 2 If productivity was measured by words written and spoken on the subject, it would have long-since been solved. The UK government has issued its own green and white papers, setting out an industrial strategy. 3 These policy proposals hold, I believe, real promise. For today, I thought I would begin by providing some diagnostic evidence on the UK’s productivity problem, 4 focusing on the long and lengthening tail of lower-productivity firms. This is not the only lens through which to view the UK’s productivity problem. Looking at the problem by sector, by region or by city all have merit 1 Recent references to the ‘UK productivity problem’ include Macpherson (2018) and Wren-Lewis (2017). For example, Aghion et al (2017), Jones (2016), Jacobs et al (2017). HM Government (2017) and Department for Business, Energy & Industrial Strategy (2017). 4 Haldane (2017), Berlingieri et al (2017), Andrews, Criscuolo and Gal (2015), Andrews, Criscuolo and Gal (2016). 2 3 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 5 too. But I find the distributional lens a useful one for identifying the source of the UK’s “productivity gaps” – its gap with competitor countries and its gaps with its own past performance. | Chart 6: Change in firm-level productivity dispersion since 2001 Services (indexed) Manufacturing (indexed) Index, 0=2001 Denmark Finland France Italy Japan Norway New Zealand UK 2001 2003 2005 Index, 0=2001 0.7 0.6 0.5 0.4 0.3 0.2 2007 2009 2011 2013 0.7 Denmark Finland France Italy Japan Norway New Zealand UK 0.6 0.5 0.4 0.3 0.2 0.1 0.1 0.0 0.0 -0.1 -0.1 -0.2 2015 2001 2003 2005 Year 2007 2009 2011 2013 -0.2 2015 Year Sources: OECD and Berlingieri, Blanchenay and Criscuolo (2017); ONS Research Database and Bank calculations. Notes: Chart show log difference between 90th and 10th percentiles indexed to zero in 2001. UK data only available from 2002, so UK base year = 2002. 30 All speeches are available online at www.bankofengland.co.uk/speeches 30 Chart 7: UK, Germany and France firm-level productivity (data for 2013) Percentage of firms 12 Expected value of productivity in country UK 10 Germany 8 France 6 4 2 0 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 80 100 120 140 160 180 200 Productivity (difference from expected value as a percentage of peer group median) Sources: McKinsey and Orbis (2013). Notes: Data kindly provided by McKinsey Global Institute. | 1 |
“Before” are the closing rates on the day before the repo rate path was published and “After” are the closing rates on the day it was published. Prospera’s survey covers money market participants. Sources: Reuters EcoWin, TNS SIFO Prospera and the Riksbank. A recurring phenomenon during the three years with our own repo rate path has been that market expectations of the repo rate have from time to time deviated from the Riksbank’s repo rate forecast. Allow me to comment further on this. 6 In addition to the repo rate cut of 0.25 per cent, the Riksbank has granted loans at a fixed interest rate for the purpose of bringing down actual interest rates paid by companies and households. BIS Review 85/2010 5 Market expectations and the repo rate path As I mentioned earlier, one important purpose of publishing a repo rate path is to influence expectations among the participants in the economy. The established view at present is that monetary policy has its main impact by influencing expectations of future interest rates. A natural question here is if the Riksbank’s repo rate path has differed from other agents’ expectations of the repo rate, and how large the deviations have been. What role do the differences between market expectations and the Riksbank’s forecasts play? How large are the deviations… As we have seen, the Riksbank, the market and other economic agents can have different views on how the repo rate will develop. Sometimes the differences are small, and sometimes they are large. | This borrowing was in turn channelled via domestic banks into projects with long-term funding. When foreign and domestic investors began to show concern over uncertainty regarding the growth potential of these countries, the course of events moved rapidly. This development shows how a misdirected economic policy can soon have devastating consequences for a country. However, instead of focussing on the content of the economic policy, many critics have singled out the open capital markets as culprits. Some of these critics have therefore considered capital controls to be a good means of avoiding future crises. Yet the experiences of the 1970s and 1980s show that these controls cannot counteract the effect of an inadequate domestic economic policy in the long term. Sooner or later it will be necessary to adapt the exchange rate. It is also very doubtful whether capital controls have contributed to increasing monetary policy independence during these decades, which was one argument put forward in favour of the controls. In practice, it was probably the case that the arguments for keeping the controls were often used to postpone necessary macroeconomic adaptations and structural reforms. Nevertheless, while financial deregulation creates opportunities for increased welfare, it is important not to ignore the problems in the financial system. Over the years, authorities and organisations have tried to minimise these by producing various international standards and codes, and have continued to debate what more needs to be done to prevent as far as possible the emergence and spread of any new financial crises. | 0 |
The implication, as my colleague Silvana Tenreyro emphasised in a recent speech[13], is that it makes more sense to think of the impact of the policy through the lens of prices – what it does to bond yields – than quantities. This was also the recommendation of the Bank’s Independent Evaluation Office in a report issued a couple of years ago: “Rather than explaining QE in terms of ‘injecting’ or ‘printing’ money, QE could be framed as a continuation of conventional monetary policy that pushes down long-term interest rates …Framing QE as a change in an interest rate rather than the creation of a quantity of money may also reduce the perception that QE is a transfer of wealth to the rich or to banks.” I think this makes a good deal of sense. The demand for commercial bank money: If desired holdings of central bank money can move around (even for given levels of aggregate spending and economic activity), the same appears to be true of commercial bank deposits. As we’ve seen, the supply processes aren’t the same: in the case of broad money it’s the commercial banks themselves (not the central bank) that directly create the deposits, and effectively accommodate such shifts in demand[14]. But the basic intuition is the same. | 5/5 BIS central bankers' speeches | 0 |
The introduction of its Finance Qualifications Structure that will be launched today has strategic significance, as it aims to link the various qualifications relevant to financial practitioners under a cohesive framework which will allow for greater mutual recognition on qualifications and provide clear and systematic learning path for financial professionals. Complementary to this initiative is the launch of the Learning Standard to ensure more global consistency for learning contents across the financial services industry in line with international industry benchmarks. Technology can also be explored to remove barriers or impediments in promoting greater interconnectedness in Islamic finance as we aim to create stronger linkage with the real sector. As a catalyst to improve market access and enhance outreach, technology has the potential to disseminate information more efficiently, to promote greater market transparency and price discovery. Today, the launch of the digital application for Islamic finance is a further pioneering platform to facilitate sharing of information and for greater engagement, including between industry players that transcend borders. Such innovation is an impetus for raising greater awareness on benefits of Islamic finance as a form of financial intermediation. Realising cross-border business opportunities for greater linkages The next frontier of Islamic finance beckons the global Islamic finance marketplace to evolve its business models to that which would strengthen the nexus of Islamic finance with the real economy. | The upcoming debut sovereign issuances from established financial centres and emerging markets and the increasing diversity of the composition of sukuk investors across continents, in addition to the growing trend for multi-currency sukuk issuances, cumulatively contribute towards strengthening the dynamism of the sukuk as a global product for fund raising and investment activities in the international financial markets. Malaysia, has witnessed an increasing trend of issuances of foreign currency denominated sukuk in our domestic sukuk market, reinforced by an increasingly wider investor base as reflected by the increased and more diversified foreign investor participation in such issuances. In parallel with this rapid growth of cross-border financial flows has been the increased attention to the development of the international financial architecture relating to financial stability in the Islamic financial system. With the important two international institutions already well established, that is, the accounting standards setting organisation, AAOIFI, and the prudential standard setting body, the IFSB, concerted global efforts have been directed towards the progressive implementation of the recommendations in the eight building blocks identified in the Islamic Finance and Global Financial Stability Report 2010. In particular, the efforts have been focused on the adoption and operationalisation of the prudential standards and the development of the potential for effective liquidity management as part of the efforts to safeguard financial stability. It is encouraging that there has been a higher adoption of the prudential standards issued by the IFSB, with implementation by 13 regulatory and supervisory authorities worldwide with indications that there are more in the pipeline. | 1 |
Philipp Hildebrand: Thoughts on asset management in Switzerland Summary of a speech by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the Swiss Funds Association, Berne, 28 March 2006. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch) * * * Summary Asset management is an important source of earnings for banks in Switzerland. The financial industry, in turn, is the largest sector in the Swiss economy and of crucial importance for economic development. Assuming that the world economy stays on its expansionary course, global assets will continue to grow strongly. Moreover, the rapid increase in the volume of accessible information means that clients are often better informed. It is also giving rise to a broader product range and generating tougher competition and cost pressure amongst providers. These trends will bring about far-reaching changes in asset management over the medium term. Money market, equity and bond investments managed on a moderately active basis often fail to pay the consistently above-average yield that would warrant their costs. They will probably lose ground to passively managed, inexpensive products. Substantially better performance will be essential for the traditional products that remain. Alternative investments, too, will benefit from the structural changes. However, this area will continue to be affected by the limited supply of exceptional portfolio management expertise. Asset management in Switzerland compares fairly well on an international scale in terms of performance and operational efficiency. | This guideline is unlikely to stand in the way of market development, as the $ is not a currency commonly used for transactions abroad, and non-resident entities would in any case wish to swap or convert the $ proceeds into a currency of their choice for overseas use. With this liberalisation, the following will now be possible. a. First, MAS will exempt all individuals and non-financial entities, which includes corporate treasury centres, from the $ lending restrictions of the non-internationalisation policy. This recognises that such entities are not usually the prime drivers of destabilizing currency speculation. b. Second, for non-resident financial entities that continue to be governed by the $ policy, we will lift restrictions in the following financial activities: i. Asset swaps, cross-currency swaps and cross-currency repos can now be transacted freely. MAS had hitherto treated such transactions as forms of $ lending. It will no longer do so. ii. Securities Borrowing and Lending (SBL) – Financial institutions in Singapore may now lend any amount $ securities in exchange for both $ or foreign currencydenominated collateral. MAS will lift the requirement that any lending of $ securities exceeding $ million has to be fully collaterised by $ collateral. BIS Review 19/2002 3 iii. $ FX options – Financial institutions may also freely transact $ FX options with nonresident entities. FIs no longer need to maintain documentary proof showing that $ FX option transactions with non-resident entities are for hedging purposes. iv. | 0 |
The US central bank, the Federal Reserve, noted at its most recent monetary policy meeting on 10 August that the recovery has slowed down and that inflation has fallen in recent months. The Federal Reserve’s assessment was therefore that the recovery will be slightly weaker during the coming period than was previously anticipated. At the same time, the Federal Reserve repeated that it would hold its policy rate low for a longer period of time. They also notified that – unlike the ECB and the Riksbank – they will be holding the size of their balance sheet unchanged by reinvesting the funds the central bank receives when its holdings of securities mature in long-term government bonds. The Federal Reserve is thus postponing the start of its normalisation of monetary policy, compared with earlier indications. (Figure: Central banks’ balance sheets). Weak but rising growth in Europe According to the Riksbank’s forecast in June, GDP growth in the world as a whole will be strong. However, growth in our own region will be modest. The Riksbank’s assessment was that GDP growth in the euro area will be 0.8 per cent this year, but that it will increase in 2011 and 2012. (Figure: GDP growth in the euro area). The factor behind the upturn in the euro area is exports. Exports benefit from the strong growth in Asia and from the fact that the euro has weakened in relation to other currencies. | Monetary policy is still aimed at supporting the recovery in the economy, but a normalisation has begun. According to the assessment we made in June, the normalisation process will continue gradually through interest rate adjustments and the maturity of fixedrate loans. The new information we have received over the summer largely supports the picture of the recovery in the world economy continuing. There are some signs of weakness in the United States and Asia, while Europe looks slightly stronger than expected. The unease on the financial markets has waned, but the situation is still not normal. The new information also points to a continued recovery in the Swedish economy. However, the Riksbank will not make any new overall assessment of economic developments until the next monetary policy decision, which will be made on 1 September. By then we will have received more information and we will update our forecasts. Thank you! 8 BIS Review 109/2010 Global GDP growth Annual percentage change 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 70 75 80 85 90 95 00 05 10 Sources: IM F and the Riksbank Note. Striped bars represent the Riksbank’s forecast. | 1 |
By the end of the 1930s, there were only six British banks left with reserve liability. In the US, a similar process was underway. Systemic bank failure during the Great Depression was taken as evidence of the inadequacy of extended liability in protecting depositors. As in the UK, making a call on shareholders was deemed likely to make a bad situation worse. It was quickly replaced with Federal deposit insurance in 1934. With reserve liability gone, so too did the rationale for shareholder vetting. So by the 1930s the governance and balance sheet structure of banks was unrecognisable from a century earlier. Ownership and control were amicably divorced. Ownership was vested in a widely dispersed set of shareholders, unvetted and anonymous. Their upside payoffs remained unlimited, but their downside risks were now capped by limited liability. The pool of reserve capital had largely evaporated. Later in the 20th century, these governance and balance sheet features spread across the financial system. During the 1990s, many of the larger global investment banks abandoned their private partnership status to become limited liability public companies. In the UK, a number of mutually-owned building societies followed suit and turned public. The rationale was familiar from a century earlier – the desire to break their balance sheet chains. By the end of the 20th century, joint stock banking was pre-eminent. What impact did these governance changes have on banks’ risk-taking incentives? Finance theory here is admirably clear. | Due to unlimited liability, control rights were exercised by investors whose personal wealth was literally on the line. That generated potent incentives to be prudent with depositors’ money. Nowhere was this better illustrated than in the asset and liability make-up of the balance sheet. The market, amorphously but effectively, exercised discipline. It was given a helping hand by market-based prudential safeguards. Directors of a bank had the capacity to vet share transfers, excluding owners without sufficiently deep pockets to bear the risk. Shareholders also maintained their liability after the transfer of their shares. This put shareholders firmly on the hook, a hook they then used to hold in check managers. Managers monitored shareholders and shareholders managers. In this way, the 19th century banking model aligned risk-taking incentives. But the global environment was changing. During the first half of the 19th century, rich countries were becoming hungry for capital to finance investment in infrastructure, including railways. As long as capital in banks was restricted to a small number of unlimited liability partners, credit was constricted. In 1826, the 6-partner restriction on UK banks was lifted, allowing banks to operate as joint-stock companies. No longer was ownership and control vested in a single agent. But pressures were building to liberalise further. Unlimited liability became the next target. In the words of British parliamentarian William Clay, “unlimited liability has a tendency to deter persons of fortune, intelligence and respectability from becoming partners or managers”.3 Shareholder discipline was proving rather too effective as a brake on risk-taking. | 1 |
15 I will return to the Fourth Industrial Revolution when discussing future growth. A Different Growth Story As appetising as this growth story sounds, a reading of the history books make it difficult to swallow whole. It is certainly plausible to think that a divine coincidence of Hargreaves, Watts and Arkwrights, in roughly the same place at roughly the same time, resulted in a white-hot crucible of creativity. Indeed, we might be seeing that self-same crucible of creativity in Silicon Valley today. But the Industrial Revolution was hardly the first firing of that crucible. We have, through history, seen many episodes of furnace-hot crucibles of innovation, spanning most continents and most centuries. 16 Successful cities, regions, countries, continents and empires of the recent and distant past were often built and sustained on ideas and innovation and accompanying investment in machines and people. The Roman Empire is a case in point. Some of you will remember the sequence from Monty Python’s The Life of Brian which begins with the rhetorical question: “What did the Romans ever do for us?” The sketch concludes: “But apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order...what have the Romans done for us?” You do not need to go that far back for examples of big ideas which had a transformative impact on industry and society. | Norman T L Chan: Bond Connect – enhancing Hong Kong as an international financial centre Remarks by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Bond Connect Launch Ceremony, Hong Kong, 3 July 2017. * * * The Honourable Carrie Lam Cheng Yuet-ngor, Deputy Director Huang Liuquan, Deputy Director Qiu Hong, Financial Secretary Paul Chan, Deputy Governor Pan Gongsheng, Mr CK Chow, distinguished guests, ladies and gentlemen, 1. Good Morning. 2. I am very pleased to join you today for the launch of Bond Connect. Bond Connect marks another milestone of mutual access of capital markets between the Mainland and Hong Kong, following the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. It is also another important measure of the Central Government to support Hong Kong’s development as an international financial centre. 3. A key function of Hong Kong as an international financial centre is financial intermediation, providing efficient and safe conduits for fund flows. The establishment and smooth operation of these conduits shall be underpinned by suitable and sound financial infrastructures. Over the years, the Hong Kong Monetary Authority (HKMA) has endeavoured to build our financial infrastructures, from the Real Time Gross Settlement system to the Central Moneymarkets Unit (CMU) for debt securities settlement, which have laid a solid foundation for Hong Kong’s development as an international financial centre. 4. Bond Connect is a new financial infrastructure established through the connection between HKMA’s CMU and the relevant central securities depositories (CSDs) on the Mainland. | 0 |
This is probably due to the modernisation of the functioning of the economy through the 1980s and 1990s, which resulted in more efficient markets. In addition, growth in labour productivity reflected a marked fall in sickness absence in 2004. The outlook for the Norwegian economy Monetary policy influences the economy with a lag. Norges Bank therefore has to be forward-looking in its interest rate setting. Developments in prices and capacity utilisation in Norway are influenced by both domestic conditions and economic developments in other countries. Since the end of June, global money and credit markets have been characterised by sharp fluctuations, liquidity shortages and reduced risk willingness. The turbulence stems from problems in the US mortgage market. Defaults on subprime mortgages in the US began in the second half of 2006. Securities portfolios had been developed around these mortgages. Uncertainty arose among banks and investors that were directly or indirectly exposed to losses on subprime mortgages. Expected losses on mortgage-backed securities rose. Investors became gradually less willing to take risk. The premium on corporate securities increased markedly. The credit premium has been highest on the lowest rated securities, i.e. securities backed by subprime loans. Another effect of the turbulence is credit migration, i.e. that the rating of securities has changed as the consequences of the unrest have become apparent. For example, a security that had an AAA rating, may now be rated AA or lower. The turmoil spread rapidly to other parts of the financial markets. | After a long period of high housing investment and rising prices, activity in the housing market now appears to be slowing. Seasonally adjusted, house prices have fallen for four consecutive months. In recent years, house price inflation has been accompanied by strong growth in household debt. Credit growth remains high. Higher interest rates and falling house prices may lead to slower consumption growth and a higher saving ratio ahead. There are large regional differences in house price developments, but the trend has been the same since year-end 2006. House price inflation is decelerating in all regions, with a 12month decline in house prices in Hedmark and Oppland and a rate close to zero in Trøndelag. The strong rise in house prices has been accompanied by an increase in turnover up to the summer of this year. The stock of homes for sale has varied somewhat in recent years, but since summer 2006 there has been a sharp increase. This may explain some of the decline in house prices in recent months. The present economic expansion differs from previous upturns in that inflation has remained low so far despite strong growth and increasing capacity utilisation. There are several reasons for this. First, low import prices and high prices for our commodity exports have improved Norway’s terms of trade appreciably. Prices for oil and gas, freight, fish, industrial commodities and engineering products have increased considerably. | 1 |
Lucas Papademos: ECB Financial Stability Review June 2007 Opening remarks by Mr Lucas Papademos, Vice President of the European Central Bank, at the press briefing on the occasion of the publication of the June 2007 ECB Financial Stability Review, Frankfurt am Main, 15 June 2007. * I. * * Introduction My colleagues and I welcome you to today’s press conference on the occasion of the publication of the June 2007 edition of the ECB’s Financial Stability Review. The financial stability assessment contained in the Review has been prepared with the close involvement of the ESCB Banking Supervision Committee. It is based on information that was available up until 11 May 2007, the “cutoff” date for this Review. The primary objective of the semi-annual ECB Financial Stability Review is to review the main sources of risk and vulnerability for euro area financial system stability and to provide a comprehensive assessment of the capacity of the euro area financial system to absorb adverse disturbances. In addition to the financial stability assessment, the June 2007 edition of the Review addresses several topical issues in 17 boxes and it also includes five Special Feature articles. In my introduction, I will first focus on risks and vulnerabilities we have identified in: (i) the external environment; (ii) global financial markets; (iii) the euro area corporate and household sectors; and (iv) the euro area financial institutions. I will then discuss some potential risk triggering factors and will conclude with an overall assessment of the outlook for financial stability. 2. | Since then the degree of uncertainty, as measured by the width of our fan charts, has decreased significantly, while the balance of risks has shifted as I have set out to being two-sided. While the range of potential outcomes is, as I have described, a complex and multidimensional one, and is still beset with considerable uncertainty, I find it helpful to map out three broad scenarios which for me summarise how the risk factors may play out, and map across to what course the economy might take in future. 12 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 12 The first potential scenario I foresee is broadly in line with the MPC’s “central expectation” set out in the June minutes: that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth eases and inflation fall back towards the 2% target. Of course as I stressed earlier, “temporary” doesn’t necessarily mean ‘here today, gone tomorrow’, particularly for inflation. The supply side pressures and their interaction with demand might take some time to disperse. In the mean time we could see very high inflation in certain sectors and products, such that at a whole economy level I wouldn’t be surprised to see the whole economy CPI inflation rate potentially rising as high as 4% for a period later this year, before falling back towards the 2% target. That would not be an unprecedented event: we saw similarly high outturns in 2008 and 2011. | 0 |
