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The most recent of these measures is the activation, in February this year, of the countercyclical capital buffer (CCB). These measures were necessary and useful. For example, this year a 2 BIS central bankers’ speeches few large domestically focused banks – citing, among other reasons, the activation of the CCB – have taken steps to strengthen their capital and thereby their resilience. So far, however, the package of measures has not been enough to prevent a further build-up of imbalances on the mortgage and real estate markets. In an environment of persistently low interest rates, coupled with banks’ undiminished appetite for risk, the danger of a further build-up of imbalances remains considerable. For this reason, the SNB continues to monitor the situation very closely, and regularly assesses whether the CCB should be adjusted. Supply of secure banknotes ensured at all times Now I would like to say a few words on the subject of banknotes. At the beginning of October, we informed the public that, since autumn 2012, a small number of Swiss 1000-franc banknotes have been in circulation which were not issued by the SNB. As you know, these notes were abstracted during the production process at Orell Füssli, before they had been through all stages of production. Out of consideration for the investigation by the Office of the Attorney General, this information was only made public after some of these notes appeared in Switzerland. | With regard to mortgage lending for owner-occupied residential property, the proportion of new loans with high loan-to-value ratios has decreased slightly. Where affordability risks are concerned, however, no such development can be identified. Moreover, domestically focused banks remain the driving force behind the strong domestic mortgage growth. While a few individual banks have reined in their lending considerably compared to last year, others have maintained a high level of lending growth, or have even stepped up lending. Finally, interest rate risk exposure is extremely high by historical standards, whereas average interest rate margins have narrowed further over the same period. On a positive note, domestically focused banks’ capitalisation as measured by regulatory requirements remains at historically high levels. However, as discussed in this year’s Financial Stability Report, these regulatory capital ratios could be overstating the banks’ resilience, because the major risks prevailing in the mortgage and real estate markets or the interest rate risk exposure are not, or only partly, taken into account. Against this backdrop, banks should – irrespective of the regulatory requirements – continuously assess their resilience, and make adjustments where necessary. They should be able to maintain their economically important functions, even if real estate prices were to fall sharply and interest rates were to simultaneously rise. Over the last few years, a number of measures have been taken to reduce the risks to financial stability arising out of developments in the mortgage and real estate markets. | 1 |
The guideline was introduced in order to provide a level playing field at a time when many banks were already themselves applying this restriction. It continues to have the broad support of the banking industry. It has helped maintain banking stability during a period of considerable stress, and, no less important, it has helped limit the problem of negative equity. The guideline does not prevent borrowers from obtaining further finance from other sources, and indeed there are many products on the market to enable homeowners to borrow up to 90% of the value of their home, and many homeowners who have taken advantage of these products. In other words, the 70% guideline is intended to restrict the risk exposure of banks, not to limit the amount of finance that borrowers can obtain. The guideline is therefore a not a tactical tool for affecting property prices in the short term but a strategic measure for maintaining banking stability over the longer term. Anyone who wishes to see what happens when there is no such guideline in a falling market can find plenty of examples overseas. Or you can look again at the situation in Hong Kong in 1983, when banks became dangerously exposed, directly and indirectly, to a volatile property market in which the bubble had burst and from which confidence was draining fast: there was, of course, no 70% guideline in those days. Functions and Responsibilities in Monetary and Financial Affairs You may have noticed here parallels with monetary policy. | The second area of improvement for the macroprudential framework in Europe involves keeping pace with developments in the financial system. That requires broadening the range of macroprudential instruments beyond those currently available, which focus almost exclusively on the banking sector. For the insurance sector, the contours of such instruments are taking shape. They include solvency instruments such as symmetric capital requirements for cyclical risks; liquidity instruments for insurers with a vulnerable liquidity profile; and instruments to target bank-like activities to ensure macroprudential policy is consistent across sectors.11 The third area for improvement in macroprudential policy involves establishing a clearer conceptual framework to govern policy discussions and interventions. Such a framework would facilitate communication with market participants and the general public, as well as help mitigate any risk of inaction bias. 2/4 BIS central bankers' speeches For monetary policy the framework is well known and the reaction function of central banks is normally well understood by markets. By contrast, the framework that governs macroprudential policy interventions is much less developed, due in no small part to our limited experience of using these tools. The objective of financial stability is broader than the objective of price stability, so is less easily defined by a single numerical measure. Developing the policy framework is challenging and will take time. | 0 |
This is an extension of a worrying pattern that has seen the number of extreme weather events more than triple and inflation-adjusted insured losses rise five-fold in the past three decades.2 1 2 See Munich Reinsurance Company (2018), ‘A stormy year: Natural catastrophes 2017,’ Geo Risks Research, NatCatSERVICE Ibid. 2 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 2 The outlook is even more concerning. As noted by HRH, last month’s IPCC report shows that many land and ocean ecosystems have already changed due to global warming.3 It concludes that the physical risks of climate change will intensify even under 1.5 degrees of warming, including increased heatwaves, droughts, heavy rain, flooding, melting of sea ice, and species loss. In turn, this will have a marked impact on human health, livelihoods, food security, water supply, human security, and economic growth. And that is very much the IPCC’s best case scenario. The impacts will be significantly worse under 2 degrees, and the Paris commitments – even if fully implemented – are consistent with more than 2.7 degrees of warming.4 The longer meaningful adjustment is delayed, the more transition risks will rise. To deliver on the Paris Agreement commitments and limit temperatures to 1.5°C, carbon emissions would have to decline by about 45% from 2010 levels to 2030 to reach net zero around 2050.5 Even if this happens smoothly, it will have major implications for most sectors of our economies. If the transition is delayed and then happens abruptly, financial stability risks will rise considerably. | The buffers can then be drawn on when risks materialise and credit losses occur. The case of counter-cyclical buffers is particularly interesting, first because it is one of the tools with a clear macro-prudential orientation and second, because the ESRB and the European Banking Authority (EBA) could join forces for implementing the framework in Europe. This is suggested by the European Commission in its recent consultation paper on the potential role of the ESRB and the EBA in defining policies and standards that national authorities should follow. Concluding remarks Let me conclude. I see three reasons to expect relevant changes with the start of macroprudential oversight in Europe. The first and most important reason is that better supervision should contribute to a more stable financial system. This is as much to the advantage of all players in the industry as it is to everyone in the wider economy. Second, integrating a macro-prudential perspective should lead to better regulation. In essence, systemic risk is the outcome of the actions of individual market players for the system as a whole. Regulation, which traditionally focuses on individual market players, can be improved by taking account of this potentially disastrous side-effect. Initiatives such as the counter-cyclical buffers and possible capital surcharges or other equivalent measures for systemically important financial institutions fall into this category. The third reason for welcoming the ESRB is that macro-prudential supervision could improve financial firms’ own risk analysis. | 0 |
Without prejudicing this objective, it should also strive to promote a stable development of the real economy, or stabilise resource utilisation if you like. So what can we say about inflation in Sweden? At present, inflation is low and it is probably fairly safe to say that it will continue to be low for some time. Resource utilisation is difficult to measure, but it is probably below its normal level at the moment and will remain so for a while. Economic activity will gradually improve, which will lead to rising inflation and the normalisation of resource utilisation. But this will take time. Growth may not increase significantly in Sweden until next year. Given this, my assessment was that it was necessary to cut the repo rate to 1.50 per cent in February and to leave it at this level in April. I have also expressed my support for the repo-rate forecasts in the Monetary Policy Report and the Monetary Policy Update, which predict that the repo rate will remain unchanged in the year ahead. The forecasts also say that we will need to raise the repo rate when economic activity recovers and inflationary pressures increase. Let me say that the situation is really uncertain at the moment. The greatest uncertainty factor is how the situation will develop in Europe. | Supervisors must ensure that banks improve their operational resilience by strengthening their ability to respond to and recover from cyber-attacks. At a minimum, mitigating cyber threats would require effective collaboration between regulators and the industry, adequate contingency and Central Bank of Kuwait - Public عام- بنك الكويت المركزي -4- recovery plans by banks and sound security practices by all participants of financial market infrastructure. In Kuwait, we are in the process of putting in place an advanced platform for effective information sharing about cyber threats that can later be used at the regional level. Supervisors in this regard can leverage CPMI-IOSCO guidance that calls for ‘resilience by design’, encouraging to incorporate sound security features in the system right from its earliest stage of conceptualization. This approach will help address the potential cyber compromises that could stem from banks’ dependence on legacy technologies. To help strengthen cyber resilience of financial institutions, Financial Stability Board (FSB) is currently working on ‘identifying practices to help financial institutions recover from and respond to cyber incidents’. Next year, they are planning to release a toolkit of effective practices that banking industry can use in improving operational resilience against cyber threats. Coping with climate change The second emerging issue warranting our close attention is climate change. According to UN estimates, around 60 million people were affected by extreme weather events in 2018 alone. And within this year, we have witnessed the damaging impact of wildfire in California, hurricane in Bahamas, cyclone in Bangladesh and typhoon in Japan. | 0 |
There has also been a recent shift in opinions coming out of academic research, from a broad resistance to taking financial stability into account when shaping monetary policy19 to greater openness to the view that there may be good reasons for doing so.20 Even before the financial crisis hit Europe and Swedish with full force in autumn 2008, there were concerns in the Executive Board that the credit expansion was too rapid and that housing prices were increasing too quickly so that a bubble might build up, and later burst to cause a severe recession. This was not the case in Sweden, but did happen in the United States and several countries in Europe. During the crisis years 2009–2010 the endeavour was instead to use low interest rates and liquidity assistance to the banks to avoid a credit crunch that could intensify the crisis. And we succeeded well in this. During the entire period, the banks’ total lending to households and companies in Sweden increased (see Figure 11). Put greater emphasis on the initial situation and the forecasts for the coming year We should put greater emphasis on the initial position and the forecasts for the coming year than on the long-term forecasts. At the Riksbank, considerable resources are put into analysing the state of the economy. The statistics received are analysed and commented on regularly. | The uncertainty bands are based on the Riksbank’s historical forecasting errors for these variables.6 The uncertainty increases as the forecast horizon lengthens. When one evaluates forecasts, one usually compares the current forecasts with a naïve forecast. Here I shall use the average of the series as a naive forecast. The forecasting error is measured as the standard deviation between outcomes and forecasts and the forecasting error for the naïve forecast is measured as the standard deviation for the outcomes themselves. The forecasting performance can then be expressed as how much smaller the actual forecasting error is than the forecasting error of the naive forecast. This measure of the forecasting performance is 1.0 if our forecasts are perfect and 0.0 if our forecasts are no better than the historical average. Figure 6 shows the forecasting performance for GDP growth and CPI inflation at 1–12 quarters ahead.7 As the figure refers to annual percentage changes, the first quarters are mixtures of known outcomes and forecasts. It is only four quarters after the most recent known outcome that we have pure forecasts. The figure shows that the forecasting error with regard to forecasts one year ahead is just over 20 per cent less than the forecasting error for the intended naïve forecast and not at all less two and three years ahead. | 1 |
The recent price increases of agricultural products should make it easier for the EU to make some concessions on the Common Agricultural Policy, in order to eliminate the subsidies which tend to distort international prices. This would be an advantage for European producers and consumers alike. Regarding currencies, it is important to continue talking with those countries which still peg their currencies to the US dollar, although their economies show a higher growth rate and a strongly positive balance of payments. Pegging to the US dollar slows down the adjustment of global imbalances. A speeding-up of the appreciation of the exchange rate of the yuan visà-vis the US dollar as well as the euro would be in the interest not only of the international community, but of China itself. In the past 12 months, the exchange rate of the Chinese BIS Review 61/2008 5 currency has gained approximately 9% vis-à-vis the US dollar, while losing about 3% vis-àvis the euro. Only in the past months have markets experienced the inverse process, with the yuan gaining also against the euro. The appreciation of the yuan would allow China to effectively counteract internal inflationary pressures and to reduce the balance of payments surplus, which fuels the accumulation of global imbalances. The increase in food prices should ease fears that an appreciation of the yuan could penalise the income of rural areas, which are still quite sizeable. | BIS Review 61/2008 3 was characterised not only by its deepness but also by the policy mistakes committed at the time, which introduced protectionist barriers with the aim of protecting national economies from international competition in the hope that this would succeed in better coping with the crisis. Many countries adopted measures to restrict trade with the aim of favouring local production at the cost of imports and trying to protect jobs. In June 1930 the United States introduced the Smoot-Hawley Tariff Act, which imposed disproportionately high duties on imported goods. Other countries took retaliatory measures. International trade declined (some say it contracted sharply), deepening the depression and delaying the recovery. 2 At the current juncture one the few factors supporting growth is international trade, driven in particular by emerging economies. Without this contribution, growth would be stalling completely in advanced economies. Under these conditions, thinking of curbing international trade would be a mistake in the same way as in 1929. To isolate a country from globalisation means weakening it economically. The empirical evidence shows that there is a clear relationship between a country’s degree of integration in the global economy and its economic performance over a relatively long period of time. It is the more integrated countries that compete better and develop, not those which shut themselves off from competition. The microeconomic evidence confirms the macroeconomic trends. | 1 |
The Swedish National Debt Office then carried out extra issues of treasury bills and provided loans through reverse repos in covered mortgage bonds. At the same time, the Riksbank expanded its list of approved forms of collateral. All in all, this meant that in principle the government assumed the risk that lay in the outstanding stock of Swedish mortgage loans. In order to convert borrowing in foreign currencies to lending in Swedish kronor without taking a currency risk, the banks usually conduct currency swaps. In simple terms, this is done like this: A Swedish bank borrows euros in Germany at a maturity of five years. However, as the bank does not really need the euros but needs kronor to fund mortgage loans to Swedish households, the bank has to exchange the euros for kronor. To protect itself against the currency risk, the bank enters into a currency swap in which the euros are exchanged for kronor today under an agreement to exchange the kronor back to euro at a predetermined rate in five years’ time. In this way the bank matches the currencies of its assets (the mortgages) and its liabilities and thereby eliminates the currency risk. The Swedish banks are thus dependent on acquiring kronor in the long-term from a counterparty in a currency swap. They can in principle do this in three ways: through a foreign bank, another Swedish bank or an insurance company. Today, it is often a foreign bank that acts as the counterparty in these swaps. | Against this backdrop, the facing of the economic activity contraction at a global level remains an open issue. The Euro area economy is already experiencing an economic slowdown. Euro area GDP contracted in the third quarter while the unemployment rate reached 7.8 percent in November 2008. The U.S. economy showed quite similar features. The further contraction of economic activity – owing to the deterioration of financial indicators in the U.S. corporate and household balance sheets, mirrored in lower consumption spending and reduced aggregate investment – drove the unemployment rate to reach 7.2 percent. Monetary and financial stimuli managed by central banks and the ministries of finance have helped to bolster confidence and relieve pressure on the financial institutions. Against this backdrop, the “resilience” shown by emerging countries is displaying the first signs of weakening. In contrast to the first half of 2008, the latest data attest to the moderation of economic growth rates in the majority of these countries. The channels through which the slowdown in advanced economies has affected the emerging countries differ depending on their development characteristics. China and India have been severely hit by the slowdown in exports; Russia had hard times owing to the slump in raw material prices in the global market, while East European countries have been impacted by the tightening of funding conditions on a global level. | 0 |
The story of monetary policy in Britain during the intervening period is told by the Mais Lectures. The first Mais Lecture was delivered by my predecessor, Lord Richardson, in 1978, at a point when monetary policy was emerging as the main tool to deal with inflation. Not before time, you might think, since only two years earlier inflation had reached 27%. In 1981 the Chancellor of the Exchequer, Geoffrey Howe, chose as the title of his Mais Lecture: “The Fight Against Inflation”. As he said then, with inflation still in double figures, "squeezing inflation out from an economy which has become accustomed to higher rates over a period of years cannot be an easy or painless task. … the inflationary mentality must be eradicated. … When we have done that we will find that low inflation or even price stability need not be painful". The conquest of inflation was to prove harder than expected. In the decade that followed Geoffrey Howe’s lecture, inflation averaged over 7% a year. Only since 1992 has inflation fallen to levels that could be described as price stability. In retrospect, two Mais Lectures seem to have been of particular significance: those by Nigel Lawson in 1984 and by Tony Blair, then Leader of the Opposition, ten years ago this month. Despite clear differences of view, what stand out from those two lectures are their similarities. Both emphasised the need for a medium-term framework for monetary and fiscal policy. | We can discourage the second by being open and transparent about the reasons for movements in inflation and decisions on monetary policy. If we have no hidden message, then eventually people will stop looking for it. Rational optimising behaviour is in many situations too demanding, and actual decisions may reflect the use of heuristics. That must be taken on board in the choice of monetary policy strategy. In turn the strategy may affect the heuristic chosen by economic agents. And a good strategy will not only help agents choose a heuristic but will be robust with respect to that choice. Does inflation targeting meet those criteria? Inflation targeting as a framework which accommodates learning So far I have emphasised three key points about monetary policy. First, expectations play a fundamental role in the way monetary policy works. As the Maradona theory of interest rates shows, expectations of future monetary policy actions are at least as important as the level at which the official interest rate is set today. Second, our knowledge of the economy is continuously evolving – as the history of the Mais lecture has itself demonstrated. There simply is no unchanging rule, however complex, that can adequately describe the optimal monetary policy strategy. Third, the complexity of optimising behaviour means that central banks need to allow for the possibility that people use simple rules of thumb. Taken together, these arguments provide a powerful case for inflation targeting. | 1 |
With regard to the Federal Reserve Bank of New York, which I have the responsibility of leading, I’d observe that the New York Fed, like the other eleven reserve banks, serves to 19 A historical example was the disclosure of Reconstruction Finance Corporation loans to banks in the Great Depression. This disclosure often created runs at the respective banks. See James Butkiewicz, “The Reconstruction Finance Corporation, the Gold Standard, and the Banking Panic of 1933,” Southern Economic Journal, vol. 66, no. 2, October 1999, pg. 271. BIS central bankers’ speeches 7 support the overall mission of the Federal Reserve System. But, by virtue of its location, the New York Fed has a unique responsibility on behalf of the System – namely to serve as the operational arm of the Federal Open Market Committee with respect to the implementation of monetary policy. This separation of the policy arm and the operational arm of monetary policy in two distinct institutions is a very unusual setup among central banks. 20 There are good reasons why these important functions are assigned to the New York Fed. Monetary policy works by affecting financial market conditions in order to promote the economic outcomes consistent with the Fed’s dual mandate. As such, effective and efficient monetary policy execution requires a practical and thorough understanding of the broad range of the financial markets through which monetary policy operates. New York City is the nation’s principal financial center. | In 1986, Norges Bank provided substantial loans to the banks – at the highest around NOK 80 billion – to prevent a rise in money market rates after large-scale NOK purchases had been made in support of the krone. 44 The loans, which were unsecured, were kept on Norges Bank’s balance sheet when solvency problems at the banks began in 1987. Norges Bank was later criticised for providing these loans. Although the criticism was misdirected, the loans did make it more difficult for the government to manage the banking crisis. 45 Today the Bank no longer provides unsecured loans and we have gradually tightened collateral requirements. Many banks rely heavily on short-term funding in international and domestic money markets. The lesson from the most recent financial crisis is that a shortfall in foreign funding can weaken stability in the financial system in Norway, even if the banks’ financial position is not in jeopardy at the outset. The next step will therefore be not only to require collateral, but also impose requirements on our clients – the banks – to improve their funding strategies. Banks must not be given the scope to take on substantial liquidity risk in the belief or with the certainty that Norges Bank will intervene should foreign funding seize up. A market functions poorly in the long term with such hidden support. With large unsecured loans, Norges Bank ended up providing income support in one instance in the 1980s when a savings bank experienced solvency problems. | 0 |
An international economic crisis often heralds an inflow of domestic and foreign capital to the Swiss franc, which has acquired a reputation as a safe haven on account of its historical behaviour. In other words, in uncertain times, the franc is seen as an anchor of stability, and is therefore much in demand. The currency can thus experience a strong short-term appreciation as a result. At the same time, a weak global economy can put pressure on sales volumes for the Swiss export industry. This increases the risk that production capacities cannot be fully utilised, that unemployment will rise sharply, and that the Swiss economy as a whole will slide into crisis. If an appreciation threatens macroeconomic stability in Switzerland through these channels, this has consequences for monetary policy. When conventional instruments reach their limits, the SNB has to resort to other tools in order to fulfil its mandate (cf. chart 11). First and foremost among these are foreign exchange market interventions. Since 2009, the SNB has, as you know, used this tool in a number of ways, purchasing foreign currency amounting to nearly CHF 500 billion. Between September 2011 and January 2015, for example, the SNB used this tool to enforce a minimum exchange rate against the euro. In this regard, I feel it is important to stress that considerable risks accompany on such interventions. First, market interventions aimed at preventing an appreciation expand the SNB’s balance sheet. | The Financial Mediation Bureau aims to serve as a one-stop center for the resolution of retail consumer complaints against financial institutions regulated by the Central Bank. The Central Bank is also establishing a one-stop service centre in the Bank that will function as a Public Information Centre for the promotion of financial literacy among the Malaysian public. The service centre will provide advisory services on financial matters to small and medium enterprises. Ladies and Gentlemen, Concluding remarks Financial literacy among women is all about having sufficient awareness of financial matters to enable women to protect and prosper for themselves and their families in a world that is becoming increasingly more complex and uncertain. To be an effective participant in this modern economy, we cannot take financial literacy for granted. It is a knowledge and skill that must be deliberately pursued. From a national and institutional perspective, promoting financial literacy must be an integral part of the overall agenda for financial and economic reform and development. Let me conclude with the words of Jawaharlal Nehru, “We talk of revolutions, political and economic. And yet the greatest revolution in a country is the one that affects the status and living conditions of its women. It is in so far as our revolution has affected our women that it is basic.” Thank you. BIS Review 64/2004 5 | 0 |
We must not forget that our region has had failed experiences before. Countries that had all the conditions to become developed didn’t make it, and froze their economies exactly at that crucial moment. Today Chile is in a BIS central bankers’ speeches 7 state of anticipation. It is our duty to succeed and take the leap that is pending. On the part of the Central Bank, with monetary policy and our role as financial regulator, we will continue to work towards achieving the objectives we have been entrusted: to safeguard price stability and the normal functioning of internal and external payments. Thank you. Figure 1 Inflation indicators (*) (annual change, percent) 8 8 CPI Services EFE 6 6 4 4 2 2 CPIEFE 0 0 Goods EFE -2 -2 -4 -4 -6 -6 11 12 13 14 15 16 (*) As from January 2014, the new indexes with annual base 2013=100 are used, so they are not strictly comparable with earlier numbers. Sources: Central Bank of Chile and National Statistics Institute (INE). | 8 BIS central bankers’ speeches Figure 2 CPI inflation (*) CPIEFE inflation (*) (annual change, percent) (annual change, percent) 6 6 6 6 5 5 5 5 4 4 4 4 3 3 3 3 2 2 2 2 1 1 1 1 0 0 0 11 12 13 14 15 16 17 18 0 11 12 13 14 15 16 17 18 March'16 Report June'16 Report (*) Gray area, as from second quarter of 2016, shows forecast. Sources: Central Bank of Chile and National Statistics Institute (INE). Figure 3 Real exchange rate (index, 1986=100) 120 120 110 RER 110 2001-2015 avg 1996-2015 avg 100 100 90 90 80 80 70 70 89 92 95 98 01 04 07 10 13 16 Source: Central Bank of Chile. | 1 |
To increase confidence in the long term, however, we 2 This figure may vary somewhat depending on how it is calculated. 3 See also the article “The EMU and the debt crisis in Europe” in the Monetary Policy Report of February 2012. 2 BIS central bankers’ speeches need real changes and the credible implementation of requirements for sustainable public finances. Nevertheless, the situation looks much better now than it did in the autumn. If we look outside Europe, we can see the beginnings of a turnaround in the US economy and China, for example, is still experiencing good growth. Despite this, however, we should probably expect the impetus to the Swedish economy from abroad to be limited over the next few years, mainly due to weak development in Europe. Inflation and growth prospects justify keeping the repo rate low Developments abroad, and above all in Europe, are thus highly important to the Swedish economy. But the development of domestic demand, for example household consumption, was also weak in the second half of 2011. Since then, however, we have received a number of somewhat more positive signals. Share prices have risen since the end of last year and confidence indicators are clearly pointing in the right direction, although from relatively low levels. There is thus potential for an eventual increase in household demand. Growth may gradually increase. The main objective of monetary policy is to keep inflation close to the target. | 6 See Sveriges Riksbank, (2011): “Appropriate capital ratios in major Swedish banks – an economic analysis” 7 These demands relate to the core Tier 1 capital ratio that is the ratio between equity and risk-weighted assets. See http://www.riksbank.se/en/Press & published/Press/Press releases /2011/New capital requirements for Swedish banks. 8 See http://www.esrb.europa.eu/recommendations/html/index.en.html. 6 BIS central bankers’ speeches Concluding thoughts I have worked in the financial sector for the last 35 years, and for most of that time with financial regulation, supervision and crisis management. I have experienced the development of the world of finance and banking from different perspectives – the supervisory perspective, the international perspective and the sector perspective. Perhaps the most important lesson I have learned from my previous experience is that Sweden has become increasingly dependent on the rest of the world, from both the real economic and the financial points of view. In the field of monetary policy, the development of the European debt crisis is the most important – and most uncertain – factor to take into account. To attain the inflation target and stabilise resource utilisation, a low policy rate will be needed for some time to come. Monetary policy and financial stability must also be seen in a joint context. Low interest rate levels may eventually create imbalances that we must be wary of. It may therefore be necessary to take some aspects of financial stability into account when making monetary policy decisions. | 1 |