We would like this debt restructuring to have the following five characteristics: to be longer in nature; to be broader and applied to a wider range of people; but at the same time, to be more targeted and flexible, respond more appropriately to different circumstances faced by different kinds of borrowers. This is because the nature of the recovery is somewhat uneven and the crisis has hit different sectors in a very uneven fashion. We would like to make sure that these debt restructuring measures would benefit as Page 5 of 9 many people as possible in order to survive and get through the crisis together. The more debtors that survive, the better off the creditors will be. Lastly and most importantly, we would like to make sure that debt restructuring measures that are undertaken do not exacerbate problems of moral hazard, in which we undertake measures in trying to alleviate the crisis that end up contributing to the moral hazard problem as the saying goes the cure being worse than the disease. That is something we would be very cognizant of in implementing these new measures. What about the longer term? In addition to making sure that we get through this crisis, we, at the Bank of Thailand, are trying to make sure that we put in place the foundations for a longer and lasting recovery beyond COVID and making sure that we are in a good position to take advantage of the opportunities that will arise in the post-COVID world. | We are a country that is, in terms of population and employment, quite significantly dependent on agriculture, about 30 percent of our labor forces is tied to agriculture. So obviously, higher temperatures and higher risk of droughts and floods will severely hit the agricultural sector. Thailand is also highly dependent on tourism, the beach tourism, and so substantial rises in sea levels will hit our country very hard. Therefore, as a country that is very vulnerable to climate change, I think it is beholden upon us to take much stronger initiatives on the climate change and the green front. Page 6 of 9 On Thailand’s development on the green front, I welcome a lot of initiatives that happened in Thailand, especially in the capital markets. We have seen the Stock Exchange of Thailand launching the Thailand Sustainability Index, which is an index composing of green and sustainable listed firms. We have seen our colleagues at the Security Exchange Commission undertaking welcomed initiatives with the Environmental, Social and Governance (ESG) bonds, which are seeing a significant growth in Thailand. I would also like to see that progress on the banking side catching up that of the capital market as the banking side, both in Thailand and globally, still lags in terms of green and climate initiatives that have already been undertaken by capital market participants. Thus, we, at the Bank of Thailand, will do our best to make sure that the banking sector catches up and does play its role as needed. | 1 |
Moreover, in its latest review of the Lisbon strategy, the European Commission underlined research and development as a shortcoming, but also pointed to insufficient confidence in social security systems and a lack of efficient markets in primarily transport, energy and financial services. Here I would like to focus on three areas that I believe are important for both increasing potential growth and improving the competitiveness and dynamism of the European economies. The first is to consolidate public pension systems so that they can withstand the demands of an ageing population. The second is to overhaul the structure of tax and benefit systems in order to minimise their distortional effects on the labour supply. Last, but not least, we need to reform the functioning of the financial markets so as to increase efficiency and thereby also the willingness to invest. The economic crisis gave Sweden a better starting position With regard to Sweden, much has already happened to improve the functioning of the Swedish economy and increase potential growth. This has helped Sweden to come further than many other euro area countries in terms of living up to the Lisbon strategy. However, some of this has been due to economic developments as opposed to a political will to change. For example, the economic crisis at the beginning of the 1990s resulted in the winding up of low-productivity operations, thus increasing labour productivity. During the same period, Swedish economic policy was changed with a view to laying the foundations for longer-term, sustainable economic growth. | That said, the pickup in business start-ups is moving slowly, as it is in other European economies such as Germany and France.2 This environment of diminished business dynamism in net terms might be associated with an increase in the market power of certain big firms in some sectors. 2 See Chapter 4, “Business dynamics in Spain: characteristics, determinants and implications”, Annual Report 2015, Banco de España. 11/18 Additionally, business dynamics in Spain show two anomalies compared with other countries: 1) the productivity of business start-ups is lower; and 2) companies that increase their size are not necessarily the most productive. As occurs in other countries, new Spanish firms are small in size and show lower productivity levels than the average for their sector. This suggests the existence of a learning curve that new firms must follow if they are to converge towards average efficiency. In Spain’s case, however, the evidence available suggests that the productivity gap between new firms and existing ones is greater than that in other European countries. The relatively low level of new firms’ productivity adversely affects both their survival Spanish firms’ probability of survival after three years is low when compared with other countries – and their ability to grow. There is also evidence that, in Spain, the correlation between growth and productivity is not particularly high. In other words, the most productive firms do not always increase their market share. | 0 |
Mugur Isărescu: Policy support and the emerging “new normal”how well-positioned are Romanian firms? Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the European Investment Bank (EIB) webinar “Investment and Investment Finance in Romania”, 23 February 2022. * * * Vice President Thomsen, Distinguished audience, Ladies and gentlemen, Welcome to this year’s webinar organized by the European Investment Bank in partnership with the National Bank of Romania, titled „Policy support and the emerging “new normal”: How well-positioned are Romanian firms?”. I am delighted that so many of you could join us virtually this morning. Today, as we are shifting to a new phase of the global pandemic (and hopefully the last one), we will discuss the latest developments in investment and investment finance in Romania. We will try to provide an overview of what is needed in order to use the economic recovery as a springboard for change and transition to a more digital and greener economy. Please allow me to extend a warm welcome to Vice-President Christian Kettel Thomsen and his colleagues from the European Investment Bank, including Chief Economist Debora Revoltella and Ms. Lara Tasan Zanin, the Head of the EIB office in Bucharest. I would also like to express our appreciation for the EIB’s continuous involvement and support in engaging with stakeholders in Romania through this valuable series of events. Romania and the European Investment Bank share a long and fruitful partnership that has favored investments in important sectors of our economy. | Company Law in a number of countries, such as the UK, gives primacy to the interests of shareholders when defining the objectives of a company and its decision-making. The objectives and rights of a broader set of stakeholders, including workers, suppliers and wider society, tend to be secondary (Mayer (2013)). This governance structure has stood the test of time. But it is not without distributional consequences. If power resides in the hands of one set of stakeholders, and they are shorttermist, then we might expect high distribution of profits to this cohort, at the expense of ploughing back these profits (as increased investment) or distributing them to workers (as increased real wages). To some extent, this matches the stylised facts on rising inequality – rising executive and shareholder compensation and faltering real wage growth. The shareholder model may, ironically, have contributed to unfair shares. If so, this suggests that one avenue worth considering further is corporate governance reform. A set of corporate incentives which had as its fulcrum long-term company value and which more fully reflected the interests of a wider set of stakeholders might help rebalance the scales – for example, towards investing rather than distributing. Such an alternative model is certainly not without precedent. It is found in a number of countries around the world (Mayer (2013)). Inequality and corporate governance are deep, structural issues. Central banks do not have many, perhaps any, of the solutions to these problems. But the stakes – a more stable, faster-growing, fairer society – could not be higher. | 0 |
If there is confidence in nominal stability, the deterioration in competitiveness may result in an appreciation of the krone in the short term. A lack of confidence in nominal stability may result in a depreciation of the krone. Both cases may entail fluctuations in the exchange rate. A shift in public expenditure growth - or one-sided tax cuts - will have an impact on domestic demand, thus prompting movements in the exchange rate. When fiscal policy is used to smooth fluctuations in domestic demand, it will contribute to a stable exchange rate. International business cycles and financial market unrest may have an impact on the krone exchange rate. Exchange rate variations among major currencies may influence the krone exchange rate measured against individual currencies. Over the last year the euro has depreciated against the US dollar, the yen and pound sterling. The krone has appreciated against the euro. The effective exchange rate has been more stable. A situation may arise with a significant shift in economic fundamentals in Norway. A shock of this nature may be due to a permanent change in growth prospects. This may also imply a permanent change in the krone exchange rate. Our experience suggests that this seldom occurs. A sharp and sustained shift in oil prices, as witnessed in 1973 and 1986, may imply that the use of oil revenues will have to change. This may in itself have an impact on the exchange rate. | This means that we cannot expect growth rates on a par with that of the 1950s and 1960s, i.e. annual growth rates of up to 5%. A new economy New technology may be a driving force behind structural changes in the economy and lead to high growth rates. Chart 14 The trend in the postwar period, with stronger growth in productivity in Norway than in the US, may have been reversed. Productivity growth has tended to move on a weaker trend in Norway, while rising in the US. Both Norway and the US have enjoyed a long period of sustained expansion in the 1990s. At this stage, productivity growth tends to be low. Signs of higher growth in the US may thus suggest a new trend. It is probably too early to draw any definite conclusions. We also know that there may be considerable statistical sources of error. However, the new growth trend is supported by evidence of a more anecdotal nature. Major changes are taking place in the US business sector through processes such as mergers and acquisitions. There is an exceptionally rich supply of capital in the stock market. The new technology companies dominate stock exchange developments. In Europe, Sweden and Finland are leaders in developing new technology environments. Norwegian companies may also be at the forefront of developments in some areas. BIS Review 14/2000 12 Securities markets have been a vital force behind these changes. | 1 |
This is almost 11 million homeowners.1 One of the factors behind the development of the US housing market was irresponsible lending to households with weak debt-servicing ability. We have also seen examples of this in Europe. Problems in the housing sector could have severe consequences for households We don’t want to have to go through a similar development in Sweden. Our experiences of the crisis of the 1990s are more than enough. And we didn’t emerge unscathed from the crisis of 2008 either. Nobody wants a new financial crisis. At the moment, the greatest risks to financial stability in Sweden are the financial unease in the euro area and the resulting unease on the financial markets. However, our assessment is that the Swedish banks are also well-prepared for weaker development than in our main scenario. I would also like to touch on a domestic risk that is frequently mentioned – Swedish households’ high levels of indebtedness and the risk of a fall in housing prices. Firstly, I would like to say that we don’t see any acute threat in this regard. We are not facing any dramatic falling housing prices. In addition, our assessment is that the Swedish banks can also cope with fairly large falls in the market value of housing. Nonetheless, we at the Riksbank have long warned that the high level of indebtedness may make the Swedish economy vulnerable. If the economy should develop adversely, households may be forced to cut back on their consumption. | Financial crises ultimately threaten fundamentally important social functions An even more serious financial crisis could even threaten fundamentally more important social functions. Households are dependent on the banks’ ability to manage payments so that they can receive wages, purchase food and so on. In turn, our banks are dependent on the financial market as a whole. If a serious crisis should break out – if the payment systems should stop working, if the banks should stop trusting each other or if the banks should cancel payments – there would be problems for a great many of us. As a conjectural experiment, we could ask ourselves how many Swedish households would be able to cope with a week or two in which neither charge cards nor ATMs functioned. Thankfully, we haven’t had to worry about such problems in Sweden. The financial crisis of 2007–2009 impacted borrowers in other countries hard A meltdown in the global financial economy was averted in 2008 and 2009 at a price we are still unable to calculate. Even if the total cost has yet to be calculated, we can still note that 2 BIS central bankers’ speeches the consequences of the financial crisis are clear if we take one of its fundamental causes, the US housing crisis, as an example. In the autumn of 2011, 22 per cent of all US mortgage holders still owed more than the value of their property. | 1 |
Since the authorities had decided on how much each bank could increase its credit book every single month, there was really no need to appraise credit applications in a particularly serious manner. Mortgage credits took most of the available credit volume and the remainder was allocated to safe projects. Credit losses in the banking system were only a fraction of a percentage point of the credit stock each year. As a consequence, the ability to appraise credit risk had slowly dwindled out of the banks. So, unfortunately, was the case for the supervisors. When credit controls were finally removed the volume of credit virtually exploded. All banks wanted to increase their market shares and there was plenty of pent-up demand. Many loans were given to customers who, as it appeared later, were far from creditworthy and should not have passed a proper credit appraisal. The regulations had been abolished at the wrong time and without realising what an extended period of regulation had done to the ability of banks and supervisors to handle credit risk. What can be learnt from this? Quite obviously, deregulating does not mean the abolishing of all rules according to which banks should behave. There are good and well documented reasons for regulating banks. Deregulation means the adoption of a new legal structure that is consistent with a competitive market economy. The dilemma of regulation is to balance between having too little and too much. Too much will stifle the banks, too little will lead to unsound risk taking. | In this respect, the IFRS initiative should not be self-sufficient, as it could neglect the S and G dimensions, and as such key standards are public goods, which require “co-construction” with political authorities. Corporations, financial or non-financial, which proclaim themselves “net zero by 2050” should also be able to disclose and provide a clear pathway, a strategy to achieve this goal, to make sure their commitment is credible. On stress tests, forward looking assessments with scenario-based climate risk analysis will play a key role. Last month, the French ACPR published the first climate pilot exercise worldwide covering both the banking and insurance sectors. The exercise was of an unprecedented nature due to the time horizon – 30 years –, the active participation of financial institutions themselves, and the inclusion of both physical and transition risks. Two lessons can already be drawn: these stress tests are possible; and the risks are better controlled if the transition is orderly and begins early. But we are still in the middle of the journey towards completing our methodology. The ACPR urges all supervisors to initiate their own exercise. Learning by doing is better than waiting for the perfect solution before taking any action! I now turn to the last part of the quadrant. Greening monetary policy is still the hottest issue. This is no fashion, it is an imperativeiv. | 0 |
It has been severely tested by: taxpayer bail-outs of systemic institutions; rewards perceived as undeserved; a perception that clients have become counterparties; and egregious examples of misconduct and rigging of markets. Without that licence, the door will be opened to a level of regulation that constrains the ability of finance to innovate and support growth and trade efficiently. The licence will require consistent exemplary behaviour, and finance to have a clear sense of its purpose not as an end in itself, but as a means to promote investment, innovation, growth and prosperity. It is not merely that we should want to follow Churchill’s wish to see “finance less proud and industry more content”. We want to see industry content and finance taking justifiable pride in its contribution to society. That is far from straightforward when, even six years on from the crisis and public bailouts, triggers for public opprobrium are plentiful. Last week, the UK’s Financial Conduct Authority, US CFTC and Swiss FINMA fined six banks $ for misconduct in FX markets: misconduct that went on long after banks had already been fined for abusing interbank interest rate benchmarks. The repeated nature of these fines demonstrates that financial penalties alone are not sufficient to address the issues raised. Fundamental change is needed to institutional culture, to compensation arrangements and to markets.19 As Bill Dudley and my colleague Minouche Shafik have argued, the succession of scandals mean it is simply untenable now to argue that the problem is one of a few bad apples. | How can we expect emerging economies to participate fully in an open global system without the confidence that they won’t again be side-swiped by the failure of a large foreign bank? That confidence is growing as we make the system safer. Consistent, full and timely implementation of global standards is necessary to continue to build the cross-border trust on which an integrated system can be founded. Once the safety of the system is secured, the costs of openness will be contained. The road will be clear to secure the substantial benefits of openness in supporting trade and investment. Conclusion The Brisbane Summit marked the point at which the post-crisis system of prudential regulation was settled. That system, built on safer, simpler and fairer foundations than the one that led to disaster is able to serve households and businesses right across the globe. That we have reached this point is a triumph of the optimists over the world-weary arguments of the pessimists. The mutual trust and co-operation that has allowed authorities to get to this point is a vivid reminder of what can be achieved when countries work together. But as I said at the outset, just avoiding a repeat of past failures can’t be the height of our ambitions. Having built that level of co-operation it would be a travesty to stop at the foundations. | 1 |
As I just said, I subscribe to a 2 percent target for inflation over the long run. However, given how badly we are doing on our employment mandate, we need to be willing to take a risk on inflation going modestly higher in the short run if that is a consequence of polices aimed at lowering unemployment. With regard to the inflation marker, we have already experienced unduly low inflation of 1 percent; so against an objective of 2 percent, 3 percent inflation would be an equivalent policy loss to what we have already experienced. On the unemployment marker, a decline to 7 percent would be quite helpful. However, weighed against a conservative estimate for the natural rate of unemployment of 6 percent, it still represents a substantial policy loss. Indeed, weighed against a less conservative long-run estimate of the natural rate, it is a larger policy loss than that from 3 percent inflation. Accordingly, these triggers remain quite conservatively tilted in favor of disciplined inflation performance over enhanced growth and employment, and it would not be unreasonable to consider an even lower unemployment threshold before starting policy tightening. I would also highlight that while I believe that optimal policy would be consistent with inflation running above our 2 percent target for some time, this policy does not abandon the 2 percent target for long-run inflation. Indeed, I would support combining this policy with a formal statement of 2 percent as our longer-run inflation target in conjunction with reaffirming our commitment to flexible inflation-targeting. | Given the sharp drop in output during the recession and lackluster early recovery, GDP is currently below its potential by nearly 7 percent, or $ trillion dollars.1 Just prior to the recession, the unemployment rate averaged between 4-1/2 and 5 percent. It peaked at 10.1 percent during the recession and, as I just noted, is still 9.1 percent today. In terms of jobs, payroll employment is about 6-1/2 million below its pre-recession level. These are massive shortfalls in output and employment. It does not appear as if these gaps are going to be reduced significantly any time soon. Real GDP growth has been anemic so far this year. Gains in employment have slowed markedly. Even though credit conditions overall have been improving, many households and small businesses still seem to be having trouble getting credit. In addition, the repair process in residential real estate markets is painstakingly slow, and households are still in the process of paring debt and adapting to the huge losses in real estate and financial wealth that they experienced during the recession. I largely agree with economists such as Paul Krugman, Mike Woodford and others who see the economy as being in a liquidity trap: Short-term nominal interest rates are stuck near zero, even while desired saving still exceeds desired investment. This situation is the natural result of the abundance of caution exercised by many households and businesses that still worry that they have inadequate buffers of assets to cushion against unexpected shocks. | 1 |
These achievements are important and they were hard won. We mustn’t take them for granted. But nor can we live in the past. So what are today’s challenges? I see these in three main areas: assessing current economic developments; effective communication; and understanding the new trends that will shape the future. (i) Assessing current developments Broadly speaking, the task for the MPC is to control inflationary pressure by ensuring that the level of aggregate demand in the economy is more or less in line with aggregate supply. The first and most basic challenge comes in translating this deceptively simple idea in to practice. It is hard enough to estimate how fast demand is growing now from incomplete, preliminary or just plain puzzling information. It is harder still, and even more important, to look ahead over the two or three year horizon relevant to setting interest rates. But that’s only part of the story. The rate at which demand can be allowed to rise without leading to an upturn in inflation depends both on how much spare capacity there is in the economy now and on factors that determine the future growth in supply, such as productivity and labour availability. And finally, we need to consider what effect our own actions will have on longer-term interest rates and through them on the wider economy. Inflation targeting provides a credible framework within which these complicated issues can be properly considered. | Historical overview One of the more dramatic developments in the final decades of the last century was the sharp fall in inflation worldwide. This remarkable phenomenon brought inflation almost everywhere to levels not seen for the best part of fifty years. Set against the long sweep of history, it is the 1970s and 1980s that now stand out - as a major, but time limited, episode of high global inflation.2 In the UK, the period since 1992 has seen a shift to low and stable inflation combined with sustained economic growth, and steadily falling unemployment. Slightly miraculous as these developments may still seem to the generation that came of age during the Great Inflation of the 1970s - remember ‘stagflation’? - the happy fact is that for anyone in their mid-thirties, low inflation, steady growth and low interest rates are the norm. Success has many parents, and the trend to low inflation is no exception. But there is a broad consensus that better monetary policies run by more independent and more open central banks can claim a significant share of the credit. The Short History of Twentieth Century Monetary Policy goes roughly as follows. For the first time since the collapse of Bretton Woods - arguably since the Gold Standard - after decades of unhappy experiments with fine tuning, incomes policies and monetary targets, buffeted by the explosive growth of financial markets and often misled by economic dogma, governments have finally found an approach to monetary policy that seems to work. | 1 |
Now these are immensely difficult judgements. They depend in part upon one’s perception about the starting position - that is how close we are to BIS Review 55/1998 -3- full capacity utilisation to begin with. And they depend upon not just the direction, but the rate of change and the timing, of changes in the different components of aggregate demand. It is hardly surprising that the various members of the MPC should - within this common framework of analysis - reach, essentially marginally, different conclusions, reflecting their individual judgements as to the balance of risks. Indeed it would have been incredible if they had not reached marginally different conclusions. What is unusual - and what outside observers are I think still getting used to is that different possible interpretations of the data and different possible judgements are openly displayed in the minutes of our meetings, which also record the way in which each member votes. Some people now seem to find this open discussion of alternative views confusing. My own view is that it can only contribute to the effectiveness of monetary policy if the public at large better understand the nature of the issues and the uncertainties surrounding them. But our procedures have had one, by me at least, unforeseen, and I think regrettable, consequence, in that it has focused excessive attention upon the way in which individual members of the Committee vote leading to their over-simple categorisation as either hawks or doves. | The interest rate decision showed simply that what were always fine judgements changed with the facts - as I can assure you they will in future, in either direction. BIS Review 55/1998 | 1 |
Indeed, the real benefit to be gained under Basel II environment comes from improved standards of loan underwriting and more accurate quantification of risks that can subsequently translate into enhanced performance. Acceptance of collateral is only to mitigate loss severity should a default take place. In an increasingly more competitive marketplace, the emphasis is on maximizing risk-adjusted returns on capital and maintaining an optimal asset portfolio that reflects the risk tolerance level of the institution. In such an environment, overemphasis on collateral is certainly not viable. Ladies and Gentlemen, Bank Negara Malaysia will adopt four key principles in the implementation of Basel II in Malaysia: Firstly, the need to accommodate capacity building efforts, with strong emphasis on gradual enhancement to risk management framework for all banking institutions; Secondly, a more flexible timeframe that allows capacity building measures to be implemented; Thirdly, an emphasis on strong business justification instead of regulatory mandate for the adoption of IRB approaches; and Finally, an enhanced supervisory methodology to assess internal models and advanced risk management systems. Malaysia will adopt a two-phased approach for Basel II These principles would be implemented in a two-phased approach. The first phase will begin in January 2008 where all banks will adopt the standardized approach for credit risks and basic indicator approach for operational risks. Banking institutions would be required to submit to Bank Negara Malaysia parallel calculation of capital adequacy on a monthly basis for one year prior to the implementation of the standardized approach. | In any event, based on the experience of Spain and other countries, I consider that in all key aspects of the resolution process, the direct involvement of the supervisor is crucial to avoid information gaps, prevent duplications and ensure efficient use of the resources employed to monitor financial institutions. 5 Conclusions To conclude, I believe that as resolution authorities we have a very exciting policy agenda in front of us. Indeed, it is hard to think of other policy tasks which are so closely related to such a large number of first-order public objectives such as financial stability, the orderly functioning of the capital markets and the integrity of the public finances. Yet it is clear that, since resolution policy is arguably in its childhood as a recognised policy area, we still lack something like a comprehensive manual to guide our actions in the field. Therefore our decisions must often be taken as if we were exploring an uncharted territory full of legal and economic risks. That is why I think that events like this, which allow competent authorities to exchange experiences and thoughts, are no doubt extremely useful in counteracting our uncertainty until a sufficiently large store of knowledge, if not doctrine, becomes available. I wish to thank Antonio Carrascosa, Mario Delgado and the rest of the FROB team involved in the organisation of this conference, and all of you for your participation. Thank you. BIS central bankers’ speeches 5 | 0 |
Also, the programming of smart contracts on a distributed network might add further gains in efficiency, by providing for the automation of processes. This is so, especially, in the case of complex contracts that give rise to multiple transactions distributed over time or conditional upon one another. Other innovations receiving less media attention than cryptotokens nevertheless appear to be more mature and are, in practice, exerting a notable impact on the way in which financial institutions in general, and banks in particular, provide their services. I am referring specifically to big data, artificial intelligence and what is known as cloud computing. Big data offer clear potential for enhancing and personalising the supply of financial services. True, financial institutions have for some time been using massive data processing techniques to enhance knowledge of their customers and to personalise their services. However, these possibilities have now been boosted thanks to the growing volume of information that is available in digital formats, cheaper storage costs and the increase in computing power. The moves in big data are in fact boosting the development of other technologies that go beyond mere data processing. This is the case of artificial intelligence and automatic learning. They have numerous applications in the financial sector and are directed not only at end-products and customer relations, but are also transforming other financial servicesprovision facets, including banks’ in-house operations in areas such as risk management or regulatory compliance. The use of virtual agents or virtual recognition is already contributing to enhancing users’ relationship with financial services-providers. | First-generation crypto-assets were born of a desire to create a disintermediated means of payment that would not have an issuer and that would circulate on decentralised settlement infrastructures beyond the control of banks and governments. As a result of this, their actual footprint remains marginal, however much media attention they may receive. Furthermore, as intermediaries in exchanges, these assets are far less efficient than our existing currencies, for a variety of reasons, including their volatile prices, transaction costs and transaction times, which make it hard to use these assets as a means of payment, plus the risks to which users and service providers are exposed. Stablecoins seek to remedy the shortcomings of first-generation 1/4 BIS central bankers' speeches crypto-assets, especially their volatility, by being backed by real assets. But even with Stablecoins, the whole crypto-asset payment chain remains highly exposed to a range of risks, from legal, financial and operational risks, to major vulnerabilities in terms of money laundering and terrorist financing, and consumer and investor information and protection issues, including a non-zero risk of capital loss even in the case of Stablecoins. There are also issues, in our countries upholding the Rule of Law and in our regulated market economies, in terms of complying with core competition and privacy principles. | 0 |
In this context, we currently find ourselves at a crossroads in what refers to the pace of the governance reform agenda. Despite evident progress since the peak of the crisis, the building of a more cohesive monetary union, as proposed in the Van Rompuy’s Report of June 2012 (the so-called Four Presidents’ Report) and in the Juncker’s Report of June 2015 (the so-called Five Presidents’ Report), is, we all know that, a very difficult task. As a matter of fact, there has been no significant step forward since the establishment of the Single Resolution Fund in June 2014. Recently, several initiatives have attempted to re-launch the debate on the future of euro area’s governance, including, in December 2017, the European Commission’s report on “Further steps towards completing Europe's Economic and Monetary Union: A roadmap”, or, in January of the present year, the Center for Economic Policy Research’s report on “Reconciling risk sharing with market discipline: A constructive approach to euro area reform”, which, as many of you probably know, we discussed in a recent seminar here at the Banco de España. The package of reform measures put forward by the EC cover a broad set of issues, from the completion of the Banking Union and the design of mechanisms that reconcile market discipline and risk sharing to the establishment of a European Union Finance Minister. The panelists today will share their views and analysis on these central issues. Let me briefly reflect upon them. | 1 Transferring this additional duration risk to the Federal Reserve’s portfolio, and hence out of the portfolios of market participants, was one channel through which the asset purchase program was intended to have its effect on financial conditions. This “portfolio balance” channel has been discussed by Chairman Bernanke on several occasions. 2 This view associates the amount of policy stimulus with the stock of assets, or more precisely with the amount of duration risk, that the Federal Reserve takes onto its balance sheet. Policy achievements of LSAP2 The purpose of the asset purchase program was to help the Federal Reserve achieve the economic objectives of full employment and stable prices that it was given by Congress. I believe that the program delivered what could have been expected from it. In particular, let me highlight its success along two dimensions. First, the LSAP2 program made broad financial conditions more accommodative. This conclusion can be drawn from the behavior of financial markets from late August 2010 to the program’s implementation date in November 2010 – a period during which market participants moved from seeing such a program as a remote possibility to expecting it with near certainty. 3 Asset price movements over this period included a decline in real interest rates, a narrowing of risks spreads, an increase in equity prices, and a decline in the dollar – exactly the pattern that one would expect to be generated from additional monetary policy accommodation. | 0 |
It is about growing the Singaporean talent base as well as being a magnet for the world’s talents. It is about a vibrant entrepreneurial and innovation base, characterised by a lot of start-ups, a lot of experimentation, and a lot of R&D. A key aspect of dynamism is also high rates of churn in the labour and capital resources in our firms: There needs to be continuous flux and reallocation of resources in response to changing economic and market conditions. Both capital and labour need to be nimble and highly adaptive. The structure of the Singapore economy is well suited for sustaining our dynamism. Singapore’s strong advanced manufacturing and related trade and logistics activities are internationally competitive. In modern services, comprising financial, professional services, and info- communications technology, we enjoy an international hub status. Together, these sectors make up some 40% of our economy. If our domestic services can be further professionalised – job by job, each worker possessing deep skills and delivering a high quality of service, we will be a dynamic economy. Finally, dynamism must be about our people. We must remain an open society. 16 / 17 BIS central bankers' speeches Not just in being open to foreign trade, investment, and talent, but being deeply connected to the rest of the world. Not just attracting foreign talent to Singapore but Singaporeans venturing abroad as our companies and industries internationalise. | London has averaged 3.3% annual growth since the financial crisis while Sydney has averaged around 2.9%. San Jose (which encompasses Silicon Valley) has averaged 2.7% p.a. It is hard to imagine a dynamic city growing at less than 2% or worse still, 1.5%. It will be unattractive to investors and talent, including the city’s own investors and talented people. A reasonably good rate of growth helps to create opportunities and preserve a sense of progress and hope, particularly among the young. It will also facilitate upward social mobility. 11 / 17 BIS central bankers' speeches The experience of other leading cities suggests that demographics is not destiny. Yes, vibrant cities do attract people – and their additions to the labour force add to growth. But the main source of their growth and dynamism is not headcount but productivity. This is not an in-depth study but it appears that about two-thirds of overall GDP growth in the cities shown is due to productivity improvements. In comparison, productivity has accounted for about half of Singapore’s GDP growth. There is clearly scope for us to do better and thereby sustain our dynamism. How can we do this? 12 / 17 BIS central bankers' speeches First, Singapore has scope to reap the human capital dividends that are arising from the continuous investments we have made in education and training in past decades. As recently as 2000, 45% of the resident workforce had below secondary school education, and only 12% had university education. | 1 |
The Global Outlook Speech given by Mark Carney Governor of the Bank of England Financial Times event in Frobisher Hall, the Barbican 12 February 2019 I am grateful to Clare Macallan, Daisy McGregor and James Benford for their assistance in preparing these remarks, and to Thomas Viegas, Cian O’Neill, Ambrogio Cesa-Bianchi, Jon Bridges, Simon Whitaker, Emil Iordanov, Anina Thiel and Robert Gilhooly for background research and analysis. 1 All speeches are available online at www.bankofengland.co.uk/speeches It sometimes seems that everything in our world is connected. It is a pleasure to meet in Frobisher Hall today. This hall is named after Sir Martin Frobisher, an English navigator who explored Canada’s eastern arctic coast in the 16th century in search of new trade routes. His connection to the Barbican is that most of him is buried in the St Giles-in-the-Fields churchyard. (His heart and entrails are in St Andrew’s Church in Plymouth). Martin Frobisher is perhaps more famous in Canada than in his native land. One of the great bays in the eastern arctic is named after him. The capital of Nunavut, Iqaluit, lies at the innermost end of Frobisher Bay. Nine years ago this month Iqaluit hosted the G7 meeting that marked the start of the euro crisis. Events that still reverberate today including in the environs of the Barbican. While the debate in the United Kingdom has been understandably dominated by Brexit, the world has been otherwise engaged. | François Villeroy de Galhau: The Banking Union ─ Time to move forward again Speech by Mr François Villeroy de Galhau, Governor of the Banque de France, at the Eurofi Financial Forum, Ljubljana, 10 September 2021. * * * I would have liked to be in Ljubljana today, but I extend my warmest thanks online to David Wright and Didier Cahen for making this event possible. During the acute phase of the crisis, EU governments and the ECB did the right thing in supporting economies, so that we can now bounce back quickly. The European banking system proved its resilience, and contrary to many exaggerated fears, there will be no tsunami of corporate insolvencies, and hence no major rise in NPLs. However, now that firefighters have been successful, it is time to turn to our architects to start building again: Europe must finally unlock the full potential of its Banking Union. This morning I will be in the same vein as Andrea Enria’s impressive speech yesterday, which I fully welcome and support. Today, I will first discuss where we stand including the ongoing deadlock in the Banking Union, before elaborating on the pragmatic solutions we can come up with. I. Banking Union: it is time to move forward again Where we stand. After a strong initial impulse having achieved an efficient first pillar – supervision –, Banking Union now lacks momentum and remains incomplete. Let us be frank: the project has come to a complete standstill. | 0 |
The core model has this property. 6 The core model includes relationships that describe the demand and supply side of the economy and a relationship that describes interest-rate setting. The interest rate is set on the basis of a long-term normal interest rate level in addition to information on inflation and output. Disturbances to the economy that influence developments in inflation, output or the exchange rate also trigger interest rate changes. Interest rate changes in turn affect inflation, output and the exchange rate in such a way that these variables stabilise over time around their equilibrium values. The model thus also embodies assumptions concerning long-term developments. In the literature, an interest rate path determined in this way is often referred to as an endogenous interest rate path. This means that the interest rate is simultaneously determined within the model with other variables such as inflation, output and the exchange rate – the interest rate is not taken as a given outside the model. Economists with experience of other Norwegian macromodels may perhaps argue that the model I have just described seems too small to describe a complicated reality. The strength of such a small model is primarily that it isolates the mechanisms we are particularly interested in. At the same time, we also want to focus on a larger set of variables. In addition to the core model itself, the Bank therefore also uses a number of smaller additional models in its forecasting. | Reference is made in particular to Archer, D. (2005): “Central-bank communication and the publication of interest rate projections”, Faust, J. and E. Leeper (2005): “Forecasts and inflation reports: An evaluation”, Svensson, L.E.O. (2005): ”Further Developments of Inflation Targeting" and Woodford, M. (2005): “Central-Bank Communication and Policy Effectiveness". 3 This is further discussed by Woodford, M. (2005): “Central-Bank Communication and Policy Effectiveness", see footnote 2. BIS Review 6/2006 3 If the Bank’s interest rate forecast is different from market expectations, then this is useful information, not only for market participants, but also for the central bank. This may indicate that the central bank and market participants have a differing perception of future economic developments. It may also reflect differing views concerning the trade-offs in monetary policy. Market expectations, as reflected in forward rates, will be a way of cross-checking the Bank’s interest rate forecast. If Norges Bank’s interest rate forecast deviates from market expectations, the Bank should be able to explain this satisfactorily in order to influence interest rates in the money market. In Inflation Report 3/05, there were only minor differences between Norges Bank’s interest rate path and calculated forward rates up to 2007. Forward rates indicated that interest rates would then level off, while our forecast indicated a continued gradual rise up towards a more normal level. After the publication of the Report and up to end-January, market expectations have fallen. This shows that the interest rate path envisaged by the Bank and the path expected by the market can differ. | 1 |
Chart 5: Population ageing is expected to continue Age distribution in the adult (16+) UK population (a) (a) Dashed line and hashed bars are calculated using the ONS 2020-based interim national population projections: year ending June 2022 estimated international migration variant. Sources: ONS and Bank calculations. Chart 5 shows the age distribution for the United Kingdom. The share of the adult population aged 20-59 has fallen below 65% in the past decade, and it is set to decline further in the coming years. This population ageing has been driven by a decline in birth rates relative to the high levels seen in the years that followed the Second World War – as well as by the happier news that people now live for longer. As people accumulate savings over their working life to fund their retirement, wealth in the economy increases as the age distribution shifts towards older cohorts (indicated in this chart by bars in different colours). So ageing households have sought to lend more at a time when less productive firms have sought to borrow less. The only way to establish an equilibrium between the supply and demand in the market for investable funds – that is, to incentivise firms to invest this Bank of England Page 9 additional wealth into productive capital – has been for the price of those funds, the real interest rate, to fall. The trend equilibrium rate, R*, is like a long-term anchor for monetary policy. | Bank of England Page 1 Supply matters − speech by Andrew Bailey Given at London School of Economics 27 March 2023 Bank of England Page 2 Speech It is a great pleasure to be at the London School of Economics. Introduction The past few years have been a time of macroeconomic upheaval. A series of significant economic events have deeply affected the UK economy. This includes the change in our trading relationship with the European Union, the Covid pandemic with shutdowns of some sectors of the economy and supply chain bottlenecks in others, and the rise in energy prices caused by Russia’s brutal war on Ukraine and its people. These shocks have affected the UK economy in different ways. But they have all eroded the terms on which we trade with the outside world. This has made us poorer as a country; manifesting itself in a rise in the prices we have to pay for the things we buy as consumers. UK Consumer price inflation is currently at 10.4%. This is much too high, and we need to, and will, bring it back down to the 2% target. That is why last Thursday the Monetary Policy Committee increased Bank Rate at the eleventh meeting in a row, to 4.25%. We have increased Bank Rate by more than 4 percentage points since December 2021. These increases are being felt by households and businesses across the country. | 1 |
The Riksbank also examines access to the payment services we use when we pay at a distance, for instance, our household bills.2 In Sweden we mainly use various credit transfer and direct debit products for paying bills. The survey showed that almost 90% had access to online banking services and 23% had access to credit transfer using paper forms. Only 3% said they did not have access to any of these services. If we add direct debit, only 1 per cent lacked access to a payment service for paying at a distance. These payment services were also used to a large degree. Broad access to innovative payment services Sweden is often said to be a technology-friendly country and this is reflected in the fact that so many have access to online banking. Now, online banking services have been available for nearly 20 years, while mobile payment services are much newer. It is therefore remarkable that almost one quarter of the respondents said they had access to some form of mobile payment service.3 If we broaden the perspective somewhat and include nontraditional payment services such as payments via a third-party provider and virtual currencies such as Bitcoin, then 40% have access to one of these services.4 A good 23% of respondents said they had paid with one of these alternative methods in the past month. Another example is that some banks reported as early as last summer that they had more log-ins via mobile banking services than via traditional online banking services. | It is not that I intend to question the concept of risk-weighted requirements in any way. Rather, it is my wish to possibly strengthen these requirements by introducing supporting measures. For example, compared with risk-weighted requirements, volume limits or the debt-equity ratio have the advantage that such key figures are basically very transparent and are not based on complex models. Moreover, they calculate the only element that is relevant in a crisis, and that is the size of the buffer that a bank needs to absorb losses. Third, it is a striking fact that, to date, hedge funds have not been a focus of the current crisis. To a considerable extent, this is attributable to a much improved management of counterparty risk in recent years. It is my view that banks should strengthen their risk management as regards their own refinancing decisions and risk allocation and not just with respect to external customers such as hedge funds. The kind of internal subsidising of refinancing costs for individual business areas observed in some cases creates false incentives. In future, the refinancing costs that a bank charges its internal risk centres should constitute an integral element of its risk management approach. To sum up, I would like to state that it is certainly true that the current situation in the credit markets is very serious. At the same time, I want to stress that, fundamentally, the earnings capacity of our international banks is high, thanks to their diversified business model, and this increases their resilience. | 0 |
In the terms of the new Act the Monetary Policy Committee - apart from its public accountability through the Inflation Report and the minutes of its meetings - is accountable for the adequacy of its procedure to the Non-Executive Members on the Bank of England’s Board of Directors, who in turn report to Parliament through the medium of the Bank’s Annual Report. We are all accountable to Parliament in the sense that we may be - and regularly are - summoned to appear before the relevant Select Committees of both Upper and Lower Houses. And we are accountable to the Chancellor in that the Chairman of the MPC is required to write him an open letter if the rate of inflation diverges by more than one percent either side of the 2½% target explaining why and what steps we propose to take to bring inflation back within that range and over what time period. Finally, the Treasury has the power to give the Bank directions in respect of monetary policy if they are satisfied that the directions are required in the public interest and by extreme economic circumstances. Again, some observers have suggested that these elaborate accountability provisions are onerous and constrain the Bank’s independence. I take the contrary view, that they are essential to the legitimacy of the arrangements as a whole and so actually reinforce our independence - provided of course we are able to provide convincing explanations of our conduct! | But it was carried much further by Chancellor Gordon Brown, as literally the new Labour Government’s first act of policy - just four days after coming into office in 1997 - when he announced that the Bank would henceforth be independently responsible for the operation of monetary policy. This commitment was subsequently embodied in a new Bank of England Act that came into effect in 1998. The key characteristics of the new legislation were clarity of definition of the Bank’s responsibilities, and transparency and elaborate provision for public accountability for the manner in which those responsibilities are carried out. In relation to monetary policy in particular the new Act defines our responsibility as “to maintain price stability and, subject to that, to support the economic policy of the Government including its objectives for growth and employment”. It is the Chancellor who defines what, more precisely, is to be understood by “price stability” which he has done in the form of a symmetrical 2½% target for a particular statistical measure of retail prices. So we have “instrument” rather than “goal” independence. It is sometimes suggested that this is a second best arrangement. In our national context at least I disagree with that view. | 1 |