Jarle Bergo: Cyclical developments, monetary policy and the krone exchange rate Speech by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at Østfold University College, Sarpsborg, 28 September 2006. The text below may differ slightly from the actual presentation. The speech is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 27 September, Inflation Report 2/06 and previous speeches. * * * Cyclical developments The cyclical upturn in the Norwegian economy continues. Growth has been strong since mid-2003. Real income growth has been solid in both the household and corporate sectors. Household demand, which spurred the recovery, is still on the rise. Many Norwegian export companies are operating at full capacity with solid profit margins. High prices for Norway’s export goods have contributed to a strong improvement in Norway’s terms of trade. At the same time, there is solid growth in general government demand for goods and services. Fixed investment has gradually become an important driving force behind the economic upturn. Over the past couple of years, increased mainland business investment has contributed to the upturn in the Norwegian economy. Corporate profitability is high and companies are positive about the outlook ahead. The order book situation in manufacturing is highly satisfactory, and optimism appears to be high in most business sectors. According to our regional network, the market situation is also positive for corporate services. Petroleum investment has reached a high level after three years of strong growth. | IMF (2009), International Monetary Fund, World Economic Outlook, “Sustaining the Recovery” October 2009, page 102. Kohn, D. (2006), “Monetary Policy and Asset Prices”, The Federal Reserve Board, speech held on 16 March 2006, page 5. Kohn, D. (2008), “Monetary Policy and Asset Prices”, The Federal Reserve Board, speech held on 19 November 2008, page 2. Mishkin, F. (2007), “Enterprise Risk Management and Mortgage Lending”, The Federal Reserve Board, speech held on 17 January 2007, page 3. Taylor, J. (2009), Wall Street Journal, 15 October 2009. 12 BIS Review 162/2009 | 0 |
In this respect, if financially vulnerable firms are defined as those that are unable to regularly pay the interest on their financial debts out of ordinary and interest income, it is observed that the relative weight of debt associated with vulnerable firms has fallen continuously since 2013, down to levels in 2018 very similar to those recorded in 2008. At the same time, it is estimated that in a hypothetical adverse scenario in which corporate profits continue to decline (on a scale, for example, equivalent to half of the decline observed in the last crisis, between 2008 and 2012), the consequent increase in vulnerability would be comparatively less intense than that which would have occurred in 2008 in response to the same adverse shock, reflecting today’s lower level of corporate indebtedness. That said, some types of firms and sectors may still have a significant degree of vulnerability to the deterioration of the environment, according to the strength of their financial position and the nature of the possible shocks. 22/29 In the case of households, their indebtedness as a proportion of GDP has also declined very significantly, by 28 pp from the peak recorded in 2010. Accordingly, at 58.3% at present, it has now practically converged with the euro area figure. The latest data indicate that total household financing was practically steady in September, in year-on-year terms, with a slight deceleration since the start of the year. By component, we can see significant divergence between credit for consumer goods purchases and credit for house purchases. | Since these instruments can absorb losses in the event of difficulties, their interest rates upon issuance are usually higher than those of ordinary debt instruments, so there is much more room for them to decrease, particularly in comparison with deposits. Analysis of the average loan-deposit spread, in terms of outstanding balances, shows that there is indeed a historically positive relationship between this variable and the level of market interest rates. However, since 12-month EURIBOR turned negative in February 2016, not only has this spread not narrowed, but it has actually widened. There are three reasons for this. First, average loan remuneration has been underpinned in recent years by the decline in non-performing loans, which has lowered the proportion of loans that do not generate any interest. Second, banks have to a certain extent rebuilt their portfolios, focusing more on business such as consumer lending that provides higher net interest income, albeit at the expense of increasing the risk profile of their credit portfolios. Third, in February 2016 there was still some room for a further decline in the cost of deposits which averaged 0.35% for outstanding balances and 0.20% for new business. Since then deposit rates on new business have fallen by an amount similar to the decline in average loan remuneration. However, the cost of deposits is currently very close to zero, so it will be more difficult to pass through any further falls in loan remuneration. | 1 |
However, this does not have a great deal to do with the liquidity problems in US dollars and my thoughts on this subject will thus have to wait for a later occasion. 8 BIS central bankers’ speeches So, to summarise: not all borrowing in foreign currency is linked to a direct liquidity risk. This primarily affects short-term borrowing, which largely takes place in US dollars. And not all dollar borrowing gives rise to a liquidity risk, but primarily that used for lending to customers. A rough estimate suggests a volume of around SEK 450 billion in the four major banks, but the level of uncertainty is high. Two questions It is apparent that the banks faced problems in their dollar funding during the crisis. Why else would they have borrowed as much as USD 30 billion via the Riksbank? However, one question that is always asked in this connection is why the banks necessarily had to borrow dollars. Couldn’t they instead have borrowed in kronor and then exchanged this into dollars on the foreign exchange market? This would have removed the problem of the shortage of dollars. There is no lack of kronor, as the Riksbank can create these in the quantities needed. For ordinary people like us and for most companies, the foreign exchange market worked faultlessly during the entire crisis. If you had kronor, you could exchange them for dollars. It was the Swedish banks that provided this service – they were the counterparties in these transactions. | Because when the costs for risk-taking are not carried by the party taking the risk, this usually leads to these risks becoming excessive, from a macroeconomic perspective. Would the banks borrow fewer dollars if they had to carry the cost themselves? The banks’ currency borrowing How dependent are the major Swedish banks on borrowing in foreign currency? From a historical perspective, it is fair to say that the dependence has been limited. However, during the last decade or so, the situation has changed dramatically (Figure 3). In 1998, the Swedish banks borrowed foreign currency in an amount equivalent to just over SEK 200 billion (not including borrowing by subsidiary banks). Today, this figure is closer to SEK 1 500 billion. The banks’ rapid expansion, not least outside Sweden, has largely been funded by borrowing on the international financial markets. During the previous financial crisis at the start of the 1990s, the Swedish banks still essentially operated on a national level. This is not the case today. 4 BIS central bankers’ speeches Over time, the major Swedish banks have also become increasingly dependent on borrowing on the capital markets. Today, they only receive slightly less than half of their funding from normal deposits. The other half is comprised of what is usually called “purchased money”, which is to say money borrowed on the market (Figure 4). And almost two-thirds of that money comes from overseas. | 1 |
Many of the countries that now have problems due to their weak public finances have weak economic-policy institutions and are BIS central bankers’ speeches 5 ranked at a relatively low level in various measures of institutional strength, for example the degree of efficiency or corruption in the public sector. Figure 5 shows examples of this.5 Weak institutions in themselves undermine the potential for growth.6 By implementing structural reforms, the countries can improve their public finances and increase their potential for growth in the period ahead. However, despite the fact that there have been and still are processes in the EU that aim to improve the workings of the economies and improve competitiveness, for example the Lisbon Strategy or Europe 2020, it has proved to be easier said than done to implement these reforms. A robust plan should therefore be based on both structural reforms and consolidation. Figure 5. Structural reforms are important World Bank’s governance indicators 100 Government Effectiveness Regulatory quality Control of Corruption 100 90 90 80 80 70 70 60 60 50 50 Sweden Portugal Ireland Spain Greece Note. The bars show indicators of institutional quality in which 100 is the best possible value and 0 the worst. | GDP growth in the fourth quarter of last year has been revised upwards, consumer confidence has rebounded somewhat and the main forward looking surveys of activity in the manufacturing and services sector have been looking substantially more positive since the turn of the year. Consistent with this tentative recovery in optimism, the Consensus survey of professional economists' forecasts for near-term growth in the US has been revised upwards for the first time in quite a period. So far, the UK has escaped the worst of the squalls raging across the Atlantic. Though GDP growth slowed over the course of last year, output in 2001 was still 2.4% higher than a year earlier, close to trend growth. Underlying this relatively benign aggregate picture, there are of course some quite marked differences: on the expenditure side, between growth in consumption, which has surged ahead, and growth in investment, which has been strikingly depressed; and, on the output side, between the fortunes of firms in manufacturing, which have borne the brunt of the global slowdown, and those of firms in the more sheltered services sector. These differences are sometimes referred to as 'imbalances', and it is certainly true that we can neither expect (nor wish) for them to persist over the long run. The shake-out in manufacturing has been particularly severe, as you know here only too well. Manufacturing output in Northern Ireland fell by some 4.6% in the year to last autumn, compared with a fall of 3.5% in the UK as a whole. | 0 |
François Villeroy de Galhau: Between "shadow" banking and an angelic vision of the market – towards a balanced development of non-bank finance Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the presentation of the 22nd Financial Stability Review, Paris, 25 April 2018. * * * Ladies and Gentlemen, I am very pleased to welcome you this morning to this presentation of the 2018 Financial Stability Review (RSF), dedicated to non-ban k finance. Intended as a forum for dialogue and exchange, the FSR offers leading personalities from diverse backgrounds the chanceto have an open debate. I am delighted to see many of this year’s contributors here among us this morning, and I would like to extend my warm thanks to all the speakers: Klaas Knot, President of the Dutch Central Bank; Philip Lane, Governor of the Central Bank of Ireland; Robert Ophèle, President of the Autorité des marches financiers; Paul Hamill, Global Headof FICC at Citadel Securities; Yves Perrier, CEO of Amundi; and Richard Portes, Professor of Economics at the London Business School. The topic we have chosen to address is far from anodyne: [slide 2] according to the Financial Stability Board (FSB), non-bank financing totalled USD 160 trillion in 2016 [Monitoring Universe of Non-Bank Financial Intermediation, MUNFI], up 50% relative to 2008 and accounting for close to half of all financial assets held by financial institutions worldwide, compared with 40% in 2008. | It is also important that we increase the transparency of shadow banking activities. In this respect, the entry into force of the European regulations EMIR2 and SFTR should be a considerable step forward. As I’ve been talking about macroprudential measures regarding large corporations, and our subject is financial stability, I’d like to bring you up to date on bank lending in France: lending to the private sector – to households and businesses – is growing rapidly in France, at a rate of close to 6% per year. At the next meeting of the High Council for Financial Stability (HCSF) in June, we shall look at whether we need to introduce additional measures. To sum up, we have not yet finished exploring the issue of non-bank finance and I am certain that today’s event will make a valuable contribution to the debate. I would like to pass the floor now to Aurélia End, who will host the round table, and wish you all an excellent morning. 3/3 BIS central bankers' speeches | 1 |
There is a strong sense at Norges Bank that we are being put to effective use today. Thank you for your attention. BIS Review 154/2010 17 | Krzysztof Rybiński: Globalization versus financial markets Address by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the “Index” Students’ Association for Capital Markets and the Department of Capital Markets series of seminars, Cracow University of Economics, Cracow, 20 April 2006. * * * Ladies and Gentlemen, Whilst preparing for today’s address, I entered “globalne, Kraków” into the Google search engine. The following websites, among others, have been found: the website of the Regional Examination Board that provides information on lower secondary school graduation exams, the TVP3 regional service that informs of an increase in the number of Ryanair flights from Cracow, Wrocław and Poznań, and the website of the most beautiful cities of Europe, where Cracow is duly mentioned next to Florence and London. The Google search has found 97,400 websites containing the sought phrase in 0.49 seconds. A similar attempt for other cities has resulted in the following: Poznań 75,000, Gdańsk 68,900, Białystok 20,500, Warszawa 163,000 and Wrocław 306,000. A search for “global London” results in 236 million websites, “global Berlin” – 67.6 million, “global Bangalore” – 12 million websites, and “global Krakow / Kraków / Cracow” – 3.6 million websites. Obviously, the results are incomparable – for numerous reasons. The English language is much more popular than Polish – it is the online lingua franca and at the same time spoken in India and the UK. Moreover, whilst searching for “globalne, Kraków” one would have to enter the words in various declinations. | 0 |
For Thailand, the share of exports to CLMV countries to total exports volumes has risen steadily to be over 10 percent surpassing our exports to 27 euro-zone countries combined. This reaffirms the shared benefits from trade and investment connectivity. Owing largely to complementarities in various dimensions among CLMVT economies, the integration should continue to further strengthen in the future. Expanding trade and investment has been accompanied and supported by development of domestic service industries and enhanced connectivity in the service sector. A case in point is the burgeoning growth of the airline industry, both low cost and full service. Over the past few years, any frequent traveler would easily notice a marked increase in a number of flights within the region, particularly those operated by low-cost airlines. Prices have been much more affordable, attracting travelers who otherwise would not travel by planes. The development does not only benefit the airline industry itself, but also unlocks potentials of many other industries and serves the citizens of CLMVT. More seamless travel promotes the tourism industry, reduces logistic costs, and overcomes obstacles to transportation, thus allowing closer people-to-people connectivity and opening up opportunities for people to realize their fullest potentials. Ladies and Gentlemen, Improved airline service and connectivity might only be one aspect of enhanced regional connectivity. Nevertheless, it serves us well as a model to develop other domestic service industries and to promote regional connectivity in the service sector. | Veerathai Santiprabhob: Financial connectivity in CLMVT (Cambodia, Lao PDR, Myanmar, Vietnam, Thailand) Keynote address by Dr Veerathai Santiprabhob, Governor of the Bank of Thailand, at the CLMVT Forum 2016 “Towards a Shared Prosperity”, Bangkok, 17 June 2016. * * * Your Excellencies, Honorable Speakers, Distinguished Guests, Ladies and Gentlemen, A very good morning to you all, It is my great pleasure to be here with you this morning. I would like to start by thanking the Thai Ministry of Commerce for inviting me to give a keynote address at this important forum. Let me take this opportunity to once again welcome all our guests, especially friends from CLMV countries, to Thailand. I am very delighted to have this opportunity to meet with many ministers, senior government officials, and business leaders participating in the first CLMVT forum. This forum provides a meaningful platform for all of us to share perspectives on how to sustainably enhance regional connectivity and unlock great potentials of our region. Over the past decade, economic integration in our region has strengthened impressively. Driven by international trade, direct investment and production networks, the share of intra-regional trade within the CLMVT to total trade volumes has nearly doubled. Amid a slowdown in global trade due to gradual and fragile recovery of major industrial economies and China’s economic transformation, cross-border trade and investment activities within the region continue to grow at a fast pace. | 1 |
First, I would underscore the importance of good corporate governance, the basic elements of which include: • independent and competent outside directors; • capable and experienced management; • a coherent corporate strategy and business plan; and • clear lines of responsibility and accountability. Together, these elements contribute to an overall operating process conducive to long-term health and prosperity. A tightly run ship with a disciplined crew led by an experienced and competent cadre of officers is far better able to survive a long journey that will inevitably confront sudden storms. Closely related to good corporate governance and critical to any banking institution’s well-being is a rigorous internal control apparatus. Of course, effective internal control systems have always been centrally important to sound banking. This point becomes clear if we consider for a moment their basic purposes: • to provide reasonable assurance that the bank’s and its customers’ assets are safeguarded, that its information is timely and reliable, and that errors and irregularities are discovered and corrected promptly; • to promote the bank’s operational efficiency; and • to ensure compliance with managerial policies, laws, regulations and sound fiduciary principles. With these purposes in mind, it is clear that the success of any banking organization depends on the effectiveness of its internal control apparatus. And never has this been more true than today. | The flexibility of credit and liquidity that banks provide - stemming from this unique capacity to create transaction account liabilities - is vital to the smooth development and growth of market-based economies. Other essential functions This money-creating capacity also enables banks to perform other essential functions. For example, banks serve as the primary and back-up source of liquidity for other classes of institutions, financial and non-financial. Even in advanced financial systems, the capital markets rely heavily on the banking system to meet day-to-day cash flow needs and to provide standby financing facilities. In addition, the banking system is the mechanism, or transmission belt, by which the policies of the central bank regarding money and credit creation are implemented, and the pace of economic activity determined. Simply stated, without an effectively functioning banking system for encouraging, collecting and deploying society’s savings, providing the means for quick and reliable payment, and performing these other essential functions I’ve just mentioned, there would be little hope for any economy to mobilize the real resources necessary for economic growth and stability. If money and credit are the lifeblood of a market economy - and they are - the banking system is its beating heart. Public confidence - the key to intermediation But banks’ ability to collect and mobilize society’s savings by attracting deposits is only half of the story. Their ability to retain those deposits is just as critical. This may seem an obvious point, but the retention side of the banking equation is too often forgotten or overlooked. | 1 |
D ia g ra m 3 b R ea l w a g e s a n d em p lo ye d p erso n s, N eth erla n d s a n d S w ed e n , 1 9 7 0 -9 6 In d ex 1 9 7 0 = 1 0 0 N eth erlan d s S w ed en 170 170 170 160 160 160 160 150 150 150 140 140 140 130 130 130 130 120 120 120 120 110 110 110 100 100 100 90 90 90 80 80 80 R e a l wa ge s 150 E m p lo y m e n t 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 170 R e a l wa ge s 140 110 E m p lo y m e n t 100 90 80 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 S o u rce : O E C D BIS Review 38/1997 -8- Europe, however, does have some positive examples. | This has shown up in increased productivity and weakly rising employment. The opposite has occurred in the United States: sluggish real wages have limited the need to rationalise labour and invest in capital-intensive equipment and this has resulted in rapidly rising employment.7 6 Krugman, P. (1994), "Past and Prospective Causes of High Unemployment," in Reducing Unemployment: Current Issues and Policy Options, Federal Reserve Bank, Kansas City. 7 See Lindbeck, A. (1996), "Sysselsättningsproblemet i Västeuropa" (The problem of employment in Western Europe), Ekonomisk Debatt 24:7. | 1 |
Sterling’s recent depreciation will give a further impulse to import prices; and so, other things being equal, may stretch out the period of uncomfortably high inflation, endangering inflation expectations. Moreover, there remains a risk of continuing inflation impulses from the persistence of imbalances in the global economy. Global inflation, global imbalances and the international monetary regime The rate of nominal expansion in much of the emerging market world has remained brisk. From our point of view, up until recently that seemed to add to the upward impetus to commodity prices, exacerbating the upward pressure on our firms’ costs. Of course, part of the rise in commodity prices over the past few years is explained by a profound structural shift as the world economy is joined by large, rapidly developing economies which are increasingly energy intensive. In addition, nominal demand has probably played a role recently. Some EMEs have exchange rates that are fixed, more or less, to the US dollar, and so have been importing a monetary easing, which they hardly needed, as the FOMC cut the Fed funds rate to address domestic US circumstances. In other countries, there has also been less than complete sterilisation of the monetary effects of exchange rate intervention. Absent offsetting policy action, eventually the nominal expansion permitted will be dissipated in rising inflation and so an appreciation in real exchange rates. | First, while papers are still produced in the tradition that “macroeconomists can safely go on ignoring finance”, we – policymakers – are having to make sense of a macro environment in which the supply of credit has been interrupted by problems sourced in part to swings in risk premia, and quite possibly swings in risk aversion. Models incorporating risk premia – and, indeed, embracing bubbles – might just help us with that. But it is striking that, so far, the progress in finance hardly features in the macro models used around the world for forecasting. Indeed, such models barely recognise the existence of financial instruments beyond risk-free bonds and equities. 19 In modern DSGE models, asset prices (and so risk premia) merely reflect economic developments; they are not “actors” in any way. Even if we were to accept that risk premia are not “actors”, for policymakers they might serve as useful diagnostics of what is going on in the economy – of the nature of the underlying shocks – given that asset price changes are typically apparent some time before the associated real economy adjustments. On that view, we need research that will help us read the “risk premia” tea leaves. For example, an increase in premia that could be traced to an increase in the correlation between consumption and investment returns, might point to a prospective increase in households’ precautionary saving. | 1 |
“Does Inflation Targeting Matter?” Ball L., Sheridan N. in: ”The Inflation-Targeting Debate” Bernanke B.S., Woodford M. (2005). 24 See Corbo V., Landerretche O., Schmidt-Hebbel K. “Does Inflation Targeting Make a Difference” in: N. Loayza and R. Soto (red.) “Inflation Targeting: Design, Performance, Challenges” (Central Bank of Chile: Santiago 2002). 25 Gürkaynak R.S., Levin A.T., Marder A.N., Swanson E.T. “Inflation Targeting and the Anchoring of Inflation Expectations in the Western Hemisphere”, forthcoming in Mishkin, Frederic and Klaus Schmidt-Hebbel (red. ), Series on Central Banking, Analysis and Economic Policies X: Monetary Policy under Inflation Targeting (Santiago, Chile: Banco Central de Chile), 2006 and Gürkaynak R.S., Levin A.T. Swanson E.T. “Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the U.S., U.K., and Sweden”, Federal Reserve Bank of San Francisco Working Paper 2006-09, March 2006. 26 For example a question whether monetary policy should burst asset bubbles was hotly debated during the large European Central Bank conference on 16 to17 March 2006. 27 The examples are the following articles: N. Roubini “Why Central Banks Should Burst Bubbles”, mimeo, Stern School of Business and Roubini Global Economics, January 2006, and A. Posen “Why Central Banks Should Not Burst Bubbles”, Institute for International Economics Working Paper WP 06-1, January 2006. 28 Bernanke B. “Reflections on the Yield Curve and Monetary Policy”, Remarks by Chairman Ben S. Bernanke Before the Economic Club of New York, 20 March 2006. 8 BIS Review 32/2006 respectively so as to prevent possible deflation. | While we were initially less optimistic about buy-side adoption relative to the sell-side, our outreach efforts have indicated that once the buy-side sees the benefits the Code brings, they become enthusiastic adopters. The third reason why this Code will be different, is that it was developed by an unprecedented public-private partnership, and will be kept relevant over time. The development process for the Code was an intense and inclusive one, involving the participation of a wide range of market participants. Hence, we expect strong buy-in from market participants. This partnership also recognises the importance of keeping the Code relevant over time. Moving forward, the Code will be collectively owned and maintained by the local Foreign Exchange Committees (or FXCs), through the Global Foreign Exchange Committee (or the GFXC). The GFXC was launched in May this year, together with the publication of the Code. The GFXC, comprising members from key central banks and private sector market participants, will assess regularly if there are new market developments that should be included into the Code. It will also oversee a comprehensive review of the Code on a less frequent basis, keeping the Code relevant over time. Fourth, extensive outreach to market participants has been done and will continue. Over the past two years, extensive outreach was undertaken to more than 120 sell-side and buy-side industry associations, and key market infrastructure globally. The response has been positive. These efforts by the GFXC, central banks and local FXCs, to raise awareness and encourage adherence to the Code, will continue. | 0 |
The second is that we want competition and innovation in financial services – it can increase efficiency, functionality and resilience. Setting out the regulatory approach allows those who want to innovate by providing better products and services to understand the risks that need to be managed as they develop those products. It also ensures that innovation is not simply competing by taking higher risks. This approach has been a key element in the evolution and adoption of innovation in payments in the UK in recent years. Against the background of increasing digitalisation of everyday life, the combination of technological advance and appropriate regulatory frameworks[1] - both to foster competition and to manage risks – has transformed the way we pay. It has also stimulated the growth of the UK Fintech sector which is now the second largest in the world[2]. Contactless’ card payments are now used by close to 90% of people and make up almost a third of all payments in the UK, Nearly a third of UK adults use mobile payment apps such as ApplePay or GooglePay. Seven million consumers and three-quarters of a million SMEs are using Open Banking products. Several digital only challenger banks operate in the UK providing competition and innovation to the UK banking sector. These changes have not only transformed the way people pay but also the type of money they pay with. Two types of money circulate in the UK today. | It also raises questions about the operation of anti-money laundering and other regulation to prevent illicit finance. An alternative to allowing tokenised deposits to circulate freely and be directly transferable would be to require transactions on new forms of ledger, for example transactions in smart contracts involving tokenised deposits, to be settled ultimately by the adjustment of bank ledgers as happens now. In other words a transfer of tokenised deposits on one set of ledgers would trigger the adjustment of individuals’ bank account balances and be settled by a transaction between the banks involved. In that case, deposit money issued by a bank could only ever be held in an account at that bank. It is important that as we develop the regime for payment stablecoins, we also develop the approach for tokenised bank deposits. This will allow, banks and non-banks alike, that want to develop payment solutions using new technologies to understand clearly what is possible and what is required in the respective regulatory regimes. The PRA intends to set out its approach in this area alongside the Bank’s consultation on the payment stablecoin regime. It is of course possible that commercial banks might wish to offer payment stablecoins as opposed to tokenised bank deposits. In such cases, I think we will need to be very alive to the risks of confusion on the part of customers as to protections they are entitled to and confusion of business models within the bank itself. | 1 |
The tools for exercising greater pressure may entail, for instance, changing the requirements regarding an individual bank or several banks if necessary. But such tools are not usually at the disposal of the central banks; they are held by the financial supervisory authorities. The problem is that these supervisory authorities often do not have the task of supervising banks BIS Review 138/2009 11 and other financial agents from a system perspective at “macro level”. They more often examine the individual participants at “micro level". This task is of course very important. However, there may be systemic risks that need correction, but which are not evident when individual banks are examined separately. The recent crisis has clearly shown that supervision is necessary, and also the opportunity to take measures at both micro level with regard to individual participants and macro level from both a national and an international systemic perspective. The financial supervision map is being redrawn. Bearing in mind the experiences of the recent crisis, I believe for instance that the Riksbank and Finansinspektionen will work more closely together than before. Greater cooperation between the authorities is one part of the solution, but I believe that the central banks also need to have slightly “sharper teeth” – more and sharper tools in this area. Cooperation and trust When it comes to handling and preventing a global crisis like the one we are currently emerging from, something more is needed, namely trust. | A stronger krone reduces the cost of imported goods and services for enterprises and households. Imported inflation is lower. So far this year, the import-weighted krone exchange rate has appreciated by about 3 per cent. Substantial uncertainty surrounding international economic developments There is considerable uncertainty attached to international economic developments. 4 BIS Review 47/2001 In the US, industrial output and retail sales have weakened markedly over the last three months. Between March and April employment declined by more than 200 000. GDP growth slowed from an annualised rate of a good 5 per cent in the first half of 2000 to about 1 per cent in the fourth quarter of last year and the first quarter of 2001. US equities, as measured for example by the Dow Jones index, declined markedly through 2000 and in the first quarter of this year. Stock markets in other countries also fell during this period. Equity prices have picked up again since the beginning of April, however. In addition, industrial commodity prices and oil prices have risen over the last month. Moreover, long-term interest rates have increased. These developments may indicate that many operators in financial markets and commodity markets have again become somewhat more optimistic about the prospects ahead. Household and business confidence also deteriorated through the latter half of last year and early this year, but has remained steady over the last two to three months, as illustrated by the confidence indicators in this chart. | 0 |
But the crisis has not yet been overcome – which is hardly surprising, since structural reforms are also required if this is to be achieved. It is important to acknowledge the efforts that have already been made in this respect in the affected countries, and as an onlooker one should be cautious when making recommendations. Yet there is broad consensus that additional structural reforms are needed and should be implemented consistently. Such reforms should increase the growth potential of the countries affected and allow them to significantly and sustainably reduce their high level of unemployment and debt. Additional efforts are also required in the banking sector. Consequently, the bank review to be carried out by the ECB is extremely important. Only a healthy banking sector is capable of supplying the economy with sufficient credit. However, risks also exist outside the euro area. The global recovery could be held back by political tension in several regions as well as structural weakness in major emerging economies. A further source of potential turmoil is uncertainty about the future path of monetary policy in the major currency areas. In particular, the divergence in the monetary policy direction could increase. Overall, monetary policy in the advanced economies is likely to remain very expansionary since production capacity is underutilised and inflation is low. But while in the US the Federal Reserve is preparing the ground for a gradual normalisation of monetary policy, the ECB is considering whether it should undertake further monetary policy easing. | To this end, the Bank continues to spearhead the Financial Sector Development Plan, which is aimed at strengthening the Zambian financial sector as well as guiding efforts for realising the vision of a stable, sound and market based financial system that would support the efficient mobilisation and allocation of resources necessary for economic diversification and sustainable growth. In concluding, I wish all entrants to this competition, the best of luck. I further with to congratulate in advance the ultimate winners of this inaugural business plan competition – VentureComp 2010. I thank you. 2 BIS Review 5/2010 | 0 |