We are analysing two options. The first would entail creating a bridge between market DLT platforms and central bank infrastructures. [12] This would allow a securities transfer on a DLT platform to trigger settlement in central bank money. It is very likely that a solution that builds on the existing TARGET Services could be implemented more rapidly than a solution based entirely on DLT. Another option would be to create a new DLT-based wholesale settlement service with DLT-based central bank money. [13] The Eurosystem could, for instance, launch its own DLT platform for settlement in central bank money. [14] Alternatively, we could make central bank money available on DLT platforms operated by market stakeholders, allowing both cash and assets to be transferred there. In any event, implications for governance, settlement efficiency and liquidity management need to be carefully assessed. And the suitability of any of these options would depend on which use cases prevail in the market and whether or not the market consolidates around a limited number of DLT platforms. Conclusion The Eurosystem is committed to providing settlement in central bank money for wholesale transactions through infrastructures that are fit for purpose. Our role is to provide state-of-the-art infrastructures as a basis for private actors to develop their innovative services. These infrastructures can act as a catalyst for innovation within Europe and beyond. We are analysing whether new technologies for settling wholesale transactions could help us continue to play this role effectively. | But despite the uncertainties surrounding DLT’s potential, we want to be prepared for a scenario where market players adopt DLT for wholesale payments and securities settlement. We must ensure that, in such a scenario, central bank money would still retain its role as the settlement asset for wholesale transactions. If, for example, market players start to use DLT for securities settlement but face difficulties using TARGET Services[10], they may turn to alternatives like commercial bank money or stablecoins. This would entail a number of risks, such as central bank money having a reduced role in settlement processes, as well as trading and liquidity becoming fragmented. The result would be payments and securities settlement becoming less safe and less efficient, which would undermine financial stability. The use of stablecoins would magnify these risks. As we have seen in recent months, stablecoins are prone to runs. In other words, they are stable in name only. And allowing them to be fully backed with central bank money would effectively outsource the provision of central bank money to private entities, endangering monetary sovereignty. [11] A shift away from central bank settlement systems would also imply that authorities would lose direct access to settlement data. This could slow the speed of intervention in the event of settlement bottlenecks and impair the analysis of financial stability. The Eurosystem is therefore exploring ways in which market participants who adopt DLT could interact with the TARGET Services to settle the euro cash leg of their transactions in central bank money. | 1 |
Will Portugal need more help and will it receive it? The country was set back by the political uncertainty in the summer. This uncertainty has now been overcome and the country can and should take up from where it stood in the spring of this year, when it was able to successfully issue a long-term bond. Market confidence could be won back through a full implementation of the programme. That is why it is essential to keep to the existing programme and all its objectives. The debate on a second package is heard in Cyprus too. Not least because the collapse of the economy was worse than forecast. When can we expect “Cyprus II”? This question never ceases to amaze me. The Cyprus programme has not even been operating for six months and it has a duration of three years. I fail to understand why the question of a supplementary programme is already being raised. Cyprus must now implement the programme. There has been one review so far and that was successfully completed. The issue now is to continue the programme – nothing more. Not much has been heard about Slovenia recently. Will that country seek a rescue package if the ECB’s asset quality review exposes all the trouble in the banking sector? 2 BIS central bankers’ speeches Slovenia is now conducting a separate stress test for the country’s ten major banks. The results will be available in late November or early December. | Our forward guidance comprises two elements: it aims to further clarify our views regarding the economic situation and the manner in which we intend to react to it. It is important to note that the United States and the euro area are at completely different stages of the economic cycle. Here in the euro area economy, an imminent change in the direction of monetary policy would certainly come far too early. But how realistic is decoupling from the United States? The markets, at any rate, don’t seem to have all that much faith in that prospect, if you look at the rising money market rates. I think it’s a little early to be judging that. Overall, we believe that we’ve been successful in reducing the volatility of rates. We’ve been moderately successful as regards the actual level of interest rates. Rates have risen on account of positive economic data. It remains to be seen how the situation will develop in the likely presence of further cautiously positive data. And if things do not go according to plan, will the ECB reduce its key interest rates again or conduct new LTROs? We will continue to monitor the situation. We haven’t said any more than that. Sometimes you have to keep calm, rather than coming up with something new every month. Why is the ECB not publishing inflation projections beyond 2014? | 1 |
The UAE-based energy company declared that its USD700 million sukuk was no longer Shariah-compliant – and thus unenforceable – because the scholarly consensus was said to have shifted since issuance in 2003. Now, let’s move on to the future – we need continued certainty. We have come a long way in setting in place the strong foundation of a legal framework. The law review and harmonisation committees have done good work in ensuring that Shariah principles can be imported into Malaysian law in a way that is effective and seamless. The progress of the past has positioned us with both opportunity and challenge at present. To navigate these well, we need to promote continued certainty as we move into the future. This will require excellence at both the institutional and individual levels. Institutional excellence At the institutional level, the judiciary plays a vital role in upholding legal certainty. Judges – along with arbitrators – ensure that disputes are settled by the application of the law, rather than unbounded discretion. The courts also ensure that these laws are intelligible, clear and also predictable. For Islamic finance, the Shariah Advisory Councils (SACs) of Bank Negara Malaysia and the Securities Commission play a complementary role to the courts – by providing Shariah certainty. It is important to note that this role does not [in any way] substitute the function of the judiciary in upholding legal certainty. | Moreover, the supply of these assets is asymmetrically distributed between regions, with the US providing a large chunk of the total. Hence, there is a structural excess demand for dollar‐denominated securities, which sustains permanent capital inflows from emerging economies into the United States. This approach has deep implications. It shows why, for more than a decade now, capital has been continuously flowing “uphill”, i.e. from poor to rich countries, with current account surpluses in emerging economies reflected in growing deficits in the United States. It also helps to explain why asymmetries in financial development between countries generate both payment imbalances and asset bubbles. To the extent that the US financial system did not generate enough “pure” safe assets, this created an incentive for the financial sector to manufacture such assets through the securitization of lower quality loans, but at the cost of greatly increased (if hidden) financial fragility. This fragility became apparent when the whole architecture of securitization collapsed under the weight of excessive leverage and maturity transformation. The point here is that internal and external financial stability are two sides of the same coin. Domestic financial imperfections, on the one hand and distortions in international capital flows, on the other, interact with each other to create and amplify imbalances. Ultimately, financial instability is a product of this through this interaction. International financial linkages therefore can be a source of increased fragility for many national economies, including the largest ones. International financial stability: does it matter? International financial instability manifests itself through various channels. | 0 |
An eclectic approach should not be ruled out. (c) Rules or discretion? As I have said on a previous occasion, we are doubtful that macroprudential instruments could be operated by a rule. To steer the banking system towards increasing its resilience to incipient problems in a stretched sector, a whole series of judgments would have to be made. Whether the rate of credit growth seemed excessive; whether terms were overly lax; or whether the “bubble bursting” would materially damage banks. That would call for assessments of the levels of indebtedness, of banking system exposures, of the broad probabilities of those exposures turning sour, and of whether herding in the market might be driving the system into an ever more precarious position. Rapid growth in debt does not of itself signify over indebtedness; and default does not necessarily materially impair lenders’ resilience. One possible way of thinking about this is that the authorities could be guided by top-down stress tests of the effects on the banking system of various adverse scenarios potentially affecting different groups of borrowers and exposures. In very broad terms, this would be akin to systematically applying Pillar II-type judgments under the Basel regime to banks in general. It would share with the Pillar II element of micro-prudential regulation a focus on circumstances that warranted a capital charge different from the Pillar 1 minimum. But it would differ in a number of important respects. First, the instrument would be applied to all banks in the jurisdiction. | As a result, risk management and wealth creation may, at times, move in different or even opposite directions. Conventional financial instruments also allow for the commoditisation of risks, leading to its proliferation through multiple layers of leveraging and disproportionate distribution. This could result in higher systemic risks, increasing the potential for instability and inequitable concentration of wealth. The intrinsic principle of governance also contributes towards insulating the Islamic financial system from potential risks from excessive leverage and speculative financial activities. The explicit and transparent nature of Islamic financial contracts and the greater disclosure of information are important in contributing to the stability of the system. The focus of Islamic investment also not only involves riba free activities but also extends to include issues related to ethical values and fair trade. The Islamic investment guidelines thus share a number of similarities with socially responsible investment (SRI) principles. New opportunities and linkages offered by Islamic finance Islamic finance is now at the threshold of a new dimension in which it has an increased potential role to strengthen international financial inter-linkages between nations. Islamic finance has the potential to contribute towards the efficient mobilization and allocation of funds across regions. Regions with surplus savings may channel funds to regions with deficit savings and to bring about a more inclusive global financial integration. Financial linkages are now gaining ground as intra-regional financial flows are increasing in significance. | 0 |
It is an essential competency for individuals to navigate the increasingly complex financial landscape. At a global level, in recent years, we have seen a significant increase in the complexity of financial products and services, making it more difficult for individuals to make informed decisions that safeguard their financial well-being. What is alarming is the fact that the level of financial literacy globally is very low. International research finds that, only 1 in 3 adults worldwide are financially literate. This is worrisome not only because of the negative repercussions at the individual level, but also, because of the potential impact it may have at the broader level of a country's economy, including financial resilience and stability. For instance, there are studies indicating that poor financial decision-making, including excessive risk-taking by individuals, preceded financial crises in the past. This phenomenon appears to be accentuated when the preceding prosperous periods have a longer duration than usual, as described by Minsky's Financial Instability Hypothesis. Examples include the Global Financial crisis, where 1/5 BIS - Central bankers' speeches many people became over-indebted to purchase real estate, as prices appeared, at least to them, to be ever-increasing. When the bubble eventually burst, they were unable to cope with their financial obligations creating a domino of bankruptcies thus, raising further financial stability risks. The negative repercussions of financial illiteracy and of other shortcomings of financial markets, especially on financial stability, can be addressed by enhancing the efficiency of financial regulation. | In addition to the experts we physically have with us, we are also delighted to have through a digital connection, the pioneer academic and distinguished researcher in the field of financial literacy, Professor Annamaria Lusardi, a Professor of Economics and Accountancy at the George Washington University, in Washington DC. I have had the pleasure of meeting bilaterally with Professor Lusardi in Washington DC on different occasions while I'm there for the annual IMF meetings. Needless to say that her academic credentials, but also her passion and perseverance in promoting financial literacy across the globe, have left a great impression on me. I am thankful that she has accepted my invitation to be our key-note speaker in this event. 4/5 BIS - Central bankers' speeches Without further ado, I wish you all very productive and fruitful discussions during the Conference. Thank you. 5/5 BIS - Central bankers' speeches | 1 |
At the centre of the reforms have been the Basel III reform package, principles for riskaligned compensation structures and improving the consistency of regulatory regimes across the different parts of the financial system, including the shadow banking institutions. Significant work is also progressing to strengthen resolution regimes and financial safety nets, particularly in a cross-border context. Given the specificities of Islamic financial institutions, the implementation of these reforms require a careful examination of the different implications that they present for individual institutions and the system as a whole. We are now witnessing wave of the internationalisation of Islamic finance as the role of Islamic finance has expanded to become significantly more globalised. This has resulted in domestic Islamic financial systems to become more inter connected and with the consequence that integrated, risks are more rapidly transmitted across the financial system. Building on the foundations that have been put in place with the adoption of prudential standards introduced by the Islamic Financial Services Board (IFSB) in the key areas of capital adequacy, risk management, corporate governance and Shariah governance, the regulatory, supervisory and legal frameworks will need to reflect the growing cross-border dimensions of Islamic finance and its increased connectivity. Of priority will be efforts to strengthen the cross-border regulatory and supervisory cooperation arrangements in the relevant jurisdictions and to strengthen further the international financial infrastructure for Islamic finance. As we advance forward, this will be of great importance to promote stability and confidence in the more challenging international environment. | Zeti Akhtar Aziz: Islamic finance – the new regulatory challenge Introductory remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the book launch of “Islamic finance – the new regulatory challenge, 2nd edition”, Kuala Lumpur, 22 July 2013. * * * It is my pleasure to be here this afternoon to witness the launch of the second edition of “Islamic Finance: The New Regulatory Challenge”. As the Islamic financial industry transitions into a new era of growth and development in this post-crisis world, the evolving regulatory reforms that are taking place to strengthen the resilience of the financial industry has presented wide ranging challenges in the implementation of the reforms and in also ensuring a more inclusive and stainable growth. The various dimensions of these regulatory challenges and its impact on Islamic finance are captured in the publication that is being launching today. It is indeed a more challenging time for financial regulators and policymakers worldwide. Priorities for strengthening financial stability and growth are now focused on achieving global financial systems that serve the needs of the real economy. Driven by concerns to ensure that banking institutions are more robust against mutil-faceted and more complex dimensions of risks going into the future, regulatory efforts are being directed at significantly strengthening the capital and liquidity structures of banks, and ensuring that there is better alignment between risk-taking behaviours and long-term viability as well as ethical conduct. | 1 |
Either those guarantees to retail depositors should be limited to banks that make a narrower range of investments, or banks which pose greater risks to taxpayers and the economy in the event of failure should face higher capital requirements, or we must develop resolution powers such that large and complex financial institutions can be wound down in an orderly manner. Or, perhaps, an element of all three. Privately owned and managed institutions that are too big to fail sit oddly with a market economy. One important practical step would be to require any regulated bank itself to produce a plan for an orderly wind down of its activities. That would provide the information to the authorities the absence of which made past decisions about the future of institutions difficult. Making a will should be as much a part of good housekeeping for banks as it is for the rest of us. And it would be sensible for the various authorities to work across national boundaries to identify detailed plans for how each large cross-border financial institution could be wound down. BIS Review 76/2009 3 The Bank of England has a new statutory responsibility for financial stability. Bank Rate is the instrument we deploy to achieve monetary stability, and should be used exclusively for that purpose. To achieve financial stability the powers of the Bank are limited to those of voice and the new resolution powers. | And the required adjustment still has a long way to run – few of the largest banks in the United Kingdom managed to reduce their leverage ratios through 2008, which remain at historically high levels. Third, interconnections between institutions create potential fragilities across the system, as we saw last September. Fourth, the risks associated with large-scale proprietary trading are probably harder to control in limited liability companies. So we need instruments to prevent the size, leverage, fragility and risk of the financial system from becoming too great. The resulting “macro-prudential” toolkit will contain a number of instruments to reduce risk, both across the system and over time. It must not be put together in a hurry. And I share the concerns of many of you that we are a long way from identifying precise regulatory interventions that would improve the functioning of markets. As far as individual banks are concerned, we face some uncomfortable choices about the structure and regulation of our banking sector. If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give. | 1 |
That is, the individuals who have the greatest impact on a firm’s strategic direction should have the strongest incentives to maximize the firm’s long-term enterprise value. If we have this deferred compensation structure in place for financial firms, then we can leverage it to strengthen the incentives for senior leaders to design and implement the necessary changes to improve their firm’s culture. That is, this deferred debt compensation can be used as a “performance bond.” Performance bonds are used in many situations such as security deposits on rental properties. Today, when a financial firm is assessed a large fine it is paid by the shareholders of the firm. Although senior management may own equity in the firm, their combined ownership share is likely small, and so management bears only a small fraction of the fine. Now, having shareholders pay may create market discipline in that 6 Given the length of the vesting of this component, firms might want to allow this vesting to continue even if an individual leaves the firm. That is, one may not want an individual’s accumulated deferred debt compensation to act as a friction to job mobility. However, even if an individual leaves the firm, the debt compensation would still be at risk of forfeiture. BIS central bankers’ speeches 5 they have an incentive to better monitor the firm’s actions. | The precise formulation of an amendment would need to be worked out, but the application should be sufficiently broad so that it also covers asset managers, hedge funds and private equity funds. Like the registry, a broad and permanent industry prohibition changes the time horizon for the perceived costs of misconduct – from a one-time fine, or perhaps a few years in prison, to a lifetime prohibition from earning a living in finance, regardless of the type of employer involved. I would welcome the industry’s participation in developing this concept. Conclusion To ensure the behavior that is required for a safe, sound and trusted financial system, we must also be effective in our role as regulators and supervisors. As part of this, we as supervisors must continually work to improve our own cultures to ensure that we can successively carry out our responsibilities. But it also requires good culture at the institutions that we supervise. Supervisors simply do not have sufficient “boots on the ground” to ferret out all forms of bad behavior within a giant, global, financial institution. Moreover, regardless what supervisors want to do, a good culture cannot simply be mandated by regulation or imposed by supervision. In conclusion, if those of you here today as stewards of these large financial institutions do not do your part in pushing forcefully for change across the industry, then bad behavior will undoubtedly persist. If that were to occur, the inevitable conclusion will be reached that your firms are too big and complex to manage effectively. | 1 |
All but few prices are completely liberalized and driven by healthy market conditions. Fourth, in respect to so-called Ballassa Samuelson Effect, I agree with President Duisenberg, that it is mostly an empirical issue. I think the extent of this effect has been overstated and overdone in many theoretical studies. Empirical data in respect to Poland has shown, that in the past the contribution of BS Effect to the overall inflation rate has been in the range from 1% to 1.5%. As a matter of fact, BS Effect is also present in the Eurozone, in countries like Greece and Portugal. This is not the reason for, as some people heralded, a weak euro. Problems of Greece are not responsible for weak euro that is, if one thinks euro is weak. The already mentioned disinflation, limited scope for future corrective inflation, and manageable level of BS Effect make the Maastricht Inflation criteria achievable. Fiscal criteria must be met in the interest of the countries concerned, as it would contribute to their economic growth. Fifth, there is an intermediate period between the date of entry of Poland and other candidate countries into the European Union and membership of the Monetary Union. The question is, what is the optimal length of this period. I would like to point out, that it might be a rather turbulent time. BIS Review 1/2002 1 Economic forces behind convergence and rapid capital flows might create an economic roller caster. | Such considerations mean that it is essential that banks have a sound strategy and good systems of risk management. The main responsibility for this rests with the board of directors and with senior management, although the regulators also have a responsibility to check that they are doing their job properly. To assist us in that process, we have recently issued a guideline which sets out the standards which we expect the board of directors to observe. One important feature of the guideline is the need for a strong independent element on the board provided by non-executive directors who can bring a fresh perspective to strategic planning based on their expertise and outside experience. Having said that, non-executive directors with the right degree of independence and expertise are not easy to find. This is one of the main challenges in corporate governance in Asia. Although sound strategic direction from the top and good internal systems of control are the primary defences against increased risk, banks also need to make sure that they hold sufficient capital to support that risk. The present capital adequacy regime formulated by the Basel Committee has been in place since 1988. Although it has served its purpose well, it is showing signs of its age and needs to be 3 BIS Review 93/2000 replaced. The Committee is therefore proposing to introduce a new Capital Accord, the guiding principle of which is that it should be more risk-sensitive. | 0 |
And, increasingly, these tests are being applied in recruitment decisions, when seeking to match the characteristics of potential employees to an organisation. These same tests have been far less often used by organisations to gauge the cognitive diversity of their existing employees. For example, there is no reason they could not be used to construct a cognitive map of an entire organisation to gauge its degree of cognitive diversity. Making transparent that cognitive map would then provide incentives to take seriously any lack of cognitive diversity, as well as enabling peer comparison. As the measurement technology exists, these would be big but eminently feasible steps for organisations to take. To be futuristic for a moment, Magnetic Resonance Imaging (MRI) scans these days provide a different lens on cognitive and personality traits – a techni-colour cognitive map. It is early days to be drawing firm links between the brain’s wiring and individual character traits, but progress has been rapid. As one example, the neuro-biology company Emotiv Lifesciences has created a brainwave reading rig, which offers real-time analysis of cognitive activity. 65 While we are some way from arming ourselves with only an MRI scan when judging performance and potential, perhaps in future that will not seem so fanciful. The Bank is taking steps to improve its own cognitive diversity. For example, it has sought to widen the range of disciplines from which it recruits over the past few years. Of this year’s graduate cohort, only 40% has a degree in pure economics and finance. | Given its neurological roots, it should perhaps come as no surprise that history is pock-marked with instances of overt and enduring fear of strangers, whether that “strangeness” derives from differences in race, gender, culture, religion, political ideology, socio-economic status or age. The notion of the evil stranger is steeped in ancient folklore and political discourse. Historically, fear of strangers has plainly not been the only reason for discrimination and oppression. Self-interest, and the pursuit of power or command over scarce resources, has also had a huge influence throughout history. From Ancient Egypt, where colour prejudice was thought to depend on which ethnic group held sway, to the slave trade to apartheid, unpalatable historical examples of power-based discrimination are depressingly legion. 6 Even if such biases have been ever-present through human history, their precise form appears to have changed over time as societies themselves have evolved. Tectonic shifts in flows of people, and in laws and social norms, have brought about a significant reshaping of biases over the course of the past few centuries. One important shaping factor here is likely to have been migratory patterns. 2 Schaller and Neuberg (2008). 3 Faulkner et al (2004). 4 Todd and Gigerenzer (2012). 5 Goodall (1986). 6 Goldin et al (2011). 2 BIS central bankers’ speeches Cross-border flows of people have occurred throughout human history: at times an involuntary response to poverty or persecution, at others a voluntary response to opportunity and prosperity. | 1 |
We also supplement our analysis with a number of other indicators of resource utilisation in the economy. As I mentioned earlier, long-term sustainable growth in the economy is determined partly by technological developments in society. This means that production per hour worked shows an increasing trend over time and thus is one of the more important contributions to long-term growth. But long-term changes in the factors of production can also affect potential growth. If we measure the labour force’s contribution to production in the number of hours worked, one can express it simply as our long-term growth potential depending on how much we work and how productive we are. However, it is important to point out that it is the more long-term developments in productivity growth and the change in labour contributions that are significant in this context. 2 BIS Review 64/2004 I mentioned earlier that different methods of estimating potential growth can give quite different results. One of the reasons is that it is difficult to distinguish the more long-term sustainable trend from temporary developments. It is of course no easy task to determine whether a change is permanent when we receive new statistics on economic developments. However, it appears that this can even be difficult to determine afterwards, when studying the historical trend. As I intend to illustrate, this applies to both productivity and labour supply. | It is always true that monetary policy is too restrictive for certain segments of the economy and too expansionary for others. Since there can only be one monetary policy for Switzerland, it must geared to the economy as a whole. Ensuring price stability in the medium and long term is the guiding principle. The SNB’s monetary policy strategy, however, is sufficiently flexible to react in an optimal way to uncertainties related to business cycle developments or the situation on the financial and currency markets. In implementing this policy, the SNB must be able to maintain its credibility at all times. Only then can it effectively – in the long term – fulfil its constitutional and statutory mandate of pursuing a monetary policy in the interests of the country as a whole. BIS Review 70/2010 1 | 0 |
Although this announcement substantially reduced the probability of extreme events and led to an easing in the financial and credit markets, the economic situation in the monetary union remains vulnerable and the level of uncertainty is still considerable. A further source of uncertainty are the upcoming fiscal decisions in the US. Swiss economic outlook In Switzerland, real GDP in the third quarter increased again following a downturn, due to a temporary recovery in exports. For the fourth quarter, however, we again expect significant weakening in growth. Consequently, economic growth for this year is likely to come to around 1.0%, as forecast to date. For 2013, we expect growth of 1.0–1.5%. While the gradual revival in the global economy is having a supportive effect, the strength of the Swiss franc will hold back export momentum and corporate investment expenditure. Domestic demand is also likely to be restrained over the next few quarters. In view of the modest pace of growth, production capacity in Switzerland will probably remain underutilised in 2013. The rate of unemployment is likely to rise further. Given the fragility of global conditions, the downside risks also remain high for Switzerland. Monetary and financial conditions I will now turn to monetary and financial conditions, which are almost unchanged as compared to the situation in summer 2012. Interest rates in the Swiss franc money market continue to fluctuate around zero. Since mid-June, the three-month Libor has fallen from some 9 basis points to only 1 basis point. Interest rates in the repo market are predominantly negative. | For 2012, the inflation rate will amount to –0.7%. For 2013, we expect inflation of –0.1% and for 2014, 0.4%. In the foreseeable future, therefore, there is no risk of inflation in Switzerland. The third quarter of 2012 saw weak growth and a decline in trading activity worldwide. Although growth in the US economy and some of the emerging economies picked up, a mild recession persisted in the euro area. In Switzerland, real GDP in the third quarter increased again following a temporary downturn. For the fourth quarter, however, we expect significant weakening in growth. Consequently, economic growth in Switzerland for the year 2012 is likely to remain unchanged at around 1.0%. For 2013, we expect growth of 1.0–1.5%. The downside risks for the Swiss economy remain considerable. Although the measures announced by the European Central Bank (ECB) have significantly reduced the probability of extreme developments in the monetary union, there is still substantial uncertainty in connection with the management of the debt crisis in the euro area. It also remains to be seen how far the upcoming budget consolidation in the US will hamper growth. This question is weighing on the sentiment in the financial markets and the real economy. Moreover, momentum in the Swiss residential mortgage and real estate markets remains strong, and has led to a further increase in risks for financial stability. Global economic outlook I would now like to outline the outlook for the global economy and Switzerland in more detail. | 1 |
In the Basel framework there are some buffers, in particular the countercyclical buffer, that are intended to be activated in boom periods, precisely in order to make banks more resilient, and to be deactivated during recessions. Here the analysis of the Basel Committee suggests that the release of such buffers had a positive effect on lending during the pandemic. The results, for example, specifically for the euro area, for which we had more microdata, suggest that banks are adjusting internal capital targets cyclically: in boom periods banks reduce their own internal capital targets, and they do the opposite when there is a recession. The evidence also points to the fact that macroprudential authorities have the ability to influence these internal capital targets by releasing or activating the CCyB (Countercyclical Capital Buffer). This is precisely why the evidence points to the fact that the release of the capital buffer also generated a reduction in banks’ internal capital targets and this ultimately allowed them to provide more credit to the economy. If I combine all this information, the one thing that is clear to me now, which I think we need to think more about it in the next stage, is that we need to consider whether there is sufficient releasable capital in the system. Let me give two very concrete examples of why I think this is necessary. The best example is the COVID-19 crisis. | On the methodological side, it is quite obvious that imposing caps in ratings based on the sovereign is equivalent to constraining the results of whatever quantitative models rating agencies use. This is arbitrary and reduces the information conveyed by the ratings while leading to severe pricing distortions in assets across countries. Investors in capped securities will require a premium over similar but higher-rated securities while other investors are limited by regulation in their incentives to buy poorly rated securities. Additionally, it should be mentioned that ABS originated in countries under stress have performed considerably well even during the crisis. Indeed, ABS default rates have remained low in these countries and at levels comparable to non‐stressed jurisdictions (including the US). Thus, unless clients and regulators have (also) access to ratings without the cap, there should be minimal regulatory reliance on the ratings. In any case, additional transparency on loans, the existence of reliable credit registers or credit score systems should be mentioned as instruments to help market participants understanding better the BIS central bankers’ speeches 3 European ABS risk profile. Additionally, such information could even support entrants into the business of assessing credit risk, which currently lacks competition. Whereas the policy conclusions are often hard to come about, one thing seems clear: Europe must avoid ending up with zombie banks as well as with zombie firms. Zombie banks and zombie firms have never been a characterization of a well-functioning financial system and economy. | 0 |
Jan Frait: Monetary macroeconomics and central banks in turbulent times Lecture by Mr Jan Frait, Deputy Governor of the Czech National Bank, at the MEKON 2023 conference, organised by the Faculty of Economics, VSB-Technical University of Ostrava, Ostrava, 17 March 2023. *** I'd like to thank the conference organisers for inviting me to the place where I began my academic career in late 1990 and which then became my ticket to the board of the central bank ten years later. The knowledge I gained from my discussions here at the Faculty, specifically in the Department of Economics, has always been a foundation stone for me in making monetary policy decisions. At conferences, central bankers these days tend to give presentations in which they show charts to explain what's going on in the economy and what we can expect to see in the near future. But for this conference, for the first time in my professional life as a central banker, I have opted to give a straight lecture. This will hopefully better enable me to convey to you my longerterm view of the relationship between academic monetary macroeconomics and monetary policy-making. I will try to support this intention by not citing any literature – neither my own, nor that of my favourite economists, nor that of economists whose relevance I have doubts about. | For a while, modern macroeconomics tried to get around this more or less intractable situation by picking just one out of a wide set of stories, often treating it as if it were immutable in time and space. And when reality deviated from that story for an extended period, it opportunistically explained it away as bad luck in the form of a series of unpredictable adverse shocks. A persistent challenge for inflation-targeting central banks is the phenomenon of inflation itself. We recognise that the CPI or some similar inflation measure, which lies at the heart of this monetary policy framework, may not be an ideal representation of what is meant by inflation in traditional monetary theory. Personally, I still adhere to the monetarist definition that inflation means a steady and continuous rise in the price level, that is, a situation where different price categories and nominal variables generally show a similar trend. CPI inflation does not quite fit this definition, and it is not always desirable to regard its short-term fluctuations as genuine inflation or deflation. This is partly because CPI inflation tends to change quite frequently as a result of shocks of a non-macroeconomic and non-monetary nature. If the central bank were to try to slavishly keep CPI inflation at a certain target level at all times, it would have to change interest rates or other instruments frequently and significantly, and would probably not be successful in doing so. | 1 |
Wc are increasingly moving towards more principles based prudential standards; in addition, we have revamped our supervisory framework to provide a more structured and risk-oriented approach to the on and off-site examination process, while encouraging our front-only supervisors to think analytically. Despite these achievements, we still have substantial work ahead of us. Above all, our experience with risk-based supervision indicates that there is no going back to the mles-based approach of supervision given the dynamic nature of the banking business. And second, building a robust risk-based supervisory regime requires substantial time and resources and it will necessitate a material shift in the way both supervisors and bank managcment think about risk and risk management. I must therefore, commend APEC for this initiative in bringing together bank supervisors from the AsiaPacific region to learn and to share views on this very important topic. It is my sincere hope that all of you take this opportunity to gain insights from our highly experienced and knowledgeable experts as well as from each other on the practical aspects of risk-focused supervision. BIS Review 56/2004 1 Ladies and Gentlemen, I am pleased to declare open the APEC Pinancial Regulators Training Initiative Regional Seminar on Risk-Focused Supervision and Risk Assessment. I wish you all stimulating discussions in the week ahead and a very pleasant stay in Bangkok. Thank you. 2 BIS Review 56/2004 | As you know, I never comment on what my colleagues have said. On the basis of our decision, which was taken by the Governing Council with an overwhelming majority, I would like to emphasise the following points. First, we are totally independent of governments and pressure groups of any kind. It is not by chance that we have guaranteed price stability, but by taking decisions which have pleased neither governments nor lobby groups. Second, our mandate is price stability. From 1999 to the present we have delivered average annual inflation of 1.98% for 330 million European citizens. We are unswervingly committed to price stability. Third, we re-absorb all of the liquidity that is injected through our interventions. We are not printing money and there is no change to monetary policy. Fourth, the aim of our interventions is to enable certain markets to function more normally, in order to ensure the correct transmission of our monetary policy, which is unchanged. Fifth, we have taken note of the decision by governments not only to strictly comply with their undertakings to reduce deficits, but also, on the part of a number of them, to step up their budgetary consolidation efforts. For us, this is absolutely of the essence. BIS Review 76/2010 3 Does the situation of the Spanish banks concern you? I have no particular comments at this stage. On the international level, prudential supervision by the Banco de España has always been regarded as rigorous, particularly with its concept of dynamic provisioning. | 0 |
6 For example, the SBIF may require that the effective net worth of the bank or banks involved be more than 8% and up to 14% of their risk-weighted assets; or demand that the limit of the loans granted by a bank to another financial institution be reduced to 20% of the effective net worth (section 35, banking law). Concluding remarks The challenges facing emerging market economies are different from those of industrial countries. While the latter struggle with ensuring a sustained recovery from the Great Recession, the former have to manage a healthy and vigorous process of growth, which is not exempt from tensions. The need of the world to rebalance saving-investment across countries will have as counterpart capital flows adjustments. Exchange rate flexibility, avoiding serious misalignments, should help to smooth this process. It is tempting to think that emerging economies did not suffer the financial crisis for having better regulatory framework than industrial ones. However, the issue is somewhat more complicated. In some way, emerging markets enjoyed also less complexities and smaller sized financial systems. For the current level of development and the size of the financial system, regulations appear to have worked fine. But, the challenge is how to allow continued financial development in the context of a solid financial system. For this reason it is very important to learn from mistakes in more mature markets, and to participate and analyze coming changes in the global financial landscape. | Ladies and Gentlemen, Provided that the current political deadlock is soon resolved and the new political equilibrium is reached, these fundamentals should provide a solid platform for Thailand’s economic growth going forward. A recent study by the Bank of Thailand’s staff finds Thailand’s potential GDP growth to be in the range of 5.5-6.1% between 2008 and 2015. This may appear a far cry from the 1987-1996 period when the growth of the Thai economy averaged 9.5%. However, everyone now realizes that the Thai economy then was operating beyond its potential and therefore not sustainable. In contrast, our staff’s projection was based on a balanced growth path scenario used to characterize an economy in a steady state. There is however an important catch in the cited projection and that is the implicit assumption that the ratio of real gross investment to real GDP recovers from the current level of 22% to 28-30% by the end of the period. Thus, things like mega-project investments are conceivably already included in the projection. The current political doldrums only make the scenario far reaching. Without the resuscitation of investment, Thailand’s potential growth rate will likely fall to a lower path. The same study also points out the impact of demographic change on Thailand’s future growth. By 2026-2035, the economy’s potential GDP growth rate under the balanced growth path assumption is projected to fall to 4.8-5.4% due to ageing population. | 0 |
Part of our challenge was to reconcile the UK’s position as an international financial centre with stable banking in the UK. 1 To be clear, I am not referring to any company with a similar name. 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 EMBARGO: not for release before 19:30 on Wednesday 4 October 2017 We concluded that domestic retail banking should be structurally separated from global wholesale and investment banking. The distinction was not between a safe utility bank which would never fail and a racy casino bank which would never be saved. We have had plenty of experience of retail banks getting into trouble. Both sides of the ring-fence would undertake economically valuable activity, both would take risks, but each would need to be resilient to these risks without relying on the other. I will not rehearse the full arguments here, but let me highlight one which has had less attention, which is about time-consistency. It is a plain fact that prudential regulators tend to ring-fence retail banking operations in a crisis – I have done it myself. Retail is predominantly domestic by nature and its troubles are best managed by those who know it best. So it makes more sense to recognise that reality and get the structures right ex ante, than to try and do so in a tearing hurry just as a crisis hits. Ring-fencing retail banking is geofinance in action – in a good way. | Mr Chairman, learning from others, some of the obstacles facing the leasing companies, include inability to attract funding and lack of adequate leasing expertise, can be overcome through formation of synergies and partnership with other industry players. I understand in the USA, for example, over 70% of leases are actually written through lease intermediary companies or brokers, who use their specialised skills to structure lease transactions in the best way possible for the benefit of both the lessee and the lease underwriter. Lease syndications and funding partnerships with bigger players should also be encouraged as these help to spread risk and reduce pressures on balance sheets of individual leasing companies. Ladies and Gentlemen, you will agree with me that there is vast untapped potential of leasing activities in this country. There is need to develop this line of business further. A developed leasing sector is characterized by a diverse range of financial services that include factoring and trade finance, term lending, corporate finance and investment advisory services, and corporate restructuring, treasury management as well as traditional leasing activities. But this is not the case in Zambia at 2 BIS Review 17/2007 present. Currently, the leasing sector is restricted primarily to the traditional leasing activities. This seminar has thus come at the right time, as the lessons learnt are vital to complement the Government’s efforts not only to develop the leasing sector, but the financial sector as a whole. | 0 |
When the flight to safety and quality occurs, it will be those countries and companies with robust standards of corporate governance that will be better placed to keep the loyalties of investors. Corporate governance developments in the region We should therefore keep up the momentum of progress. Since the crisis, the Asian Roundtable countries have indeed made substantial progress in important areas of corporate governance reform. I will run through two key areas of progress very briefly. Growth and strengthening of standard-setting bodies Institutions matter. Several countries in Asia have established national committees on corporate governance since the crisis . The private sector has also strengthened its act. We have seen a number of institutes of directors set up in many countries, including China, Hong Kong, Indonesia, South Korea, Malaysia, Thailand and the Philippines. Minority shareholder watchdog groups are also now in place in countries such as Malaysia, South Korea and Taiwan. And Institutes of Directors, in particular, BIS Review 73/2007 1 now play a key role in developing training programmes for both directors and management. In some countries – for example, Malaysia and Thailand, such training programmes have become a mandatory prerequisite for directors of listed companies. So we have seen a strengthening of both public and private bodies aimed at the common objective of scaling up standards of corporate governance. | As you will recall from the presentation we made on that occasion, we linked lower inflation to the possibility of greater capacity gaps as a result of the massive immigration of recent years, and to a lower pass-through from exchange rate variations to prices. When presenting that diagnosis, we said that the lower inflation as measured by the new CPI had implications for monetary policy, so we halted the normalization process that we had started in late last year. In addition, in order to fine-tune the diagnosis, we decided to advance to June the updating of the structural parameters—i.e. trend GDP, potential GDP and the neutral monetary policy rate. Then, at our May Monetary Policy Meeting, we discussed the option of reducing the MPR, advancing that such an adjustment would be justified in case of a significant widening of the gaps, or a lesser dynamism of the economy, a worsening of external conditions and/or a lower neutral MPR. At last Friday’s meeting we verified that all these conditions have been met. First, estimates of trend and potential economic growth have increased as a result of immigration, which translates into greater capacity gaps. Second, the neutral MPR is lower, partly because of the fall in the estimated neutral rates in the main economies. Third, in recent months, the dynamism of the economy has been below potential growth, helping to widen the activity gap. Finally, the external scenario has deteriorated, mainly because the balance of risks has become more negative. | 0 |
Lorenzo Bini Smaghi: Monetary and financial stability in the euro area Speech by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the Europe Festival Conference on “The state of the Union”, Florence, 10 May 2011. * * * Introduction It is a great pleasure for me to contribute to this Europe Festival Conference on “The state of the Union”. Before turning to my assigned topics, which concern the euro and the monetary policy of the Union, I would like to start with a few general comments. There can be no doubt that these are challenging times for Europe. But the current crisis does not just affect Europe, it affects the whole of the West. Problems such as the sustainability of public finances and the role of the state in the economy, immigration and burgeoning income inequality, concern not only Europe and the euro area, but the whole of the industrialised world. Moreover, this is not a cyclical crisis but a structural one, resulting from the profound changes now sweeping the world. Hundreds of millions of people have risen over the survival threshold, over two-thirds of the world’s population has opted for the market economy model, and there is a perception of a lack of progress in economic and social development and also in civil rights in a large part of the world. There is probably no historical precedent for the speed at which these changes are taking place. | After the onset of the global financial and economic crisis the franc appreciated by 17% vis-à-vis the euro in 2010 alone, driven by the reallocation of global capital on a massive scale. This has fuelled deflationary risks and slowed economic growth. To counter these effects, massive unilateral interventions were conducted, leading de facto to a closer alignment of monetary conditions with those in the euro area. This points to the conclusion that in a multipolar world having appropriate domestic macroeconomic policies is not sufficient to absorb external shocks. Unless a country or an economic region also has a deep and liquid capital market and its size is sufficient to absorb large capital flows, it is bound to become subordinate to the existing poles, or to be squeezed between them. The prosperity of the euro area countries is inextricably linked to the success of the euro. The euro: a unique construct The euro is the only major currency that is not issued by a single sovereign state, but by a union of states. As this is a totally unprecedented monetary framework, it is fair to ask whether it has what is needed to become one of the poles of the new system – in other words, is it sufficiently robust to ensure sound economic policies at the euro area level and in the individual countries, and does it have a large and deep financial market? Decisions are about to be taken on strengthening the governance of the euro area with a view to achieving these objectives. | 1 |