Two weeks ago, the HKMA issued a circular to banks providing guidance on the importance of sound governance and good corporate culture and what they should do to promote them. I won’t go into the details now as the main themes of these new guidance circulars will be covered in the Conference later today. 8. Today is going to be a long day for you because the Conference won’t end until 5:45 pm. However, I sincerely hope that by the end of the Conference there will be some takeaways that you will find helpful in your capacity as INEDs of banks. 9. Fellow INEDs, I have talked long enough and now is the time for me to introduce to you our keynote speaker for this Conference. We are honoured and highly privileged to have Mr Andrew Bailey, Chief Executive Officer of the UK Financial Conduct Authority, to fly all the way from London to join us today. Andrew needs no introduction. Before he joined the FCA last year, he was the Deputy Governor in the Bank of England and Chief Executive Officer of the Prudential Regulation Authority from April 2013 until June last year. So Andrew is truly exceptional in the sense that he has been in charge of both the prudential and conduct sides of banking supervision, and is very well-respected internationally. He is therefore uniquely well placed to share with us his experience and insights. Mr Bailey, please. 2/2 BIS central bankers' speeches | Durmuş Yilmaz: Financial education and awareness – challenges, opportunities and strategies Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the International Conference on Financial Education and Financial Awareness: Challenges, Opportunities and Strategies, Istanbul, 10 March 2011. * * * Distinguished Minister, Esteemed Participants, Esteemed Guests and Members of the Press, Welcome to our conference on financial education and financial awareness. As you know, these concepts have progressively come into prominence in both developed and developing countries in recent years. After a brief conceptual introduction, I will continue my speech by talking about the financial education in Turkey and efforts of the Central Bank in this respect. Distinguished Participants, Financial education has always been an important concept in terms of allowing individuals to manage their budgets, arrange incomes and expenditures, manage their investments and savings effectively, and protect themselves from possible losses. With the increased variety and complexity of financial products in today’s world, this issue is becoming even more important for both individuals and the financial system. On the back of globalization, the liberalization trend in economies, the easing of restrictive regulations in the financial sector and the liberalization of capital flows at international level since the early 1980s, more and more individuals participate in financial markets as investors in many countries, primarily in developing ones. In this framework, financial education assumes greater importance in terms of minimizing financial risks for those who do not have sufficient experience of capital market instruments. | 0 |
The second point I wanted to make is that the conclusion of the exercise was preceded by a significant amount of front-loaded measures taken by the banks. Since July last year SSM banks have undertaken various measures to strengthen their balance sheets by more than € billion, including € billion of capital increases. These front-loaded measures are part of the overall successful outcome of the exercise. Some of the measures taken in 2013 had an impact on what could be detected by the exercise, and so reduced the results of the exercise accordingly. And some of the measures taken in 2014 count for the mitigation of the capital shortfalls that were found. Third point, the comprehensive assessment provides the ECB SSM with substantial information on the banks that will fall under its direct supervision and will help its efforts in creating a level playing field for supervision in the future. And fourth, the repairing of the banks’ balance sheets that will follow the results, and the resilience revealed by the vast majority of the banks in spite of the severity of the exercise, guarantee that the economic recovery will not be hampered by credit supply restrictions coming from the banking sector, provided that there is enough aggregate demand. I will now go through the slides. Let me underline the main results of the exercise. A total of € billion capital shortfalls were identified across 25 participating banks as a joint result of the AQR and the stress test. | We recognize that timely and accurate information about our region, which is highly valuable to us, can also help to reduce uncertainty and inform the economic and financial decisions of regional residents, businesses, communities and governments. To that end, we make our various regional measures and analysis available to the public through our website and a variety of outreach activities. These activities include making presentations on topics of current concern to business and community organizations throughout the District. We welcome you here today to brief you on our views of the current state of activity and employment in the regional economy and to review the rich portfolio of resources that we make available to help monitor economic conditions across the region. 2 BIS Review 49/2010 | 0 |
Central banks have fought hard to establish credibility by focusing on measurable goals, maintaining clear communications with the public, and being transparent and accountable in achieving these goals. The focus on inflation, a simple observable variable has helped. Having a central bank with multiple mandates creates risks of policy dilution and conflicting goals. In contrast with inflation, or even employment, financial stability is a fuzzy concept with many dimensions that are hard to encompass in a single indicator. Attempting to do so risks ending with a narrow view of financial stability, but having a broader, less precise definition of financial stability makes it hard to establish credibility and accountability for achieving it. On a more pragmatic front, there are good reasons to have banking supervision conducted outside the central bank (which I will not address now), and many countries follow this institutional arrangement. This should be considered when thinking about the involvement of the central bank in financial stability because it is desirable that micro and macro aspects of financial regulation be well coordinated to avoid sending conflicting messages to regulated entities. For these reasons, the institutional setting for monitoring and preserving financial stability will likely vary across countries. But the natural interest of central banks in financial stability and their advantages in providing a systemic view of the financial sector and the economy suggest that they should be involved at some level. | In addition, from an operational perspective, if evidence shows that transition and physical risks have an impact on the risk profile of certain assets, central banks should draw a logical conclusion and incorporate these financial risks in their collateral framework. ** Page 6 sur 6 I would like to conclude with the message that Paul Romer gave during his Nobel Prize speech: “Humans are capable of amazing accomplishments if we set our minds to it.” On climate-related risks, in less than one year, central banks and supervisors have accomplished concrete steps to mainstream green finance in all their activities. Notwithstanding the political progress we would all wish for at international level, we are determined to follow our “flight plan” as financial authorities. Thank you for your attention. i Banco de Mexico, Bank of England, Banque de France/Autorité de Contrôle Prudentiel et de Résolution, De Nederlandsche Bank, Deutsche Bundesbank, Monetary Authority of Singapore, People’s Bank of China, Swedish Finansinspektionen. ii BaFin, Banco de España, Bank al Maghrib, Bank Negara Malaysia, Bank of Finland, Banque centrale du Luxembourg (BCL), Banque nationale de Belgique (BNB), EBA, European Central Bank (ECB), Japan FSA, Oesterreichische Nationalbank (OeNB), Reserve Bank of Australia, Reserve Bank of New Zealand. iii Bank for International Settlements (BIS), European Bank for Reconstruction and Development (EBRD), OECD, Sustainable Insurance Forum (SIF), World Bank (Group) + World Bank (IFC/SBN). | 0 |
Should central banks lower interest rates below this bound, the effect on the economy may be contractionary rather than expansionary, owing to the adverse effects on the financial system as a whole.10 The level of this lower bound on interest rates is not directly observable and varies over time according to the financial sector’s situation. In any event, it represents the floor for central bank interest rate cuts. In Europe, the ECB’s deposit facility rate was already set at -0.5% before the COVID-19 crisis.11 In our statements, we have stressed that this rate could be further lowered in the future. Yet, taking a longer perspective, it seems clear that conventional monetary policy — i.e. that based on controlling the short-term interest rate — has less scope for action in the current context than, for example, a few decades ago. 10 See, for example, Brunnermeier and Koby (2018) for a discussion of the effect of interest rates on banks’ profitability and their ability to lend. 11 Arce et al. (2018) estimate that this level of negative rates does not necessarily reduce the supply of credit by European banks and in particular by Spanish ones. 14 The lower bound on interest rates generates significant asymmetry in monetary policy conduct. As I commented earlier, if inflation rises above its target, central banks may increase interest rates as much as necessary in order to “cool” the economy and reduce inflation to levels compatible with their target. | “October 2020 Bank Lending Survey in Spain”, Analytical Articles, Economic Bulletin, 4/2020, Banco de España. 20 | 1 |
There are several reasons for this: 4 BIS Review 65/2008 First, labour has flowed into Norway from other countries. The opening of the labour market to the new EU countries has provided us with access to a reserve of labour. Initially, workers came to Norway on short-term assignments. They produced in Norway, but their consumption largely took place in their home country, with an attendant increase in the economy’s net production capacity. An increasing number of workers subsequently moved to Norway and took up residence here, often accompanied by their families. This still increases production, although the higher number of foreign workers who want to settle in Norway also puts added pressure on domestic resources. Per capita output is not likely to increase as a result of this kind of immigration. Access to foreign labour may nonetheless relieve shortterm bottlenecks in some sectors. In 2007, the population increased by about 55 000, with net immigration coming to 35 000. This is the highest rise in the population ever recorded. This trend seems to have continued so far this year. BIS Review 65/1008 5 Second, businesses in Norway have become more efficient in their operations, resulting in lower costs. It has been profitable to hire more employees despite the high wage level in Norway. The business sector has made use of new technology and businesses have been restructured. The many sweeping reforms of the 1980s and 1990s – the fundamental shift in 1 the Norwegian economy – resulted in more efficient markets. | BIS Review 65/1008 9 There are signs of a cooling housing market throughout the country. House price inflation peaked about a year ago. For Norway as a whole, house prices have remained approximately unchanged over the past twelve months. There are nevertheless regional differences in house prices. House prices are rising fastest in Rogaland, and falling fastest in Hordaland and the inland regions. Housing investment gradually slackened through 2007, reflecting higher interest rates, rising inventories of unsold homes and increased construction costs. Several large residential construction projects have now been shelved. We also expect commercial property starts to show a gradual decline. 10 BIS Review 65/2008 Developments in capacity utilisation abroad have an impact on capacity utilisation at home. After several years of strong growth in the world economy, growth is slowing in a number of countries. Growth in the US seems to have come to a halt, and there are fears of a downturn. Growth is also slackening in many western European countries, but emerging economies such as China and India are still growing at a brisk pace. Inflation is picking up in many countries due to rising food and energy prices. Central bank key rates have been cut in the US and the UK to address deteriorating growth prospects. In the euro area the interest rate has been kept unchanged, while the Swedish central bank has increased its interest rate. Developments in the world economy will affect the Norwegian economy. | 1 |
A few examples serve to illustrate the point (Figure 1). A first distinction is between interventions in the boom and bust phases of a credit cycle. Imagine that some information came along to suggest that the banking system, while adequately capitalised currently, will taken as a whole be stretched down the road if credit continues to expand rapidly. Assuming for the moment common information to the market and the authorities, in this case a macroprudential intervention to require banks to build up capital in order to underpin their resilience in the period ahead might add only a shade to the cost of finance, as banks lose a small proportion of their tax shield. And if banks choose to de-lever, shedding risk to achieve the temporarily higher capital requirement, that action in itself might slow the boom. Now imagine a scenario in which information came along to reveal the system was seriously under capitalised right now. Maybe a bubble had gone unnoticed until it burst or some banks or funds unexpectedly fail, revealing inadequacies in the regulatory regime. Once the market came to appreciate that capital levels were too thin, funding costs would rise sharply. In those circumstances, an injection of additional capital, if it could be achieved, could help to bring financing costs back down. Although reliance on relatively expensive equity would be increased, that is dominated by a large fall in the cost of debt finance as failure becomes a more remote possibility. | Whether it is liquidation or resolution that beckons makes a difference, as resolution can materially reduce both the private and social costs of bankruptcy. Relative to a world in which liquidation is a credible threat, having an effective resolution regime will tend to reduce the cost of bond finance and so increase its share in the capital structure. But as explained earlier, it will tend to raise the cost of bonds and reduce their share in the capital structure relative to a state of affairs in which government bailouts are confidently expected. Effective 5 See Kashyap, Rajan and Stein (2002), “Banks as liquidity providers: an explanation for the coexistence of lending and deposit-taking”, Journal of Finance, vol, 57(1), pp. 33–73. 6 See Kashyap, Lamont and Stein (1994), “Credit Conditions and the Cyclical Behaviour of Inventories”, The Quarterly Journal of Economics, Vol 109, Issue 3 (Aug. 1994), P565–592. That bank failure itself has wider spillovers, through impaired credit availability, is itself another departure from Modigliani-Miller, which assumes that all households and firms have symmetric access to credit markets. 7 In addition, the management of the bank will find themselves out of a job. In contrast to the managers of failed firms in other sectors, they face regulatory hurdles to re-entering the industry. That provides a clear incentive to avoid a fragile capital structure. As widely discussed, that needs to be reinforced by remuneration packages that expose their wealth to downside risks. Agency issues internal to banks are not covered in my remarks today. | 1 |
Add to this that monetary policy interest rates are at their all-time lows, with which the capacity of central banks to increase the stimulus is also limited. In short, the tools traditionally used to boost growth have little room for maneuver in the developed world. Another source of risks that is being increasingly debated is the possibility of developed economies, especially the U.S., enduring a long time of slow growth. Excessive private debts, particularly of households, and public debt, combined with weak labor markets, are determinants of this assessment. This could shape a similar situation to that of Japan after the bursting of its housing bubble in the late 1980s, which gave way to a period of stagnation that has seen no end. Although we believe this to be an unlikely scenario, its consequences on the global economy could be severe. Amidst these conditions, emerging economies continue to grow strongly. The risks of overheating we saw only a few months back have diminished, partly because of the very action of the adopted economic policies and, especially, of monetary measures. There are still risks, however. For one, it is obvious that if developed economies continue to lag, the external demand facing the emerging world will fall, hurting their growth potential. Although in the current scenario some dynamism and a certain degree of decoupling are expected, this cannot go on indefinitely. Given the weakness of domestic demands in developed countries, they rely on their exports to grow and to resolve their global imbalances. | The reality is that many Asian governments and corporations receive credit ratings that are lower than the minimum thresholds acceptable to institutional investors, including the managers of official reserves. There is certainly merit in strengthening the dialogue between the Asian issuers and the international credit agencies to facilitate a better understanding of the Asian situation by the rating agencies and improve the transparency and accountability of the rating process. There is also a case for considering whether it is advisable or viable to establish national or regional credit rating agencies, with or without support from the authorities. On top of these, I think there is a need to consider the introduction of market-based mechanisms for credit enhancement or guarantees. In Asia, I am aware of problems encountered by private sector initiatives in this field. It has proved difficult objectively to assess and manage the risks involved in such operations. Indeed, one feature of the recent explosion of international finance is market volatility that has been much higher than had been thought possible in the light of historical experience. But I think we have learnt from the recent years of financial turmoil and I hope we are now in a better position to identify and therefore properly price the risks involved in the provision of credit enhancements or guarantees. | 0 |
As a result cumulative transfers to HM Treasury have now reached over £ The direction of these transfers is, however, likely to reverse in the future under many possible scenarios, once the economy recovers from Covid and yields start to rise. The potential size and timing of any such reversal is uncertain and will vary depending on a number of factors, such as the total size and composition of asset holdings, the future path of Bank Rate and the path of any asset sales. In response to one of the IEO review’s recommendations the On page 36 of the Bank’s 2019/20 Annual Report. The Bank has £ of total capital of which £ is loss-absorbing. Ultimately, the Bank is fully backed by HMT, who have committed to replenishing the Bank’s capital in those extreme circumstances where the Bank could take a material loss. 24 The exchanges of letters between the Chancellor and the Governor confirming the indemnity arrangements are available on the Government and Bank of England websites, as is the exchange of letters agreeing the cash transfer arrangements. 22 23 12 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 12 Bank will publish later in 2021 updated analysis of how such factors are likely to influence the size and direction of future transfers.25 Certainly the transfers are material and worth highlighting – but they are a side-effect of QE, not its goal. | Jean-Pierre Roth: Switzerland - a financial centre in the heart of the euro area Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Belgian Financial Forum, Brussels, 16 February 2004. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). * * * Switzerland is not a fortress. In relation to the rest of Europe in particular, it is an economy that is very much open to mutual exchanges - notably with regard to trade and finance. It is not by chance that Switzerland has become a major financial centre. This can be ascribed to a number of positive factors, including specialist knowledge, a long-established banking tradition, the quality of the financial infrastructure, and customers’ confidence in the soundness of the country’s financial institutions. Switzerland’s political stability, its high level of savings and the international standing of the Swiss franc have also enhanced the appeal of its financial system. Increasingly, however, Switzerland is not alone in offering such advantages. Moreover, the Swiss financial centre - like all the others - has to face the challenges of globalisation and the fight against financial crime. As banking secrecy does not afford any protection to funds of dubious origin, the Swiss authorities are able to combat money-laundering with a reasonable degree of efficacy. In this area, Switzerland has implemented measures that have received international recognition. | 0 |
A key past case is the boom in issuance of Collateralised Mortgage Obligations (CMOs) in the run up to the 1994 mini-crisis, an episode that I tried – too timidly – to highlight in 2006.3 Of many examples from the run up to the recent bust , a great one is the late-cycle CPDOs – constant proportion debt obligations – which were rated AAA, paid around 200bp over money market rates, and had a big exposure to tail risk.4 And on the great awakening, Shleifer himself gives the example of a realisation about ABCP, ABS and so on in mid-2007 after subprime delinquencies had risen and faith – note, faith – in rating agency ratings of structured finance securities had evaporated. This exactly chimes with the market intelligence that the Bank was picking up in August 2007. I well remember Stuart Gulliver, now CEO of HSBC, saying to me very early on something to the effect of “anything with “ABS” or “securitisation” in the label is now toxic”. Indeed, Shleifer’s story, and the broader one told by Adair this evening, fits with the thrust of the Bank of England’s strategy towards Market Intelligence, framed in around 2002/03. This amounted to saying that we needed to think about markets somewhat differently when we are doing monetary policy and financial stability. For monetary policy, in most circumstances a reasonable default assumption is that core markets are more or less efficient most of the time. | Paul Tucker: Discussion of Lord Turner’s lecture, “Reforming finance – are we being radical enough?” Remarks by Mr Paul Tucker, Deputy Governor of the Bank of England, at the Clare Distinguished Lecture in Economics, Cambridge, 18 February 2011. * * * Master, it is a real pleasure to be here this evening. And it is a real pleasure to kick off the discussion of Adair’s paper. We spend a great deal of time together – constructive and productive time – at international fora, and this evening Adair has typically provided a splendidly thorough survey of responses to the financial crisis. Adair casts it as about “Radicalism”. I don’t think it’s necessary to frame the issues in that way. In his monumental survey of the long-eighteenth century revolution of ideas and practice, Radical Enlightenment,1 Jonathan Israel argues that the “true” force of the Enlightenment was the democratic urge of a loosely allied group of thinkers underemphasised by mainstream historiography. But even if he is right, the so-called “mainstream Enlightenment” still, surely, turned the world upside down. One does not need to sign up to Whig views of history to believe that, by largely separating the world of enquiry from the world of faith, it set in train profound forces. But if I do not see a need for one of the organising rhetorical constructs of Adair’s lecture, I do most certainly think that we need to deliver fundamental change in the “rules of the game” for the financial system. | 1 |
Does SEK 2 800 in loss-absorbing capital provide sufficient resilience for a loan of SEK 1 million? My answer is no, it does not. The market’s requirements are also often higher today. I welcome the international discussion on a general increase in the capital requirements once the crisis is over. More capital is needed. I also think it is positive that the quantity requirements governing the capital in the capital base and the regulations governing hybrid capital will be tightened up and harmonised. Better capital is also needed. Ultimately, resilience is measured by common risk-bearing share capital. The discussion now underway in the international arena also concerns whether the banks’ resilience can be strengthened by having regulations that require the banks to build up capital buffers when times are good that they can then use when times are bad. To a certain extent, the build-up of capital buffers may also counteract the procyclical tendencies of the financial system by means, for example, of new regulations that increase the price of lending when times are good and reduce it when times are bad. Another method that is similar in principle is to allow the banks to make provisions for expected losses in economic upturns. The banks would thus build up a buffer against bad times in their accounting. In this context, the international discussion centres around which method – capital buffers or provisions – is most appropriate. Using capital has the advantage that it provides greater transparency and is more difficult to manipulate than provisions. | Let me return to the mortgage example I used above. Controlling prices would in this case entail an increase in the capital requirement for mortgages. In the EU, for example, it has been discussed whether the capital requirement should to a greater degree depend on the leverage ratio. Quantitative regulations could include stipulating amortisation requirements or regulating the loan-to-value for mortgages. Economists usually advocate price control, but the arguments for price control are not as strong when we are facing an either/or situation – crisis or no crisis. In such situations, price control may entail too much uncertainty and thus make it necessary to control the behaviour of the participants in a more concrete way. The choice between price control and quantitative regulations thus requires a lot of thought, both on the general level and when designing specific regulations. Influencing behaviour by regulating capital is however, not the only form of price control that is being discussed. More direct control by levying charges is also under discussion in various international arenas. One element of this discussion concerns the regulation of systemically-important banks. Risks in systemically-important banks also entail the risk that problems will spread to other parts of the economy, that is there are external effects. It is thus not unreasonable to expect that this systemic risk should be internalised. Several different measures are therefore under discussion to achieve this. One possibility is to introduce a special capital surcharge for systemically important banks. Another is to introduce a charge for systemically-important banks. | 1 |
Borrowers will benefit from documentation that is easier to understand because it is written in (relatively) plain English and strikes an appropriate balance between the interests of lender and borrower. I understand that the Association’s documentation embodies both these concepts. It is important that the borrower community should buy into the new documentation. In this connection, it is reassuring to know that the new documents are based substantially on those of the Loan Markets Association (LMA) in London. These have already been widely adopted in the European loan market and were developed in association with the UK Association of Corporate Treasurers. I believe that it is also intended to seek input from the borrower community in Hong Kong to help further develop the documentation. Standardised documentation can therefore be described almost unreservedly as a good thing. This is subject to only two provisos. The first is that the basic documents will still need to be tailored to suit individual transactions - and the documents leave gaps for this to be done. This means that banks should not be lulled into a false sense of security. Legal advice will still be required for individual transactions, which should be good news for at least some of the people in this room. Second, the standard terms will need to evolve and be revised to take account of changing market circumstances and particular issues that arise. They may on occasions need to be tested in the courts. | Jan F Qvigstad: On institutions – fundamentals of confidence and trust Speech by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at the Norwegian Academy of Science and Letters, Oslo, 12 November 2013. The text below may differ from the actual presentation. This speech does not contain assessments of the economic situation or current interest rate setting. * * * I have received valuable assistance in drawing up this speech, in particular from Mike Bordo, Arne Jon Isachsen, John Llewllyn and Anders Vredin outside Norges Bank, and from Norges Bank staff; Øyvind Eitrheim, Amund Holmsen, Marie Norum Lerbak, Inka Rogne, Øystein Sjølie, Birger Vikøren and Jan Fredrik Øksendal. I would also like to thank Helle Snellingen for the translation into English. Institutions The concept institution has many meanings. For example, there is an important distinction between its meaning as an abstract concept and as a concrete one. The judicial system in Norway is an institution in an abstract sense, while the Supreme Court is concrete. The Norwegian Opera & Ballet is a concrete cultural institution within our more abstract cultural heritage. In my own field, the monetary system is abstract whereas Norges Bank is concrete. | 0 |
Speeches Published Date: 09 March 2023 "Three New Drivers of Asset Markets" - Opening Remarks by Mr Ravi Menon, Managing Director of Monetary Authority of Singapore, at the IMAS-Bloomberg Investment Conference on 9 March 2023 Ms Jenny Sofian, Chair of IMAS Mr Steven Yankelson, Head of ASEAN for Bloomberg Ladies and gentlemen, good morning I am happy to join you at this annual conference in-person this year. Congratulations Jenny on your appointment as Chair of IMAS. IMAS has been working closely with MAS, to grow green finance, develop talent, and digitalise the asset management industry. We look forward to further strengthening this productive partnership. The investment business has never been more interesting – if by interesting we mean dealing with new uncertainties and unknowns. Let me highlight three key uncertainties that will drive financial market returns and risks: over the short term: inflation over the medium term: geo-economic fragmentation over the long term: climate change SHORT-TERM: INFLATION In the short run, the key driver of risk and return is the trajectory of interest rates – which in turn depends on the inflation outlook and monetary policy response. The good news is that inflation seems to have peaked and come off a bit. The bad news is that it is still quite high. [1] Global headline inflation appears to have peaked, averaging 5.6% in Q4 2022 compared to 6.0% in Q3. This has taken place in line with the sharp fall in food, energy, and logistical costs. | If we do this right, we can over time grow a strong Singaporean core in the technology functions – just as we have done in the broader financial sector. Thank you. © 2021, Government of Singapore. | 0 |
Urban Bäckström: Monetary policy in a small open technology-oriented economy outside the major currency blocs Speech by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, at the Conference on New Challenges for Credit Markets and Monetary Policy, hosted by Handelsbanken and held in Stockholm, 18 May 2001. * * * Thank you for inviting me to this conference and to discuss the Swedish economy and monetary policy with such a distinguished group of people. Today I intend to begin by looking back at economic developments in recent years in Sweden. That should help to put the current discussion about the Swedish economy in perspective. After that I shall be saying something about the economy's recent cyclical path and how I assess the future in the light of the information that is presently available. Economic policy realignment in the early 1990s The direction of Sweden's economic performance during the 1990s contrasts sharply with the unstable, inflationary path we experienced in the 1970s and '80s. That stop-go policy contributed to the recession in the early '90s, which was the worst for over sixty years. The 1970s and '80s illustrate how a long period of high and variable inflation creates an atmosphere of uncertainty and instability. Slowly but surely, long-term conditions for production deteriorate. It was partly in the light of these experiences that Swedish economic policy was realigned in the early 1990s. | Limited losses on subprime loans ultimately led to the destruction of millions of jobs throughout the world, and the links between finance and the real economy were cruelly laid bare. ii) But finance can certainly not be considered “all powerful”: in my opinion, the world of finance only has the political power that State governments choose to give it. • Granted, the difficulties some countries were facing, notably in the euro area, were exacerbated by financial market pressures – think back to the attacks on Italian debt in the summer of 2011. But if the markets were able to exert this pressure, it was because those countries had, in a sense, put themselves at their mercy by demanding that they finance their ever-expanding public deficits, even during periods of growth. • In nearly all the crises faced by the euro area since 2009, it is true that market reactions were often brutal and even extreme. But these reactions were frequently based on legitimate fears: for example the sustainability of Greek debt, weaknesses in the institutions of monetary union and divergences in competitiveness between euro area Member States. Again, it was by failing to make the necessary efforts (to ensure budget discipline, preserve competitiveness or finalise the institutions of a European financial union, for example) that these countries put themselves in a position to be rushed or even pressured by the markets and bear the consequences of their overreaction. Governments should not use finance as an alibi or as a scapegoat. | 0 |
Conclusion As a source as well as a destination for investments, Asia presents compelling prospects for the hedge fund industry. Singapore’s strategic location makes us well-placed to serve as a hub with strong physical connectivity, trade and financial linkages to the rest of Asia. Together with our strong commitment to growing a well-regulated fund management industry, this makes Singapore an ideal vantage point for asset managers to understand Asia and to manage pan-Asian investments. So it leaves me now to congratulate SALT on its inaugural Asian leg of the SALT Conference. I wish all of you a fruitful conference ahead. Thank you. 7 Preqin/Global ARC Study of Asian Institutional Hedge Fund Investments 2012 BIS central bankers’ speeches 3 | This is available from 1997 and projected backwards using aggregate M4 growth before then. Chart 2: Broad money growth slowed significantly after the financial crisis, inflation still close to 2% Page 5 Sources: ONS, Bank of England and Bank calculations. None of this means that at the margin (holding everything else fixed) QE doesn’t add to broad money or ultimately to the level of prices. Nor does it imply that the quantity measures are never useful or important. It would be as wrong categorically to ignore monetary aggregates as it would to assume that they’re the only thing you need to consider. As far as the theory’s concerned, people can’t always borrow and lend freely. In the presence of these and other “financial frictions” the availability of liquid assets can matter for spending, independently of interest rates. Besides, interest rates themselves matter only relative to some “neutral” rate that cannot be observed directly. So, in practice, monetary policymakers should always pay attention to other – indeed any – indicators of incipient inflationary pressure. And although changes in banks’ deposits have often been driven by shifts in demand there are times when they look more supply-led. Arguably, the surge in broad money in 2020 looks like one such episode. Supported by the furlough scheme, and because their spending was held back by the lockdowns, households accumulated significant deposits during the pandemic (Chart 3). While not literally a “helicopter drop” this came quite close to an exogenous increase in the stock of household (and aggregate) money. | 0 |
Firstly, due to the phenomenal rise in reserve holdings of central banks, in our region, and secondly, due to the intensive public scrutiny that reserve management has attracted as a result of the significant increase of foreign reserves in the national wealth of countries in our region. The drivers of this sharp rise in reserves are many. High commodity prices, increase of exports of natural resources, and increased remittances, have been among the main contributors to this situation. Consequently, many countries have been able to systematically accumulate large foreign exchange reserves over the past few years, and, in a way, reserve accumulation is now possible, not only for the wealthy industrialized countries, but for the so-called developing countries as well. 4. However, these reserve accumulation has not been without pain. In fact, developing countries, being those still requiring improvements in their domestic infrastructure and other systems, have found that the increasing of their foreign exchange reserves has resulted in a huge opportunity cost. This is particularly so because the funds collected in the form of foreign exchange have been generally applied to acquire low risk, low-return investments, mostly in fixed income securities in industrialized countries. This situation has indirectly led to such funds being used to fund the huge fiscal deficits of several Western countries, or the expansion plans of their large corporations, instead of being utilized for domestic infrastructure, which, on most occasions have been funded with high cost loans from those very same countries. | As a result, the economic growth of 2019 resulted in the level of 2.2%, down from the level of 4.1% recorded in the previous year. The shocks we suffered slowed down the growth rate, but did not divert the Albanian economy from the positive development trend. This performance was reflected in the reduction of the unemployment rate, in the increase of employment and wages, as well as in the reduction of the foreign debt and the public debt of the country. In parallel, the main indicators of the health of the banking sector remained at satisfactory levels. The average inflation of 2019 resulted in the level of 1.4%. The performance still below the inflation target, required the maintenance of the stimulative direction of monetary policy during 2019. For this reason, the Bank of Albania kept the key interest rate unchanged at 1.0%, oriented the market on maintaining the easing direction of monetary policy in medium-term horizon, as well as supplied banks with the necessary liquidity. In response to our monetary policy, financial conditions were stimulating to increase aggregate demand and appropriate for returning inflation to target. The monetary stimulus brought about the reduction of the credit price and stimulated the growth of lending. Under these circumstances, private sector lending experienced a relatively rapid growth and showed a better distribution. Also, the monetary stimulus reduced the cost of debt service for businesses and households, as well as created the premises for a more stable exchange rate. | 0 |
A better arbiter of market power may be measures of market contestability, in particular the potential for barriers to entry to and exit from the market. Entry and exit rates from banking have, historically, tended to be very modest by comparison with the non-financial sector and other parts of the financial sector, such as hedge funds. For banks operating in many markets and offering a range of services, aggregate returns may offer a misleading guide to the degree of market contestability. Looking separately at the different activities financial firms undertake provides a potentially clearer indication of the drivers of performance and the structural factors determining them. In this respect, JP Morgan Chase provides an interesting case study. JP Morgan Chase is a large universal bank offering a full package of banking services to customers, retail and wholesale. Its published accounts also provide a fairly detailed decomposition of the returns to these different activities. Chart 36 looks at the returns on equity at JP Morgan Chase, broken down by business line and over time. These estimates are based on the firm’s economic capital model. So provided this model adequately captures risk, these estimates ought to risk-adjust returns across the different business lines, allocating greater amounts of capital to riskier activities. (a) “Low risk/low return” business activities Consider first some of the activities generally perceived to be low-risk/low return – asset management and treasury and securities services and retail financial services. | We’ve also taken two steps to improve our communication of the Fed’s monetary policy strategy and plans. First, we released a statement of our longer-run goals and strategies – essentially, a declaration of our monetary policy principles.7 That statement noted that we view a 2 percent inflation rate as most consistent with our mandates. It also emphasized that we will continue to balance our goals of maximum employment and price stability in making policy. Second, we now regularly report our views about the probable course of short-term interest rates over the next few years. Under current economic circumstances, most Fed policymakers judge that near-zero short-term interest rates will be appropriate well into 2014. In this way, our interest rate forecasts reinforce our public guidance. Releasing the views of policymakers in this fashion should further reduce public uncertainty about our plans. And that, in turn, improves the effectiveness of our policies. We at the Fed are broadening our commitment to openness and accountability. And we’re doing all we can to carry out the mission Congress gave us. The Fed’s powers are limited. Lower interest rates alone can’t fix all the economy’s problems. But monetary accommodation is indispensible. The economy would be in much worse shape if the Fed weren’t acting so energetically. Looking ahead, we may need to do more if the recovery falters or if inflation stays well below 2 percent. If the economy does need more stimulus, restarting our program of purchasing mortgage-backed securities would probably be the best course of action. | 0 |
More generally, all over the world, the best private sector involvement is foreign direct investments, privatisation and going back as soon as possible to spontaneous market financing. FTD: Is the ECB sticking to the line that any solution for Greece that leads to a credit event, a selective default or a default must be avoided? Trichet: The Governing Council has not changed its position. Again we are in a domain where Governments are responsible. Our duty is to say clearly what we judge appropriate in order to avoid the risk of adverse developments in the euro area and in Europe. As you know there has been several times in the past when our advice was not followed, such as when we advised solemnly against watering down the letter and the spirit of the Stability and Growth BIS central bankers’ speeches 1 Pact. If this advice had been followed, we may have avoided some of the problems we are facing today. FTD: How is the ECB helping to battle the crisis? Trichet: The most important thing for the Governing Council of the ECB is, for the future as it did in the past, to stick to its mandate and ensure price stability for the euro. The fact that the euro is a stable and credible currency is a prerequisite, a necessary condition for mastering this difficult situation. The ECB is an anchor of stability and confidence which is particularly fundamental at a time when everything else seems to be moving and shifting. | Each government must keep its own house in order. In addition, the European Commission and all governments are responsible for ensuring that the fiscal policy of all euro area countries is constantly surveyed and monitored in line with the Stability and Growth Pact. We always made publicly the point that governments must live up to their responsibility. FTD: Now that the markets are losing confidence in Italy and Spain, can Europe still manage this crisis? Trichet: Naturally the Europeans can manage the issue. It is not a question of technique. It is a question of will and determination. And the situation, at the level of the euro area as a whole, is more sound than in the equivalent advanced economies. For example at the end of the year the euro area will post around 4 ½ % of GDP public finance deficit when the US and Japan will post around 10 %. FTD: The ECB argues against private sector involvement in the second rescue package for Greece on the grounds that, in international terms, this is not usual in such cases. But even the International Monetary Fund is now in favour of involving private bondholders. Why is the ECB still resisting such a move? Trichet: If you read carefully what the IMF writes, you will see that it is much more prudent. In any case you know the position of the Governing Council on Greece, which I repeated in our last press conference. | 1 |
BIS Review 83/2005 1 The development of an industry competency framework seeks to elevate the level of professionalism and competence in the banking industry through appropriate training and certification programmes. For banking institutions, the competency framework will serve as a source of reference and impetus in sharpening competencies of staff and enhancing organisational capabilities to meet future challenges. The framework could also provide a benchmark for performance measurement and recognition for skills improvement. The competency framework will provide the foundation to guide IBBM in designing and offering relevant management and technical programmes to meet the current and future needs of the banking industry. In addition, the framework would assist academic institutions in aligning their curriculum to meet the industry's needs and to ensure a steady supply of graduates in new growth areas. Competency standards set for certification programmes could also serve as a basis for evaluating and accrediting training providers to ensure the provision of top quality training. For the banking workforce, the framework provides a platform for self-assessment to be aware of their competency gaps, and to engage in continuous learning so as to further their careers and keep in tandem with the new demands. The quality of human capital will increasingly become the cutting edge of competitiveness. Having competent staff to deliver high quality products and services is critical to building customer confidence and goodwill, driving customer satisfaction, enhancing reputation, and ultimately realising your corporate vision and strategic goals. | Overview of assessment outcomes Table 1 Assessed member Publication date of Number of regulatory changes, Overall assessment jurisdiction assessment amendments, and clarifications grade made by a member jurisdiction during the assessment Japan October 2012 5 Compliant Singapore March 2013 15 Compliant Switzerland June 2013 22 Compliant China September 2013 90 Compliant Comparability of bank capital ratios Over time, the consistent national implementation of Basel III standards will help ensure greater “truth in advertising” when comparing bank capital ratios. It is important that, when a bank publishes what purports to be a Basel III capital ratio, investors and counterparties can be reasonably sure that the ratio has been consistently calculated and that, if there are differences, those differences are transparent and some measure of their materiality is available. But there is more to bank capital calculation than just following national regulations. The current framework makes use of internal models – these were introduced in 1996 for market risk, and in 2006 for credit and operational risk. The rationale was clear: to provide incentives for improved risk measurement, and reduce arbitrage via greater risk sensitivity. The Basel I framework, established in 1988, had grown outdated and was increasingly subject to arbitrage. Given its limited risk sensitivity, it provided banks with incentives to accumulate risk, as the build-up of many risks would not be visible in banks’ capital ratios. | 0 |
Having in mind that the Macedonian economy is characterized by initially high trade deficit and current account deficit (substantially mitigated by the private transfers) it is essential for the macroeconomic policy decision-makers to consider the experiences of the advanced transition economies with respect to all significant aspects related to the process of real convergence to the EU, including the enlargement of markets and facing with increased competition, possible effects from the liberalization of the goods and capital flows, as well as the possible measures and reactions of the macroeconomic policies with respect to these issues. High trade deficit, and consequently the current account deficit, had certain repercussions on the monetary policy conduct. Lack of foreign exchange in the Macedonian economy caused constant pressures for depreciation of the Macedonian Denar, which under a strategy of exchange rate targeting ultimately produced relatively higher interest rates. Such conditions changed significantly in the last two years. The political stabilization of the country and of the region, given the maintained macroeconomic stability and clear European orientation confirmed in 2005 with the acquiring of the status of candidate country for European Union membership, created environment for significant positive achievements in almost all sectors of the economy. In the external sector, higher growth rates of exports are recorded, which in 2005 were twice higher than the growth rate of imports of goods. The stabilization generated high foreign exchange inflows from private transfers that enabled significant decrease of the current account deficit. In 2006, sizeable external inflows were registered from the continuous privatization process. | Since 2017, Islamic financial institutions have also taken a leadership role in spearheading sustainable finance through the development of sectoral and activity impact-based risk management frameworks. Sectoral Guides focusing on palm oil, renewable energy and energy 1/3 BIS central bankers' speeches efficiency activities have already been issued, and will be followed by Guides for the manufacturing, construction and infrastructure, as well as oil and gas sectors by the end of this year. Through JC3, these complementary developments are being coordinated and integrated to build a credible foundation for the financial industry to support the transition efforts. Beyond the financial sector, the JC3 also actively engages with various stakeholders on climate and transition initiatives. The formation of a new sub-committee this year, to address data gaps for climate risk analysis is another major collaboration as part of JC3’s efforts to strengthen climate risk management and scale up green finance. The JC3 is also pursuing broader engagements with key businesses to better understand transitioning issues and opportunities along the supply value chain. This will help inform the structuring of customised financial solutions for the different types of players within the entire value chain. Objectives and motivations for collaboration As a financial regulator and supervisor, it is important to be clear on the objectives and motivations for our collaborative efforts with the industry and other stakeholders. The primary goal for us is to support the appropriate consideration of climate risks in promoting resilient financial institutions. | 0 |
Miguel Fernández Ordóñez: The international economic scene and analysis of the Spanish economy Speech by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, before the Senate Budget Committee, Madrid, 23 November 2006. * * * Ladies and Gentlemen, Appearances by the Governor of the Banco de España before Upper and Lower House committees, as part of the discussion and approval of the State Budget, have traditionally been one of the main occasions for Parliament to deliberate on the analysis of the Spanish economy that forms the basis of the central bank's actions. As this is my first appearance as Governor before the Senate, allow me to reiterate, as I did in the Lower House, the importance that I attach to relations with the people’s representative bodies for the proper performance of the tasks entrusted to the Banco de España. Tasks which are of great importance in the light of macroeconomic and financial stability, and which justify the independence granted by European laws and treaties to the Banco de España. Indeed, this is one of the Bank’s main identifying features, but one whose corollary is full transparency and fluidly operating accountability. At issue here, therefore, is an institutional arrangement whose balance hinges significantly on relations between the Banco de España and Parliament. Before moving to the analysis of the Spanish economy, I should dedicate some time to the external environment, focusing on the euro area, which is where our monetary policy is designed and decided. | Yet despite this narrowing of the gap between the contributions of national and external demand to growth that I have referred to before, the expansion of the Spanish economy in 2006 has essentially been underpinned by the buoyancy of domestic spending. In particular, gross capital formation has retained considerable strength, while only private consumption and government consumption have slowed slightly in the year to date. The somewhat less dynamic behaviour of private consumption in the first three quarters of 2006 is a result of the interplay of numerous factors whose effects, in some cases, have tended to counter each other. The losses of purchasing power caused by the high inflation rates in the first half of the year have affected household disposable income and, therefore, they will have tended to reduce consumer 2 BIS Review 117/2006 spending. Further, the increase in borrowing costs following the successive rises in official interest rates by the ECB must have curtailed the spending capacity of some sectors of households. Conversely, intense job creation - running at a rate of over 3% - and the notable rise in household wealth are factors that should have sustained the growth of private consumption. Regarding household wealth, it should be pointed out that, although house prices have begun to show signs of slowing, there have continued to be very significant stock market rises in 2006, outpacing those in recent years, which were already considerable. As I mentioned earlier, gross capital formation has been very robust throughout 2006. | 1 |
The RMB Clearing Agreement lays down the framework for RMB business in Hong Kong. I will not bore you with the details but just to highlight two important changes made in the Agreement. First, the restrictions on the types of institutions that can open RMB bank accounts were lifted. This effectively means that securities firms, asset management companies and insurance companies are now free to open RMB bank accounts. Second, the restrictions on RMB interbank transfers between personal accounts and corporate accounts were also removed. With these relaxations, the key hurdles that had previously limited the development of offshore RMB wealth management business have been eliminated. Market players have been responding to these relaxations quickly with the launch of a wide range of RMB investment products. These include RMB-denominated insurance policies and investment funds. Investor interest in these products has been phenomenal. In developing our offshore RMB business, let me stress that Hong Kong does not have a monopolistic power and we are also facing competition from other financial centers. BIS central bankers’ speeches 3 However, Hong Kong does enjoy the first mover advantage over the others in a number of ways. Over the years, the HKMA has built up a very good working relationship with the Mainland authorities. We have accumulated a wealth of operational and regulatory experience in RMB business. We have also developed the most advanced financial infrastructure for RMB transactions with cross-border links with the Mainland. | Eddie Yue: Hong Kong as an international financial center – the China factor Introductory remarks by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the “Hong Kong: China’s Global Financial Centre” conference, New York, 1 March 2011. * * * Ladies and gentlemen, It’s my great pleasure to be here today. No doubt I fully agree with Ms Leung and Mr Wheatley as they have rightly set out the key strengths of Hong Kong in serving as a financial hub in Asia. But I would also like to go deeper into the matter and focus on one very important factor, which may explain why more and more asset managers have been looking to set up their regional operations in Hong Kong. And this is the China factor – a unique competitive advantage of Hong Kong that is difficult for other financial centers to replicate. The China factor is growing in prominence as China continues with its path of very impressive growth: over the past three decades, Mainland China’s GDP has registered an amazing 29-fold increase, from around $ billion to more than $ trillion in 2010, with an average annual growth rate of 10%. Today, Mainland China is already the second largest economy in the world and the single biggest contributor to the world’s economic expansion, creating nearly one-fifth of the world’s newly generated economic activities. As an international financial center of China, Hong Kong stands to benefit the most from the country’s phenomenal development. | 1 |
Monetary policy and the Swiss franc Switzerland conducts an independent monetary policy and has historically had a strong and important currency that plays a much bigger role in the international financial system than the BIS central bankers’ speeches 1 size of the economy would imply. The attractiveness of our currency as a safe haven reflects the stability of the country and is, as such, an asset for our economy. However, since the start of the crisis back in summer 2007, this factor has also repeatedly been a source of pressure. The Swiss franc started appreciating in August 2007 (figure 2), with the onset of the US subprime crisis. The huge uncertainty generated by the collapse of Lehman Brothers one year later and the Great Recession which ensued put the Swiss franc under further upward pressure. The situation worsened in 2010 and 2011. The European sovereign debt crisis and the fears of a break-up of the monetary union sent jitters through financial markets. In addition, market participants were worried that the US Congress would not reach an agreement to avoid hitting the debt ceiling. To complicate matters still further, the global economic outlook turned noticeably gloomier. As a result, enormous safe-haven flows poured into the Swiss franc. From August 2007 until August 2011, the Swiss currency appreciated by about 40% in real effective terms. Yields on Swiss Confederation short-term debt turned negative and have remained negative ever since. | 4.1 Innovative and diversified Swiss international trade Looking at the structure of Switzerland’s international trade will allow me to dispel some wellestablished preconceptions about the Swiss economy. If I asked you to list some core Swiss economic sectors, you would probably mention banks, watches and chocolate. But Switzerland is much more than that. The Swiss economy is in fact highly diversified. For example, the share in total value added of the sector comprising financial, insurance and BIS central bankers’ speeches 3 business services is smaller than the EU average (20.3% vs 26.2% in 2012, according to OECD figures). By contrast, the share of the manufacturing sector is significantly larger. Overall, the amount of goods and services that Switzerland sells abroad is equivalent to half of its Gross Domestic Product (GDP). Goods dominate export activity but, with a share of one-third, the contribution of services is by no means negligible. The export intensity is significantly above the OECD average. Switzerland is surpassed by the Benelux countries, however. Part of the gap with the Benelux reflects the extensive re-exports of imported goods generated by the activity of the world-class ports in Belgium and the Netherlands. Admittedly, access to the sea is not a key comparative advantage of Switzerland… In order to maintain competitiveness, the Swiss export sector has gone through profound structural changes during the last decades. First, there has been a shift in the composition of the export sector (figure 4). | 1 |
It is a ‘hard’ floor because no participant in the interbank repo market is willing to lend reserves in the overnight segment at a rate below the rate that can be obtained by participating in our fine-tuning operations. However, we must not set this hard floor too high, as otherwise all banks would only trade with us. If we no longer had any interbank trades in the overnight repo market, SARON would be deprived of its calculation basis and quickly lose economic significance. How has the money market adapted to the new situation? We will close our speech with a discussion of how the money market has adjusted to the new situation with a positive policy rate and to our new way of implementing monetary policy. Page 7/10 The positive SNB policy rate took effect on Friday, 23 September, the first business day following the monetary policy assessment. On Slide 11, you can see that on 23 September, SARON – depicted by the red line – jumped all the way up to 0.38%. In other words, it moved to within just 12 basis points of the new policy rate, the blue line on the slide. Over subsequent days, SARON increased further and has remained close to our policy rate since then. In the first few days immediately after the rate hike, we conducted fine-tuning operations on a daily basis to set a hard floor on interest rates used in transactions in the overnight segment. | Mark Carney: Three truths for finance Remarks by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the Harvard Club UK Southwark Cathedral dinner, London, 21 September 2015. * * * I am grateful to Ben Nelson and Iain de Weymarn for their assistance in preparing these remarks. “All England is an American shrine, full of rich records of the makers of their nation.”1 None more so than glorious St Saviour’s – Southwark Cathedral – a few minutes south of the river from here. Its connection with Harvard makes it something of an American Mecca. For at St Saviour’s was baptised a Southwark butcher’s son who became benefactor to the university that would bear his name. John Harvard would doubtless be delighted with what has become of the 320 volumes and £ he bequeathed to posterity: a college founded for the avoidance of leaving “an illiterate ministry to the churches, when our present ministers shall lie in the dust”. From that bequest sprung one of the world’s leading universities. A community dedicated to its motto: Veritas – truth; the pursuit of truth in the sciences, humanities, even economics. Truth to create a better world. But recall Pilate’s question that has echoed down through the centuries from the pulpits of Southwark Cathedral to Memorial Church, “Truth? What is truth?” Indeed, upon arriving at Harvard, students and visitors are confronted with a curious truth, or rather, three untruths. | 0 |
Jan F Qvigstad: On institutions – fundamentals of confidence and trust Speech by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at the Norwegian Academy of Science and Letters, Oslo, 12 November 2013. The text below may differ from the actual presentation. This speech does not contain assessments of the economic situation or current interest rate setting. * * * I have received valuable assistance in drawing up this speech, in particular from Mike Bordo, Arne Jon Isachsen, John Llewllyn and Anders Vredin outside Norges Bank, and from Norges Bank staff; Øyvind Eitrheim, Amund Holmsen, Marie Norum Lerbak, Inka Rogne, Øystein Sjølie, Birger Vikøren and Jan Fredrik Øksendal. I would also like to thank Helle Snellingen for the translation into English. Institutions The concept institution has many meanings. For example, there is an important distinction between its meaning as an abstract concept and as a concrete one. The judicial system in Norway is an institution in an abstract sense, while the Supreme Court is concrete. The Norwegian Opera & Ballet is a concrete cultural institution within our more abstract cultural heritage. In my own field, the monetary system is abstract whereas Norges Bank is concrete. | What where the options facing the authorities? At that time, the official view was that the banks were solvent but faced a foreign currency liquidity problem. Their published CAD ratios were well above the 8% limit, and as late as August 2 My former colleagues at the BIS have been doing important research in this area, see, for example, McGuire, Patrick and Goetz von Peter (2009). “The US dollar shortage in global banking and the international policy response”, BIS Working Papers, No. 291; Baba, Naohiki, Frank Packer and Teppei Nagano (2008). “The spillover of money market turbulence to foreign exchange swap and cross-currency swap markets”, BIS Quarterly Review, March, 73–86; and Baba, Naohiki and Frank Packer (2008). “Interpreting deviations from covered interest parity during the financial market turmoil of 2007–08”, BIS Working Papers, No. 267. 2 BIS central bankers’ speeches 2008, the Icelandic Financial Supervisory Authority had deemed them able to withstand severe capital shocks. Now, however, we know that this was probably not truly the case. Even if they had been solvent in the sense that equity was positive, in the aggregate they were below the 8% threshold when corrected for “weak” capital in the form of equity financed by lending from themselves. Furthermore, we know that, over time, an unchecked liquidity problem will turn into a solvency problem. | 0 |