Another reason why we envisaged a slowdown in economic activity in Sweden was that the increased financial unease would reduce sentiment among Swedish households and companies and in this way have a negative effect on consumption and investment. However, at the same time, our assessment was that the slowdown in economic activity would be alleviated by the fact that the Swedish is competitive, has sound public finances and resilient banks. Our forecast was that GDP growth in Sweden would be weak for some time to come and that unemployment would increase somewhat. As the unease in the euro area subsides next year, economic activity will strengthen, unemployment will decline again and resource utilisation will increase. Inflation will rise at the same time, after being held back by a low cost pressure and a stronger krona since the financial crisis 2008–2009. 2 BIS central bankers’ speeches Repo rate remains low to stimulate the economy With regard to monetary policy, our assessment was that it needs to be expansionary to support economic activity and give an inflation rate in line with the target of 2 per cent. We therefore decided to hold the repo rate at 1.5 per cent and assessed that it needs to remain at roughly this low level for just over a year, and should then be raised gradually. The deterioration in international economic prospects meant that we revised down the repo-rate path somewhat, in relation to the assessment made in April. | The declining trend in labor force participation also influences how fast the economy can produce new jobs in the long run. Our estimate of the trend in payroll employment growth over the past 15 years averages roughly 100,000 jobs per month. Looking ahead, we think that declines in the labor force participation rate and population growth will bring the trend in payroll employment growth down to fewer than 50,000 jobs per month by 2016. This new benchmark probably will only become apparent in the monthly data once the economy closes the current 3.8 million employment gap. But barring sizable changes in immigration policy, policymakers and the public will need to get accustomed to a slower base of employment growth by the latter part of the decade. Job openings and hiring This brings me to the issue of hiring and job openings. The job openings rate, as measured by the U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) data, started climbing immediately after the recession and made it back to its pre-recession high this summer. 6 Yet, despite some improvement, the JOLTS hiring rate remains disappointingly below where it stood before the recession began. 7 Why might firms advertise openings aggressively but be slower to fill them? Posting a vacancy is only part of the hiring process. Jason Faberman of the Chicago Fed, in collaboration with Steve Davis of the University of Chicago and John Haltiwanger of the 3 Aaronson et al. (2014). | 0 |
Registered unemployment was 2.3 per cent of the labour force in October. Unemployment has declined for all occupational groups, and has been most pronounced in manufacturing, building and construction and the engineering and ICT sectors. There are probably limitations to how much the supply of Norwegian labour can increase in the period ahead. Labour participation rates are high, particularly when taking into account demographic developments. Developments in the labour market are similar to those observed prior to the period of accelerating wage and cost inflation that started in 1998, but wage growth so far has been fairly moderate. Several factors may have contributed to this. An increase in inward labour migration and the opportunities provided by an international labour market may have prompted participants in local and centralised wage negotiations to place greater emphasis on the considerably higher wage level in Norway relative to our trading partners and on potential job vulnerability. Foreign companies with contracts in Norway account for a substantial share of inward labour migration. Labour inflows from the new EU member states still appear to be growing, with the construction industry absorbing a particularly large share. In 2006, the number of persons employed BIS Review 108/2006 1 from new EU member states who are not resident in Norway is estimated at close to 30 000, i.e. an increase of 12,000 since 2005. Inward labour migration has reduced bottlenecks in some industries. However, despite increased labour market flexibility, the risk of higher growth in labour costs is now rising. | The main basis for these examinations is the appendix to the Inflation Report that I mentioned earlier. One might think that it would be even better if more, and independent, agents took an active part in serious assessment. From time to time, assessments or assessment reports are commissioned. For instance, the National Institute of Economic Research 1 was given the task of producing background and facts prior to the Committee on Finance’s assessment in 2002. Last year the Committee on Finance decided to commission an independent, in-depth assessment of Swedish monetary policy during the period 19952005, that is, the ten-year period during which the inflation target has acted as official anchor for Swedish monetary policy. This assessment is being made by two international experts in this field, and it will, for instance, illustrate whether the inflation target is correctly designed to ensure price stability, to what degree the monetary policy conducted has led to attaining the inflation target during this period and the background and forms for the monetary policy decisions. This is something that I and my colleagues in the Executive Board welcome and I look forward to the analyses and debates this assessment will lead to. Of course, one can regard the general debate as an examination of our activities and as an indicator of how well we explain our monetary policy. However, it is rare that particularly thorough comparisons of, for instance, the forecasts published by the Riksbank and others are made in the debate. The debate thus cannot replace systematic assessments. | 0 |
Moreover, the basic goal of any Government regulation should be to ensure competition, protect intellectual property and privacy, prevent fraud, foster transparency, support commercial transactions, and facilitate dispute resolution. The fourth principle directs the Government to recognize the unique qualities of the Internet in relation to existing regulatory models. We should not assume, for example, that the regulatory frameworks established over the past sixty years for telecommunications, radio, and television apply to the Internet. The Framework specifically directs the Government to review, and revise or eliminate existing laws and regulations that may hinder electronic commerce to reflect the needs of the new electronic age. Finally, in the fifth principle, the Framework announces what, to many, is the most important principle in connection with electronic commerce and the Internet, namely that electronic commerce over the Internet should be facilitated on a global basis. In this regard, the United States Government has identified nine areas where international agreements are needed to preserve the Internet as a non-regulatory medium, one in which competition and consumer choice will largely shape the market-place. The nine areas are: (1) customs and taxation; (2) electronic payments; (3) a Uniform Commercial Code for Electronic Commerce; (4) intellectual property protection; (5) privacy; (6) security; (7) telecommunications infrastructure and information technology; (8) content; and (9) technical standards. These nine areas are discussed in some detail in the Framework. | Over the past year, the PCE deflator has risen only 0.2 percent – held down by lower import prices and falling energy prices – and the core PCE deflator, which excludes the more volatile food and energy components, has risen 1.3 percent. There is also some evidence that suggests that inflation expectations are under downward pressure. In particular, some survey measures of long-term inflation expectations are at the low end of the ranges that have prevailed in recent years. For example, the University of Michigan median measure of inflation expectations at a five-to-ten year horizon fell last month to 2.5 percent, the lowest level since September 2002. Similarly, the New York Fed’s three-year median inflation expectations measure from our Survey of Consumer Expectations is currently at 2.8 percent, down from 3 percent a year ago. The good news, however, is that these declines are very modest in magnitude. Thus, I would still judge that inflation expectations remain well-anchored based upon these survey measures. Similarly, measures of inflation compensation based on the interest rate spread between nominal Treasury securities and Treasury Inflation Protected Securities (TIPS) have fallen sharply over the past year. For example, the Board of Governors’ 5-year, 5-year forward measure – in other words, what inflation compensation would be for the period five-to-ten years from now – currently stands at around 1.8 percent, down about 40 basis points from a year ago. However, I put even less weight on this development than on the survey evidence for two reasons. | 0 |
I owe a big debt of thanks to my predecessor Zdeněk Tůma, who steered the bank to a position where its reputation, which had been severely tarnished before his arrival, was growing steadily. He achieved this by, among other things, imposing his own highly developed sense of self-control and restraint on the bank. As the Czech National Bank started communicating less on general topics and more on its areas of expertise, it became recognized as an institution of true independence and authority – to such an extent that the Czech political system allocated all supervisory competences to it and continues to broaden its responsibilities. I believe that the crises from which a significant part of the developed world is still emerging have – at least for smaller economies – justified a scheme in which some or all supervisory roles are allocated to the central bank, which holds responsibility for stability issues anyway. But I also have to warn against the trend where the public sees central banks gaining more and more competences and mandates and starts to overestimate their ability to deal with crises. Central banks are far from omnipotent, and this trend may harm them. After all, their independence is only a product of the political system in which they operate. And such independence depends chiefly on their reputation. A central bank’s reputation is based on qualities such as accountability, transparency, and proper management of its own operations, as well as on its ability to make good choices and good decisions. | Because if we are, the instant effectiveness of some forward-looking commitments and guidance that should never have been issued at all, will give way to a much longer-lasting decrease in our ability to guide the markets in the future, and thus to an increase in the risks faced by each and every economic agent. Our mandates and institutional frameworks may develop, but our primary objective of assisting economic development and growth by preventing abrupt changes in economic indicators – be it the price level or broad measures of the stability of financial systems – will very likely stay unchanged for quite some time to come. Generally speaking, the goal of central banks is to provide some certainty in fundamentally uncertain economies, the uncertainty being based largely on the workings of their monetary systems. In pursuing this goal, we will need three things. First, we will need external recognition of the importance and usefulness of our independence. Second, we will need to nurture good relations with our colleagues; we have made great strides in this area, but much remains to be done. And finally, in our inner circles we will need the support of our nearest and dearest. So, let me end by thanking my wife for being such a rock of support in my life, my parents for teaching me that things should be done properly or not at all, and my kids for being such a joy every time I am with them. Thank you. 2 BIS central bankers’ speeches | 1 |
See David Miles’ 2014 speech ‘What is the Right Amount of Guidance?’ 18. The oracle at Delphi foretold the future but she often spoke in riddles (encouraged, some claim, by the hallucinogenic gases emanating from fissures in nearby rocks). Presumably the name was chosen more because of the contrast with commitment: one of the inscriptions at the temple reads “make a pledge and mischief is nigh”, sometimes shortened to “surety brings ruin”. 19. The first is called “the over-confidence effect”, the second “hindsight bias”. Both are extremely well researched and documented (see, for example, Kahneman (2011), ‘Thinking Fast and Slow’). The second is ubiquitous. How often does one hear people - or, indeed, oneself – say “X was bound to occur”, or “I always knew Y was going to happen”, when neither is, in fact, true? 20. ‘The Bank of England cannot make promises about interest rates’. Financial Times, 4 July 2018. Technical appendix Ben Broadbent Deputy Governor, Monetary Policy Sign up for latest updates ©2022 Bank of England | The challenges facing the European economy are considerable and set in an institutional context that has been disrupted by the “no” votes in the recently held French and Dutch referendums on the ratification of the Constitutional Treaty. The difficulties of entrenching growth that is sufficient and consistent with the European model and with the general public’s expectations may have influenced the disappointing results returned by these referendums. But this is something which is closely related to the difficulties at the national level in pushing through the necessary reforms and explaining them convincingly. The significance and implications of these results should not be underestimated. But they need not check European integration. Rather, they should act as a spur to further integration by means of European and national policies that respond to the demands of the public. In any event, European integration has not been a linear process in the past and I am fully confident that the European Union will be capable of overcoming these difficulties just as it always has when obstacles have stood in its way. On the plus side in the current circumstances is the fact that it has a currency shared by a large number of countries and a federally organised central bank which are a focal point of stability and exemplify Europeans’ ability to embark on and co-ordinate ambitious undertakings that contribute effectively to the collective well-being. | 0 |
See the discussion of the potential risks and benefits in Cunliffe (2022): ‘Innovation in post trade services opportunities, risks and the role for the public sector’. 6. Financial Services and Markets Bill – Articles 21 and 22. 7. The Banking Act 2009 provides the statutory basis for the Bank’s oversight of payment systems. It allows HM Treasury Page 10 to recognise systems for supervision by the Bank of England as part of the Bank’s objective to maintain UK financial stability. 8. Bank of England Record of the Financial Policy Committee Meeting 13 December 2019. 9. Bank of England Record of the Financial Policy Committee Meeting 24 March 2022. Sir Jon Cunliffe Deputy Governor, Financial Stability ©2022 Bank of England | At the same time, the role of the financial services sector in the recent global economic meltdown has also raised questions on the issue of the quality of the leadership and workforce and for the need to place greater focus on developing ethical and responsible leaders who will be able to lead a sustainable industry over the medium and longer term. The economic costs of a failure to arrest talent shortages are strategically significant and include low productivity, the slow pace of innovation and lost opportunities. Building a strong talent pipeline has therefore become an economic imperative as human capital rivals financial capital as the critical economic engine of the future. This requires new and innovative ways of thinking about talent development, programs, processes and competencies. The human capital challenge has therefore to be approached with a different set of solutions. Giving recognition to its importance, in the United States, the accounting rules were adjusted to allow organisations to treat a wider range of talent development costs in the same manner as long-term investments in equipment, manufacturing plants and other facilities. Financial institutions today are also forming stronger relationships with business schools to increase the relevance of their curriculum. The World Economic Forum, through its recent work on skills and talent mobility, has fostered a concerted, multi-stakeholder, cooperation and dialogue among policy-makers, relevant international institutions, governments and businesses to develop interdisciplinary solutions to address the talent shortage. | 0 |
This phenomenon has gained some interest in international media over the last couple of years. Let me give you some figures: The value of cash in circulation in relation to GDP has decreased steadily from approximately 10 per cent in 1950 to around 1.5 per cent today. Over the past decade even the nominal amount of cash in circulation has decreased, which is quite unique. The decrease has been substantial, between the peak in 2007 to 2016 the number of outstanding notes and coins decreased by more than a third. Most of this * I would like to thank Erik Lenntorp for his help in writing this text 1 [4] decline has taken place in the last two to three years, driven partly by changing consumer habits, partly by our ongoing changeover of banknotes and coins. Value of banknotes and coins in circulation SEK billons (annual average) Cash in Circulation/GDP 120 12,0% 100 10,0% 80 8,0% 60 6,0% 40 4,0% 20 2,0% 0 0,0% 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Nominal value (SEK bn, left scale) Value in relation to GDP (per cent, right scale) Note: Banks’ holdings are excluded. Sources: Statistics Sweden and Sveriges Riksbank. Although there are many drivers explaining the move from cash to electronic payments, I would like to highlight two actions by the Riksbank. | 0,4 / 1,0 / 1,8 One approach to a more detailed separation of trend or core inflation from these types of transitory price effects involves looking at the various indicators of underlying inflation that have been developed at the Riksbank. Whereas annual CPI inflation in the period 1996–98 averaged 0.7 per cent, inflation as measured by UND1X, which excludes interest expenditure, taxes and subsidies, averaged 1.5 per cent. As measured by UNDINHX, which also excludes goods that are mainly imported, inflation amounted instead to 2.1 per cent. However, the latter indicator disregards a large proportion of the factors that contribute to a weaker price trend for goods in the longer run. 6. Conclusions about inflation 1996-98 ■ Inflation - measured with the CPI - was below the target and the lower tolerance limit during 1996-1998 ■ CPI-inflation has been markedly affected in all three years by transitory effects that are easy to identify ■ Excluding more transitory price effects, inflation has been inside the stipulated tolerance interval This review shows that in all three years (1996–98) inflation has been below the target expressed in terms of the CPI. However, excluding more transitory price effects that monetary policy neither can nor should try to counter in full, inflation has been inside the stipulated tolerance interval. I shall be returning to the reasons why price effects of this type should be disregarded in an appraisal of the Riksbank’s monetary policy. | 0 |
If the deficit were left unchanged at this year’s expected level of Lm95 million, it is estimated that debt service costs would rise from Lm85 million today to almost Lm120 million by 2010. In other words, the Government would have to register a surplus on its recurrent operations and borrow money just to service the debt. This unsustainable situation is a symptom of another feature of our economy, the high level of government expenditure. At 51% of GDP, this is the sixth highest in the EU. Government, moreover, employs 27% of the labour force, which is somewhat higher than the EU average, while the entire public sector absorbs over one-third of Malta’s labour supply. This is not to say that nothing has been done. Fiscal consolidation and structural reform have indeed in recent years become key features of the Government’s drive to enhance the productive potential of the economy. This awareness is reflected in the Convergence Programme, which targets a fiscal deficit of 1.4% of GDP by 2007, compared to 5.3% this year. This improvement is to be attained mainly through a reduction of about six percentage points, to 44%, in the ratio of government expenditure to GDP. What does this target mean in terms of the savings that need to be made? During the past five years government expenditure has been increasing by an annual average of Lm55 million. At this rate, it would exceed Lm1.1 billion in 2007. But the total contemplated in the Convergence Programme for that year is about Lm950 million. | On the other hand, it can also be interpreted as evidence that the fiscal burden is relatively low, which would be conducive to economic expansion. It is, however, probable that the moderate tax ratio does not reflect low fiscal pressure as much as the use of inappropriate mechanisms which yield insufficient revenues. One reason for this is that direct taxation is rather progressive, which creates a disincentive for work, or at least for work in the formal economy. At the same time, it is common knowledge that tax evasion is still widespread. These 4 BIS Review 67/2004 phenomena may well be compounded by distortions inherent in the system, among them the charging of a minimum national insurance contribution on part-time work. All of this suggests that the taxation system should be further refined in order to enhance the degree of compliance and to shift the tax burden away from productive activities. Conclusion On this same occasion five years ago my analysis of the country’s economic condition led me to conclude that the status quo was not sustainable. I expressed the view that the time had therefore come for us as a nation, not as followers of narrow sectoral interests, to revisit the choices made in the past and to establish new priorities commensurate with the prevailing economic realities, with the limited resources available to us and with our core values. The situation we face today compels me to reiterate this appeal with greater conviction. For we have clearly not done enough. | 1 |
With the arrival of the Monetary Policy Committee (MPC) in 1997, the number of published speeches trebled. And with the advent of the FPC and PRC, Bank publications have kept going through the gears. In 2020, the Bank issued 62 speeches, 56 working papers, over 100 consultation documents, 74 blogs and around 100 statistical releases - in total, around 500 publications. That is around four million words - a genuine revolution in transparency practices. Transparency is necessary for central bank success, but not sufficient. The “twin deficits” of public understanding and public trust need also to be tackled.34 These deficits are closely linked as the public are unlikely to trust something they do not understand. Alongside a greater quantity of communication, tackling these deficits requires a shift in the nature of central bank communications to boost understanding and in the degree of central bank engagement to build trust. Both of those shifts are now underway. On public understanding, in surveys around 60% of the general public believe the Bank of England has a good understanding of the economy. That is the good news. The bad is that the same surveys suggest only around a quarter of the public believe the Bank explains its actions and decisions in ways they understand. Given the transparency revolution that has taken place, how can that be? Which of those four million words are people not understanding? 34 Haldane (2017a). 19 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 19 The answer is most of them. | These are: whether the UK economy has achieved sustainable convergence with the economies of the single currency; whether there is sufficient flexibility in the UK economy to adapt to change and other unexpected economic events; whether joining the single currency would create better conditions for businesses to make long-term decisions to invest in the UK; the impact membership would have on the UK financial services industry; and ultimately whether joining the single currency would be good for employment. It would then submit a favourable decision to Parliament, and the British people in a referendum. The Chancellor recognised that it was unrealistic to think that a decision could be reached during the lifetime of the present Parliament, which runs to May 2002 at the latest. But he stressed that in the meantime the UK should nevertheless prepare - not only for introduction of the euro on the Continent on 1 January 1999 - which we of course did very effectively - but also for our own eventual participation. The Chancellor’s statement was the first by a British Government to accept the principle of monetary union. It recognised that the single currency will affect us whether we are in fact in or out - and that it is clearly in our own national interest to do all that we can to ensure that the euro is successful. | 0 |
3.3 Other economic policies The fact that I have referred first to the role played, in combating the crisis, by macroprudential and microprudential policies and monetary policy – instruments that, moreover, fall within the remit of the institution I lead – does not in any way imply that fiscal policy is not playing an important role. On the contrary, it seems to me that, from the standpoint of economic policy, budgetary policy is our main means of defence against the consequences of COVID-19. And this instrument has been deployed decisively since the outbreak of the crisis in Spain and in other countries. First, steps have been taken to increase the budgetary resources assigned to health in response to the pandemic. Second, since the start of the period of induced hibernation of the economy, various actions have been taken to make up for the loss of employment income and corporate revenues. Notable, in particular, are the temporary employment adjustment programmes and the public guarantee schemes for credit institutions’ lending to businesses, which I have already referred to. As you well know, the aim of these actions is to facilitate the preservation of employment relationships when the measures restricting activity and personal mobility are lifted, and to support the viability of non-financial corporations which, despite being solvent, have seen their liquidity position deteriorate as a consequence of the crisis. | Looking ahead, we expect the euro area economy to grow at a moderate pace, in an environment of continued tensions in some financial market segments and of unusually high uncertainty. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely. As regards fiscal policies, the Governing Council welcomes the recent decision by euro area countries to formally establish a European Financial Stability Facility. This needs to be accompanied by decisive action at the level of governments. It is essential that all countries stick to their commitments to correct high budget deficits and government debt and reduce fiscal vulnerability. To this end, the concrete adjustment measures needed to achieve the budgetary targets should be fully specified. All countries must ensure that confidence in the sustainability of public finances is guaranteed. | 0 |