William C Dudley: The US economic outlook and implications for monetary policy Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the People’s Bank of China-Federal Reserve Bank of New York Joint Symposium, Hangzhou, Zhejiang, 29 February 2016. * * * Thank you, Deputy Governor Zhu, for the opportunity to speak at this inaugural People’s Bank of China and Federal Reserve Bank of New York 2016 Joint Symposium. It is a wonderful occasion for our two central banks to meet and share ideas on important global macroeconomic and monetary policy issues. It is especially satisfying to me to be here in Hangzhou to see the result of my discussion last February with Governor Zhou about this kind of policy and research exchange. I thank you and the staff of The People’s Bank of China for developing this idea into such an ambitious work agenda, and for assembling such a distinguished group of contributors and participants for this symposium. We at the New York Fed look forward to future collaborative efforts to strengthen the relationship between our two institutions, especially given the key roles that China and the United States play in the global economy. By working together I believe we can achieve better outcomes for our countries and for the global economy. | Furthermore, several European reforms currently under discussion have the same end goal of increasing transparency and data disclosure in order to improve market discipline and ensure that capital is allocated more efficiently. Thus, the Corporate Sustainability Reporting Directive (CSRD) will require large companies to publicly report on the alignment of their activities with the taxonomy from 2024 onwards. Likewise, we hope that a European regulation establishing a label for green bonds (EuGB) will be adopted by next summer. This voluntary label is expected to have stringent requirements, which will help to build confidence: proceeds from the bonds will go towards funding activities designed to achieve six environmental goals; ex ante and ex post transparency requirements will make it possible to assess the environmental impact of the funds raised; and most importantly of all, an external reviewer must 4/6 BIS central bankers' speeches check that bond issues are compliant with environmental requirements. This reviewer must be a legal person that is registered with the European Securities and Markets Authority and, as such, subject to supervision modelled on that of credit rating agencies. In addition, the proposed CRD6 Directive provides supervisors with new means to integrate environmental, social and governance (ESG) risks in supervision, through the harmonised development of stress testing methodologies. The European Banking Authority (EBA) has also been tasked with exploring the question of including ESG risks in regulatory requirements, although persistent conceptual difficulties make calibrating these tools a tricky business. | 0 |
The general impression among financial agents seems to be that a repo rate increase is probable some time in the coming winter. The timing of a change in the monetary stance is determined by the Riksbank’s assessment of inflation. The simple rule of thumb for the Riksbank can be formulated as follows: if the assessment of inflation, given an unchanged instrumental rate, points to a rate of inflation one to two years ahead that is in line with the target, then the monetary stance is well balanced. If the assessment indicates a risk of inflation rising above (falling below) the target, then the monetary stance is too expansive (contractive) and the repo rate should therefore be raised (lowered). The time has not yet come for an increase in the repo rate, but when it does, our action will hopefully be seen as a natural ingredient of a monetary policy for price stability. Our ambition is to take predictable and timely measures so that sizeable interest rate movements can be avoided. Still, it is hardly surprising that the direction of monetary policy is being discussed. At present Swedish monetary policy’s overall impact can be described as expansionary at a time when activity is becoming stronger. The short-term real interest rate is between 2 and 2.5 per cent, depending on the exact maturity and how inflation expectations are measured. | TCW index and expected growth difference against other countries 1.5 1.0 140 Sweden - TCW countries difference expectations/growth 135 TCW index 0.5 130 0.0 125 -0.5 120 -1.0 115 -1.5 110 Mar-96 Nov-96 Jul-97 Mar-98 Nov-98 Jul-99 Mar-00 Nov-00 Jul-01 Sources: Consensus Forecast and The Riksbank In the more recent discussion in the media and on the markets, attention has focused on more specific flows. This discussion is not always completely accurate. One reason for this is that it is not the individual flows, but rather the complete picture including all of the flows, various currency strategies, etc. that determines developments. We have little knowledge of the extent to which the players in the economy take exchange rate positions when they buy and sell various types of securities. We know from financial theory that large fluctuations in financial prices can often occur without any connection to large flows. Concern about the government finances can hardly have been a crucial factor in the latter 1990s. Neither is it probable that the short-term interest rate differential played a sizeable part, though an effect at times cannot be ruled out. In the more recent discussion, attention has focused on more specific flows. There were periods last year, for example, when the paths of the Stockholm stock exchange and the Swedish krona were rather closely related. It looks as if the krona tended to fall when foreign investors quit the market. | 0 |
This both can and must conceal considerable differences between sectors and regions. The wage formation system must achieve something better than a result for the economy as a whole which is commensurate with average inflation and productivity. If we want low unemployment and price stability, wage outcomes must be adjusted to productivity in different sectors of the economy, indeed to the situation in individual enterprises and to different individuals. The design of pay systems and pay determination is also crucial to the distribution of resources and thus productivity and economic growth. In other words, higher productivity can create more scope for wage increases, but a functioning wage formation system can also help to improve productivity. Sweden’s success in this area in the next few years will depend both on the measures taken by Parliament and the Government and on management and labour. Parliament and the Government establish the framework for the functioning of the labour market and wage formation. A more expansive financial policy would make the task of management and labour and of monetary policy more difficult in the next few years. The legal framework, for example the rules on industrial disputes, is another factor. Tax and benefit systems are important and affect both wage formation and the behaviour of private individuals, ie their willingness to find work, move, etc. | Almost exactly a century ago, the outbreak of the First World War brought this incredible period of prosperity to an end. It would take almost half a century for it to start to be rebuilt and another 30 years before it fully gathered steam. 2 David Hume, “Of Commerce”, Selected Essays, Oxford University Press, 1993. BIS central bankers’ speeches 3 Now globalisation is again under threat with the financial crisis raising the spectre of protectionism. G20 leadership has thus far prevented this from happening, but the G20’s commitment to resisting protectionism is ultimately a defensive agenda. The UK can help lead a more positive one by spurring on new deals such as the Transatlantic Trade and Investment Partnership between the EU and the US. And trade diversification can be promoted through the pursuit of more bilateral initiatives such as those underway with India and China. Likewise the rich diversity of economies across the Commonwealth provides opportunities for all parties to gain from greater international trade. Fair and effective financial markets Open trade requires open finance. To secure the latter requires nothing less than the refounding of the global financial system. Since the crisis, globalised finance has been under siege. Cross-border capital flows have fallen sharply. There are constant pressures to Balkanise financial systems – myopic attempts to protect one country that weaken us all. As the leading global financial system, the UK will be central to completing the job of financial reforms that support an open and integrated system. | 0 |
The ASEAN Finance Ministers have agreed in 2003 on the Roadmap on Monetary and Financial Integration of ASEAN in the areas of capital market development, capital account liberalisation, financial services liberalisation and ASEAN currency cooperation. In 2007, the ASEAN Central Banks established a task force, chaired by Malaysia, to chart the milestones and timeliness for ASEAN financial integration. To complement the AEC Blueprint, leaders in early 2009 have agreed to an Implementation Plan to promote the development of an integrated capital market within ASEAN. These initiatives along with other regional efforts will effectively transform ASEAN into a single integrated market, and thus strategically position ASEAN as an important economic zone with a role to play in contributing towards global stability and growth. With the broad diversity within Asia, the pace of development will not be equal for all economies. The general agreement is that growth within Asia will be led by China, India and Korea. In a large part, the shape of Asia’s future will be dictated by the dynamic engagement of these prominent growth drivers with other Asian economies and the rest of the world. The prospects for ASEAN to thrive would depend crucially on its ability to engage with these growth drivers and seize on the opportunities that they offer. However, ASEAN must also recognise that at the same time, the level of competition will further intensify within Asia. | This will both increase our economic resilience and decrease our reliance on the traditional markets for our export growth. Encouragingly this trend of export market diversification has already started before the onset of the crisis. A decade ago, the share of Malaysia’s exports to emerging and developing economies were below 50% of our total exports, but now, the figure has exceeded two-thirds. Going forward, it is important that this trend is reinforced. However, to achieve a more balanced growth, we need to not only leverage on our competitive advantage in the external sector, but also expand the strength of our domestic sector. Since 2003, domestic demand has been a main contributor to our economic growth, especially private consumption, in which growth has consistently outstripped that of the overall economy. Going forward however, a more sustainable balanced growth would require higher contribution from private investment. It is important to recognise that no country has ever managed to consume its way to prosperity. Both economic theory and the history of economic development point to the lesson that high-level of consumption does not guarantee higher rate of economic growth for a sustained period. 4 BIS Review 158/2009 Investment, on the other hand, is a prerequisite for a dynamic economy that is moving towards a higher level of income and development. | 1 |
In fact, the research conducted by the Central Bank staff indicates that economic agents increasingly focus on past inflation while forming their inflation expectations. After evaluating the said developments, the Central Bank concluded that the increases in food and energy prices in recent years reflect a structural change stemming from the global economic environment. In other words, these shocks are likely to prevail for a longer time period, contrary to previous forecasts. There is no clear evidence at this point that this trend will reverse in the short term. Moreover, our revised projections suggest that even with the maintenance of a cautious policy stance for the foreseeable future, reaching the 4 percent target is going to take an extended period of time. Dear Guests, Under these circumstances, the Central Bank of Turkey had two options. The first one was to stick to the inflation targets, as many central banks do today, but to avoid implementing a monetary policy that is consistent with these targets. In other words, the Central Bank would accept a priori that inflation would surpass the target in the foreseeable future. The absence of any policy response would be justified by the presence of supply side shocks. The central banks that adopt this approach are bound to lose their credibility gradually, as long as the inflation continues to remain above the targets. The second option involves revising inflation targets to an attainable level and implementing a monetary policy that is in line with the new targets without compromise. | However, in the current environment where persistent and rapid increases in food and energy prices have been observed for a considerable period, the prevalence of this view has become questionable – especially in the light of current projections that foresee even higher prices in the near future. As a matter of fact, many countries under inflation targeting regime now project that inflation will converge to the target at end-2009 or in 2010, at the earliest. Going through a long period of high inflation is a serious risk for price stability. First, the general price level may shift upwards at a faster rate, as producers and workers in other sectors ask for higher prices and wages in response to the loss of their real purchasing power. The fall in real interest rates due to deterioration in inflation expectations is another risk, since lower real rates will lead to a faster pace of credit expansion. The common factor of these two risks is that persistent supply shocks may turn into demand shocks after a while. Thus, at some point, central banks have to decide to what extent they can tolerate the rise in inflation. As the famous philosopher Karl Popper put it while defining the demarcation problem, “if we do not demarcate a scientific hypothesis, we will be leaving out one of the key steps in verifying the correctness of that hypothesis”. Any theory should be formulated in a way to allow falsification; the circumstances under which the theory fails should be identified. | 1 |
In addition, we have been active internationally – both bilaterally and multilaterally to ensure we have a coordinated, well-informed and mutually supportive approach. This includes our work as a member of the Financial Stability Board. So, while there are challenges, we are very much alive to them. We monitor the risks closely and work continuously with our partners to prepare, and stand ready to take any appropriate action. Opportunities for Hong Kong Having acknowledged the immediate challenges, I think it’s time now to turn towards the opportunities, above all in this region. For while the challenges from the West are deep, they should not blind us to the opportunities within Asia. I would say that the coming opportunities for the banking industry here are bright – even if at times they may appear to be obscured by clouds abroad. In fact, I believe that they put us on the threshold of a new era for the banking industry in Hong Kong. I would like to highlight two of the most promising opportunities. The first is the offshore RMB market, which has developed rapidly over the past two years. The second is the increasing demand for asset and wealth management services, both institutional and individual. Opportunity 1: offshore RMB market On the offshore RMB market, Hong Kong bankers have been the first ones to exploit the new business opportunities. | The Basel Committee, its member agencies, and the Financial Stability Institute of the Bank for International Settlements have long participated in regional training initiatives that are intended to help promote supervisors’ understanding of international banking standards such as the new capital framework. The Committee’s Accord Implementation Group likewise engages in outreach to supervisors in non-member countries, including through the Core Principles Liaison Group. I chaired a special session of such a discussion earlier this year because I am personally committed to improving that dialogue. 8 BIS Review 33/2004 We look forward to working with other institutions, including the World Bank and the International Monetary Fund, to assist other supervisors in their journeys as they come to their own crossroads for banking supervision. Conclusion In my remarks this morning, my intention was to offer more insight into why the Basel Committee believes that Basel II is such an important step in embracing a new, incentives-based approach to supervision. I also wanted to discuss how it will keep our supervisory framework up-to-date with the latest advances in risk measurement techniques and risk management practices. In my answers to the sensitive questions that I have heard from bankers and policymakers in other countries, I have sought to emphasise that the Basel Committee seeks the appropriate balance for Basel II between developing simple rules while maintaining their sensitivity to a bank’s actual underlying risks. We intend to align Basel II’s capital requirements more closely to banks’ actual economic capital needs. | 0 |
Markets then responded favorably as EME authorities shifted toward clear, more consistent policies focused on inflation objectives and external sustainability, and away from policies with multiple and sometimes competing objectives. Let me now add a few thoughts about ongoing financial reform efforts. The complexity, severity and speed of the global financial crisis required a forceful and wide-ranging international regulatory response. This has included higher capital and liquidity standards, stronger recovery and resolution regimes for supervised institutions, and greater transparency and standardization in derivatives markets. These efforts will have a number of positive effects, although they may lead to some changes in bank business models and strategy in the U.S. and internationally. In the U.S., these efforts have made the banking system much stronger today than before the crisis. In aggregate, Tier 1 risk-based capital ratios among U.S. bank holding companies have increased to just under 13 percent, an increase of almost 45 percent relative to precrisis levels, and the quality of capital has improved. Bank holding company balance sheets are also significantly more liquid, with liquid assets increasing from 26 percent of total assets at end-2006 to 38 percent at end-2014. Core deposits now fund 44 percent of total assets, a 10 percentage point increase from pre-crisis levels. A stronger U.S. banking system better protects against future shocks, provides a more solid foundation for growth, and therefore also enhances prospects for growth and financial stability abroad. 3 “International Capital Flows: Reliable or Fickle?” World Economic Outlook, April 2011, Chapter 4. | Drawing on available estimates, the median of this indicator for the corporate sector as a whole is expected to fall from 3% pre-COVID-19 to virtually zero in 2020, in any of the macroeconomic scenarios considered by the Banco de España. Large firms are generally expected to suffer less pronounced falls in profitability. In any event, the operating deficit generated by many firms would lead to a deterioration of their financial position, resulting in lower own funds and higher debt to finance their liquidity needs. Thus, in the aforementioned early recovery scenario, the financial position of 55% of firms (with a weight of 51% in employment terms) would worsen in 2020, while in the more adverse scenario, this proportion would rise to 58%. However, despite this strong negative impact, around 40% of firms would continue to generate an operating surplus and to make new investments without a worsening of their financial position. In short, a significant number of firms are very likely to emerge from this crisis with higher debt levels and a diminished demand outlook, at least for some time. In this respect, it is also necessary to review the debt relief, restructuring and insolvency processes for firms, 5 with the aim of establishing pre-emptive, swift and simplified administrative procedures enabling them to pursue their business activity while they are still viable. | 0 |
No one doubts for a moment that the exchange rate of the króna is crucial for the economy, through its major effect on prices and profitability in the traded goods sector. There has been a great deal of discussion this year about the exchange rate and the Central Bank has frequently come under fire. A widespread misunderstanding seems to prevail that the Central Bank can control the exchange rate. People must realise that the Central Bank exerts a limited long-term impact on the exchange rate. The exchange rate depends on various economic factors, including foreign trade, foreign investment in Iceland and investment by Icelanders abroad, and last but not least expectations about future economic developments. For example, there is little doubt that expectations in connection with power-intensive industry have already influenced the exchange rate of the króna, which has certainly firmed as a result of decisions on large-scale investment in aluminium production. Interest rates definitely affect the exchange rate, but experience in Iceland and elsewhere shows that in the long run this impact tends to fade out if monetary policy aims for a rate of inflation close to the prevailing rate among trading partner countries. Likewise, the Central Bank’s foreign exchange market intervention tends to have only a short-lived effect. If the exchange rate is moving with a strong momentum in a certain direction, no central bank can resist this for long. | Thank you for your attention. 1 European Central Bank (2018), A quantitative analysis of the size of IMF resources, IRC task force on IMF issues. 3/3 BIS central bankers' speeches | 0 |
The ongoing liberalisation process meant that it was no longer important to divide the balance of payments statistics into koruna and foreign currency transactions. This classification was replaced by a standard breakdown into transactions between residents and non-residents. Numerous statistics linked with regulation were gradually abolished as individual areas of economic activity were liberalised. These examples merely illustrate how the central bank’s entire statistical system was rebuilt from scratch. Let me now move on to the more recent past. In 1999 we began to co-operate closely with European institutions. The main topics included monetary and banking statistics, balance of payments statistics and more recently also financial accounts, government financial statistics and general economic statistics. The development of statistics was influenced by a need to standardise each area to ensure compatibility between the EU Member States and the candidate countries. Hand in hand with these contacts, we began to work much more closely with the Czech Statistical Office. In the area of statistics the Czech Statistical Office is the natural and closest partner of the Czech National Bank, since these two institutions are the major producers of statistical information in the Czech Republic. The Czech Statistical Office conducts a far wider range of statistical surveys, providing aggregate information on the national economy, territory, climate, environment, population, elections and other areas of life and activity of our country. The Czech National Bank is above all a user of economic BIS Review 49/2004 1 statistics and collaborates most closely in this area. | It is evident that businesses must transition to be sustainable to keep pace with the global race towards net zero. As an exporting nation, Malaysia must also prepare for tightening of climate-related regulations that may be imposed by our trading partners. Small and medium enterprises (SMEs) that form 37.4% of Malaysia's economy3 are the most susceptible. According to report findings by the Sustainable Finance Institute Asia 2022, SMEs stand to lose RM292 billion in revenue due to non-ESG compliance4. The silver lining behind these adversities is the immense growth opportunities. Studies have shown that sustainability investments reward businesses through higher premiums 5 , better brand value, and lower operating expenses6. Without the necessary support, the ambition to achieve net zero would be a tall order for SMEs, which lack funding and knowledge for meaningful transition. In this regard, the Bank launched the RM2 billion Low-Carbon Transition Facility (LCTF) in February 2022 to fund SMEs' working capital or capital expenditures related to low-carbon practices at an affordable rate. Beyond that, other facilities such as the High Tech and Green Facility and SME Automation and Digitalisation Facility are also available for 1/3 BIS - Central bankers' speeches SMEs. In this respect, it is important to note that financing by the financial sector has returned to the pre-pandemic level with funds by BNM only constituting less than 10% of the total financing. We acknowledge that technical know-how is equally crucial for successful transformation. | 0 |
Remuneration schemes, for example, should support sustainable business rather than myopic trading. There is one over-arching issue that I would like to highlight: the financial industry has to reconsider its role in the economy. Returning to a role of serving the real economy would be desirable. “Financial engineers” may prefer to create ever more “sophisticated” financial products. But finance has to come back to the basics. Among the basic tasks of the financial industry is the supply of credit to the real economy. This too is a profitable business, the profits from which are justified because they are mirrored by the social value of the intermediation function. Businesses and individuals depend in particular on the steady supply of credit by banks. The ECB and the national central banks of the euro area have taken comprehensive measures during the crisis to help commercial banks and other financial institutions. When the turbulence started in August 2007, the ECB was the first central bank to step in by frontloading liquidity. After the intensification of the crisis in the autumn of 2008, we tackled the paralysis of interbank transactions in the money market. In addition to a swift and substantial reduction of our policy rate, in line with our primary objective of maintaining price stability over the medium term, we decided to implement a set of non-standard measures, which we collectively refer to as “enhanced credit support”. I explained these measures in detail here in Munich in a speech last July. These measures have significantly helped to maintain banks’ liquidity. | But the crisis has also revealed weaknesses in the peer surveillance process and in the implementation of the Stability and Growth Pact. Thus another major lesson of the crisis is the need to strengthen the institutional framework of the economic union. Of course, the deterioration of public budgets has partly been due to a “migration” of risk from the financial sector to the public sector. Public budgets have been called on to absorb the excessive risk that the financial industry had been creating during the booming years that led up to the crisis. Partly, however, the deterioration of public budgets is also due to some short-sighted fiscal and economic decisions in the brighter times that preceded the crisis. Before the crisis, weak public finances had combined in some countries with inattention to domestic competitiveness and a lack of long-term strategies to prepare national economies for competing successfully in the challenging – but rewarding – environment of the internal market. In Greece, in particular, past fiscal irresponsibility and inattentiveness to domestic competitiveness made the national economy extraordinarily vulnerable to a sudden turn in confidence. As I have implied, after the crisis, the main players in the world economy will be judged by a new yardstick. Private players will be held accountable to new and stricter standards of economic integrity and prudent management. And governments, the world over – and in Europe in particular – will have to show self-discipline and trustworthiness to gain respect and preserve confidence. | 1 |
Banks have responded to the new requirements by increasing interest margins to boost earnings. It can be safely assumed that once they have adapted to the new requirements, interest margins will decrease. The countercyclical capital buffer is not an instrument for managing business cycles. The key policy rate and the buffer are designed to promote different objectives. Monetary policy is geared towards ensuring low and stable inflation and is the first line of defence for managing business cycles. The countercyclical capital buffer is designed to strengthen banks’ capacity to withstand periods of large losses. The simultaneous failure of many banks will paralyse the economy. The payments system and flow of credit for investment will seize up. The downturn could be long-lasting. This is why it is often the case that the authorities ultimately intervene in support of failing banks. This is what transpired during the Christiania crash – and it has occurred many times since then, both in Norway and other countries. It may be necessary to provide support to banks in distress, but it comes with a major drawback: Banks will expect support also in the future, which is a source of moral hazard. In spite of the term, this is not about morals, but about incentives. The banks’ creditors are induced to charge low interest rates on loans to banks. This leads to the underpricing of risk, which may in turn lead to excessive risk-taking in the banking sector. The problem must be nipped in the bud. No bank should be promised life eternal. | Later, reserves were expanded to include bank deposits and securities in various currencies. Originally, Norges Bank had an obligation to redeem notes against precious metals, a promise that was printed on each and every banknote. This redemption guarantee applied in principle right up to the abolishment of the gold standard in 1931. In more recent times, reserves have primarily consisted of foreign government bonds, first in US dollars under the Bretton Woods Agreement up to 1971 and later also in various European currencies and Japanese yen. Norges Bank was charged with managing the Government Petroleum Fund when the first capital transfers were made to the Fund in 1996. This was a natural extension of our responsibility for managing foreign exchange reserves. The aim of the Government Pension Fund Global, as it is now called, is to ensure that the income from our oil and gas resources will also accrue to future generations. The principle underlying the fiscal rule is that the real return on the Fund can be used over time for consumption or investment. This ensures a gradual phasing-in of petroleum revenue spending, while preserving the wealth. The Fund is the nation’s family silver. It is no longer held in Norges Bank’s vault, as it was during the period of the silver and gold standards. The Fund is invested in fixed-income securities, equities and real estate across the world. | 1 |
Second the growing importance of bonuses in the financial sector can make it harder to interpret statistics on earnings. City bonuses are generally paid at the start of the year. As Chart 10 shows this leads to big peaks and troughs. At times when changes in earnings growth are of great interest, as they have been in recent months, it is difficult to identify the underlying path. The difficulty is partly a technical issue of how to smooth out the monthly variations. Do we spread the bonuses backwards over the last 12 months on the grounds that they are deferred pay conditional on profits in that period (with the consequence that you don’t know the true earnings figure for any month until over a year later)? Do you spread them forward because they will tend to be spent over the coming year? Or do you do a bit of both? To that uncertainty we can add the fact that there several different measures of earnings growth including two – the AWE and AEI – which are telling a somewhat different tale. 7 There is also a more conceptual challenge. Are bonuses to be treated as part of the cost of labour or are they a form of profit sharing? The economic implications may be quite different. In practice they are probably a bit of both; bonuses are much higher when profits are good, but they are unlikely to disappear entirely in tough times (witness the concept of the “guaranteed bonus”). | But estimating how they divide up is not easy. Money and credit The third area in which the development of financial markets is complicating the interpretation of statistics is money and credit. And again that is an area of keen attention at the moment. The question is whether the recent growth of the money supply is telling us something about the prospects for inflation and the economy that we are not getting from other variables – like consumption, interest rates, prices, or inflation expectations. Chart 11 shows monetary growth over 130 years in the UK against consumer inflation. The association is obvious. But even in the days of the gold standard when the Bank had a more direct control of the money supply, money growth and inflation diverged for periods (eg in the late 19th century and in the late 1920s). More recently, the growth of money in the 1970s did act as a leading indication for inflation. But in the early 1980s the relationship appeared to break down despite, 6 “Improving the measurement of banking services in the UK National Accounts", Leonidas Akriditis, ONS Economic and Labour Market Review, May 2007 7 I have used the AWE in this speech, even though it is the more recent and less well established of the two, because it is designed to handle outliers at the top and bottom of the ranges better and the City has a disproportionate number of outliers. | 1 |
Every year since then, as a savings plan, the government has let a substantial share of current income from oil and gas remain as deposits in the fund. At the end of the first quarter of this year, the fund’s market value stood at NOK 2 763 billion. See chart “The fund’s market value” at the end of the speech. As the fund increased, the need for a plan for the phasing in of oil revenues became evident. In 2001, the Government and the Storting adopted the fiscal rule, which is based on the deposit of government petroleum revenues in the oil fund. An amount equivalent to the expected real return on the fund, or 4 per cent, as an annual average over time, is transferred back to the central government budget to cover current expenditure. The transfers increase as the fund rises in value. Along the way, the name of the fund has been changed from the Government Petroleum Fund to the Government Pension fund Global. There are prospects that new annual transfers to the fund may be made over the next 10 years or so. This implies further growth in the fund, perhaps up to twice the size of today’s 3 See NOU (Official Norwegian Report) 1983:27 “Petroleumsvirksomhetens framtid” [The future of petroleum activity]. 2 BIS Review 78/2010 fund, which corresponds to one and half to two times annual GDP for Norway. Public expenditure accounts for about half of GDP. | This means that we can and do make judgments about the period over which we should return inflation to target in the wake of a cost shock, notably at present. But we are not in a position where individual members could choose to subordinate the achievement of price stability to that of stabilising output. 2 For a more extended discussion, see Tucker P M W (2007) ‘Central Banking and Political Economy: the example of the UK’s Monetary Policy Committee’ speech at Inflation Targeting, Central Bank Independence and Transparency Conference, Cambridge, Bank of England Quarterly Bulletin Q3 2007, pp 445-452. 2 BIS Review 96/2008 At the other end of the spectrum, our month-by-month votes on Bank Rate are individualistic in precisely Blinder’s sense. And, as he says, that has clear implications for how we convey those decisions. The minutes take primacy. That is partly because it is more difficult for us than for some of our peers to release an informative statement immediately after the policy meeting: if you don’t know what you’re going to decide, it is pretty hard to prepare a draft in advance! Each individual member is obviously in a position to summarise their views. But we could not sensibly have nine individual statements without risking what Alan Blinder calls cacophony. Also, such statements would have to be prepared in advance, so there would probably be less listening and engagement at the policy meeting itself. | 0 |
Because of our experiences during the Global Financial Crisis, we knew that facilities themselves and their risks had a lifecycle from design, to standup, to steady state operation, and finally to wind down and closure. So, this helped us better anticipate and manage the risks of the pandemic crisis facilities. Vendor risk was a key area of focus for us, because vendors had critical roles in the operation of the crisis facilities including investment management and securities settlement. We had to create a fast and rigorous vendor onboarding and monitoring process, while at the same time recognizing new risks the vendors themselves faced across continuity, people, process, and technology. We made significant changes to our vendor management approach, many of which are serving us well today. During the pandemic, we've adapted to a fast-changing, uncertain environment. We've seen how risk management has helped us respond effectively, used lessons learned to improve our approaches, and identified areas where we want to further develop our capabilities. Building and Strengthening Organizational Resilience Since then, we have continued to focus on how risk management can help us strengthen operational resilience, which "is the ability to deliver operations, including critical operations and core business lines, through a disruption from any hazard. It is the outcome of effective operational risk management combined with sufficient financial and operational resources to prepare, adapt, withstand, and recover from disruptions." 14 A foundational component of resilience is that an organization can operate as a coordinated system in order to successfully adapt to changes in the environment. | But, as we have gotten closer to the range of estimates of neutral, what appeared to be a bright point of light is really a fuzzy blur, reflecting the inherent uncertainty in measuring r-star. 4 More than that, r-star is just one factor affecting our decisions, alongside economic and labor market indicators, wage and price inflation, global developments, financial conditions, the risks to the outlook… the list goes on and on. I’ve talked a lot about normalizing our policy around interest rates. In addition, about a year ago we started the process of gradually reducing the Fed’s balance sheet as we work to unwind the 2/4 BIS central bankers' speeches asset purchase policies put in place during the crisis. In the now-standard Fed practice of communicate, communicate, and communicate, we published detailed plans well in advance on how we would gradually and predictably reduce the balance sheet.5 This process has proceeded smoothly without creating undue market disruption or volatility.6 With balance sheet normalization well underway, the Fed is studying the question of what exactly the new normal looks like. We have indicated that we plan to shrink the balance sheet to the smallest size consistent with the efficient and effective conduct of monetary policy—and that, in the long run, the asset side of the balance sheet will consist primarily of Treasury securities. 7 That’s our strategy, but its execution will depend on the operating framework of monetary policy, among other factors. Here, the Fed basically has two choices. | 0 |
Trade volume between Turkey and Egypt has also steadily increased from USD 500 million in 2003 to USD 3.2 billion in 2009. It is expected that these figures will reach up to USD 5 billion in the next three-years. One reason for this rapid increase is that both countries have completed the legal ground which secures free trade between countries. The Free Trade Agreement, which has recently been put into effect, does not only provide opportunities for higher trade volumes but also functions as a framework that brings together investors from both countries. Turkey has long provided a significant conduit for the flow of humanitarian and economic assistance to Iraq. Today, the volume of bilateral trade is also rapidly rising. The bilateral trade volume has been increased significantly since 2006 and reached to 6 billions USD in 2009. The high-level official visits between Turkey and Iraq have been providing impetus to the diversification and advancement of our economic cooperation. Moreover, Turkish companies play a leading role in the reconstruction of Iraq. Our trade with Jordan and Lebanon exceeded USD 1 billion in 2009. With the conclusion of the ongoing negotiations on the Free Trade Agreement between Turkey, Lebanon and Jordan, trade relations among our countries are expected to gain volume. Dear guests, Increasing commercial relations naturally led to an increase in international banking services among our economies. Having a sound financial position, Turkish banks can contribute both to building commercial and financial links within the region. | Average annual growth of almost 7 percent between 2002 and 2007 faltered in 2008 and turned into a contraction in 2009 as the exports and investment flows dried up considerably due to the global crisis. However, all signs now indicate that the economy has rebounded quickly and is headed towards renewed growth and an improving fiscal balance in 2010. The resilience of the Turkish financial system, combined with our flexible and effective liquidity management framework shaped by the experiences of past crises, has turned out to be considerable assets in managing the recent crisis. As a result, growth forecasts of international institutions for the Turkish economy have been revised upwards repeatedly and reached as much as 7.2 percent, the highest among OECD countries. The crisis and slowly emerging global architecture in its aftermath present major opportunities that have once again highlighted the importance of economic cooperation 2 BIS Review 101/2010 and coordination among countries and economies. In the case of the Middle East this is perhaps best embodied in the multiple synergies in financial integration and joint investment opportunities between Turkey and the Arab world. It is a great pleasure to see that the relations within our region have been strengthening on a solid ground. The strong historical, cultural and social ties among our countries constitute a solid basis to further develop multilateral relations. | 1 |
Fiscal policies might play a bigger stabilisation role without neglecting the constraints associated with current high debt levels and the implications of demographic changes for the public budget. In both cases, structural policies to expand productivity growth will ease the difficulties associated with the fulfilment by both monetary and fiscal authorities of their stabilisation functions. Macroprudential policies can also be used as additional macroeconomic stabilisation mechanisms, in addition to their role in guaranteeing financial stability. And all of this will have to be achieved while keeping a close eye on financial developments and innovations that will have to meet new demands, mainly to do with the insurance of the longevity risk in an ageing, lowinterest-rate world. 16 | The Maastricht Treaty, of course, recognised this risk, and the famous convergence criteria were designed precisely as a means of reducing the risk to manageable proportions by requiring that, before they join the euro club, countries should have achieved at least a minimum degree of macro-economic convergence - demonstrating their commitment to macro-economic BIS Review 29/1998 ˝ -3- discipline through both fiscal consolidation and monetary policy directed at effective price, and exchange rate, stability. And there is no doubt that all European Union member states have made huge progress towards macro-economic stability over the past few years, which you will find documented in the two “convergence reports”. Although the EMI in particular emphasises the ongoing need in a number of countries to persist in determined fiscal consolidation, it is this progress towards nominal convergence that underlies the European Commission recommendation. The nagging doubt is whether this pursuit of macro-economic stability will in fact be maintained - whether the convergence that has certainly been achieved will, in the terms of the Treaty, prove to be sustainable. A particular worry is that macro-economic stability, on its own, has not been enough to prevent the emergence of very high, and very different, levels of unemployment in a number of the major Continental European economies. Unemployment has been for some considerable time, and it remains, much the most urgent and important economic issue confronting us in Europe. | 0 |
In 1900, about 24 per cent of GDP was generated by manufacturing and other goods production. If the economists of the time had projected developments in these three industries, they would have estimated that primary industries’ share of total GDP would fall to below 5 per cent. Manufacturing and other goods production would increase its share to 30 per cent and service industries to 66 per cent. Value-added in primary industries fell somewhat more than economists in 1905 would have projected and service industries increased somewhat less. They would have been less accurate in their projections for developments in manufacturing. Although manufacturing’s share of total GDP increased up to the beginning of the 1950s, growth in private and public services gradually bypassed manufacturing, and the petroleum sector held an increasingly important position from the 1970s. The expansion of the petroleum sector and the use of petroleum revenues contributed to maintaining high growth in Norway, while other countries experienced a slowdown. Are there lessons to be learned from the pitfalls of projecting or trend-extending economic variables? Lessons to learn First, one lesson to learn is that it very difficult to predict developments in the real economy. If we were to extend the historical growth trend today to predict the future level of income, we would probably also be considerably wide of the mark. Today, we know nothing about the technological innovations that might appear in the future. | In this regard, with the advancement and the willingness of the general public to experiment with new technology, the electronic payment system possesses distinct advantages over the traditional paper-based payment system. While the unbanked and the underbanked may have limited access to financial services due to geographical limitations and cost considerations, the usage of e-payments by the underserved via mobile technology could help transcend these obstacles by delivering financial services efficiently, securely and at a lower cost compared to the traditional brick and mortar branches. Accelerating the migration to e-payments remains a primary agenda for the country. In carrying our mandate to foster a safe, efficient and reliable payment system in Malaysia, a clear roadmap has been formulated to drive the country’s migration to e-payments. As provided in the Central Bank’s Financial Sector Blueprint (2011 to 2020), specific targets have been set to reduce the number of cheques processed per annum from 207 million in 2010 to 100 million by 2020 and to increase the number of point-of-sale (POS) terminals from 7 per thousand inhabitants in 2010 to 25 per thousand inhabitants by 2020. At the same time, targets are also set to increase the per capita e-payment transactions from 43 in 2010 to 200 by 2020 and the per capita debit card transactions from 0.6 in 2010 to 30 by 2020. Continuous infrastructure investments in this country have provided the enabling infrastructure which can be leveraged to serve the needs of the unbanked and the underbanked. | 0 |
More importantly, while EMEs accounted for about 55% of global GDP since 2009, their contribution to global economic growth was as high as 80%. So, a slowdown in EMEs will be an impediment to recovery in the US and other advanced economies. 15. Fifthly, zero interest rates and QE have indirectly widened the income gap. Because of ultra-low interest rates and excess liquidity seeking better returns, stock and property markets rallied in many parts of the world. This is especially true in places with more promising growth prospects like Mainland China, Hong Kong and Singapore. However, lowincome groups, with little if any stocks and properties, have missed out altogether. And their savings in deposit accounts have earned next to nothing. This has exacerbated inequality, resulting in negative implications for social stability and harmony. 16. Sixthly, zero interest rates and QE have changed the global investment environment. Yields on the traditionally more conservative bonds and fixed income investments have declined. For example, 10-year US Treasuries’ yield has fallen from 5% to about 2%, and some sovereign bond yields in the Eurozone have even plunged into the negative. At the same time, both the exchange rates and bond prices in EMEs have experienced sharp swings recently. With the soon-to-start normalisation of US interest rates, and distorting low-returns and high-volatility in the bond markets, the investment environment will become even more complex and difficult. 17. | And, if it is true that the central bank should not be confined to an ivory tower, it holds equally true that economic media should avoid slipping into cheap sensationalism, which only yields short-term gains. Eventually, the media should help its public take informed decisions, to the benefit of overall economic developments. I am well aware that shaping the public opinion is neither simple, nor linear. It is hard for a generation that has learnt that prices are formed by adding the planned benefit to the planned cost to grow accustomed to today’s reality, when price formation depends on demand and supply. Hence the greater difficulties faced by economic policymakers, analysts and the media alike. Disseminating – sometimes in good faith – the statements of certain market participants may equally generate confusion. For instance, let us recall that representatives of some edible oil producers claimed a few months ago that the price of their products would be on the rise, although this year’s market supply is several times higher than a year earlier. As it was normal, edible oil prices entered a downtrend which is likely to persist given the change in the supply-demand ratio. Another example is that of a businessman who said that weaker demand in a particular industry would entail higher prices in the producers’ attempt to safeguard their profits. This was another statement that did not receive an adequate response, so that the message conveyed to the market is that prices will rise no matter what. | 0 |
A likely explanation for this favorable record is that Fed tightening generally occurs during periods of strong U.S. economic performance. Recent research from the IMF bears out this hypothesis, finding that higher U.S. interest rates associated with stronger U.S. growth represent a net positive for EMEs. 2 Financial performance of EMEs has been more diverse across Fed policy cycles. The strongest contrast is between the tightening cycle that began in 2004, and the one beginning 1 See January 27–28, 2015 Federal Open Market Committee statement. 2 See “Spillovers from Unwinding Monetary Support in Advanced Economies,” 2014 Spillover Report, Chapter 2. See also, “On the Receiving End: External Financial Conditions and Emerging Market Growth Before, During and After the Global Financial Crisis,” World Economic Outlook, April 2013, Chapter 4. 2 BIS central bankers’ speeches a decade earlier, in 1994. EME asset prices strengthened considerably during the 2004 cycle, but weakened considerably during the earlier cycle. Notably, the 1994 cycle was associated with a large increase in U.S. long-term bond yields, and appears to represent a case in which there was some distance between Fed policy and market expectations. Other IMF research suggests that anticipated Fed tightening moves have historically been followed by only a minor pullback in private capital inflows, while unanticipated tightening has typically been followed by a pullback in private flows some four times as large. 3 This evidence highlights the importance of transparency and clear messaging in how the Fed is evaluating the evolving economic landscape. | • Indeed, these investigations must be undertaken hand in hand with private intermediaries. The tokenisation of finance creates a new ecosystem which is also a challenge for them, especially as their role could be transformed by decentralised technologies. • And we need to ensure that this ecosystem is fully interoperable with legacy securities and payment systems, which are likely to remain an important element of the landscape. • In that context, our goal at the Banque de France is to facilitate responsible innovation from the market, while safeguarding the use of central bank money and thus financial stability. • My final point is to say that today’s discussion showed that central banks need to further their exploration of new technologies to prepare for the future of finance. This is the goal that Banque de France has been pursuing since the launch of its first experiments on wholesale CBDC in 2020. We are now taking this endeavour a step further with a second round of experiments. Let me stress that it is a collective work, whose conclusions will feed the Eurosystem’s reflection on CBDC. • The entry into force of the European "pilot regime" next year offers an invaluable opportunity for private players but also for public players. In this sense, offering settlement solutions in central bank money - for the cash leg of transactions involving tokenised securities - could allow tokenised finance to benefit from the most secure and liquid asset. • Thank you again for your participation. Page 3/3 | 0 |
5/5 BIS central bankers' speeches | Moreover, the first round impacts of the recent hikes in end-user electricity and natural gas prices on end-2008 inflation are expected to be around 0.6 percentage points, which is higher than what we assumed in the previous Inflation Report. Meanwhile, considering the lagged impacts of last year’s drought and elevated prices of agricultural commodities in global markets, we now envisage that the price increases in processed food will persist for a while and the inflation in this item will stay at relatively high levels throughout 2008, albeit a slight decline. Upside revisions on the assumptions for food and energy inflation imply that it may take longer to bring headline inflation to 4 percent than envisaged in our previous Inflation Report. Therefore, in the absence of a significant correction in food inflation, headline inflation will most probably exceed the target level of 4 percent at the end of 2008. Forecast Range* Medium-term Target Uncertainty Band for 2008 Output Gap 2009- 2009-III 2009-II 2009-I 2008- 2008-III 2008-II 2008-I 2007- 12 10 8 6 4 2 0 -2 -4 -6 2007-III Percent Figure 15: Forecasts for Inflation and Output Gap *The shaded region indicates the 70 percent confidence interval for forecast. | 0 |
In that financial utopia, the interests of accountants, investors and regulators would be perfectly aligned. Accountants would have a verifiable valuation yardstick; investors a true and fair view of their true worth; and regulators an objective means of evaluating solvency. Fair value would serve treble duty. In practice, the fair value debate is contentious and has been for at least a century. Through history, accountants, investors and regulators have not always sung in tune. Today, accountants are singing opera Pacioli-style, regulators are rapping at 300 words a minute, while investors are left to whistle. In part this discord has been blamed on failures of EMH, “the precarious yardstick of current market quotations”. It should come as no surprise that fair value principles have faced their stiffest tests at times of crisis – the Great Depression during the previous century, the Great Recession during this. For it is at crisis time that EMH itself faces its stiffest test, perhaps none greater than recently. The heterodox British economist George Shackle observed: “Valuation is expectation and expectation is imagination”. 9 Imagination, and thus valuation, is apt to run wild at the peak of the boom and trough of the bust. These episodes of over-active imagination, or deviations from EMH, can be grouped roughly three ways. | James, H (1992), “Financial Flows Across Frontiers during the Interwar Depression”, Economic History Review, 594–613. Laux, C and C Leuz (2009), “Did Fair-Value Accounting Contribute to the Financial Crisis?”, University of Chicago, Booth School of Business, Working Paper No. 41. Khan, O (2009), “Does Fair Value Accounting Contribute to Systemic Risk in the Banking Industry?”, SSRN Working Paper No. 1327596. Pacioli, L (1494), Summa de Arithmetica, Geometria, Proportioni et Proportionalita. Plantin, G, Sapra, H and H S Shin (2008), “Fair Value Accounting and Financial Stability”, University of Chicago Graduate School of Business Research Paper 08–15. Seligman, J (2003), The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance, 3rd Edition, Aspen Publishers. Shackle, G (1972), Epistemics and Economics – A Critique of Economic Critiques, Transactions Publishers. Shiller, R (1981), “Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?”, American Economic Review, 71(3), 421–36. Shiller, R (2005), Irrational Exuberance, Princeton University Press. Simonson, D G and G H Hempel (1993), “Banking Lessons from the Past: The 1938 Regulatory Agreement Interpreted”, Journal of Financial Services Research, 249–267. Smithers, A (2009), Wall Street Revalued: Imperfect Markets and Inept Central Bankers, John Wiley & Sons. Turner, A (2010), Banks Are Different: Should Accounting Reflect that Fact?, speech given to the Institute of Chartered Accountants in England and Wales (ICAEW), London. United States Securities and Exchange Commission (2008), Report and Recommendations Pursuant to Section 133 of the Emergency Economic Stabilization Act of 2008: Study on Mark-To-Market Accounting. | 1 |
1.8 Conclusion At this point, no unequivocal conclusion can be drawn concerning Iceland’s optimal currency and exchange rate policy option. All of the possibilities have advantages and disadvantages. Although the assessment of these options is based on a relatively sound economic foundation, there is no simple economic formula stating how these pros and cons should be weighted together so as to yield a clear answer. In addition, it is quite uncertain how these factors will develop in the future. But it should also be noted that this report contains numerous findings indicating that the selection of a currency and exchange rate policy may be less important for economic welfare and stability than might be expected in view of the public discussion on the issue. An example of this is how different countries have fared during the financial crisis (see Chapters 16 and 17) and how likely asset price bubbles are to develop inside and outside a currency union (see Chapter 11). Based on the limited experience to date, it appears that fiscal policy, financial system structure and regulatory framework, and the incentives and opportunities of private agents to borrow are much more important. One of the reasons it is difficult at this point to draw a clear conclusion about which path Iceland should take is the uncertainty about near-term developments in the two most likely scenarios: an improved framework for the króna and removal of the capital controls, or EU membership and eventual adoption of the euro. | It is likely, though, that the flexibility of the króna has facilitated adjustment to severe downturns under certain circumstances, such as the collapse of the herring stocks in the late 1960s and the steep contraction following the 2008 financial crisis. The possible reasons for this are explored in the above-mentioned chapters. It is too soon to draw any final conclusions, however, and research beyond the scope of this report or conventional economic analysis is needed in order to shed light on why the objectives of low inflation and economic stability seem so elusive in Iceland, and why undisciplined stabilisation policy and an environment of loose financial regulation and supervision was allowed to flourish during the pre-crisis years. However, as is pointed out in the report, the ineffectiveness of independent monetary policy and the possible procyclical influences of floating currencies are not uniquely Icelandic phenomena, nor are they due solely to flawed stabilisation policy. To some extent, they can also be attributed to exchange rate volatility where, as with any other asset price, expectations and speculation play an important role. In addition, there are indications that smaller countries have more difficulty than large ones in pursuing independent monetary policy while they are becoming more integrated globally. In this context, it is worth noting that, prior to the financial crisis, Iceland was by far the smallest country in the world with a floating currency. Further discussion of the possible reasons for small countries’ vulnerability to such problems can be found in Chapters 9 and 13. | 1 |
Certainly, a lot of work has been done in the London market, co-ordinated and steered by a team in the Bank, to ensure that London is as well prepared as other European BIS Review 67/1997 -6- centres for EMU. And our assessment now, which I believe is shared by the EMI and the Commission, is that London is as well prepared as most if not all European centres. I can assure you that the Bank of England itself will be ready for EMU on 1 January 1999, whether or not the UK is a member. We will be able to offer euro accounts and euro settlement facilities. We have taken the lead in work on market conventions across Europe. EMU is likely to bring harmonisation of conventions such as day count and frequency of coupon payments among Europe’s bond markets, and the London market is ready to do that. We have been in regular discussion with ISDA which is taking a leading role in co-ordinating preparations of those involved with swaps and other OTC derivatives. And a recent working group chaired by the Bank has examined the adaptations that may be needed in the gilt market, covering re-denomination of gilts into euro, whether to quote in decimals or fractions, the frequency of coupon payments, etc. There seems a reasonable chance that the dramatic move to abandon 30 seconds as the basis for gilt pricing may come about before too long. | That puts the house-price-to-earnings ratio back to its level in 2003. Transactions are running at 2005 levels – a little over 110,000 a month. Looking at the most recent data, there has been a slowing in the monthly pace of increase. In the three months to February this year, prices grew at an annualized rate of 11% and transactions increased at an annualized rate of over 50%. But the very latest figures for March, however, could suggest a pause in the growth in prices and activity – prices were flat on the month and transactions actually fell by 5%. And the latest mortgage approvals numbers, which came out this morning and tend to lead transactions, fell again in March leaving the number of approvals for house purchase down 12% on their January peak. Discussions with the lenders suggest that the checks that lenders now need to do under the FCA’s new Mortgage Market Review rules, about which I will speak later, may be slowing the speed with which approvals can be processed. But just as one cuckoo does not signal spring, it is far too early to say, on a couple of month’s figures, whether this is the beginning of a turning point in the market. Indeed it would be dangerous to ignore the momentum that has built up in the UK housing market since the spring of last year. | 0 |
The session will also discuss how to improve the fiscal governance framework to support the achievement of fiscal objectives in the medium term, both at the national and European 3/9 Union levels. These are crucial issues, and their discussion in this Conference is fully warranted. Let me briefly share with you some thoughts on how we see at the Banco de España the key challenges for the Spanish economy that arise from the domain of public finances. The economic and social impact of the recent crisis has been deep and painful in many aspects, including in the case of public finances. During the past decade, public authorities in Spain had to deal with the challenge of keeping welfare state services functioning, while, at the same time, delivering the necessary fiscal adjustment that could ensure the long-term sustainability of public finances. Between 2011 and 2017, the public deficit-to-GDP ratio was significantly cut, from a peak of 9% in 2011, excluding financial sector assistance, to 3.1% last year. In that process, public expenditure was reduced, as a proportion of output, by more than 3.5 percentage points (pp). Notwithstanding this effort, the historically very high debt-to-GDP ratio of the Spanish General Government sector, currently around 98% of GDP, poses specific risks for economic growth. Economic literature finds evidence that maintaining a very high public debt-to-GDP ratio over a prolonged period tends to hamper economic growth, becoming a source of economic vulnerability, which, in addition, reduces the stabilising capacity of the public budget. | It is also worth noting that common debt issued under the SURE programme (Support to mitigate Unemployment Risks in an Emergency) and even more so the Recovery Fund will make the European Union one of the largest debt issuers in Europe relative to national sovereign debt issuers over the coming years. These changes do not seem to have altered the good functioning of the euro zone sovereign market. On the contrary faced with the economic and financial shocks triggered by the corona virus pandemic, they have fared well and proved resilient. They have consequently strongly helped, with the banking system, governments and the Eurosystem to implement forceful policies that have proved effective to help the private sector to absorb those shocks. In my initial remarks today I would like to highlight some dimensions of this resilience, looking in turns to bond and the repo market but also highlight a few vulnerabilities and point of attention from a financial stability standpoint that the role and functioning of Eurozone sovereign markets during the crisis has also revealed. 1. The resilience of European sovereign markets a) Regarding the sovereign cash market, its resilience during the crisis is first illustrated by financing conditions, which have remained favorable since March 2020. In 2020, yields on euro area country sovereign bonds continued to decline, to record lows including for the euro area’s most highly indebted countries, despite the strong increase in debt issuances ; and the dispersion of yield spreads between countries also narrowed. | 0 |
Rapid expansion of exports and moderate increase of imports led to improved trade and current account deficits, contributing to foreign currency demand and supply balancing and increased exchange rate stability. Monetary and fiscal policies have conveyed a careful macroeconomic stimulus. Withdrawal of the fiscal stimulus during the second half of the year, led to a more stimulating monetary policy, by reducing the key interest rate in July and a fuller introduction of it into the financial markets during the following period. Financial markets were characterised by an improvement of liquidity indicators and a decline in interest rates in almost all financial instruments. Furthermore, a prudent fiscal policy rendered budget deficit and public debt in line with 2010 forecasts. These developments are expected to be brought forward, in broad terms, in 2011 as well. Economic growth is expected to remain comparable to levels of 2010. However, it is expected to be driven by domestic demand to a large extent. The banking system is in a much better position compared with two previous years in terms of supporting the increase of domestic consumption and investment with funds. Moreover, inflation pressures are forecasted to be under control, budget deficit and public debt are expected to be further consolidated, and external position of the economy is expected to be more stable. Respecting this picture has important implications, which I will address later in more details, for policymakers and economic agents. Latest developments in global economy are characterised by continued economic growth in most developed countries and emerging economies. | The problems I have seen are based on a combination of inflation having clearly undershot the target, the Riksbank’s inflation forecasts having been more optimistic than those of other analysts, the Executive Board’s repo-rate paths having indicated a tighter monetary policy than the market and analysts have expected and the repo-rate paths having been revised down time after time. I have said that in such a situation it is better to cut the rate immediately rather than continuing to present a repo-rate path that is not perceived by outsiders as entirely credible. However, these problems have become a little less important in recent months as other analysts’ forecasts of inflation and the repo rate have been revised up. Thirdly, it is not self-evident that taking into account household debt means setting a higher repo rate than we would otherwise have done. The current repo rate, 1 per cent, is undeniably low. In the long run, the repo rate will be raised to much higher levels. But we cannot raise the repo rate until we see that inflation has clearly begun to move towards the target of 2 per cent. And when this happens will of course depend on monetary policy. If we cut the repo rate now, inflation will rise faster towards the target. If the repo rate is left unchanged it will take longer before inflation begins to rise, and this in turn means that it will take a long time before the repo rate can be raised. | 0 |