And third, we will retain our stock of assets for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Moreover, this sequence doesn’t depend on the fiscal uncertainties that can appear in member states. The Governing Council is clear about the fact that there is no fiscal dominance in the euro area and no influence of any national fiscal policy on our common monetary policy. Flexibility – Our sequence is clear but the details of implementation are flexible and state1/3 BIS central bankers' speeches dependent. We have included several options to deal with incoming data. Let me illustrate this on two points: One frequent focus of speculation is the precise timing of the first increase in interest rates and the path of policy rates thereafter. Obviously, we have to consider here the trade-off between more clarity today and flexibility tomorrow. It is true that forward curves beyond the second half of 2019 are somewhat volatile. But for the time being, this volatility is relatively modest, and certainly so for interest rates that matter for the economic decisions of households and corporates. Therefore the trade-off currently favours keeping our options open. I wouldn’t see any value in trading off our flexibility tomorrow against more clarity today but as we approach the summer of 2019, the balance will shift in favour of detailing our forward guidance. We also have flexibility over reinvestment. | This should include “an IMF standing liquidity facility.’’ The global financial safety net is the best insurance we can get against the risks created by economic divergence and it comes at a limited cost. ** So, in conclusion, we as central bankers should be predictable without being pre-committed. In other words, we should give clarity without pretending to certainty. Voltaire summed this up nicely in 1770: “Doubt is an uncomfortable condition, but certainty is a ridiculous one.”4 In these times of doubt, the Governing Council of the ECB is committed to give as much clarity as possible; clarity, not certainty, which is neither possible nor desirable. Thank you for your attention. 1 Brainard, W. (1967), « Uncertainty and the effectiveness of policy » the American Economic Review, Vol. 57, No. 2, Papers and Proceedings of the Seventy-ninth Annual Meeting of the American Economic Association, May, pp. 411–425. 2 Blinder, A. (1999), Central Banking in Theory and Practice, the Lionel Robbins lectures, MIT Press, Cambridge Massachusetts. 3 Rey, H. (2013) “Dilemma not Trilemma: The global financial cycle and monetary policy independence”, Jackson Hole conference proceedings, Kansas City Fed. 4 Letter to Frederick William, Prince of Prussia (28 November 1770). 3/3 BIS central bankers' speeches | 1 |
In this context, I would like to focus my speech today on three issues. I will begin by focusing on the implications of the changing patterns of globalisation for the European economy. In particular, I will provide an analysis of the vulnerabilities and dependencies affecting the 1 EU's trade and financial flows, based on a report soon to be published by the Eurosystem. 1 In the second section, I will take stock of the European policy response to reduce those vulnerabilities and exposures and the dilemmas it faces. I will also provide some insights into how I think European policies should react. In the last part of my talk, I will focus on the implications of this trend for the ECB’s monetary policy. In its recent strategy review, the ECB looked carefully at the consequences of globalisation for the conduct of monetary policy. The obvious question is whether we should now expect similar effects with opposite sign as a result of a possible increase in fragmentation. EU vulnerabilities in a globalised environment The EU is deeply integrated into the global economy and has strong links with other major geopolitical powers, such as the US in terms of finance and trade, China in terms of trade and, before the war, Russia in terms of energy and raw materials supply. What are the main vulnerabilities observed as a consequence of this high degree of integration? | This reflects the systemic impact CCPs can have in situations of extreme stress, by disrupting repo markets or channelling liquidity strains to banks – which are also monetary policy counterparties – thus affecting the circulation of liquidity in payment systems. Ultimately, CCPs may need to rely on central banks as lenders of last resort. Central banks therefore have an important role to play in the regulation of central clearing – a notion which is largely recognised but often misunderstood. In this context, let me say a few words about recent developments in the area of CCP regulation, and in particular the outcome of the legislative process regarding the revision of the supervisory framework for CCPs, the European Market Infrastructure Regulation (EMIR II), and the recommendation to amend Article 22 of the Statute of the ESCB and the ECB. The ECB recommended to EU legislators that its Statute be amended to clarify that the ECB had legal competence over CCPs, which would have allowed it to perform its statutory monetary policy role under EMIR II. We made the case that the ECB needed explicit general competence to monitor and address risks relating to our mandate, including broad discretion to take necessary measures in exceptional situations where the stability of the euro is at stake. | 0 |
(2014): “Central banks and payment systems: The evolving trade-off between cost and risk” and Norman’s comments at Norges Bank’s conference “Of the uses of central banks: lessons from history”, 5–6 June 2014. BIS central bankers’ speeches 1 Allow me to give two examples. Just before the turn of the millennium, Norges Bank introduced a real-time gross settlement (RTGS) system that allowed large payments to be settled far faster than earlier. This also resulted in less uncertainty and lower risk. Another example is the introduction of the foreign exchange settlement system CLS just over ten years ago. Before CLS was established, one party could risk paying his leg of a trade without receiving anything from the counterparty. With CLS, this counterparty risk was eliminated. In both cases, the introduction of the new systems increased costs for private participants. This prompted criticism. But over time, the reduction in risk has more than offset the increase in costs. The financial crisis in autumn 2008 showed that the gains were real. Where there were adequate settlement systems without counterparty risk, markets functioned better. The core of the Norwegian payment system is the Norwegian Interbank Clearing System (NICS) and Norges Bank’s settlement system (NBO). On average, over NOK 200 billion passes through NBO each day. Without this system, payments in Norway would come to a halt. This would quickly have serious consequences. Norges Bank therefore has a target of 100-percent availability for the settlement system during opening hours. In recent years, the Bank has been successful in ensuring this. | Foreign direct investment has helped total factor productivity in recent years, yet if wages reach too high levels, attracting investment may become a problem. We therefore need to ensure that wage levels are compatible with attracting investors, but at the same time acknowledging that, at least in certain areas, wages need to go up at present, in order to mitigate the labour force drain that affects the private and public sectors alike. However, pay rises in the private sector should not be triggered only by an increase in public sector wages. While raising the minimum wage has been necessary, we should be very careful not to hurt employers, as they represent an important engine of the economy. The key is, in my opinion, to increase wages at an adequate, sustainable pace, in order for Romanians to ultimately benefit from an improved living climate reflected in a higher purchasing power, but also from preserved macroeconomic equilibria, as well as higher-quality public goods – especially highways connecting different regions of Romania, but also our country with the West. After all, wages are not the only side of the emigration story. 4. KEEPING THE EXTERNAL DEFICIT IN CHECK The wage matter is also closely linked to the topical issue of ensuring a balanced external position. To the extent to which the upward path of wage costs is too steep, it gets very difficult to preserve competitiveness, not only on external markets, but also on the domestic market. | 0 |
I don’t think the time has come for this, either at a conceptual or practical level. But rather, I think that we need to develop the existing institutional system for European banking supervision in order to ensure that all of the possibilities for co-operation and convergence are fully taken advantage of. The main policy objective at this stage should be to enhance cross-border supervisory co-operation in order for supervisory action to be perceived as unified. This system should be built on four levels. At the first level, we have the competent supervisor of each banking institution (whether this is the home or host supervisor in the context of the group), which will have to fulfil its responsibilities and accountabilities, on the basis of the powers and obligations it has been given by the national parliament and legislators. The second level consists of bilateral co-operation between the supervisors of internationally active institutions. This has long been the bedrock of effective supervision in the context of increasing internationalisation, and will continue to be essential in the future. Multilateral co-operation forms the basis of the third level. This is an aspect that has become progressively more significant in recent times, and which will grow in importance in the coming years. Both bilateral and multilateral arrangements will be increasingly necessary in the context of Basel II, where, as we have already discussed, the consolidated supervisor will be responsible for co-ordinating the supervisory process in relation to assessing applications to use the advanced approaches. | In all, the domestic economy seems to have adjusted well to the greater risks and challenges that have emerged. The pace of growth has moderated from last year’s but the overall growth momentum still looks firm and economic stability remains sound. The key issue going forward is the risk posed by the higher oil prices to the outlook on domestic growth and inflation. And under a more pessimistic scenario, an important question is how resilient is the domestic economy to absorb a much larger shock, this is to say persistently higher oil prices. In the meeting of the Monetary Policy Committee last Wednesday, members of the Monetary Policy Committee spent considerable time discussing this type of questions based an preliminary analyses prepared by our staffs at the Bank of Thailand. While the numbers are still preliminary, the results seem to suggest a greater trade-off between growth and inflation going forward. In particular, higher oil prices will adversely affect both growth and inflation, but the effects on inflation is projected to be more pronounced because of the pent-up pressure on prices as mentioned earlier. Reflecting this, the Committee felt that the risks to economic stability have increased with higher oil prices and it is only proper that monetary policy should be vigilant on inflation. | 0 |
While the Federal Reserve has a domestic mandate set for it by the U.S. Congress, it needs to be mindful of the international effects of its actions, which can have important potential consequences for the global economy and financial markets.9 A high level of global interdependence also requires robust cooperation and effective international 6/8 BIS central bankers' speeches institutions. To provide one example, I have traveled several times a year for the last decade to Basel, Switzerland, to discuss economic, monetary, and regulatory policy with foreign central bankers at the Bank for International Settlements (BIS). This dialogue—supported by ongoing bilateral discussions between central banks—helps build trust, understanding, and the valuable relationships that are crucial during periods of stress. The global financial crisis put the need for a more robust and resilient financial system in stark relief. Such a regime is necessary if we are to maintain the flow of credit to the real economy— both domestically and internationally—during times of stress. Over the last decade, policymakers have implemented a range of reforms that have materially strengthened the banking system, including higher capital and liquidity buffers for the major international banks.10 International coordination has been essential to the successful implementation of these reforms. Banking is a global business that requires a high degree of regulatory consistency and as level a playing field as possible to avoid distortions and regulatory arbitrage. | As things stand at present neither the 2 BIS Review 11/2002 debtor countries nor their private sector creditors have much idea what to expect, and may be tempted to assume that they will be bailed out if things go wrong. Greater clarity could help to persuade borrowers to face up to hard policy choices earlier, before things get out of hand, and enable the creditors to make a more objective assessment of the risks. I think, too, that it would be helpful if we could at least agree on best practice guidelines for a debtor country's handling of a situation in which it could not immediately honour its obligations. That, too, could help creditors better understand the risks that they are taking on. But while the official community can help in these ways, in the final analysis the buck stops with you, the investors. I find it encouraging that so many of you are attending this conference, at which many of the relevant risks, and how they can be measured and managed, will be discussed. I'm very tempted to remain with you for your discussions, but sadly I have my own job to do, which makes it impossible for me to stay. But I wish you, Padraic, and everyone here an enjoyable and interesting couple of days in what has become the best tradition of this very special event. BIS Review 11/2002 3 | 0 |
Examples of HRH’s leadership range: From domestic initiatives within The Prince's Responsible Business Network to help ensure UK businesses and communities are resilient to the effects of climate change; To launching the ClimateWise Principles and encouraging the insurance industry to take a leading role in addressing risks posed by climate change; To support for our hosts Accounting for Sustainability, who have for many years given practical guidance to firms on how to embed sustainability considerations into business decision-making. I have had the great pleasure of engaging with HRH on a number of occasions, and I can think of few people more knowledgeable about the sustainability agenda or as committed to it. Four years ago, he rightly put me on the spot, highlighting that climate-related risks will have serious financial impacts, and asking what regulators were doing about them. HRH’s challenges are even more germane today as the impacts of climate change continue to mount and the time to act continues to shorten. This year has seen blistering heatwaves in North America and Europe, hurricanes in North America and typhoons in South East Asia; droughts in Southern Africa and Australia; unprecedented rainfall causing deadly landslides in Japan; and now the devastating wildfires in California. The human costs of these events are immeasurable. And the financial losses are significant. Last year set a record for weather-related insurance losses at around $ Losses in 2018 may again be among the worst in history. | Given this combination of immediate physical risks and prospective transition risks, the Bank of England has become increasingly active consistent with our financial stability and prudential mandates. In 2015, we examined the impact of climate change on the UK insurance industry.6 General insurers and reinsurers are on the front line of managing the physical risks from climate change, and they have responded by developing their modelling and forecasting capabilities, improving exposure management, and then adapting coverage and pricing accordingly. One of the lessons they have taken on board is that yesterday’s tail risk is closer to today’s central scenario. Sadly, with respect to climate, history repeats not as farce but as tragedy, with growing frequency. Despite the sophistication of insurers, there are some gaps in their risk management. The Bank is increasingly focused on cognitive dissonance in some insurers whose careful management of climate risks on the liability side of their balance sheets is not always matched by similar considerations on the asset side. With that in mind, we expect firms to consider stress testing and scenario analysis as part of their assessment of the impact of climate risk on their balance sheet and broader business strategy. This will also be reflected in our own market-wide insurance stress test exercises. For banks, the financial risks from climate change have tended to be beyond their planning horizons. | 1 |
Among other things, financial education would help both individuals and firms establish sounder financial situations and reduce financial risks such as unnecessary exposure to exchange rate volatility. The Bank of Albania has been on the vanguard of financial education in Albania and will continue to spearhead such efforts. Albania needs also to develop further payment systems and improve access to finance for various segments of the society, such as small and medium-sized enterprises or the rural sector. The Bank of Albania has responsibly exercised its duties in the area of payment system development. In this regard, we: Established, in 2015, the National Payments System Committee, to coordinate the work of all relevant public and private sector agencies; Compiled the draft law “On payments services”, which approximates the respective EU directive and paves the way for developing new payment products; and, Improved the technological infrastructure for payments, reducing therefore their costs. However, our work may not be considered as completely finished. Lastly, Albania should pay attention to the development of new financial market segments, such as capital markets and pension and investment funds. In this context, alignment of the legal and regulatory framework is of primary importance with a view to preventing the potential emergence of systemic risks or the possibility of regulatory arbitrage. *** Dear ladies and gentlemen, Our agenda for the work that lies ahead of us is as complex as ambitious. | The price boom has continued in spite of the generally weak economic activity of the last two years. This is a new experience which differs from previous business cycles, when prices have tended to recede during periods of economic decline. Similar developments have occurred in other countries, for example in the US, England and Holland. The situation could appear worrying, particularly given that the rise in housing prices has been accompanied by an increase in household indebtedness. The upsurge in prices has raised questions about the healthiness of this trend. Are the price rises in the Swedish housing market the result of a bubble? Are the higher levels of household indebtedness sustainable? The Riksbank's view is that the current price developments in the housing market do not reflect any speculative expectations of future price rises which would warrant the term “bubble”. Nor is household indebtedness a bigger problem than usual for this stage of the business cycle. I will explain this in a moment. The other segment is the market for commercial property. Here, it is primarily prices for office premises which have displayed a different trend to that seen in the housing market. Commercial property prices have adjusted to the economic slowdown. In Sweden, both prices and rents have fallen since 2000 at the same time as vacancy rates have risen. I myself do not believe that these price declines are a concern from an economic perspective, as was very much the case with the property crisis at the beginning of the 1990s. | 0 |
Private sector credit is oriented towards funding the working capital and consumption, illustrating the private agents’ reluctant behaviour to make investments and banks’ high prudence to lend. Furthermore, deposits in the system have shifted towards longer maturity terms, thus illustrating the Albanian consumers’ disposition to save. Latest developments in financial markets have reflected contained liquidity and inflation premiums. In the interbank market, short-term interest rates were downward, following successive cuts of the key interest rates. Furthermore, government security yields in the primary market were slightly up. This increase is mostly due to the interaction of demand and supply factors in this market and does not signal for risk premiums increase in the economy. Interest rates in the deposit and credit markets followed the Bank of Albania’s easing monetary policy over the last six months, while its transmission is expected to be more complete in the future, conform to the time lag that characterises the monetary policy transmission mechanism. Projections for the expected economic outlook in the future sustain our earlier assessments for positive, but below potential, growth of the Albanian economy in the period ahead. However, risks about this scenario have increased, mainly as a result of unfavourable developments in the global economy and financial markets. Overall, the economy in our trade partner countries is expected to be sluggish and lending terms in the euro area are expected to be tight for the period ahead. | Moreover, the space for fiscal stimulus has narrowed, as a result of the orientation of the fiscal policy towards maintaining fiscal parameters stability. Under these circumstances, Albania’s economic growth will be determined mainly by the performance of consumption and private investment. The latter is expected to be driven by eased domestic lending terms during 2012, but will suffer, at the same time, from the uncertainty and hesitation of consumers and private businesses. The Bank of Albania deems that the second half of 2011 marked a turning point towards a more normal consumer behaviour, which should be encouraged and supported in 2012. *** Taking into consideration the information set out above, the Supervisory Council holds that pressures on consumer prices at home remain low over the monetary policy relevant horizon and they have shifted on the down side over the past months. On the demand side, below-potential economic growth will continue to generate low inflationary pressures as shocks from the supply side are expected to be moderate. At the conclusion of discussions, the Supervisory Council decided to cut the key interest rate by 0.25 percentage points bringing it down to 4.25%. This decision aims to provide the appropriate monetary conditions to meet the medium-term inflation target. In addition, the easing of monetary policy provides higher support for the development of the private sector’s demand in our economy. 2 BIS central bankers’ speeches | 1 |
Indeed as a monetary policy maker, that is perhaps the most important question to ask. Judging by the behaviour of measures of inflation expectations derived from index-linked gilts, markets are attaching a low probability to the idea that the current weakness in inflation will prove permanent. Market-implied measures of long-term inflation expectations have been remarkably stable over the period in which inflation has declined (Chart 3). That is consistent with the MPC’s view that the majority of the decline in inflation over the period since the middle of 2013 can be accounted for by factors that are unlikely to have permanent effects on inflation. There has been a 44% decline in the price of oil from its peak, and a 17% appreciation of sterling since early 2013, and such phenomena can be expected to have large – but not permanent – effects on prices of consumer goods. The most important determinant of inflation at the horizon the MPC is concerned with is domestically generated inflation. And measures of domestically generated inflation (such as unit wage costs, Chart 4) have stayed relatively stable during the period in which headline inflation was declining. But what is a little puzzling is that, given the growth of the economy in recent years and the associated decline in economic slack, measures of domestically generated inflation have not picked up as quickly as we would otherwise have expected. | 6 Dynan et al (2000) find a strong positive relationship between savings rates and lifetime income. 7 As documented in King and Low (2014). 8 See Summers (2014) and Wolf (2014). 9 The hypothesis that weak post-Crisis growth represents a debt super-cycle which will ultimately come to an end is set out in Rogoff (2015). 10 IMF (2009). BIS central bankers’ speeches 3 but they do attach significantly more weight to the downside risks than they did prior to the crisis. 11 This would reduce long yields in two ways: by making firms less confident about the future payoff from their investment projects, thus requiring a lower level of interest rates to incentivise them to invest; and by making savers demand a higher credit premium to lend to the private sector, thus driving a wedge between risk free rates and other interest rates in the economy. 12 My own view is that most of the headwinds that have buffeted the global economy over the period since 2008-09 do bear the hallmarks of a balance sheet recession in which the impetus to reduce debt is the force driving agents behaviour: first by financial institutions who reduced the supply of credit to the real economy; then by the businesses and households who simultaneously became more pessimistic about the outlook and reassessed their need to maintain their own stock of liquidity. | 1 |