Let me finally express my gratitude to the organisers for making this conference possible and to all of you for attending. I wish you a very productive meeting and a pleasant stay in Madrid. Thank you very much. 6 | It is thus due to the instruments available on the market that the largest part of our foreign currency investments is in euros (55%) and in US dollars (25%). The remainder of our investments is composed of yen (10%), Canadian dollars (4%), pounds sterling (3%) and other currencies (3%). Finally, taking a general and somewhat longer-term view, the following point should be noted. The SNB’s currency reserves are made up of foreign currency investments and gold. In a risk-averse environment, losses tend to occur on foreign currency investments and profits on gold, while in a risk-friendly environment the opposite is true. Consequently, diversification of a portfolio to include gold and foreign currency helps to stabilise earnings over an entire risk cycle. BIS central bankers’ speeches 3 | 0 |
In such a scenario the Swedish economy could experience a more pronounced slow-down. Focus on the U.S. economy… During the 1990s the United States experienced its longest economic upswing ever without any serious signs of accelerating price inflation. A more productive economy, with strong competition and more efficient product and labour markets, accompanied by advances in computer and telecom technology, are said to have contributed to a higher rate of potential growth. Even so – or perhaps as a consequence of this – the euphoria led to growing imbalances. The rapidly rising stock markets in the late 1990s seem to have stemmed from unduly high expectations of future profits and incomes. Partly in view of the booming stock market, households stepped up their expenditure on consumption in excess of current income. Corporate investment expanded rapidly to meet the growing demand. High share prices stimulated the procurement of venture capital and generated a plentiful supply. The growth of demand in relation to the expansion of the U.S. economy's supply side was proceeding at a rate that was based on expectations that simply could not be fulfilled. American households pledged future incomes for current consumption to such an extent that their savings no longer sufficed to finance corporate investment. The saving deficit in the private sector grew, as could be seen from the rising deficits on the current account, and large amounts of capital had to be imported. | For many banks, perhaps the ideal situation would be one in which they could adopt the same approach in every jurisdiction in which it operates. The widest possible adoption of Basel II would certainly have the benefit of reducing supervisory burden for banks, but it would have benefits for supervisors as well. Because Basel II fosters enhanced risk management, more effective supervision, greater transparency and financial stability, I believe that it is in many countries’ best interest to adopt the new Framework. Having said that, however, we also have to recognise that countries are in varying states of preparedness to adopt Basel II. When I talk with my fellow supervisors, I therefore emphasise the benefits of Basel II, but I also encourage them to get the basics right and not jump into Basel II implementation before they are ready. Even so, I believe that it can be extremely useful for countries to start implementing already some of the principles behind pillars 2 and 3 of the framework as preparation for the formal transition. This dialogue takes many forms. In addition to the informal discussions that I and my fellow Committee members have with our non-Committee member colleagues, we also have several formal mechanisms in place. For example, the Committee has a long-standing working group that includes representatives from sixteen non-member countries, and we have increased our interaction with this working group. | 0 |
It is said that a central bank must have foresight, so that it can take action in time and contribute to the stability of the economy. Foresight on a different level was demonstrated by Nicolai Rygg long before the invasion of Norway. Two years earlier, in 1938, Rygg had assigned a secret mission to the 21-year old Ivar Borg. Every morning for several months, the young man was locked into the Bank’s vault to pack up the gold reserves. When German troops were approaching Oslo, the gold was ready to be quickly loaded onto pre-requisitioned lorries and, after a dramatic escape, was safely shipped out of the country. The gold reserves gave the government-in-exile in London the financial freedom to pursue its activities. A central bank safeguards value. Norges Bank no longer guards the nation’s gold. The gold was sold long ago. Today, the Bank manages the nation’s income from the black gold beneath our seas. This will provide financial freedom of action for future generations. A well-functioning monetary system with stability in the value of money is still at the core of Norges Bank’s public mission, as it has been for the past two hundred years. Inadequate access to reliable means of payment affects trade in goods and services and can cause the economy to stall – now, as then. At the same time, the role of the central bank has evolved over time, requiring it to adapt to a constantly changing stage. | Since the Bank was established in 1816, its position has been regulated through specific legislation. But confidence will always be essential for true central bank independence. That confidence is only on loan. Changing circumstances require the ability to adapt and think differently, and the same applies to central banks. What matters is results, and how they are achieved. Norges Bank’s first demanding objective – to restore confidence in the monetary system – was achieved and made an important contribution to the success of the nation building process of the 19th century. The Chair of the Bank’s first board of directors, Jacob Fredrik Oxholm, also enjoyed success in other arenas. He was an acclaimed amateur actor – right here in Trondheim. The institution he directed – Norges Bank – is not looking for acclaim and enthusiastic cheering. The Bank has a more sober objective – to be a useful public institution and a dependable guardian of Norway’s monetary system. But just tonight, we would not say no to a little applause. And let me wish Norges Bank many happy returns! BIS central bankers’ speeches 5 | 1 |
When we look at successful examples of technology adoption, it’s not just about state-of-the-art technology. It’s about how you manage the change – especially changes to mindsets. It takes time and effort to convince people that a new technology is worth the cost, the effort or the potential risk. 16. This is often the case with larger organisations, especially official institutions like the HKMA. We set up the FFO in early 2016 precisely to serve as a dedicated agent to drive changes and take practical steps to turn ideas into reality. 17. The FFO has contributed to a number of Fintech initiatives in the past three years – from cybersecurity to supervisory sandbox, open API, the FPS, and the rest of the seven Smart Banking initiatives. But I must stress that the FFO is not working in isolation. Other parts of the HKMA must work alongside it, and of course it must work with the banking, technology and even legal sectors. 18. The FFO has essentially served as the coordination point of this collective effort. This has enabled a “change” mindset to spread throughout our organisation and among our partners. And the result is the impressive Fintech developments we have seen in the last few years. 19. A change agent does not have to come from within. Sometimes, competition is an effective driver for innovation. One good example is the imminent entry of virtual banks in Hong Kong. | To this end, the functions of the Asian office have evolved and expanded over time – from organisation of meetings and seminars to conducting research, to providing dealing and banking services. And the office has grown from a start-up staff of six to its current 33. We are celebrating this occasion in this lovely restaurant above the Star Ferry – which is an icon in Hong Kong and a symbol of quality and value-for-money service. The BIS Asian office is also a "STAR" entity. The word "STAR" has been chosen carefully and with good reason – each letter of the word symbolises and embodies the excellence of BIS' activities: S: Surveillance – The Asian office is clearly a star performer in its surveillance work on regional economic and financial developments. This is self-evident from reading the background notes prepared on the region for various BIS and regional central bank meetings. T: Topical studies and research – The Asian office, with its pool of economists and financial experts, is well placed to conduct research. Under the auspices of the Asian research programme initiated in 2006, many topics that are of interest and relevance to Asian central banks have been, and continue to be, explored and developed. The BIS has made important contributions in this area, with its research providing useful information and insight for policymakers in the region. | 0 |
P/E ratios with different combinations of earnings growth & expected return Earning Earnin s growth % gs Expected return % 4.5 4.0 --- 5.0 100 6.0 33 3.5 100 33 20 2.5 33 20 14 Trend In order to justify an upward shift in the P/E ratio from just under 15 to between 30 and 35, the expected real return has to be lower and/or expected earnings growth needs to be higher. A P/E ratio at the current level can be explained if, for example: 2 3 The picture in Sweden is somewhat different, with signs of a strengthening of the earnings trend in the period 1982-99, though this is not visible in the figure. The krona’s depreciation after 1992 seems to have been the main factor here. Earnings per share showed little, if any, improvement from 1982 to 1990. However, cyclical fluctuations and changes connected with the krona’s marked depreciation should not be central issues for our discussion here. As the stock market trend in both the shorter and the longer term has been largely the same in the United States and Sweden and the P/E ratio in both cases is between 30 and 35, there are grounds for assuming that the earnings trend has also been at least approximately the same. See Gordon, M J (1962), The Investment, Financing and Valuation of the Corporation, Homewood (Irwin). | Progressive economic growth will continue in this case. Any delay would require us to raise the key rate more significantly in the future, or even to pursue tight monetary policy. After today’s increase in the key rate, we have approached the threshold between accommodative and neutral policy. Taking into account the time lag effects of policy, monetary conditions will generally stay accommodative for a while longer. We will be closely monitoring how the market will be adjusting to our decisions. I would now dwell on the factors of our today’s decision. I will start out with inflation. Today, the acceleration of price growth is absolutely obvious across a wide range of products and services. This is caused not only by one-off factors and the pass-through of higher production costs, but also by the stronger impact of the steady component of price dynamics to an increasingly greater extent. In our opinion, this growth reflects the monetary nature of inflation. It is the fast rebound of aggregate demand exceeding the capacity to expand supply that has sped up price growth. As demand is high, this enables producers to pass through their increased costs to end-user prices. Production costs have really risen. Specifically, the growth of world prices for raw products (primarily, for wheat, steel, oil, and timber) has boosted production costs of many goods and services in the consumer basket. For instance, global steel prices have surged by 50–70% over six months. | 0 |
Svein Gjedrem: The conduct of monetary policy Introductory statement by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 28 September 2004. The text below may differ slightly from the actual presentation. The statement is based, among other things, on the assessments in Norges Bank’s Annual Report for 2003 and Inflation Report 2/2004. The Charts in pdf-format can be found on the Norges Bank’s website. * * * I would like to take this opportunity to thank the Storting for again inviting Norges Bank to appear before this Committee to report and answer questions on monetary policy in connection with the Storting’s deliberations on the Government’s credit report. Inflation-targeting countries Price stability, in the sense of low and stable inflation, is the objective of monetary policy in a number of countries. Historical experience from Norway and other countries has shown that high inflation has resulted in unstable output and employment. In addition, a fall in the price level will often accompany a period of decline. The first inflation target was introduced in New Zealand in 1990. Canada followed in 1991, the UK in 1992, and Sweden and Australia in 1993. In Norway, the government issued a regulation introducing an inflation target in 2001. Monetary policy in euro area countries and Switzerland is also aimed at price stability, even though this is not referred to as inflation targeting in these countries. | Mr. Yam talks about the implementation of financial policies in the HKSAR. Address by the Chief Executive of the Hong Kong Monetary Authority, Mr. Joseph Yam, at a symposium in commemoration of the 9th anniversary of the promulgation of the Basic Law of the HKSAR in Hong Kong on 10 April 1999. __________________________________________________________________________________ Ms Ko, Ladies and Gentlemen, 1. I am very honoured to be invited today to address this Seminar. The Basic Law is the constitutional instrument of the Hong Kong Special Administrative Region (HKSAR). The legal protection offered by the Basic Law has, to a very great extent, contributed to Hong Kong’s monetary stability during the political transition and has enabled Hong Kong to withstand the severe challenges brought about by the unprecedented financial crisis. I would like to take this opportunity to examine the implementation of financial policies in the HKSAR. I shall discuss with you the two main areas relating to financial policies under the concepts of “one country, two systems” and “Hong Kong people ruling Hong Kong” as well as the legal protection offered by the Basic Law. The first of these is the monetary autonomy enjoyed by the HKSAR. The second is the monetary relationship between Hong Kong and the Mainland. | 0 |
The credibility of money is underpinned by this two-tier monetary structure where commercial banks create money and central banks preserve its value. Three new developments have emerged over the past decade that fundamentally challenge this 1/8 BIS central bankers' speeches two-tier monetary structure: cryptocurrencies; stablecoins; currencies. and central bank digital Cryptocurrencies A cryptocurrency is a digital token issued and managed within a decentralised protocol, such as a distributed ledger or blockchain. It represents an asset in digital form that can be transferred or traded on the protocol. The word “crypto” comes from the Greek word kryptos – which means “secret”. Indeed, the anonymity of crypto tokens has unfortunately made them well suited for facilitating illicit transactions, including money laundering. Cryptocurrencies have also helped to fuel ransomware – one of the fastest growing crimes in cyberspace. Are cryptocurrencies money? So far, the answer must be no. Cryptocurrencies have performed poorly as a medium of exchange, a store of value, or a unit of account. MAS prefers to call them by their more accurate technical name: crypto tokens. We define tokens that are used for payments purposes as digital payment tokens, and entities which provide services related to such tokens in Singapore are subject to licensing and supervision by MAS, primarily for money laundering and terrorism financing risks. MAS frowns on cryptocurrencies or tokens as an investment asset for retail investors. The prices of crypto tokens are not anchored on any economic fundamentals and are subject to sharp speculative swings. | For several emerging economies, such conditions are reflective of the growing phenomenon of the urban poor, with significant implications for social stability and balanced growth. To address this, inclusive growth strategies have gained prominence in recent years among the policymakers in the region. This needs to be further reinforced by strategies targeted at preparing individuals at an early stage to be well equipped to adjust to the new economic, financial and social realities that confront them. This is where financial education has a fundamental role. A key concern in this environment is to strengthen the capability of financial consumers, in particular household and small businesses, so as to avoid being marginalised by market forces and by the disproportionate impact of the changing financial and social landscape. Related to this is the need to reinforce socially responsible finance, and to address the new and growing risks of financial exclusion. Sophisticated risk-profiling methods employed by financial institutions can make it more difficult for deserving individuals and businesses to BIS central bankers’ speeches 1 qualify for financial services. Among those that qualify, aggressive marketing practices and more complex financial products can also lead to poor financial decisions at a time when economic and financial reforms are also shifting greater responsibility to individuals to plan and provide for retirement and unexpected developments. Marketing practices that target select groups of consumers often further deprive the broader segments of society from new products that can better meet their financial needs. | 0 |
It is a system centred on overnight and term credit to banks. So our system was tailor-made to be used as an instrument to resist a banking crisis. In the event, it was flexible enough to be activated – with only limited adjustments – in emergency conditions. The need to tackle the collapse of private arbitrage motivated two features of our enhanced credit support: first, the full, unlimited accommodation of banks’ demands for central bank credit at our policy interest rate contributed to repair the collapse of interbank lending; second, the extension of central bank credit provision to longer maturities, up to one year, was a substitute for market intertemporal trading. 5 For example, in late 2006 a new synthetic index became available for the first time which could be used to price sub-prime related tranches of credit derivatives. This new market price probably aggregated information about the quality of the underlying contracts, which was too dispersed or inaccessible before. This might have brought awareness of the precarious bases of the financial structures that were being traded. 4 BIS Review 29/2010 Our actions would not have been effective if they had not been enshrined in our mediumterm monetary policy framework. Our definition of price stability steered expectations in a sufficiently firm manner. So the ECB can dispense with making promises about the future path of the monetary policy stance. The ECB’s approach to steering market expectations is based on comparing inflation outcomes and projections with our quantitative definition of price stability. | Ardian Fullani: Central banking in the time of integration Conclusions by Mr Ardian Fullani, Governor of the Bank of Albania, at the Fifth Conference of the Bank of Albania on “Central Banking in the Time of Integration”, Tirana, 25 March 2005. * * * Dear friends! During two days of the Fifth Conference of the Bank of Albania on “Central Banking in time of integration”, having guests from the country and international institutions, personalities of academic and banking area, too many important ideas and suggestions emerged. The tight agenda did not allow detailed discussion on them; however, I hope that they will serve as starting points for further debates and analyses to sort out central bank challenges in the time of integration. It is somewhat difficult to make a concise summary of numerous papers presented in this conference. I would categorize the main conclusion into two large groups according to the main pillars of the central bank, that is the price stability and the financial sector stability. Concerning the first pillar, that of price stability, the discussions were focused mainly on the monetary policy effectiveness and central bank independence. To maintain stability is more difficult than to achieve it. Prof. Bolle indicated in a very excellent way that current price stability should be considered as fragile, which requires constant efforts, either by the BoA or by other institutions. | 0 |
Inflation in the recreation, hospitality and tourism sub-index recorded stood at 6,9% in February, the same rate as in December. For more details on these sub-indices, see Pacce, M., A. del Río and I. Sánchez-García (2022), “The recent performance of underlying inflation in the euro area and in Spain”, Analytical Articles, Economic Bulletin 3/2022, Banco de España. 12 This sub-index includes “Clothing and footwear”, “Housing” excluding energy and home maintenance expenditure, “Health”, “Communications”, “Education” and “Miscellaneous goods and services”. It includes rental of households’ main residence. 5 increases13. This is an open question and hence a dimension that should be carefully monitored. Our attention is now also turning to the possible emergence of second round effects on inflation. In 2022, compensation per employee increased by 4.6%, which implies a significant fall in real wages, with some heterogeneity across countries. In parallel, firms’ profit margins have expanded in many sectors since the beginning of 2021 (after falling significantly in 2020), indicating a high rate of pass-through of cost increases to selling prices. The baseline projection scenario assumes that workers will gradually recover their pre-shock purchasing power at the end of the forecast horizon,14 while the increase in firms' unit labour costs is expected to be lower than the increase in wage payments – taking into account projected productivity gains so that firms’ profit margins could remain steady over the forecasting period as a whole. | As we emphasised in our monetary strategy review approved in July 2021, financial stability should be seen as a prerequisite for price stability.1 In addition, we took a further step in the process of tightening our monetary policy stance in response to the outlook for euro area inflation, which is projected to remain too high for too long. In line with our intentions already anticipated at our February meeting, we increased interest rates by 50 basis points (bp), bringing the deposit facility rate (DFR) to 3%. This represents a cumulative increase of 350 bp since July last year. As to our future monetary policy path, the financial tensions that broke out before our meeting imply an additional element of uncertainty around the growth and inflation baseline scenario. This extra uncertainty makes the data-dependent approach for our decisions even more important. Our future monetary policy will depend on how the different sources of risks, including those witnessed on the financial markets in the last few weeks, materialise. We also provided more detail on what will guide our assessment of the inflation outlook and, therefore, our monetary policy decisions. In particular, we announced that this assessment will depend on three main factors. First, incoming economic and financial data. Second, the of underlying inflation dynamics. And lastly, the strength of monetary policy transmission. I will now elaborate on these three factors. The first is our assessment of the inflation outlook in light of the incoming economic and financial data. | 1 |
Combined, these developments point towards low wage growth in the coming years. We now expect wage growth to be below 2 percent in 2020 and even slightly lower in 2021. Chart: Temporarily higher inflation The sharp krone depreciation will likely lead to a temporary pronounced rise in inflation. Higher energy prices and increased costs owing to the coronavirus outbreak may also push up inflation ahead. On the other hand, we believe that high unemployment and low wage growth will restrain inflation in the somewhat longer term. Inflation is therefore likely to rise in the year ahead, moderating thereafter. Let me conclude. The Norwegian economy is in a historically deep downturn. There is substantial uncertainty. The situation is most serious for those who become more permanently unemployed. Many firms will not recover. At the same time, it should be emphasised that the Norwegian economy is well equipped to meet the challenges facing us. We have a business sector that has already proved its adaptability. New firms will emerge, and existing firms will adapt. We also have room for manoeuvre in economic policy. 3/4 BIS central bankers' speeches In recent weeks, the authorities have implemented powerful fiscal policy measures. At the same time, the policy rate has been reduced to zero percent. We also have strong banks that can withstand losses and that have the capacity to provide credit. We note that banks have now followed up our policy rate cuts and are offering households and firms record-low lending rates. | Low interest rates reduce borrowing costs, making it easier for indebted Norwegian firms and households to weather a demanding period. As the situation normalises, low interest rates will support a faster rebound in activity. This may reduce the risk of unemployment becoming entrenched at a high level. Chart: Activity will pick up gradually This chart shows the projections from the monetary policy meeting on 6 May and the projections published in early March. As we can see, the outlook for the Norwegian economy changed markedly in the course of a few weeks. Uncertainty about the economic outlook is unusually high. We have assumed that the containment measures will be gradually scaled back and that activity in the Norwegian economy picks up ahead. But it will nonetheless take time for activity to return to its pre-pandemic level. Chart: Unemployment is expected to decline Unemployment has risen to a very high level. Many of those now out of work have been furloughed temporarily. As containment measures are scaled back, many of these employees are likely to return to their jobs. Nevertheless, there is reason to expect that a number of businesses will have to close, with furloughed employees made redundant. Our assessment is therefore that it will take time for unemployment to fall back. Chart: Prospects for low wage growth High unemployment affects the prospects for wage growth. Unemployment is at a historically high level, profitability has declined substantially in much of the business sector and oil prices have fallen. | 1 |
Sweden’s Riksbank has chosen to use two of its four quarterly inflation reports for this purpose. Members of the Executive Board give lectures and express their personal views on economic questions and monetary policy. In its December 2000 Bulletin, the ECB presented for the first time price inflation projections in the form of a broad range. Bank staff prepare the projections. In the ECB’s two-pillar system, developments in the first pillar, the money supply (M3), and the second pillar, which comprises other factors that may influence price inflation, are equally important. According to the Maastricht Treaty, the Governing Council shall meet at least ten times a year. Since the implementation of a single monetary 8 BIS Review 51/2001 policy in January 1999, monetary policy meetings have been held fortnightly. Press conferences are held after every second meeting, but no explicit expression is given of the Bank’s stance regarding interest rate movements in the future and the minutes of monetary policy meetings are not published. Members of the Governing Council make individual statements about monetary policy, but the actual interest rate decision is presented as a collective one. In the US, the Federal Open Market Committee determines the interest rate. The Committee holds eight pre-announced meetings a year, but has also occasionally changed the interest rate between meetings. Decisions are announced after interest rate meetings. The future policy bias is expressed implicitly through the discussion of the balance of risks with respect to the economic outlook. | It follows, therefore, that in an environment of rising interest rates abroad, domestic rates must also rise in order to maintain a premium over euro rates, and thus protect the Maltese lira by making domestic financial assets more attractive, thus discouraging capital outflows. That is why under fixed exchange rate regimes, the state of the economy cannot be a primary consideration. Having said that, it must be pointed out that the two objectives are not mutually exclusive. Indeed, since a prudent monetary policy stance contributes to macroeconomic stability, it indirectly creates favourable conditions for sustainable economic growth. It should also be noted that the recent increases in domestic interest rates – after a long period at historically low levels, it must be said – are unlikely to have slowed down the economy unduly. The sensitivity of the economy to interest rates is, in fact, thought to be relatively small. Higher rates will have some impact on growth and employment only if they are sustained over a long period of time. Our estimates show that a half-percentage point rise in interest rates, for example, will reduce the GDP by only 0.06% in the first year, reaching 0.1% by the third year. At the micro level, of course, higher interest rates raise borrowing costs for businesses and households. On the other hand, depositors benefit from higher interest income. Once again, however, monetary policy decisions cannot be based exclusively on such considerations. Exchange rate stability must take precedence over the cost of money in a small, open economy. | 0 |
It takes many forms, and should extend across all areas of central banking. Few of the materials that will be discussed today and tomorrow illustrate this initiative very well. I hope there will be more similar examples in future workshops. The presentations and discussions today and tomorrow address a wide range of issues, reflecting the nature of problems that our economies are facing. I understand from the programme that our guests’ focus of research is similar to the one at the Bank of Albania. During the past year, we have focused on financial stability and monetary policy, trade integration and trade relations, and the modelling of stochastic economic process. But above all, the crisis, its implications, the channels of transmission, and policy response have become the focus of empiric and theoretic research in the central banks and academia during the last 4 years. The results of this research and analysis have taken central banks and their monetary and regulatory policies beyond what was considered sacred limits of monetary policy. However, this has not proven very helpful for the economy. It is now five years since the crisis began and the more authorities deal with short-term problems of growth and unemployment, the more they reveal long-term imbalances and structural problems of national and global scale. In the meantime, we still cannot fully define, understand and model the economy in its true stochastic form. | Research must be designed like an increasing spiral, where the newly gained knowledge in philosophy, economic history, empiric research and application of mathematic and statistical models must return to the starting point to confront the set of all new and old problems, prove the generality of its application, and evaluate the set of potential externalities. As I mentioned at the beginning, this is the 100th jubilee of Albania’s independence and our annual conference this year focused on the development of monetary policy during the last 2 BIS central bankers’ speeches 100 years and paid particular attention to the impact that domestic and international political and economic events have had on the nature of the central bank and its monetary policy. Addressing the mixture of historic and economic developments, the large variety of monetary regimes, abrupt swings in economic, politic and philosophy systems, and modern economics was amazingly refreshing, interesting, and thought-provoking. It certainly deserves more attention. Our traditional approach to research has largely contributed to our understanding of monetary and financial stability issues and models with a large set of parameters, forecasts and shock analysis. It has enriched the envelope of models and methodologies that are available in the process of policy design and implementation and has increased our confidence. However, it is time to go deeper in the understanding the fundamental of economic behaviour as an individual and social phenomenon. This understanding requires, among others, proficient research in economic history and economic behaviour and economic welfare. | 1 |
With excessive euphoria, the expansion of the capital stock may go too far. Sizeable investments are made in sectors that will never yield the expected return. The subsequent adjustment accordingly involves a marked fall-off in investment activity and thus a weak development of demand. Both the excessive investment earlier and the inevitable correction of asset prices contribute to this. The setback can also lead to problems in the financial system in general. Much of what the Austrian School had done was forgotten during the half-century of regulation from the crisis in the 1930s to the 1970s. Political economy was dominated instead by Keynesianism. It may also be the case that the efficient market hypothesis has been interpreted too freely. This theory largely amounts to a warning that the market is basically the best judge of a share’s real value. Under normal conditions that is probably true. When a bubble has got under way, however, the market’s normal information processing tends to be disrupted and prices are driven instead by impenetrable forces of a psychological nature. In many respects the financial turbulence in the 1980s and ‘90s was a rude awakening for many economists, decision makers in economic policy, authorities, representatives of the business and banking communities and people in general. I find it important to underscore how broad was this lack of insight into how financial problems arise. One cannot single out a person or group as being solely responsible for how things took a turn for the worse. | The banking system lacked the necessary know-how for risk management, both for its own institutions and for its clients. People had become used to credit being rationed and were now suddenly able to borrow large amounts. The political system, the authorities and professional economists all stressed the advantages of deregulating the financial system but were less clear about the risks. In their struggle for readers, listeners or viewers, the media sometimes forgot to question and scrutinise important 2 BIS Review 50/2002 elements of what was happening. Think how much advice about share transactions has been passed on airily in recent years without a careful scrutiny. In the early 20th century these financial cycles and the risks of major crises were given a lot of thought by economists, not least those of the Austrian School. They pointed to the existence of transitory risks in the process of adjusting to a higher rate of productivity growth in connection with technological breakthroughs. At first there is a good circle: rising productivity tends to pull share prices up, making it easier to finance new investments. New investments and a growing capital stock lead through capital deepening to even higher productivity growth. When productivity goes on rising, however, expectations may become excessive and push share prices up still more. In certain cases, moreover, expectations of increased profits may lead to higher lending. All this can generate a vicious circle where a further increase in asset prices results in a continued expansion of credit. | 1 |