For many families, this distress was compounded by losses of wealth from declining home prices. Since that low point of employment, job creation has resumed, albeit at a slower pace than we would like, and unemployment has retreated by a percentage point. As in other parts of the country, employment in our region declined substantially during the recession. But, the various parts of our region had very different experiences. Employment in much of New York State, including the Hudson Valley, declined less severely than the nation. Both the state and city lost about 3.8 percent of their jobs. Part of the reason for the more moderate decline in jobs in New York during the recession was a less pronounced boom-bust housing cycle. Indeed, as a percentage, the city and state lost fewer jobs during this recession than they did during either of the last two downturns. Now, as in the nation, a labor market recovery has begun across much of the region. Over the past year, New York State has added roughly 100,000 private-sector jobs. Within the state, the recovery has been somewhat uneven. New York City has been gaining jobs for 4 BIS central bankers’ speeches more than a year now – at roughly the same pace as the nation, while to date, the Hudson Valley has seen little overall job growth. Conditions in the Hudson Valley Continuing to drill down geographically, let me talk in more detail about conditions here the mid-Hudson Valley. | In particular, these set out the minimum requirements for systemically important financial market infrastructure and the principles of ongoing system oversight by the National Bank. The task for the next few months will be to determine which payment and securities settlement systems are to be classed as systemically important. Then we will have to define the practical modalities that are best suited for implementing ongoing system oversight as effectively and efficiently as possible. Oversight is focused on infrastructure that is vital for the Swiss financial centre, i.e. especially those systems which together constitute the Swiss value chain. In addition to Swiss Exchange SWX, which will remain under the supervision not of the National Bank but of the SFBC, this infrastructure consists primarily of the payment system Swiss Interbank Clearing (SIC), the securities settlement system SECOM and the central counterparty x-clear. The first talks have been held with representatives of these systems to establish the implementation of system oversight. Investigations over the next few months will clarify whether other systems are also to be subject to oversight. By the end of July, all payment and securities settlement systems in Switzerland must report to the National Bank. As mentioned earlier, system oversight was not the product of a crisis. This can also be seen from the new Financial Stability Report, which examines specific aspects of the current financial market infrastructure and gives them a clean bill of health. | 0 |
Caleb M Fundanga: The role of financial systems in capital markets development? Keynote address by Mr Caleb M Fundanga, Governor of the Bank of Zambia, at the African Securities Exchange Association (ASEA) conference on “The Role of Financial Systems in Capital Markets Development?”, Livingstone, 11 November 2010. * * * The Minister of Finance and National Planning, Hon Situmbeko Musokotwane M.P; The Chief Executive Officer of the Securities and Exchange Commission, Mr Clement Sichembe; The Chief Executive Officer of the Lusaka Stock Exchange, Mrs Beatrice Nkanza; Members of the African Securities Exchange Association; Distinguished Resource Persons; Members of the Press; Ladies and Gentlemen. Let me begin by welcoming you all to this conference and on behalf of my fellow Zambians extend a warm welcome to our visiting colleagues from outside Zambia, to Livingstone. Allow me Chairperson to take this opportunity to commend LUSE and ASEA (African Securities Exchange Association) for organising this seminar and the tremendous efforts made in enhancing functions of the regional securities exchanges. As our countries continue to recover from the recent global financial crisis, the continent requires financial platforms that will facilitate the recovery efforts and provide an enabling environment to meet the various developmental challenges that the continent faces. I am greatly honoured to have this privilege to share some thoughts on “The Role of Financial Systems in Capital Markets development”. | The financial system – including banks and other financial intermediaries, equity markets, and debt markets, solves these problems by agglomerating capital from many smaller savers, allocating capital to the BIS Review 149/2010 1 most important uses, and monitoring to ensure that it is being used well. At the same time, the financial system transfers, pools, and reduces risk, increases liquidity, and conveys information. Ladies and Gentlemen, let me also highlight the importance of financial markets and how they inter-relate with firms and contribute to economic growth and enhance social welfare. Whether financial systems are relatively simple or highly complex, they perform the same broad functions and share the same key characteristics. Their primary role in any economy is to mobilize resources for productive investment. An efficient financial system channels resources to activities that will provide the highest rate of return for investors. These resources stimulate economic growth, provide enterprises with the ability to become more productive and generate new jobs. Clearly effective financial markets are indispensable to the pursuit of sustained, broad-based economic growth. Unfortunately, financial markets development is one of the most complex areas in the development field. | 1 |
If the participants were to provide confidence bands around their paths, they probably would be very wide because the economic outlook is uncertain and the linkage between the instrument of monetary policy – the federal funds rate target range – to financial market conditions is loose and variable. In conclusion, I believe that the FOMC is continuing to make progress towards our dual mandate objectives. However, I have become somewhat more uncertain about the growth outlook given the lack of a sharp rebound in economic activity in recent months from the weak first quarter. With respect to inflation, as long as we see further improvement in the labor market and anchored longer-term inflation expectations, I am somewhat less worried that inflation will stay too low. Thus, I continue to expect that monetary policy normalization is likely to begin later this year. 4 Thomas Laubach and John Williams (2003), “Measuring the Natural Rate of Interest,” Review of Economics and Statistics 85(4), 1063–70. The FRBNY DSGE model also estimates that the natural rate of interest is currently close to zero. See Marco Del Negro, Marc Giannoni, Matthew Cocci, Sara Shahanaghi and Micah Smith, Why Are Interest Rates So Low? Liberty Street Economics blog, May 20, 2015. 5 With the benefit of hindsight, one could argue that the Federal Reserve should have raised short-term interest rates more aggressively over this period. 6 BIS central bankers’ speeches Longer-term, I expect that the trajectory of short-term interest rates after lift-off will likely be relatively shallow. | William C Dudley: The evolving structure of the US treasury market Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at The Evolving Structure of the U.S. Treasury Market: Second Annual Conference, Federal Reserve Bank of New York, New York City, 24 October 2016. * * * On behalf of the New York Fed and our co-sponsors, it is my pleasure to welcome you to this second annual conference on the evolving structure of the U.S. Treasury market. We have the opportunity today to continue the dialogue around the changing nature of the Treasury market, a discussion that grew more urgent following the events of October 15, 2014.1 We have made significant progress since last year’s conference in improving our collective understanding of the Treasury market, and I believe it is important to continue official and private sector collaboration on this topic. Indeed, there is much left to do to ensure the continued integrity and effectiveness of this market, and I look forward to the further progress we will make today. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.2 Over the past year, the Joint Member Agencies 3 have engaged with market participants and other members of the public to gain more information on the changing structure of the Treasury market. | 0 |
Elvira Nabiullina: Review of Russia’s economic and financial developments in 2015 Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the plenary meeting of the State Duma of the Russian Federation, Moscow, 14 June 2016. * * * Good afternoon, dear colleagues! Today we present the latest Annual Report of the Bank of Russia to the 6th State Duma. First of all, I would like to thank the deputies for the legislative efforts, which we took together to both develop the financial system and protect the rights of financial services consumers, and for the efficient cooperation with the Bank of Russia. As many as 130 laws affecting the financial sector have been adopted over these three years. Now, let’s look at the Bank of Russia’s performance in 2015. A sharp deterioration in external environment in late 2014 – early 2015 (oil price drop and sanctions) triggered turbulence in the external market and followed by a surge in inflation. These developments required measures to stabilise the situation and help the economy adjust to the worsened conditions. The first one is a transition to a floating exchange rate of the ruble. This is a pivotal systemic measure. Though this transition was not a smooth one, I would like to stress, should we have failed to take this step, according to our estimates, the economic downturn could have been deeper. Now the floating exchange rate works as an embedded economic stabiliser that mitigates the external shocks. | - The second area concerns the improvement of cross-border payments, which international bodies have rightly made a priority. Last year, we demonstrated the advantages of CBDM to optimise the payment chain by reducing the number of intermediaries and improving the security of settlements. 5 Alongside these discussions on interbank CBDM, the issuance of retail MNBC is being examined. The launch of a possible digital euro by the Eurosystem would meet several objectives: 1- reaffirm the anchoring role of central bank money in the digital world, much like the role that banknotes play today in the physical world. 2- contribute to strengthening Europe's strategic autonomy in the field of payments, in a publicprivate partnership approach. We are aware of the impact that a digital euro could have on financial intermediation and monetary and financial stability. This means that these issues must be addressed at the design stage of a digital euro, for example by introducing holding limits or by developing a model in which intermediaries will play a central role in the distribution of the digital euro and in the management of relations with users. This is why we are now initiating a dialogue with stakeholders, which should be stepped up in the coming weeks and months. But there should be no doubt that, besides regulators and central banks, the private sector also has a key role to play in digital innovation. | 0 |
The construction of the regime and its underlying ideas have been discussed over these years, not least in these Monetary Policy Forums. The present monetary policy regime provides good conditions for long-term price stability and thereby for an economy that functions better. It also contributes to an appropriate short-run balance between acting as a clear anchor for price stability and promoting real economic stabilisation. Basically, it is a matter of minimising both the fluctuations around the price stability target and those around the Swedish economy’s growth trend. Cyclical fluctuations cannot be eliminated but we can hope that sequences of intense boom-and-bust are a thing of the past. Low inflation and good growth go hand in hand When inflation converges internationally and long-term inflation expectations are permanently lowered to the level of the target for price stability, the core of the inflation process lies in the relationship between prevailing demand and the sustainable level of output. If resource utilisation is so high that it becomes strained, inflation will tend to rise. Conversely, when resource utilisation is low, inflation tends to fall. To a large extent it is the interaction of demand and supply that determines whether inflation is rising, falling or constant in relation to the 2 per cent target. Monetary policy is capable of exerting a direct effect - through the repo rate - on only one of these two sides of the economy, namely demand. The supply side is essentially influenced by structural factors that the Riksbank cannot control directly. | 2 BIS central bankers’ speeches The so-far economic activity performance and projections for 2013 support the outlook for positive economic growth close to the previous year’s figure. Foreign demand is expected to contribute positively to Albania’s economic growth, but this contribution is expected to be lower due to unfavourable developments in trading partner countries and relatively low diversification of Albanian exports. Private demand is also expected to be positive, taking advantage of monetary stimulus growth and domestic savings utilization. Finally, the public sector is also expected to provide a positive stimulus. Despite the positive growth, the economic activity in Albania is expected to remain below its potential during the current year and the demand-side inflationary pressures are expected to remain low during this time horizon. The Bank of Albania deems that with a 90% probability, the annual inflation as to four quarters ahead is forecasted to fluctuate within the 0.8 – 3.8% band. Low annual inflation rates and forecast for their continuation over the monetary policy time horizon dictate the maintaining and strengthening of the stimulating monetary policy over the next four quarters. * * * Considering the information summarised above, the Supervisory Council deems that consumer price pressures in Albania remain weak along the monetary policy time horizon and have shifted downward during the last months. Concluding, the Supervisory Council decided to lower the key interest rate by 0.25 percentage points, to 3.75%. This decision aims to create appropriate monetary conditions to meet the medium-term inflation target. | 0 |
By choosing this topic, the National Bank of Moldova and the central bankers at its helm prove, yet again, if it were still needed, that they are constantly preoccupied with playing an active role in the development and modernisation of the Moldovan society on the road to the European Union. Let me take the opportunity of opening this event to highlight – in my capacity as a long-standing partner of the National Bank of Moldova – the remarkable progress your institution has made on its path to a European-style central bank. When acknowledging the road followed by your institution, I cannot help recalling the bumpy ride of the National Bank of Romania in the same direction, the challenges we faced along the way and how we overcame the hurdles. That is why I believe we, at the NBR, are qualified to perform an accurate, realistic evaluation of the progress achieved by our colleagues in Chișinău, all the more so that our central banks boast a tight bilateral institutional cooperation spanning three decades, alongside the strategic partnerships between our institutions with EU, IMF and World Bank support. Dear colleagues and dear friends in Chișinău, you can be sure of the NBR’s full support in the National Bank of Moldova’s endeavour to align to European standards and practices. Ladies and gentlemen, Distinguished audience, The primary objective of a European central bank is to pursue price stability in the domestic economy. | And, I’ve proposed a set of solutions based on risk management tools: a focus on organizational objectives, end-to-end management of critical processes, integrated risk management, and a systems approach to control. These all share the common characteristic of being integrative. Resilient components do not necessarily add up to a resilient whole. So, organizational resilience is an enterprise goal that is achieved through coherent and coordinated enterprise solutions. A resilient organization is able to make better plans, decisions, and actions that deliver desired outcomes over a range of conditions. To strengthen resilience, we seek to tame the problematic present and constructively move forward into the hazy future. The tools of risk management can help get us there. 1 National Research Council, 2012, Disaster Resilience: A National Imperative, Washington, DC: The National Academies Press. 2 Gillian Tett, 2005, The Silo Effect: The Peril of Expertise and the Promise of Breaking Down Barriers, New York, 4/5 BIS central bankers' speeches NY: Simon and Schuster. 3 Committee of Sponsoring Organizations of the Treadway Commission, 2017, Enterprise Risk Management: Integrating with Strategy and Performance. 4 Philippa Girling, 2013, “Operational Risk and Convergence” in Operational Risk Management: A Complete Guide to a Successful Operational Risk Framework. Hoboken, NJ: Wiley. Ramy Farha, Allen Meyer, Evan Sekeris, and Elena Belov, 2018, Non-Financial Risk, Convergence, and Integration, Oliver Wyman. Steve Culp and Chris Thompson, 2016, The Convergence of Operational Risk and Cyber Security. Accenture. | 0 |
I think it is fair to say that the Open University has reached its maturity as an institution under his presidency. Yet, remarkably, the momentum that has characterised the University's early years seems now to be gaining rather than slackening, with the recently announced plans for expanded services not just in Hong Kong but also on the Mainland. Professor Tam will retire with the knowledge that the Open University is in a flourishing condition and has an excellent reputation, internationally as well as locally. I join you all in wishing him health and happiness in his retirement and in wishing his successor, Professor John Leong, every success. The Linked Exchange Rate system I had originally planned to talk generally this evening about challenges in central banking. I shall certainly address this topic later on. But it occurred to me as I was preparing the talk that this week, in addition to launching Alumni Link, we also mark the anniversary of the launch of another Link, which I also participated in twenty years ago. Since that Link has again become quite topical over recent weeks, I thought you might be more interested if the focus of this talk was on the Link. Twenty years ago, almost to the day, the Hong Kong Government announced and then implemented a new policy to stabilise the Hong Kong dollar. This was at a time when the dollar had been falling in value so fast that the monetary and banking systems were in a state of crisis. | Then the awareness of digital financial risks that are more diverse than when using traditional services such as online fraud and cyber security risks, but also over-borrowing or borrowing at excessively high interest rates amidst easy access. The last dimension relates to the knowledge of consumer rights and compensation procedures. The emergence of the pandemic, its nature and the necessity of social distancing in the COVID-19 even more urged the need for faster digitalization that has to go hand in hand with increased digital knowledge, and can be “seen to present an opportunity for many countries to progress more rapidly in facilitating digital financial services, enhancing regulatory and physical infrastructure so that service providers can meet new demand” (World Bank, 2021). Rising penetration of digital services is present across the board, although the potential for further growth is visible. The scrutiny of the available data reveals that around half of the adult population in the euro area used a mobile phone or the internet to access a financial institution account, while this percentage on a global level equals 23% and only 12% in North Macedonia. Digital payments were made or received by 92% of the euro area adult population, while 52% worldwide, and 66% in the Macedonian economy. The financial landscape is apparently going through tectonic shifts, as the technology is penetrating in all the pores of our societies and our day-to-day life, and the pandemic is prompting these changes aggressively. | 0 |
There were certainly adjustments to macro-economic policy that needed to be made - a more flexible exchange rate regime in some cases, for example, or a somewhat tighter overall macro-economic stance, with perhaps some adjustment between fiscal and monetary policy. And, once the capital outflow had started, macro-economic adjustment had to be harsher than might otherwise have been necessary, in order to re-establish confidence. But there are real dangers in extreme market movements or in excessively severe macro-economic adjustment to contain them. That could cause a vicious circle of domestic default and systemic financial weakness in the affected country. And that could have seriously adverse implications - in terms of both financial and economic knock-on-effects - for the global economy. That, essentially, is why it may be in the self-interest of the international community to attempt to mitigate the market and macro-economic adjustment pressures by providing financial support. It is why the international community responded to the crisis in Asia by promptly offering very large amounts of official assistance - $ billion in the case of Thailand, $ billion for Indonesia and $ billion for South Korea. But such official financial help cannot be unlimited and it cannot be provided without strings. It, too, has real dangers. If it were too readily forthcoming it could encourage “moral hazard”, especially by encouraging commercial lenders - particularly foreign currency creditors - in the belief that they will be bailed out if things go wrong. | But even a snail can make remarkable progress if it keeps going. I am told that the quick species - I suppose they are the Model T snails - travel at a speed of three inches a minute - say 5 yards an hour. In that case a quick snail could have travelled quite easily from Cranfield to the borders of Scotland since the collapse of the Berlin Wall! And if you look back over a decade rather than at the outcome of just the latest meetings, then there really has been remarkable progress within the developing, emerging and transitional economies as well as the industrial world - towards a broad international consensus on approaches to economic management. That consensus can perhaps be summed up essentially as macro-economic stability and supply-side flexibility - but that needs some elaboration. On the macro-economic side we have learned - and it has taken some countries longer than others - that you cannot achieve what we are all trying to achieve - sustained growth, high levels of employment and rising living standards - simply by pumping up demand in our economies through expansionary monetary and fiscal policies without regard to the underlying supply-side capacity of our economies to meet that demand. Short-term demand management through monetary policy too often led just to accelerating inflation, which had then eventually to be brought under control through recession - an absolute recipe for short-termism in both financial and business BIS Review 36/1998 -2- behaviour. | 1 |
We have also lengthened the supporting period and increased the IMF delinked portion, from 20% to 30% this year with a view to increasing it to 40% in 2014, subject to review should conditions warrant. In serving as a regional safety net, such arrangements contribute to further development of the regional financial markets by providing a credible liquidity firewall, both for crisis resolution and crisis prevention, to anchor investors’ confidence. It is only with 2 BIS central bankers’ speeches enough confidence that we can attract the participation of foreign investors into our markets for the sustainable developments of our economies and region. I look forward to an even greater success in the next 10 years. Thank you for your kind attention. BIS central bankers’ speeches 3 | Ardian Fullani: Overview of economic developments and key issues in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, on the monetary policy decision by the Supervisory Council of the Bank of Albania, Tirana, 20 December 2012. * * * Today, on 20 December 2012, the Bank of Albania’s Supervisory Council reviewed and approved the monthly Monetary Policy Report. Based on the latest monetary and economic developments in Albania, and following the discussions on their future outlook, the Bank of Albania’s Supervisory Council decided to keep the key interest rate unchanged, at 4.00%. The Supervisory Council deems that the current monetary conditions are adequate to meet Bank of Albania’s inflation target in the medium term. Moreover, these conditions ensure the right monetary stimulus to support the domestic demand. Let me now proceed with an overview of the economic developments and key issues discussed at today’s meeting. *** Annual inflation in November stood at 2.5%. The major part of inflation continues to be determined by the performance of food prices. Contribution of other goods was steady from the previous month. Inflation fluctuation owed mainly to the supply-side factors, of external and internal origin. Nonetheless, the intensity of supply shocks was low and lasted for a short period of time. The Supervisory Council finds that developments in the real economy and financial markets produced low inflationary pressures. The Albanian economy continues to remain below its potential. This development is reflected in the low increase of wages and production costs. | 0 |
In the year to November, total household borrowing rose 4%, and consumer credit rose over 10%, the fastest rate since 2005. How household spending evolves, and the inter-temporal trade-off that households strike, will be important considerations over the next year. The MPC will continue to monitor these dynamics. In November, the MPC reiterated that we were choosing a period of somewhat higher consumer price inflation in exchange for a more modest increase in unemployment. But it also noted that there are limits to the extent to which above-target inflation can be tolerated. Those limits depend on the cause of the inflation overshoot, the extent of second-round effects on inflation expectations and domestic costs, the scale of the shortfall in economic activity below potential, and any risks around the development of imbalances that could threaten a sustainable return of inflation to the target. Recently, there have been signs of continued solid consumer momentum domestically and a stronger growth outlook globally. The MPC will monitor developments in the light of its inflation tolerance, and will explain its assessment and policy stance accordingly. 16 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches 16 It remains the case that the outlook for inflation will depend on the evolution of the prospects for demand, supply and the exchange rate. Monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target. 7. | We remain flexible and ready to make adjustments to our operations as needed to ensure that monetary policy is effectively implemented and transmitted to financial markets and the broader economy. Conclusion I’ll conclude with this: The coronavirus poses evolving risks to the U.S. economy. Our policy action this week positions us well to support the economic expansion. We are carefully monitoring the effects of the coronavirus on the U.S. economic outlook and will respond as appropriate. Our focus remains trained on serving the American people by pursuing our dual goals of maximum employment and price stability. Once again, thank you for this evening’s award. 1 1 Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, March 3, 2020. 2 2 Board of Governors of the Federal Reserve System, Statement Regarding Monetary Policy Implementation, October 11, 2019; Federal Reserve Bank of New York, Statement Regarding Treasury Bill Purchases and Repurchase Operations, October 11, 2019. 2/2 BIS central bankers' speeches | 0 |
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