And it is also clear that that transition in thinking needs to lead soon to transition in action, if we are to reduce these financial risks in a timely manner and so avoid a late and abrupt transition to the low carbon economy to which governments have committed. To make this happen, we need to learn by doing, to identify decision-useful information that will support the necessary transition; and we need to identify the barriers to the mainstreaming of green finance so that the transition can be financed in practice. It’s a tough ask that gets more pressing by the day. The prize could not be more important. We must keep up the good work. 7 https://www.banque-france.fr/en/financial-stability/international-role/network-greening-financial-system 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 References Carney, M. (2015), “Breaking the Tragedy of the Horizon – climate change and financial stability”, speech given at Lloyd’s of London, September 2015. Carney, M. (2016), “Resolving the climate paradox”, Arthur Burns Memorial Lecture, Berlin September 2016. Climate Bonds Initiative (2017) “Bonds and Climate Change, The State of the Market 2017”. Climate Bonds Initiative and UNEP Inquiry into the Design of a Sustainable Financial System (2015) “Scaling up green bond markets for sustainable development”. OECD (2016), “A quantitative framework for analysing potential bond contributions in a low-carbon transition”. PRA (2015), The Impact of Climate Change on the UK Insurance Sector. Scott, M., Van Huizen, J. & Jung, C. The Bank of England’s response to climate change. 98–109 (Bank of England, 2017). | So much so, that we actually formed a taskforce to look into that possibility for ASEAN. However, that seminal work reached a very firm conclusion, which was accepted by regional policymakers. The conclusion was that ASEAN was not ready for a currency union, and will not ready for a long time to come. It was therefore not a goal that ASEAN should pursue as other forms of integration provided much more opportunity for increasing regional economic welfare. What should the role of financial integration be within ASEAN? Essentially, it is as a catalyst for economic growth. Finance is the bridge that will facilitate the movement of trade and investment flows across the borders of regional economies. This is recognised and accepted by all ASEAN economies. However, given the reality of the differing stages of financial development, and the risks associated with premature financial openness, the outcome has been the adoption of a flexible approach that enables its members to pace their integration based on their state of readiness. For example, in March 2015, the ASEAN Banking Integration Framework was launched. It adopts a bilateral approach to banking integration. Countries can negotiate reciprocative agreements that would allow Qualified ASEAN Banks to operate in each other’s territory. The Financial Integration Blueprint also recognises the risks of financial integration as well as the need to ensure that all sectors of society benefit from financial integration. | 0 |
In the second quarter of 2008, core inflation indicators also showed an upward trend. The rise in core inflation in the second quarter should be viewed as a temporary movement arising from the exchange rate pass-through, rather than deterioration in the general price setting behavior. Ongoing difficulties in global credit markets coupled with domestic uncertainties have led to a depreciation of Turkish Lira vis-à-vis major currencies in the first four months of the year. As a consequence, first round effects of exchange rate pass-through BIS Review 100/2008 3 have been significant on the headline inflation as well as on core inflation figures during the March-May period. Yet, the recent rebound in Turkish lira and weakening domestic demand has limited the overall pass-through and consequently core inflation showed signs of easing in June. Currently, annual rate of increase in CPI excluding food, energy, tobacco and gold items stands at 6.4 percent, confirming that the inflation can be mostly attributed to factors beyond the control of the Central Bank of Turkey (Figure 5). Figure 5: Main Inflation Indicators and Policy Rates 18 18 16 16 14 14 Policy Rate H 12 12 I 06.08 03.08 12.07 09.07 4 06.07 4 03.07 6 12.06 6 09.06 8 06.06 8 03.06 10 12.05 10 H: CPI excluding unprocessed food, energy, alcoholic beverages, tobacco, and gold. I: H excluding processed food. | Our inflation forecast for mid-2011 is 5.4 percent. We expect non-food inflation to be lower than these figures. Figure 14: Inflation Forecasts* Forecast Range* Output Gap Uncertainty Band for 2008 End-Year Inflation Targets 12 Control Horizon 10 8 Percent 6 4 2 0 -2 -4 2011-II 2011-I 2010- 2010-III 2010-II 2010-I 2009- 2009-III 2009-II 2009-I 2008- 2008-III 2008-II 2008-I -6 Source: CBT * The shaded region indicates the 70 percent confidence interval for the forecast. To sum up, although economic activity in the past quarter have evolved in line with our expectations, the significant increases in oil and processed food prices have led to an upward revision in our forecasts. The main message of the forecast is that preventing the materialization of potential second round effects and ensuring a steady decline in inflation towards the medium term targets, requires the monetary policy to maintain a cautious stance for a while. BIS Review 100/2008 11 Therefore, the path for the policy rates indicated above should not be perceived as a commitment on behalf of the CBT. I would like to once more emphasize that any new data or information regarding the inflation outlook may lead to a change in our policy stance. 4. | 1 |
But since 1970, real gross private capital flows have risen by a factor of more than eight double the growth in world trade and four times the growth in world income. Rising capital flows have delivered huge benefits to the developing countries. Capital liberalisation, like trade liberalisation, has facilitated “catch-up” in the levels of income of these countries. It delivers a permanent, and potentially huge, welfare gain. The experience of the Asian tigers from the 1970s onwards, and before that of Germany and Japan during the 1950s and 1960s, is testimony to that. But large-scale capital flows also bring risks. Capital flows are not just large, but volatile too. The financial crises in Mexico in 1994, across South-East Asia in 1997, in Russia in 1998 and in Brazil last year are the most recent and visible examples. But the incidence of financial crisis has in fact been rising since the early 1980s. And the cost of financial crises are considerable. In the stricken South-East Asian countries, capital flow reversals and output losses were anywhere between 5% and 20% of GDP. In many of these cases, there has been encouraging evidence of a V-shaped recovery in output and asset prices following crisis. But the depth of the V is clear evidence of the potential cost of volatile capital movements. Capital markets have of course been prone to “panics, manias and crashes” for as long as they have existed. | Indeed, these investors may choose not to enter emerging markets in the first place - standstills would pre-empt the inflow rather than precipitating the outflow. But the behaviour of longer-term investors needs also to be weighed. They would stand to gain from country runs being forestalled. Their incentives to flee are thereby diminished. The net effect might be some change in the composition of the developing countries’ capital stock, with fewer fleet-of-foot, skittish investors and a greater number of longer-term, sticky investors. This change in capital stock ought to be advantageous from the welfare perspective. Third, might standstills worsen contagion between markets, the like of which we saw following Russia’s debt moratorium in 1998? Contagion appears to be a fact of life in a world of cross-border capital flows. The question is: would articulating a role for structured standstills worsen contagion? It is not clear that more coherent crisis-management framework would increase the incidence of standstills; it might reduce their cost. And to the extent that contagion is sourced in investor uncertainty, it might to some extent be mitigated by the proposals I have outlined. So, to summarise, there are good reasons to think that a world of structured standstills might alter investor behaviour and the international flows of funds. It is difficult, however, to believe that these changes would be damaging to the international capital market mechanism - indeed, some would clearly improve its functioning. Sovereign defaults will continue to occur periodically. | 1 |
One international example is the establishment of a European Systemic Risk Board (ESRB), where the governors of the central banks in the 27 EU countries will play an important role. The ESRB’s work will focus on analysing financial stability and the risks that exist in an EU perspective. With regard to straightforward monetary policy, the question is whether the interest rate decisions should take into account asset prices and credit growth with the aim of preventing bubbles from arising. An interest rate policy that takes such factors into account can be described as “leaning against the wind”. When there are signs that a bubble is building up, the interest rate is set slightly higher than would otherwise be justified by the inflation outlook and resource utilisation. What are the arguments for and against such a policy? Arguments against The prevalent opinion is probably that monetary policy should not be used to prevent bubbles arising in the financial markets. Three conditions should be met if one is to use monetary policy to prick financial bubbles: It must be possible to identify the bubbles, there must be tools to prick holes in them and pricking holes in them must provide potential gains. 6 A common perception has been that none of these conditions is actually fulfilled. It is very difficult to ascertain whether there is a bubble or not. Policy rates would certainly seem to be far too blunt an instrument to fine tune asset prices. | The expected policy rate 3 months ahead is based on STINA contracts combined with STIBOR T/N and the policy rate. Both this series and the rate on treasury bills are shown as 10-day moving averages. Sources: Nordea markets, the Swedish National Debt Office and the Riksbank. The right-hand panel in Figure 3 instead compares the rate on covered bonds with the expected policy rate.8 According to the portfolio balance sheet theory, purchases of government bonds can also push down rates on other bonds with similar maturities, such as covered bonds. But it is difficult to see any such effect in Figure 3.9 During 2015, the rate on covered bonds instead rose in relation to the expected policy rate. Later during the purchase period, the interest rate differential declined, but to approximately the same level as before the start of the purchases. What conclusions can we draw from these observations? First, we have already observed that the rate on short government securities was lower than the policy rate. This reasonably means that, although the policy rate was cut to −0.50 per cent in 2016, it was not at its technical lower bound.10 The Riksbank's asset purchases meant that two short market rates were established, the Riksbank's policy rate, which was still indicative of pricing in the interbank 8 Covered bonds are issued by banks and mortgage institutions and used for financing mortgages to households. 9 All this is in line with Krishnamurthy and the Vissing-Jorgensen (2011). | 0 |
Opting for the central bank as a national macroprudential authority can be warranted by the experience accumulated in the field, especially in the case of a dominant position of the banking sector, and by the possibility of a quick implementation of adopted measures (since the institution is responsible for identifying systemic risks and, at the same time, has available the macroprudential tools to put into practice the measures considered adequate). Some disadvantages of having supervision integrated in the central bank are manifest in this case as well, such as the backfiring of potential errors in the area (be they real or merely perceived as such by the public) on monetary policy credibility or a keener interest in politically capturing the institution as a result of the substantial rise in central bank powers. As Klaas Knot has showed more than once, the key argument in favour of creating a board is that it enables the pooling of the expertise of all financial market supervisors and of the government; the drawbacks would be more diffused accountability and the risk of delayed implementation of recommendations, given the involvement of several institutions. A prominent role of the central bank in the board (either by chairing it or through the number of members assigned) might mitigate the risk of inaction. | Dependence on one or a few products leaves the economy susceptible to external shocks. (vi) In the financial sector, the key lesson is that liberalisation of the industry is not tantamount to relaxing of regulatory and supervisory measures. In fact the legal, regulatory, and supervisory frameworks should be strengthened to deal with any excesses arising from entry of institutions with poor management or governance practices due to the attractive liberal environment. (vii) Legal and operational framework requires continuous reviews to remain relevant in this technologically fast moving world. Ladies and Gentlemen After learning the lessons from the past 40 years, the following are some of the challenges we have to confront: • Achievement and maintenance of price stability, i.e. low and stable single digit inflation; • Maintenance of a stable and competitive exchange rate; • Diversification of the economy and the export base; • Enhancing economic policy credibility. Policy reversals tend to undermine gains made in achieving macroeconomic stability; and • Sustained reduction of fiscal dominance (deficits) to contribute to low inflation, lowering of interest rates and release more funds for lending to the private sector. Turning to the question of where we go from here, I wish to state that all indications are that the economic outlook for Zambia, in the medium and long-term, is favourable. This is premised on the continued favourable performance of a few sectors, such as agriculture, mining and tourism. | 0 |
The same applies to outstanding government debt. Thus, since the start of EMU, investors have been able without any difficulty to borrow and lend funds in euro, and to trade their euro securities on the secondary market. Looking ahead, it is likely that over time international investors will start to hold a greater proportion of their portfolios in euro-denominated assets than they held in the former national currencies. In other words, the role of the euro as an international currency is likely to be greater than that of the sum of its components. One reason why this may be the case is that the economy and the financial markets backing the euro are large relative to the world economy. In this regard, one of the key elements influencing the international use of the euro is the creation of a large, liquid and integrated capital market in the euro area. As for trade, the existence of a large capital market will also encourage and facilitate the use of the euro in international transactions. In particular, many euro area exporters and importers, who did not previously use their own domestic currency for invoicing, may now take the opportunity to do so with the euro. The same tendency could gain ground in those countries that have close economic ties with the euro area or which have chosen to peg their currencies to the euro. This brings me to some considerations on the use of the euro in the official sector. | But the fact that the Eurosystem does not have an exchange rate target does not imply that we are indifferent to exchange rate developments or that we will neglect them. The exchange rate of the euro is monitored within the second pillar of our monetary strategy as a potentially important indicator for monetary policy. If its development poses a threat to price stability in the euro area, the causes of this development will be assessed and appropriate measures taken. With regard to the use of the euro as an international currency, the Eurosystem has adopted a neutral stance: we will neither hinder nor actively promote the international role of the euro, but leave its development to market forces. We observe that the euro is already second only to the US dollar as the most widely used currency in the world, ahead of the Japanese yen. In general, the international use of a currency is determined by several factors. Private agents may use a currency for international trade and investment, as well as for pricing and denomination purposes. In the official sector, it is used as an BIS Review 116/1999 6 anchor for exchange rate pegs, for holding foreign exchange reserves and for the conduct of foreign exchange intervention. The successful changeover to Stage Three of Economic and Monetary Union (EMU) played an important role in promoting the role of the euro. During the so-called changeover weekend, the bulk of bonds, shares and other financial instruments were re-denominated in euro. | 1 |
While consumer spending has held up well in the past two years, it is expected to gain momentum as the economic environment brightens. Consumption will thus continue to support growth, though it will probably cede pride of place to more cyclical components such as capital expenditure and exports. It will benefit, in particular, from the gradual improvement that will be seen on the labour market. At this stage of the economic cycle, of course, we must first expect gains in productivity, which means that unemployment will only decline slowly. Nevertheless, here too, the medium-term outlook is now good. The scenario for a recovery that I have presented is, needless to say, full of imponderables. The risks are everywhere. They may take the shape of an uptrend or a downtrend. We can thus not rule out the possibility that the international economy will show more robust growth than anticipated. A swift build-up of inventories, for example, would appreciably accelerate the cycle. But the downside risks could also be triggered at any time by new political disorders. Given the significant internal and external imbalances throughout the world, such unrest could fuel greater volatility on the currency and equity markets. The strength of the recovery is also uncertain. In the United States, the economic recovery, which has been driven largely by tax breaks, is not yet firmly in place; households, labouring under a heavy debt burden, may be frightened by the slow pace of job growth. | Ladies and gentlemen, at the end of my speech I declare the Ninth Conference on Payment and Securities Settlement Systems open, and I wish the chairman, Mr Michiel van Duveren and his colleagues, a successful Conference. Finally, I wish you all a pleasant stay, hoping that you will take with you nice memories of Ohrid, the city with thousands of years of history and beautiful nature that attract the tourists from all over the world. Тhank you very much for your participation in our Conference. 2 BIS central bankers’ speeches | 0 |
We will have a better internal base for making decisions. In addition, if we manage to succeed in communicating how we see the driving forces behind economic developments and also the objective and effects of monetary policy, it will also be easier for others to assess how new information will affect the future development of the repo rate. If it becomes clearer to the general public and financial market agents how we view future interest rate developments, this will give us better tools for influencing expectations of the future repo rate. By affecting expectations of short-term interest rates, we as the central bank can also indirectly affect interest rates with a slightly longer duration, which in turn increases the effect of monetary policy. As I said, monetary policy largely works by influencing expectations of future repo rates. When we based our forecasts on market expectations of the repo rate we could only indirectly express our view of the interest rate path by commenting on market pricing. For several reasons this was not very clear. One reason is that there is no clear-cut method for measuring expectations of the repo rate on the basis of market pricing. Different securities differ from one another with regard to duration, credit risk and liquidity, which makes the calculations complicated. Different calculations give different results without any of them being clearly better than the others. Another reason for the lack of clarity was that market expectations could change quickly. | The SNB has therefore emphasised the importance of diversification and limiting the concentration risks of our foreign currency investments. Today, 53% of the SNB’s FX reserves are invested in euro-denominated securities. This is in line with the share of Swiss exports to the euro area, and only five percentage points more than our allocation three years ago, though the size of our FX reserves, excluding swaps, increased from CHF 50 billion in 2008 to over CHF 225 billion by the end of September 2011. In order to promote further diversification, in 2010 the SNB added four new currencies to its reserves, namely Australian and Singapore dollars, Danish krone and Swedish krona. As a result, in addition to euros and these four currencies, the SNB’s portfolio is now composed of 26% US dollars, 9% Japanese yen, 5% pounds sterling and 4% Canadian dollars. Central banks generally have large holdings of government bonds due to their need for liquidity. As is widely known, in recent months the ratings agencies have been reviewing or have downgraded the credit ratings of many sovereign bonds. Despite this turn of events, approximately 96% of all our investments in fixed-income assets are rated AAA or AA. In closing, I would like to emphasise that we are actively exploring and monitoring new asset classes and currencies in developed and developing markets. The aim of this process is to continually reduce concentration risks and to further diversify the SNB’s FX reserves. | 0 |
This situation has nothing to do with the appeal of our bank secrecy, as many believe, but with the abundance of savings and the high degree of price stability. Since the introduction of the euro in 1999, the average interest rate on three-month Swiss franc deposits – 1.4% – has been less than half the rate for euro deposits. If Switzerland were to give up its monetary independence by pegging the franc to the euro or by joining the euro area, Swiss interest rates would increase to European levels. Since higher interest rates mean lower asset prices, lower levels of investment, and also higher mortgage rates, the Swiss are, understandably, not keen on giving up their national currency. A major decision of this kind would have to be approved in a public referendum in Switzerland; the prospect of EU and euro membership in the near future is thus highly unlikely. Conclusion Having chosen the option of free trade and free movement of capital, Switzerland is, in many respects, better prepared than others to take advantage of the greater opening of borders brought about by globalisation. To be sure, this is no easy ride, as international competition always necessitates painful adjustments, and Switzerland is no exception in this respect. Given our openness, we are immediately affected by a slowdown of the world economy. On the other hand, as in the current circumstances, we can take full advantage if worldwide business activity is healthy. When we take stock of the last few years, the bottom line looks favourable. | This is why I particularly want to thank Emilio Ontiveros for his dedication, not only in today’s book, to popularising these subjects among those not necessarily expert in the matter. b. Re-designing national policies Yet to attain their maximum effectiveness, improvements in global governance should be matched by national economic policies conducive to ensuring the benefits of globalisation reach all citizens. Indeed, while globalisation has general equilibrium aggregate effects that are admittedly positive, it may also have an adverse impact – as Professor Ontiveros states in his latest work – on specific sectors and groups. It is important to attempt to minimise these effects. Improvements in education and active employment policies providing for the readier redeployment of the unemployed are an essential element in this challenge. The impact of population ageing should also be prioritised by the authorities. Specifically, social insurance systems will have to progressively adapt so as to make sufficiency and intergenerational equity compatible, and for the sake of their own financial sustainability. Broadly, in the setting described, the greatest challenge facing public policies is the proper selection of instruments that may effectively attain the goals set and minimise the potential adverse effects. In this respect, public policies designed on the basis of the evidence available on their effects coupled with arrangements to regularly assess these policies will be crucial. Further, many national policies should be designed with international coordination mechanisms, if they are truly to be effective. | 0 |
An important lesson learned from the current crisis is that price stability alone is not sufficient to ensure financial stability. Therefore, financial instability or crisis can occur even in the environment of stable prices and well-anchored inflation expectations. This implies that to ensure overall economic stability, central banks will need to go beyond the primary objective of price stability and to systematically embrace financial stability as another policy objective. The relevance of this dual mandate has become very clear in the last few years, in light of the global financial crisis, implying greater roles and responsibility for central banks. The second implication from the global crisis is that, under the new globalisation underscored by more integrated financial markets, the major source of risk and instability that central banks will have to deal with to ensure stability will be external. Typically, this includes the impulse on domestic inflation from global prices, especially fluctuations in commodity prices. Another is the risk to financial stability steming from unintended consequences linked to the spillover effects of policies implemented by other economies. But for most emerging markets at this time, the most serious external risk is the challenges posed by large and persistent capital inflows. The first challenge involves a macroeconomic dilemma that centres around the tension between appreciation pressures, inflation dynamics, and growth prospects. The second stems from financial stability concerns associated with potential build-ups of macroeconomic imbalances, risk of asset price bubbles, and the possibility of an abrupt reversal of inflows. | Jean-Pierre Roth: The position of the Swiss franc exchange rate in the Swiss National Bank monetary policy strategy Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the University of St. Gallen, St. Gallen, 19 December 2007. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). * * * The exchange rate is an important factor in determining the domestic price level in Switzerland. Nevertheless, it is not a monetary policy goal for the Swiss National Bank and is only relevant insofar as it has an impact on future inflation. Our concerns about our currency's weakness should not be read as a hidden form of exchange rate policy but rather as genuine concern about future price stability. A sustained tendency to weakness on the part of the Swiss franc could trigger inflationary effects that – sooner or later – would have to be countered with monetary policy instruments taking the form of interest rate measures. In the medium-term, this could lead to a reduction in the interest spread between the Swiss franc and the euro. BIS Review 151/2007 1 | 0 |
So disturbances in credit and payment systems can be costly for society and the costs are not primarily the direct consequences that measures of support will have for government finances. The essential consideration instead is the costs that a collapse of credit and payment systems may entail indirectly in the form of decreased production and higher unemployment. When payments and the supply of credit do not function efficiently, the rest of the economy also suffers. That is the main reason why governments are more concerned about the bank sector than they are about other service industries. To appreciate what happens when credit and payment systems are disrupted, one can just take a look at what happened as a result of the financial crises that occurred around the world in the last two decades. There are, unfortunately, numerous examples that can serve as illustrations. The International Monetary Fund has estimated that since 1980, serious problems in the bank sector have arisen in three out of four of its 180 or so members. This has been case in the industrialised world, where one example is Sweden in the early-1990s, as well as in emerging markets. Bank capital bases relatively small There is a variety of factors that could be cited as possible causes of these disturbances. They include shortcomings in economic policy, inadequate supervision and, in many instances, poor risk management by the players themselves. But the roots of the problem go deeper than this. The basic issue is the financial system’s vulnerability to unforeseen events. | Claes Norgren will be talking later on about the proposals for new rules. I should like to acknowledge that the task of achieving such a far-reaching reform of the international capital adequacy standards is by no means easy. Quite apart from the exceptional technical complexity of the substantive issues, it is not always evident how the political and cultural differences that nevertheless exist can be reconciled. BIS Review 9/2000 4 I know that Claes Norgren’s international efforts have been most valuable and appreciated around the world. Permit me to conclude by congratulating the Director General of Sweden’s supervisory body on his successful work. 5 BIS Review 9/2000 | 1 |
This reduces the probability that a negative event will trigger a severe financial crisis. It is not optimal to be fully insured against crises because the insurance premium would be too high. But the financial crisis demonstrated that the imbalances ahead of the crisis were unsustainable and that they could have been reduced through regulatory improvements. The reason that this did not occur may be that the risk had taken on the form of several interwoven imbalances that no single authority had the power to correct. Banking and financial market regulation will be enhanced in Norway and abroad. The Basel Committee on Banking Supervision and the Financial Stability Board (FSB), as mandated by the G20, will soon issue recommendations for strengthening regulation of banks’ capital and liquidity management. In the UK, the regulatory authorities have already drawn up new banking regulation. A natural consequence of the financial crisis is that increased weight is given to ensuring system-wide stability and not only the stability of individual banks. Other important questions are whether systemically important banks should be subject to tighter regulation and how to reduce the procyclicality of bank behaviour. BIS Review 163/2009 3 Recommendations from the Basel Committee and the FSB will be examined by national authorities that will subsequently adopt new regulation. In a world with a global financial market, there are limits to how far a single country go it alone. International coordination is important for new regulations to have the intended effect. | The Chinese government was not willing to allow its currency to float freely and the exchange rate against the US dollar was managed. This disabled an important stabiliser and contributed increasing world trade imbalances. Long-term interest rates remained low in spite of substantial monetary policy tightening in the US between 2004 and 2006. International organisations such as the BIS, OECD, IMF and others noted on more than one occasion that growing imbalances in the world economy were a source of concern. But economic policy decisions are the prerogative of national governments. Given the policy pursued by China, there were probably limits to what monetary policy in Western countries could in reality achieve in terms of rolling back these forces. Increased private saving in the US and other deficit countries would probably have required monetary policy tightening sufficient to push up long-term interest rates. Alternatively, a substantial increase in public sector saving would have been necessary. Both alternatives would probably have led to an economic policy driven downturn. It is demanding to pursue such a policy based on the proposition that a crisis might occur in the future. Improved financial regulation would probably have reduced the severity of the financial crisis. Regulation and insurance have similar features: in most cases an annual premium must be paid in the form of slightly lower growth. This occurs because capital is not allowed to flow entirely freely to the highest yielding vehicles. In return, regulation can counter the build-up of financial imbalances. | 1 |
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